THE GIFT OF J.'^-....A..^.-.-CiSaA^ .£^2/... J..'..lA.Hl '.m^.. DATE DUE Cornell University Library HG2401.A3 H43 1893 Hearings before the Coitimittee on Banking Clin 3 1924 030 194 512 Cornell University Library The original of this book is in the Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924030194512 HEARINGS BEFORE THE COMMITTEE ON BANKING AND CURRENCY^ FIFTY-THIRD CONGRESS, FIRST SESSION. 18 9 3. •WASHINGTOTT: GOYEENMENT FEINTING OFFICE. 1893, COMMITTEE ON BANKING AND CURRENCY, HOUSE OF REPRE- SENTATIVES UNITED STATES. PII'TY-THIED C0K6EESS. WrLUAM M. Spkingek, Illinois, Chairman. Lewis Spehry, Connecticut. Jaaiks C. C. Black, Georgia. Nicholas N. Cox, Tennessee. Uiuel S. Halt., Missouri. Seth W. Conn, Missonfi. .Jc>.'^^^ I'rovided, That association under the laws of the State ^'^'^'^^J^'^,'''^"'''' Son, with the State there shall- first be deposited by such '^o^P']!'^^ ,°^, °^ ,™rSy the law of such treasurer or other safe depositary d««ig^'^^f;\f™ J'^trtelC the^solvent bonds of State, an amount of the lawful money of ^lie United bta.t(^6^^^^^ hundred per par value of such State, its counties, or municipalities eciual , "„ch corporation Centum of the aggregate amount of notes l-^^^^^l^^^^l^^: ^1,10 and held for the by the last preceding census ot the United btates. STATEMENT OF HON. WILLIAM C. GATES, REPRESENTATIVE IN ^^^^^^ CONGRESS FROM THE STATE OF ALABAMA. Mr. Oliairnian and gentlemen of tlie coinmittee : I wish to make a statement as indicated by the chairman, with reference to tms ouj, a'STtrast ttiat you will pardon me for saying something ontside ot t i bill on matters connected with our currency system. I have a oi dealto ™y against the system of national banliiug as it now pre- vaUs particularly hi some localities, and I hope I will be ab e to specify wl ich^uid wherehi. I want to say that I have no feeling ot opposition to ny s^^^^^^^ or institutions which are calculated to do equal and eveSufed good to our people, I do not care who originates them or where they fire located. If they are calculated to do good, I am m favor of thein. NATIONAL BANK CIECULATION. There is a bill which has been brought before you, and there is one in the Senate, to allow national banks to increase the amount ot their circulation up to the face value of their bonds, with the view to giving the country more currency. That is a good proposition, so far as it ffoes; bnt it does not go far enough. The law now allows national banks to issue notes up to within 10 per cent of the tace vahie of their bonds, and a large number of them only issue 25 per cent, because the law allows them to do so; so that it does not insure an additional amount of currency at all. Since the passage of the act of July 12, 1882 known as the extension of national bank charters, the practice of many banks has been to take out but 35 per cent of circuhitiou; so, unless the bill to allow them to issue up to the face value of the bonds repeals this and requires them to issue a greater amount, the bdl, if passed, would not increase the currency. Mr. Haugbn. Are you aware that some banks deposit bondsS without taking out any currency? Mr. Gates. Oh, yes, sir. I will give you a history of the matter, as I have studied it from the statutes and well-known facts to the country at the time the law was passed to establish the system of national banks. I am in favor also of another amendment to the law in reference to national banks. I make no war upon the national banks so long as they are useful to the people. In fact, in the discussmn with some of our Farmers' Alliance friends in the last campaign I took occasion to deny som'e propositions which they advanced about the banks. I have defended the national-banking system wlien it was right, and assailed it when it was wrong. Many of the Alliance lecturers and Populist BANKING AND CURRENCY. 7 speakers and many of their newspapers asserted that the United States loaned money to the banks at 1 per cent, while, instead of that, the Government imposes a tax of 1 per cent upon the circulation of the banks. Good business men are generally at the head of tJiese banks, but they are there for profit, and while honest, many of them are shrewd specu- lators and money-makers. NATIONAL BANKS, LOANING ON REAL ESTATE. There is a i^rovision in the law, which was probably wise enough when it was adopted, which does not allow them to loan money on real estate. That was intended as a matter of security to the banks — that they should advance money only on gilt-edged paper. The national banks are composed of private iudividuals; and it is their money, and you have to trust to their good sense for proper management. I have a bill here before you to allow them to loan money on i-eal estate to the extent of 50 per cent of its cash value. I think they ought to have that peimiission. The following is a copy of that bill, viz : A BILL to authorise national banking asaociations to loan money on real estate security. Be it enacted by the Senate and Sotise of Bepresentatioes of the United States of America in Congress assembled, That from and after t)ie apiiroval of tliis act it shall be lawful for any national banking association to loan or advance money to any person or persons upon real estate, secured by mortgage, not to exceed iu any case fifty per centum of tlie cash value thereof, at a rate of interest not to exceed tliat allowed by law to be taken by such associations; and the taking of any greater rate of interest for the loan or use of money as al:oresaid shall make the mortgage or other obligation for the repayment of such loan null and void. You have to rely on their good sense and judgment for proper man- agement, and would it not be a relief to the peoide in many localities? In my section the farming class are dependent for money on the secu- rity of the farm lands and the products of the farms. This bill, if a law, would be beneficial to the people, and enlarge the privileges of the banks. NATIONAL BANK CIRCULATION. Mr. Hall, of Missouri. Did I understand you to say that the law makes it compulsory on national banks to take out 25 per cent of their circulation ? It allows them to take out 90 per cent. Mr. Gates. Or only 25 per cent, as they see proper. Mr. Hall, of Missouri. I have a letter from the largest national bank in Illinois in which it is stated that they have never taken out a dollar of circulation. Mr. Haugen. There is no penalty attached to that. Mr. Gates. I have not investigated that. Mr. Gox. The law provides that they shall deposit bonds to the extent of 25 per cent of the capital stock. There is no obligation to do more. Mr. Gates. They should be required to do more. The Comptroller of the Currency allows them to take out circulation as little as 25 per cent of the bonds. Mr. Cox. They deposit the bonds. They are bound to deposit 25 per cent of the capital stock, but there is no obligation on their part to take out a dollar of circulation, unless they want to. Mr. Gates. I am not discussing that feature. If you allow them to take out the full face value of their bonds in circulating notes, that law 3 BANKING AND CUKRENCY. ougM to require tl>em to ta^ke out fO p- cent of f^^^-^jf^;:^,'^, boiads; alloNYiug them to take «"^tlie lace v.Jae ms^^^^^^^^ P ^^^^^_ should be required to do. NATIONAL BANKS, LOANING ON REAL ESTATE, USURY. Why give them all the beueflts and the people none? I ^^nk *hat amount of the Interest thus illegally taken Ml- TTatt Have vou ever heard 01 sucn a suit, . Mr" g™. Not o^ne. If you have a law, provide for its enforce^ nient' If Jl.e law be passedf it should be elfieacious. It ought to be in a shape where it would count for something. , .,, t om Ml Cox. I want to ask you a question upon that because I am iuti;stecl u what you say. Suppose I step into a bank with my note indorsed by pToper security. I offer that note to the bank for money. They do not treat that as a loan, but as a discount. Sr' Oo^Le? me^'c'all your attention to this point: How axe you going to regulate a bank as to the amount of its discount or shaving ^'Vr^'olTES. Under the law of my State, where they take illegal interest, even in discounting, it is usury. What I want to call attention to is that when you come to report a bill, there is one thing that ought not to escape your attention, and that is to make a provision against usurious interest that will be effective. If we have any law against usury it ought to amount to something. Mr. Haugen. Why should not the United States make a penalty to be subject to the laws of the States 'J Mr Gates. That would be equitable and satisfactory. Mr. Johnson, of Indiana. It was the purpose in denying national banks the right to take real-estate security to compel them to have uch paper as could be realized upon rapidlj. Mr. Gates. I remarked awhile ago, that that was it— to require them to take gilt-edged paper. It was done for the protection of the banks. At that time, the banks were comparatively few and the Government relied upon them to sustain its credit; but I do not think the limitation is at all necessary now, because there are so many banks, and we can trust to the good sense of the managers. They ought to be allowed that privilege, to risk their own money, with the limitation that they shall not exceed in loans 50 per cent of the cash value of the real estate. Let me illustrate that: Take a man who owns two lots in a town, and who has no money with which to improve them. Here is a bank, the ofacers of which know the value of the lots. If that man can mortgage those lots for 50 per cent of their value, he will erect houses which he can rent out. That would give an investment for the funds of the bank, give employment to labor, and it is an improvement by which BANKING AND CURRENCY. nobody is hurt, but many benefited. I think you can trust the managers of the banks; and, if you can not, they had better go out of business. The Chairman. How do you reconcile the inconsistency of doing bank business and loaning your deposits on long time on real estate, say five years, while your deposits are subject to immediiite payment on the demand of the depositor 'J Mr. Gates. That is an unjustifiable piece of business m banking. The Chairman. They have nothing else to loan as a rule. Mr. Gates. They ought not to be allowed to do it, unless they loan the depositors' money on short time and ample security. That is one of the reasons why so many banks became embarrassed m the late strin- gency. The bulk of their money belongs to the depositors, and they have been using it, and were not in a condition to give it to depositors when called for. There ought to be a law for the protection of depos- itors against that land of reckless business. The Chairman. The currency of a national bank is usually almost all invested in Government bonds which are on deposit in Washington, and upou which they get interest, and they can only loau the funds of the depositors. If they are allowed to loan the depositors' money out on long time, they could not be able to meet the demand of depositors on application. ■■,-.,, + Mr Gates. You can make a penalty for misdeeds, but you can not control the management of the affairs of the bank in the loaning of the assets. Let them have the right to take out the face value of their bonds and lend or use that. It is their money, and let the bankers lend their own money on real-estate security, if they see proper. Mr Cox Whencedoes the authority come to pass a law which declares that one thing may be securedfor a debt, and another thing, equally as valuable, shall not be? ' . ,, , 4. Mr Gates It comes only because these national banks are creatures of the Government, and Congress has the right to regulate them ; and it is right to regulate them. Gther corporations, created under State laws, independent' of Congress, we have no right to control by legislation further than to tax them. , . ,, • ,1 m,, Mr Haugbn. Congress recognized only certain things as banivaDie paper, and real-estate security is not recognized as such in the banking Mr Gates That is true, but I will show that the condition of the country absolutely requires it. Congress passed the law to euc(jurage national banks. The exigencies required such a law at that time, but now they should be made to conform to the commercial interests ot the country; they are no longer necessary merely to give value to the i^will now take a little while to speak about this bill, ISTo. 136. know that if the amount of circulation, according to the reports ot the Treasury, were all properly distributed, we would get along very well under it. I am one who believes that no country ever has too much good money. Owing to the operation of the laws m the course of business iu this country, the volume of money becomes centrabzed too much in banking, commercial, and manufacturing centers, and particularly so in certain seasons. Gur banking system is a wise one for the purpose which originated it, but it is a piecemeal affair m its arrangement and not well adapted to present wants. It needs more systematization. It takes a great deal of thought much effort and a lonff time to get Congress into a channel so that that can be done. Therefore we willhave to improve the law the best way we can, by degrees 10 BANKING AND CURRENCY. or stages. I Avaiit to see more good money in tlie country, especially in the agricultural sections, for certainly the Treasury reports show, and other tacts show, that money gets so exceedingly scarce m those States that it is absolutely oppressive. The practice of the farmers has been to get money advanced to them in the spring to enable them to make their crops. They have no money until the crop is ready for market and consequently cai i not repay the loan until then. When they wish to borrow the money, tliey go to the banks and the banks make them get the indorsement of a friend of high commercial standing and compel them to pay U or 2 per cent per month and sometimes more. It amounts to IS or 20 per cent per annum, sometimes higher, and sometimes a little lower. That is ruiuous to the farmers of the country. Nobody on a farm can afford to pay any such rate of interest. It is destruction. If we had more good money, although it were notes of national banks, and were to change our system, without making war upon our national banks but by improving the system the best way we can by adding to it and amending it as I have indicated, it would enlarge some of their privileges and benefit the people. But let us have State banks of issue which in time of need will give legal expansion to good local money and when the necessities pass away, there will be suitable contraction. STATE BANK CIRCULATION. l^ow, gentlemen, our predecessors in the South used to invoke States rights for slavery. That has passed away. ISo Southern man who is in his senses now invokes the doctrines of States rights for any such purpose. The doctrine now is useful to strengthen and perpetuate the Federal Government and to satisfy the people, for you have to do that in oi'der to i^erpetuate any system. The United States Government is so large in territory, population, and business that the Congress of the United States has become utterly incapable, legislatively, to attend to the business of the people which is claimed to be within its jurisdiction. Look at the 15,000 bills introduced here every Congress, and it has not the capacity to attend to one-third of that number. It may be that one-half of them are entitled to no particular action, but then you have 2,500 more than you can attend to. What are 5'ou going to do about it? It grows 111)011 us aIlnuall3^ We should return to the Constitution, which restricts tlie juiisdiotion of the Central Government and leaves to the States all the powers not delegated to the United Staitcs. It leaves to the State governments the right to legislate for the local wants of the people. Our present system brings contentment, if properly carried out, but not otherwise. It is consistent with other benefits, and it will perpetuate this Federal Government and make it, as it has been, to a great extent, a government for imitation by other nations in bestowing blessings upon their people. But grasp power and centralize it in the Federal Government and you take it away from tlie States and you strike down the possibility of their extending' benefits to localities, which they ought to have and which Congress can not localize its legis- lation so as to give to them, and dissatisfaction results. I say a judicious system of State banks will give these benefits, financially, to the people. For instance, you have a bank in a little town. The old responsible farmers are recognized by the banker. In the spring his money is gone and he wants" to get some advanced to enable him to pay off' his hands and complete his crop. The banker knows Mm and can advance him money. He can do it at the legal rate BANKING AND CURRENCY. 11 of interest, and tlie State will certainly regulate tliat and keep it withm reasonable bounds. The farmer gathers his crop, pays back the money ho has borrowed, aud also pays a fair return to the banker. In that way there is no unnecessary flooding of the country with money. Here is the national money in circulation ; we will not disturb that. You know something more, perhaps, of the history of banking than I do, but I will explain something to you fully in a moment. You know that a State has a right to charter banks of issue, and this tax has been piled upon the banking system of the States for its destruction, and it lias thus been destroyed. I would prefer, as a States rights man, that the State should have all the right it ever had before. I would vote to wipe out this tax in toto. But we have a good many members of Congress who say, with a good deal of confidence, " I do not want any wddcat money." They say the States would substitute for our present money the wildcat money, aud when you left one State and traveled into another the bills would not pass, but would be at a discount aud pro- duce great inconvenience. All legislation proceeds upon the principle of compromise and con- cession, and scarcely any man can have his own way about anything\ I am willing to defer to that objection, if I have to support a bill which 1 think looks somewhat to Federal supervision, as you may call it. In the minds of a good many, various claims have been brought up that the power of the Federal (lovernment should be exercised over any State system of banking. Some propose one method and some another. Some want the national-bank system extended to the States, but 1 think that is unnecessary. I have introduced this bill to meet the objec- tions of those who fear " wildcatism" and want of uniformity. As to the proviso contained in the bill, I am not particular about that, and it may be struck out; I thought it might suit some people. I mean the limitation to $5 per capita. , .. . ^, ^i i Mr. OoBB, of Alabama. Where do you get authority m the (general Government to exercise any control over institutions managed by State authorities! ^ ■■ -, c^^ ^ i i Mr. Gates. The Supreme Court of the United States has passed upon that. I do not agree with the court in its decision, and I will give you the reason. "The court held that the Government of the United States has a right to impose taxes, and the United States may have that ri pht : but the decision in the case of Veazie* is wrong, for this reason : Wliile the United States may have the right to impose a tax on everything, when it imposes that tax to such an extent as to destroy lawful State institutions it exceeds its constitutional authority. Mr Cobb of Alabama. If you remember the decision m that case, it was to tlie extent that it did have the right to destroy in that way. Mr Gates. The decision was that it was the exercise of the taxing power, which the court could not undertake to regulate; that that must be done by Congress. , . , -, , ^^-u + +-k„ Mr Cobb, of Alabama. The court never decided anywhere that the institutions under coutrol of the State authority can be controlled by the Government. •. i j, i +i,„ Mr Gates I said the decision was wrong when it destroyed tne institution; but Congress has the power to tax bank notes they say. Mr. Cobb, of Alabama. You propose to destroy the rules by which State institutions shall be governed? Mr. Gates. No, sir. ^ *Veazl6 BankDS. Feuno, 8 Wall. 533. 12 BANKING AND CUREENCY. Mr. GOBB, of Alabama. I have understood this law limited loans to 50 r)in- cent of the property that they loan money ori "? -,^-;^„«i Mr. Gates. That is another bill. That bill has reference to national banks of the United States. Mr. Cobb, Alabama. Is not that in this bill? -o^^^^oi Mr. GATES, m, sir; that is not here. This bil leaves the Fede al supervision in, but does not appoint a Federal tribunal. Why should the United States destroy State banks? This bill proposes to suspend the law agaiust the bills of State banking institutions which have depos- ited securities with some officer designated by State law for redemp- tion of their circulating notes. Who is to judge of their sutiiciency? Why the Treasurer of the United States. If the deposits for the redemption of the circulating notes were good they would not be taxa- ble- otherwise the notes of the bank would be subject to the tax. Mr. Cobb, of Alabama. Is not that governmental, now? _ Mr Gates. The tax would be suspended by the Federal authority m certain cases, wherever the bank had made the deposit according to law. The Secretary of the Treasury can look to see whether the deposit is such as tlie law of Congress provides. Mr. Cobb, of Alabama. Would not that be a question of govern- mental control ? -, J., . , • Mr. Gates. It is a limitation. I propose to suspend that tax m a certain class of cases. Personally, I am in favor of wiping the whole thing out; but suppose it can not be done because of opposition to it among the members of Congress? Am I going to stand in the way of getting anything and get nothing when I can't get all I want and I can get half? Mr. Hall. This is the reason why you use the word " suspend " in- stead of" repeal?" Mr. Gates. Yes, sir; while I would rather have "repeal," I think if you pass it in this form, though the bill is not perfect, it would be a source of great benefit. Tlie CiiAiiniAN. I want to ask whether yon object to having these bonds deposited with the Treasurer of the United States? Mr. Gates. No; but I do not see any necessity for it. The Chairman. Let him pass upon their sufficiency? Mr. Gates. I have no objection to that, exce].it that it is not neces- sary; and, in the case of a failure of the bank, the bonds ought to be within the State. The Chaieman. You concede him that right? Mr. Gates. Yes; but that would be more centralizing. Mr. Waenee. Is it not your inteution to compel the approval of those bonds to 1je in the hands of United States authorities? Mr. Gates. Necessarily the Secretary of the Treasury must see if the notes of the bank are taxable or nontaxable, and to do that he must pass on the solvency and sufficiency of the deposits; if they are deposited Avith the State treasurer, your bank examiner, or anybody authorized by the Secretary, can go and look at them and pass upon them. Mr. Waener. Being an exception, it would require, unless there was some piovision to the contrary, that the United States officer should pass upon them? Mr. Gates. It would not be necessary for United States officers to look at them before the bank begins business. Under this bill they could be deposited with the State treasurer while the bank issues the BAJNKiJNU ajnD currency. 13 bais. The TJnited States Government officer could examine the securi- ties after-wards. Mr. Warner. As this bill is now drawn, not as a consequence ot the bill, but as a consequence of the present legislation, it only sus- pends the law in part, and the result would necessarily be that the existence' of the tax would have to be passed upon by the State and Fed- eral Governments. ,,.-,, ,j . i -j. Mr. Gates. As a matter of course, but that would be easy and it would be safe to the bill holder. , ,^.„ Mr. Cox. Now, you say your idea incorporated m that bill, so tar as taxation is concerned, is that when a State institution does certain things this taxation of 10 per cent levied by the Government shaU be suspended? Mr. GATES. Yes, sir. ^i ^ . Mr. Cox. If you leave it to the State officer to say when that taxa- tion sball be suspended are you not putting it in the power of the State officer to suspend taxation of the United States Government ? Mr. Gates. The bUl does not do that. Mr. Cox. The Government would necessarily inquire as to the suffi- ciency of the security deposited? . i at, Mr'. GATES. It would, as long as the taxation remained under ttie Federal authority. , , -u i Mr. Cox. Would it not have to be passed upon by, or be under the supervision of, the Government"? Mr Gates. Yes. Let me illustrate the working of this, lake my State, because its affairs are more familiar to me. Alabama owes $10,000,000 bonds in classes A, B, and C, the largest being class A bonds They are all at par, and sometimes above par, and bearing 4 per cent interest. I happen to know that one-half of those bonds are owned in the city of Mobile. About five million of them are owned there, and about two and a half million are owned elsewhere withm the State If you pass a law like that, is there not inducement to anyliody who owns bonds to engage in banking? There is, most certainly. The legal rate of interest is 8 per cent. If you gentlemen were citizens ot my State and owned a lot of these or other good bonds and desired to organize a bank you would obtain your charter from tb<3 State, deposit vour bonds with the State treasurer under State law, say $100,000 worth of those class A bonds to secure $100,000 of circulation under State law. The bonds could be sold to redeem the bills and thus make them always good to the holder. That is similar to what is now done under the national banking system. The national-bank examiner would go to the State treasury and examine those bonds; he would know t^^e market value of them, and would report that the bank had $100,000 of class A bonds, which are above par, and was all right, and tJiat tne bills or notes of the bank were not subject to the 10 per cent tax. Mr Cox. The Secretary of the Treasury must say they are all rigtit, and could instruct that the tax be suspended. Mr Gates. It is not necessary to say that. This bill, it a law, says that, "and the people who hold the bills would be safe. If he finds that any of the banks are issuing money without proper security, according to the law of Congress, the Secretary can proceed to collect the tax through the collector of internal revenue or any other officer or agent of the Treasury. -^ . .■ „-, Mr HALL of Missouri. Does not that create a necessity for a national- bank'examiAation system for State banks, to see that they keep proper security? 14 BANKING AND CURRENCY. Mr. GATES. We liare that already for national banks, and tlie num- ber of examiners could be increased if necessary. a4- ^-^'hn.^^r^1 Mr. Hall, of Missouri. You would extend tliat to the State bants l Mr Gates. Yes. It would work like a cliarm. Mr. Hall, of Missouri. Will you explain where you would place cue limit of circulation for such banks"? +i „+ „„>> Mr Gates. 1 would not make one line of legislation on tliat siiD- iect " The United States Treasurer or Secretary knows it is his duty to have that tax coUected, if it is subjected to taxation, and we need no legislation on that subject. My bill is very simple, but it goes as tar as legislation on this subject should go. _ ^ c^- + Mr. Hall, of Missouri. Your bill regulates the circulation ot btate banks! , -rj i i j. -t-u Mr. Gates. Yes; but you can strike that out. It only regulates the aggregate amount of bank circulation in a State limiting to $5 per capita merely to satisfy some objectors. You might put m a clause requesting the State to make a report as to the number of State banks of issue, etc., within its jurisdiction. In that way the Secretary of the Treasury could easily get that information. As this suspends a rev- enue measure you might require a report to be made by each bank to the Secretary of the Treasury. The Chairman. How will the Government of the United States know that? Mr. Gates. You might require them to report. You could get it in that way just as well as the Secretary gets other information. Mr. Cox. There is another bill involving that question. The Chairman. The idea in the other bill is that these bonds that you have provided for here may be deposited with the Secretary of the Treasury, and the circulation may be issued on them by the Sec- retary of the Treasury just as he issues upon United States bonds now to the national banks, but it goes to the extent of 100 cents to the dollar. If the Federal Government has to have any supervision over these banks why not let the bonds of these banks be deposited with the Treasurer of the United States, subject to the same provisions as national banks are? Mr. Gates. There is only one difficulty about that. When the dif- ferent States come to make laws that deal with the question of State banks they could not wind up affairs of a bank in case of failure if the deposit was with the Treasurer of the United States or with the Secre- tary. I do not know what power a State would have over the bonds in that case. The State might desire to sell the bonds to redeem the bills of the bank. The more complicated a bill is the more difficulty we will have in passing it, and a greater number will make objection to it. If you can reach an objector of legislation with the simplest .kind of a measure, that is best, because it is easily explained and understood. While I would hke to have the tax wiped out entirely and have the States free, yet I«*would like to see uniformity in our currency and per- fect soundness. Therefore that is the reason I have gotten up this bill, to meet the objections which might be raised to the revival of the State system, and to try to popularize it. If a man has both hands in the lion's mouth he would like to have one free in order to help him to get the other out. He has a chance to do that by this bill. If you win bear with me I will give you a history of the national- banking system. Mr. Cox. Before you proceed with that, will you explain what secu- rity the bill holder and the Government would have against the sub- BANKING AND CURRENCY. it) stitution, after tlie first bonds had been filed, of other bonds whicli might be of less value and perhaps be below par, which would destroy the security? Mr. Gates. It could not well be changed, because, if the law of the State tolerated the withdrawal of its bonds and the substitution of others which were not good, the United States could and would resort to taxation. There would be as much protection as the holder of the national-bank bill now has. Mr. OoBB. In the meantime, these bills are in the hands of the peo- ple. , , , , , Mr. Gates. They would all be secured. There would be the ma- chinery for redemption and disposal of the bonds for that purpose. I do not think it would be necessary or wise for Congress to do that. Every State would have a deep interest in providing a law for having solvent banks. It would give a State a bad reputation to have shyster banks playing tricks ui)on the people; and, if a bank did not sustain a good reputation, it certainly would not survive. Mr. Cobb, of Missouri. Has Congress a right to pass laws to govern State institutions? . -, ^ ^ c^ ^ Mr. Gates. The Federal Government can not legislate for a State. Mr. Cobb, of Missouri. How can it legislate in this case? Mr. Gates. By suspending Federal taxation which has been imposed upon the State banks. It is withdrawing its own heavy hand so as to give the State banks a chance. Mr. Cobb, of Missouri. Then the Government would have no control over them whatever? , , ^ „ , Mr. Gates. I stated that freedom of the State banks from aU tax would be my preference; but, if you can not get the whole of that, why not take part of it. , ^n • ; , • • Mr. Waener. Do I understand you to say that there is nothing m this bill which would permit a bank to issue a single dollar, except in accordance with such laws as the State can enact? Is it not a fact that this is simply a definition of the extent to which the Federal Government shall Avithdraw the pressure which it is now exercising, and does it m any way modify the restriction, regulation, or limitation which the State may put unon them ? , ^ cj. . tj- • i Mr. Gates. It dictates nothing in the world to a State, it simply extends to the State an opportunity for having State banks, freed from Federal taxation. c. ^ -, ^ ^ -u- i, Mr. Cobb, of Missouri. It would repeal the State-bank tax, whioti is all Congress has a right to do? . -, ^ ^ ^ * Mr. Gates. Yes, sir. I suppose Congress has a right to put a tax on anything. The bill makes Government say to the State banks, " I vou will do certain things, I will take this tax off of you m conse- quence V That is it. We have a tax which the Supreme Court has sustaiued. I think it is wrong in at least one respect. Mr Cobb, of Missouri. This repeals certain restrictions? Mr Gates. It simply suspends that tax, wherever a State author- izes a bank of issue and provides for redemption of its notes as indi- cated in this bill. , , . , . , The Chaieman. This regulation that you make, or exemption which vou provide, is in the interest of the bill-holders, so that when the notes are in circulation they can be redeemed and the bill-holder loses nothing? Mr. Gates. Yes, sir. . . The Chairman. What is your objection to gomg a little farther and 16 BANKING AND CUKKEJNUY. requiring these bonds or lawful money of the United States to be deposited with the Secretary ot the Treasuij and to be held by him always as security for the bill-holder, so that if the bank should fail the Government could redeem the bills and under no circumstances couici the bill-holder lose his money? . ,, ^ ^^_„„ Mr Gates. It would be complicated and would require the Govern- ment to hold the bonds for the redemption of the bills of a great many State banks, which would be State's business and too centrahzmg m its tendencies. The Chairman. That makes them perfectly sate l Mr GATES. With the tax hanging over the banks all the tune, the redemption would be safe, and the Government should not take the responsibihty of attending to redemption in case of failures. I thmk there is sufficient protection under my bill to all parties, and the bills of the banks of the diftereut States would be good throughout the TJnion. The Chairman. You concede that Congress may make the other pro- vision, if it sees proper to do so? Mr. Gates. I suppose it might. It has the taxing power. The Chairman. To the extent of relieving the banks, which would deposit securities with the United States? Would not that be an improvement? Mr. Gates. It would be a complication. You would find, when you undertook to pass a bill with such a provision, that men would get up in the House and say: " You have no right to do that in my State." The Chairman. If the General Government wanted to regulate a State institution, all it would have to do would be first to tax it and then relieve the taxation by a suspension? Mr. Gates. Tluit power has been in existence ever since the Consti- tution was adopted. That is the law by which they tax whiskey and brandy; and can not the Government say to the State: "We will relieve you of this under certain conditions"? The Chairman. The inconsistency seems to be that you admit at the outset that the Government of the United States has no right to interfere with State institutions by way of regulating them. Mr. Gates. ITot in the way of regulating. She has the right to tax, under the revenue i)ower. The Chairman. In order to regulate it, would not the logic of your reasoning be that the General Government would have nothing to do, except in the first j)lace to impose this revenue tax, which you say is constitutional and legal, and then propose to the States to relieve them of the taxation upon compliance with, certain conditions, which would amount to regulation? Mr. Gates. That power exists. It is to be trusted that Congress would not exercise it in any improper cases. I think it was the exigency of the times wliich caused a tax to be imposed upon the State banks. I think it was an abuse — a shameful abuse — of the taxing power to have laid it so heavy as to destroy the State banks. But the power to tax them for revenue is undoubted. Mr. Johnson, of Indiana. I wish you would go into the subject of what would be the principal inducement to go into business under this law, and indicate the manner of it. Mr. Gates. I thank you for that suggestion. I had given part of that reason when I was interrupted. I said that a few men, for instance, would come together, put up $100,000 of Class A Alabama bonds, and deposit them with the State treasurer, those bonds being above par. Of course the bank examiner or oflicer of the Government BANKING AND CURRENCY. 17 would enter the bank and see that the bonds were all riglit. If so, he would report a suspension of the tax; therefore it would not be imposed. As to the inducement that there would be to go into the State banking business, I say these bonds would bear 4 per cent interest, and would not be taxable. They are held now in the States because they are good investments. Banks lend money on them over the counter at 8 i^er cent. With the additional 4 per cent, that would bring the rate up to 12 per cent on every dollar issued and loaned or paid out by the bank, and that would be very profitable. Mr. Johnson, of Indiana. Your idea is that national banks would cost more and would be less profitable"? Mr. OA'J'bs. The national-bank system is not sufficiently extensive and liberalized to meet the wants of the people and the large class of farmers at particular seasons of the year. The national banks are hampered and can not loan on real estate securities and the growing- crops of different kinds and the State banks could. It would be a great deal better to have them in this form, so that we could have State banks of issue, and if that were tlie case we would hear no more of these clamors for money and of its scarcity. I want money both plentiful and good. Mr. Warnbe. I want to ask also if it would not be an advantage in this way: It would create an additional market for State and local bonds, and it would also retain them in the State primarily, at least, for use in their development, and the annual interest charge paid upon these bonds would be paid to the people of the State, instead of being sent to congested money centers? Mr. Oates. Yes. That is quite true — a good suggestion. Most of the national banks in the South are not able to furnish sufficient cap- ital. Their usual capital is $50,000 or $100,000. They sometimes bor- row money from New York to loan to their customers. A State system is sufficiently profitable so that men would go into it to meet this demand for money. We would then have State and national banks, and we can not have too much good money. Mr. Warner. Is there not another benefit! I think it is this: You have referred to the extraordinary demand for currency in parts of the country of which you have spoken at certain times of the year, and the extraordinary small demand in those same sections at other times of the year. Mr. Oates. The demand for money in the fall and winter down in the South is mainly on the part of merchants to pay for the crops. Mr. Warner. Following the same line, is it or not a great advantage of the system which you propose that it allows that currency promptly to be supplied and iised on securities which are in the State and as investments are now at a disadvantage; and they would be used in the State instead of being compelled to seek new places of investment; and also in extending the currency? Mr. Oates. There is no doubt about that. It is quite true. I could talk two hours on these things. What do we want with gold and silver? There is a big field for this. We have no use for gold and silver except to pay trade balances, to maintain our foreign system of ambassadors, ministers, and consuls, and to furnish the basis for home circulation and redemption, for I do not believe in fiat money. I know of no use we have for gold and silver, except these and for use in the arts. By passing this bill we practically convert the solvent bonds into gold and silver, because they are the basis of our circulation. It broadens and 940 -2 Ig BANKING AND CURRENCY. extends the basis of paper circulation and is worth more to the country '^Z^^'Z^^ou adu.it there is some difficulty with silver as a ^"Z mSr'!^s" but I have stated that gold and silver were uec- i£^^Hfe,;SttSS^:s-eS^ '' m hIS of^ssouri. In other words, it is its convertibility and not its security that makes money good. l^-f■^^- t h.;,vp hpre a Mr GATES. There must be some security back of it. I have heie a shc.rt historv of national bank legislation, which 1 will read, ^t. cox. Before you do that permit n,e to -^ /--^.^^S^ree' You take a bond of the State of Alabama, or the ^tft;\ f J/^^^f^,*^*^ and deoosit it It is drawing 4 per cent interest. That inteiest is paia tw cwear Now, you com'e to the bank and get 100 cents on he dol- llr by depositing these bonds and you go into business. You take that monJy ai d loault out at the legal rate of interest to make more money ^the rate in Alabama being 8 per cent and that m Tennessee being 6 per cent-and then you turn, through the tax system and pay to the bondholder 4 per cent more. Do you think that is ngl^t ! Mr GATES. My dear sir, do we not have to pay that 4 per cent now? Mr' Cos. I concede that ; but I am talking about the.iustice ot it. Mr Gates. If the farmer can get his money at a legal rate ot inter- est instead of paying double the legal rate is it not benehcial to him ! Would he not like to have all the bonds which he can get and upon which he can go and borrow money at the legal rate ot interest' ihe State pays so much interest on this money. If you have a bond you are eoing to collect the interest on it, and the bond lies there Ihe bank deposits it as security and gets bills which it loans to the farmer at the legal rate of interest. Mr Waknek. Would you not leave it to the gentleman from len- nessee to suggest that the Government impose a tax on the banks to make them pay for this? ^ -, -^ -, Mr. Gates. Whatever the Government has the power to do it caw ao. Yes, I would leave it to the gentleman from Tennessee. The Chairman. What ob.iection have you to putting in this bill a requirement that banks shall take no more than the legal rate of inter- est in the locality"? , ^i ^ ,-, . ^1 Mr. Gates. I do not think it is necessary, and that would be the State/'s business. We are sometimes influenced by what States may do. If you ha\'e no confidence in the capacity of the people of States to govern themselves this Federal Government is a signal failure, and you had better have it changed and get a king or an emperor. The Ghaieman. As I understand you, the farmers are compelled to pay 3 per cent a month? Mr. Gates. Y^'es, from 1 to 3 per cent. That is because they can not get money any cheaper. The law does not regulate that. The Ghaieman. You are furnishing them additional means of get- ting money, and why not accompany it with this restriction? Mr. Gates. Because the State legislature would not let them take any more than a reasonable rate. They would not allow banks to charge or receive for the use of money more than the legal rate fixed by the State law. I have confidence in the States and in the American BANKING AND CURRENCy. 19 people for self-government. As long as the State governments are to be relied upon this Federal Union will go on and continue to be the best nation on the face of the earth. Mr. Spbrry. Your bill does not contemplate any State control whatever '! Mr. Gates. ]Sro, except by State law. Mr. Sperry. This is the only question to be passed up(in. Mr. Gates. The tax would be the only one for the Government. I do not want it to do much. I want Congress to do as little as possible. Leave all else to the States. Mr. Spbrry. Would you provide in this bill any way in which a per- son, taking a State-bank bill, could tell whether it was a national- bank bill or a State- bank bill? Mr. Gates. As a matter of course a person could tell. There could be no object in confounding them. Mr. Sperey'. This bill says nothing about that. Mr. Gates. It would be just like the national-bank bill. There are no two national-bank bills alike. Mr. Sperry. We know they are all national-bank bills because the , word appears upon them. Mr. Gates. The State would not perpetrate a fraud. There would be no trouble on that score. Mr. Spbrry. There is nothing in this bill to prevent it. Mr. Gates. No State is capable of doing that. Mr. Sperry'. I do not know whether they are or not. Mr. Gates. I have more faith in the States than that. The Chairman. You say they charge your people 18 per cent a year interest, and they might do other objectionable things'? Mr. Gates. That is not done under the law. National banks do that sometimes. Yoir can not prevent violations of law except by punishment. Now, gentlemen, let me give you a short history of the origin of State and national banks as well as of this 10 per cent tax on State bank circulation. history of state and national bank systems. A financial plank in our platform is the declaration in favor of the repeal of the l(t per cent tax on State bank circulation. There were four State banks in existence when our Constitution was formed. The framers of that instrument were therefore familiar Avith the existence of these banks and the circulation of their pajier money. They were also familiar with the practice of the States at that time to issue bills of credit, which were intended to circulate as money, and seeing that evil might flow from this practice they embraced in the tenth section of the first article the prohibition that "no State shall emit bills of credit," so as to put a stop to that jtractice, but they did not employ any language to. prohibit State-banks of issue; but to guard against any abuse of State money issued by the banks they provided that no State shall "make anything but gold and silver coin a tender in payment of debts." Thus bills of credit were abolished and the paper money of State banks allowed to continue as the only paper circulation and the only currency at that time except gold and silver. It took away from bank notes any cohesive circulation and let them stand alone upon the credit of the banks. The question of their constitutionality and their right to issue bills to circulate as money was never raised until the case of Briscoe vs. 20 BANKING AND CURRENCY. The Cominoawealrh of Kentucky (11 Peters, p. 237), where the Supreme Oourt of the Uuited States held them to be Pe^fe'^t/f, /i^f. i^, oMer ''Z^^r^t;=iy the lifted States^p.. Stat, l^^s or ^7u t'ss IX mVof July, 1861, tiodiug these au i^n-a-ut arnou^^^^ for the conduct of the war then ""P^^^^fnig, i^^seA an act f^ ^^^ ance of $50,OtMt,000 of the Treasury notes of the United States payaDle on demand in coin, which, February 12, 1862, they mcreased to *60,^ 000 000 The notes of the State banks being redeemable i'' com, the demaids for ;hich were so g-at, a.d they ha.nng issued thc.^ for the most part in the proportion of $3 outstanding to .%1 of ^o>» their vaults, they suspended specie payment. I' ebruary 1-, 180^, Oon IresslCo-^d somewhat the cl/aracter of its notes, giving them the name S Un' ted^States notes, and made them payable to ^^^a^^^' ^^^l^^^^^^^^^ the amount to $150,000,000, which was by subsequent acts mci eased to $450,W0,000. These were,'uutil after the close of the -^r, .co.ivertiWe into -ind received at par for Government bonds payable in com and beariS c^'iu mterest at 5 per cent, and the law also declared the notes to be lawful money and a legal tender iu payment of c|*^t)ts. But the war was progressing and the thunders of the^artiUeiT were heard in the Valley of Virginia, at Fair Oaks, Seven Pines Meadow Bridge, Frazier's Farm, Malvern Hill, Cedar Eun, Second Manassas, Ox Hill, Antietam or Sharpsburg, Fredericksburg, at Shiloh, and many other places iu the West, where men who wore the blue and the gray met in sanguinary conflict and caused to flow torrents of the best and bravest blood that ever coursed in the veins of men ;whilejictory trem- bled in the balance and was frequently upon the side of the Oonteder- ates, the Government of the Uinted States found its credit sinking and its bonds selling away below ]iar. , ,, ^^ <- i • i . .ii^^ It was a crisis in the monetary aftairs ot the Government which called for the best brain to be found in its citizenship. It was at this time that Orlando B. Potter, of New \ ork, wrote a let- ter to Salmon P. Chase, who was at the head of the Treasury Depart- ment suggesting the scheme of establishing a national banking system. Chase called Potter to his assistance, and from their great brains was evolved the substance of the national banking law which Congresspassed on the 25th of February, 1863. That law allowed any four citizens of good character to invest their money in Government bonds, deposit them with the United States Treasurer, receive a bank charter and have issued to them at their expense 90 per cent of the face \-alue thereof in bills of their bank for circulation. Many privileges were granted to them by the terms of the law to induce capitalists to engage in the business. , , ■ - . It had the desired effect. It created a, market for the bonds; it sent them up to par, and above; it restored the credit of the Government; it infused into its financial system the strength of the irrepressible giant. But for this restoration of credit the Government would, ere long, have been forced to have acknowledged the independence of the Confederacy. As one of the means to encourage the system and strengthen the Gov- ernment in the act establishing the banks. Congress for the first time imposed a tax upon currency, and placed 2 per cent upon that of its own banks, and, by the subsequent act of March 3, 1863, a tax of 1 per BANKING AXD CUKRENCY. 21 cent aiumally was imposed upon the circulation of State banks, meas- ured by their capital. The tax on the national-bank circulation was then reduced to the same rate, where it still remains, and produces more revenue than the Tiational banking business costs the Govern- ment. The State banks continued to issue money and do business until the act of March 3, 1865, placed a tax of 10 per cent upon any national bank or State bank which should pay out, after the 1st day of July, 1806, any of the notes of State banking associations, and this was amended and enlarged in July, 1806, so that the- payment of the tax of 10 per cent on State-bank notes was unavoidable and wrought the complete destruction of those institutions in the interest of the national banking associations. An additional tax of 5 per cent per annum was imposed by the same law upon the dividends of stockholders, and an additional tax of 1 per cent upon deposits, which has since been repealed. This act was inspired and induced by them in their own interest, that they might furnish the main volume of x>aper circulation for the entire country. J he act was passed by Congress under its taxing power and under the pretext of raising revenue, when it was simply for the destruction of the rivals of the national banks. Not a single dollar of revenire is ever collected on State money. It was destroyed by the act. Yet a majority of the Supreme Court of the United States in 1869 held, in the case of the Veazie Bank vs. Fenno, in 8 Wallace, that although tlie tax was so great as to destroy these lawful State corporations, that it was not within the jurisdiction of the court to protect them, and that they must look alone to Congress. In the language of Justices Xelson and Davis, in their dissenting opinion, the purpose of the law is said to be " scarcely concealed in the opinion of the court, namely, to encourage the national banks. It is sufficient to add that the burden (jf the tax, while it has encouraged these banks, has proven fatal to those of the States; and if we are at liberty to judge of the purpose of an act from the <;onsequences that have followed, it is not perhaps going too far to say that these conse- quences were intended." Is there any fair-minded lawyer present who will risk his reputa- tion by asserting that the decision of the majority of the court is good, sound law," and should be sustained? It amounts to asserting that Congress may, under the pretext of its taxing power, destroy State corporations, and destroy an ancient institntion and legitimate State business. The national banks, having thus slaughtered their rivals, grew in importance until they had in circulation in 1880 and 1883 more than $380,000,000. When the Forty-sixth Congress passed a law requiring them to surrender their bonds bearing a high rate of interest and accept new bonds bearing 3^ per cent, at a time when the people of the United States were paying ^in the aggregate of interest on national bonds more than $60,000,000 per annum, the banks, before the lapse of the ten days which the President had for the approval of the bill, by a combination surrendered $18,000,000 of their circulation and threatened to surrender much more, which was likely to produce a panic, and in this way they compelled President Hayes to veto the bill. In the Forty-seventh Congress, when the banks asked for an exten- sion of their charters without reorganizing, it was granted; but these Samsons were shorn of many of their locks by way of amendment to that bill. They Avere required to exchange their bonds for new ones 22 r.ANKING AND Cl'RKENCY. bearina- l.ut 3 per cent interest, wliicli saved to tlie people "'i'^J "^i^'^'i^ ot'lollirs h. taxes; tl.ey m^re also subjected to ^^^^^ ^^^Z^ like State corporations; tliey were required to gne t^^^.^^^/ ™^°r thf^heuefltof the losses and destruction ot tlieir old notes to paj loi the pihitins of their new notes, and to accept silver certiticates m j^ay- S^ o?SS,g-house balances, and that by -« /ombina ion^.^M they thereafter surrender iu any one month more t^'^n *.3,000,OOU ot their circulation. Thus their extraordinary I'^'i^l^g^^^^^V" ^f^*,-^^ tailed, but still they retained the powers of ««"*/' ^'f «?J,''tn.ereTts b^ which they can use to the frightful detriment of other interests by making circulation scarce at their will. „ „„ „-f o laro-a A few years subsequent to this legislation, m consequence of a large sun>lus aSumulatin^ in the Treasury the policy -a. adopted and pur^ sued for a good while of purchasing Government bonds, aiid m that way senclinl;- the surplus in the Treasury back into circulation among the people.'" It had the effect of increasing the premium on the bonds ' up to 30 per cent. The banks obtained an enactment by Congress that they should not be required to take out a circulation of more than 25 per cent of the face value of their bonds. Many ot them then took advantage of the high premium on the bonds and sold a large portion of them, and by these methods reduced their circulation clear down to ' $160,000,000, which sent throughout the country a tremendous outcry of the scarcity of money. They so contracted and centralized that cir- culation that it aided in reducing prices of farm products and caused the Farmers' Alliance to demand an increase to $50 per capita. Ihere is a bill now before Congress to allow these banks to have bills issued up to the face value of their bonds, which I favor,, provided it is so amended as to require them to issue currency equal to 50 per cent ot their bonds, and thus benefit the people as well as themselves. The national banks of our country are in the mam conducted by gen- tlemen of high character and ability, though selfish m interest like all other men in business. They see and know full well that it the United States pays its bonded debt when due, as it has done hitherto, that they have at the most but fourteen years of existence. In the Southern States and partially so in the Western States, these institutions are so few and their capital so limited that their power for evil is compara- tively small; but in the great money centers of the North and East they'exercise a most potential in^uence over all other financial atf airs, and exercise no small degree of mfiuence over the legislation of Con- gress. Last April these banks iu the city of New York applied to the Sec- retary of the Treasury for the sale of at least •$300,000,000 of Govern- ment gold bonds. He Avas finally induced to offer a portion of this amount upon short time, which tliey utterly declined. They desired the bonds to run a long time and to bear a good rate of interest, so that they might use them as a means of enlarging their power and perpetuating their existence. I commend the Secretary for decdining to comply with their wishes. AVhen the Secretary thus refused the demands of the New York bankers they at once declined to exchange gold with the Government for paper currency, and so continued< until several banks in Chicago and the West exhibited that liberality. Then the banks of New Y'ork ado])ted a liberal policy of exchanging gold for notes, not only with the Government, but with other banks, until they accumulated a monopoly of currency, none of which would they pay out even to their deiiositors or lend upon any security whatever, but sold it at the high premium to which it arose, until the estimate BANKING ANT) CURRENCY. "^'d of their aggregate amount of proiity made thereon during tlie panic, which they materially aided in producing, amounted to sljOOOjOOO. An alleged representative of one bank reported that its profits from this source alone amounted to •'liliOOjOOO. This was done while the whole country was suffering for the want of this money and sustained the losses which made these banks a million of dollars richer. I am glad to know that a large number of presidents, cashiers, and stockholders of national banks desire the restoration of a system of State banking; but the presidents, cashiers, and stockholders in the great national banks of New York and some other large cities are opposed to the establishment of any rivals and want to use their power to control the financial system of the country and to make millionaires of themselves. I agree with Jefferson, Jackson, and Calhoun, that for the United States to place in the hands of corporations the power to enlarge or diminish the volume of money in circulation among the people is a dangerous power, ,and 1 assert that that power is now practically in the hands of the national banks. STATE BANK CIRCULATION V/ ANTED. Eemand to the States the right of which they have been robbed for the benefit of these banks, and then the farmers and laboring people can get money at the legal rate of interest whenever they need it. We will then have an elastic currency i which will expand and contract according to circumstances. Prices of products will not then be reduced on account of the scarcity of money, and better times will be seen through the country among the agricultural and laboring people. By independent State action, or even with Federal supervision, sol- vent State and municipal bonds as well as national and cash resouices can be utilized as security for the redemption of State bank bills; and, in this way, the basis can be safely broadened for an increased amount of paper money and the degree of unusual scarcity produced by combi- nations and contractions originating in Wall street and elsewhere will be heard no more, but be hushed and stilled forever. But, sir, this proposed legislation invokes the hostility of the great national banking institutions, because they regard it as inimical to their interests. Mr. Simmons and several other presidents of great national banks of New York, hearing that there was a- prospect that Congress would repeal the tax on State bank bills, with all the arrogance of ancient nabobs to their underlings, have published in the newspapers here, right under our noses, that it would not do to repeal that tax; that they were opposed to its being done, and hence Congress should not do it. ,,, Whoever wants to worship at the shrine of the money power will obey their behests; but as a friend of the people, believing that they will have more freedom and more money than national banks or even free coinage of silver would ever give them, 1 will work and vote for the re]ieal of that 10 per cent tax until it is done or I cease to be a member of Congress. Gentlemen of the committee I do not wish to too far tax your patience and consume your time, but I wish to read to you a few extracts from the very able article on our national currency system, by Francis A. Brooks. His views are so much in accord with my own that I will refer brieflv to. some things which he has said and perhaps 24 BANKING AND CURRENCY. publish with my remarks much more extensive extracts. Mr. Brooks says : VIEWS OF FRANCIS A. BROOKS. The Pi-ej^'i'^ly ff, ^J "«.J';'"i^J>y''jljeai^^^^^^ baBk notes to take the place of real purpose of furuishmg a '^ii'^"'^*''?^ ™^'"?"' "i^".. t„ jo this it was considei-ed nee- Ihir^uiroroTndhiiknr" the inited States. The ttn existing State banks, w^^Ai one or two exceptions, ha,l either suspended specie payments or withdrawn the eircnLtrnVnotel and gold was no logger in use u.mone.bu w^^^^^^^ eommoditv at a high premium above its coinage valne The national banks, there fore were te be frrrnished by tlie Government with circulating notes secured by a dep^,sTt or&overnment bonds, and these notes were made redeemable m the legal- tender notes of the Government, and not in com or specie. ^. _, , f This was in reality going bac^k to the bills of credit or continental money of .»,,^lntionnT-v tiuies -lud makinn- that description of money a basis for banking. The abhors 'otHhescheme'Saxded it as temporary, and j ustified at the time only as a "^Mr^cSe'so expressed himself in his report as Secretary of the Treasury, Decem- '''The^e^reUr^mrnds " ^ * no mere paper-money scheme, but on the con- trary a series of measures looking to a safe and gradual return to gold and silver as the onl/fermanent basis, standard: and measure of value recognized by the Constitu- "no banking system which is based on ■'flat money" can be considered sound or saft and MrTchase concedes this. Banks of issue are intended to perform two kinds of service for the public. One is to combine the capital Ot individuals and to loan it to ?he public on interest; tl,,. otlier is to furnish the public witli notes tor circiilatiOD as money and thus facilitate exchanges for which com might be found insufficient or less convenient. In order to satisfactorily perform these two functions it is nec- essarv that the banks should be possessed of capital, and that the capital owned by tiiem should be kept well in hand and cai>able of being converted into such money as the nuriioses of trade and commerce require. The national-bank system pays little or no reo-ard to these considerations. As banks of issue they are required to invest their capital in T'nited States b(nids and to get circulating notes ot less amount than the par value of the bonds purcliaseil. If this method were pursued as to the whole capital of the lianks and it were invesred wliolly in circulating notes, the banks would after getting their circulating notes from the Government, have less money to loan than tliev had before purchasing the l)onds, and no gain would result to the banks, bat the public would have the benefit or use of the circulating notes, and the banks would also hav« to pay a tax of 1 per cent upon the amount of the For this reason or some other the national banks have not seen fit to place much of their capital in the form of circulating notes. It appears from the last report of the Comptroller of the Currency (October, 1892) that the aggregate capital of all the national banks then was $686,.^73,0].o, while their circulating notes then outstanding were only .1il43,423,l'98, soth;iturpose at the time in the introduction of this resolution was to try and suggest some means to enable our people to market their crops. There was witnessed every day in nearly all the towns of the cotton belt the sight of wagons, loaded with cotton, being brought into the market and then driven back home, not because there was no de- mand for that cotton, but because there was no money with which to buy. In many sections of the country, owing to the money famine, the banks associated themselves together and issued clearing-house certi- ficates. These began to circulate as money, and our people soon began to feel the good effects of even a crude currency of that kind. Busi- ness interests of all kinds began to brighten, and there was a feeling of hopefulness everywhere. CLEARING HOUSE CERTIFICATES. After I received your invitation the other day to appear before your committee and speak upon this resolution, I wired (lovernor Tillman to send me one of the clearing-house certificates, which some of your committee have already seen. It is not necessary for me to take the BANKING AND CURRENCY. 31 trouble to read it, but I will introduce it in evidence, so that any one can see it. It is as follows : No. 1197. COLUMBIA CLEARING HOUSE ASSOCIATION. CERTIFICATE. Columbia, S. C, August 19, 1S9S. This certiaes that the hauks composing the "Columbia Clearing Hous^ Association " have deposited with the undersigned trustees of said (#learing House Association, .securities of the approved value of seven vii'l, dollars to secure to the bearer hereof the sum of FIVE DOLLARS lawful money of the United States, payable on or before the first day of ,Ian- uary, 1894. . , ,, t .■ ,1 ., r. This certificate is issued in accordance with the proceedings ot the Co- lumbia Clearing House Association," at a meeting thereof held on the 19th day of Au'J-ust, 1893; and is receivable for any and all dues to the banks which a*e members of said association, and is also receivable on deposit m any of said banks, and also in settlement of all balances due from one ot said banks to another. „ „ ^ n R. S. Desportes, ) John A. Crawford, '• Trustees. W. .1. Murray, ) Countersigned : , CM. Tew, Secretary. (Indorsed on back :) Payment of the within certificate is guaranteed by the follow- ing banks composing the "Columbia Clearing House Association," viz: Carolina National Bank, Central Natipnal Bank, Loan and Exchange Bank of South Carolina, Bank of Columbia, Canal Dime Savings Bank, Farmers' and Mechanics Bank. The Chairman. That circulates as money? Mr. McLaurin. That circulates as money. Let me just m that con- nection say that here is a private letter which I received inclosing the certificate, and I do not thinli that there will be any objection to my reading it: State of South Carolina, Executive Chamber, ColumUa, September 26, 189S. Dear Sir: In response to your telegram Governor Tillman sends you the inclosed certificate. He says you talk about them like they were nothing, but they are worth 100 cents on the dollar, and it takes that much gold, silver, or greenbacks to get them, as they are about all the money we have here. Very respectfully, ^^ ^ Tompkuxs, Private Secretary. Hon. .lOHN L. McLaurin, Washington, D. C. The grain-elevatoi' men in the West, I see by the papers, associated themselves together in a similar way. , ^^, ^ , k^„ The Chairman. How, many dollar's worth of those notes have been put in circulation ? ,^ , „ Mr. McLaurin. Seven and a halt dollars- The Chairman. No, you misunderstand me. How mujii is the aggregatevolume of that currency? Mr McLaurin. I could not answer that question ; but I could get you the information. These are secured by farmers' notes. For instance, they go to each other and get indorsements, a^d Mr Hall, of Missouri (examining note). You mean there is *7.50 security deposited for every $5 of this money? 32 BANKING AND CURRENCY. Mr. MoLauein. I meau that for every $5 of that issue there is *7.50 of securities deposited, which have to be approved by these trustees, who are men in whom we have every conadence. For mstuuce, Here is a man who wants to borrow money, and there are a number ot men who own plantations worth .«8,000, $10,000, or $15,000, and he gets them to go on his note. We know these men are good tor the money, unless everytliing should disappear and all values go. That paper is used as collateral upon which to issue these clearing-house certifacates. The OitAiR-tfAN. And these notes of private individuals are placed with these trustees as security for the final payment of these clearing- house certificates? -, ^ ^ x^ Mr. McLaurin. Yes, sir ; I suggested the indorsed notes as one torm of security; they have other forms— bonds, or anything which is good security. . ^ , ^i i iS^'ow, the grain-elevator men in the ^^ est associated themselves too-ether and^ssued elevator certificates, and these have gone into cir- cuTation as money, and these certificates in the West and the bouth were enabled to perform every function of money, they did perforin every function of money, and they will continue to do so just so long as peoiile have confidence in the organization by which they were issued. ^ , T 1 Mr. Warner. Let me interrupt you just a moment. As i under -^ stand it, these certificates are issued upon securities to the extent of 50 per cent above the face of the t'crtificate? Mr. McLaitrin. Yes, sir. Mr. Warner. Generally speaking, upon commercial paper"? Those who deposit their notes properly indorsed receive from the bank these certificates ? Mr. McLaurin. Yes, sir; they use that, and they also use mort- gages, bonds, and anything of the kind that is good security. Mr. Warner. But in the main it is commercial paper which is approved ? J Mr. McLaurin. Yes, sir. Mr. Johnson, of Indiana. For how many years back has this been done? Mr. McLaurin. Not until this panic; not until we were absolutely " stumped" by a want of currency, we saw loads of cotton and other produce come to market and fail to find purchasers. Mr. Johnson, of Indiana. It is a recent invention down there? Mr. McLaurin. Yes, sir. It got so bad, during September, in South Carolina that it was impossible to get meat in some localities, and I have a letter from my own town, a wealtliy town for the South, a very prosperous town, where it is stated there has not been a pound of meat in the town for a week; we had to do something. It was a question of necessity. The Chairman. Will you obtain from the trustees whose names are upon tliat certificate a statement of the aggregate volume of those notes which have been issued, and furnish it to the committee to x^ublish with your remarks'? Mr. McLaurin. Yes, sir; I will do that with pleasure. I will ask the stenographer to make a note of it. Mr. Sperrt. And the time and limit within which they calculate? Mr. McLaurin. If you will have the clerk submit any question you would like to have answered I will have it done promptly. Mr. Hall, of Missouri. These trustees might regard that as a busi- ness secret? BANKING AND CURRENCY. 33 Mr. McLauein. No, sir; I do not think so. I think they will be glad to furnish the committee with any information they possibly can. These certificates have furnished the people with a means of exchang- ing their jffoducts and paying their debts and have served to relieve us from the stagnation in businesss affairs Avliich existed. If left to them- selves, Mr. Chairman, and had Congress never been called together, the good business sense and tact of our people, I believe, would long ago have ended the panic. In that connection I will read here an item from the Washington Post of the date of September 25, which is as follows : Isaued in lieu of money— Elevator script held to he liable to a tax of W per cent. St. Paul, Minn., September 25 . The elevator owners of MiTinesota and South Dakota are agitated over the prob- ability that they will in the next few weeks have to pay 10 per cent on certified check's, drafts, and due bills, furnished as a circmlating medium in payment for gram. It is learned that Special Agent Collins, of Chicago, has been here for several days. He has interviewed the ofacials of two Government depositories and other banks m St. Paul, and learned that they had accepted this class of paper for collection, re- ceiving them in due course of business from country correspondents. In Minneapolis, representatives of Charles A. Pillsbury and of the St. Anthony and Dakota Elevator Company, Brooks, Griffith & Co., and F. H. Peavey & Co. admitted they had issued these memoranda on account of their inability to obtain currency. These, they ackiunvledged, had beeu used instead of United States notes or legal ten- ders. They claimed, however, they had been legally advised that they would not be conflicting with the United States laws. Their action, however, is a clear viola- tion of section 3113, internal-revenue laws. Collector Johnson has located about $2.5,000 worth of these checks, on which the tax would be $2,500. But few returns have been received from country points, and until they are received it ('an not be determined what amount has actually been placed in circulation. Collector Johnson and A. G. Collins are both of the opinion that the companies are amenable to the law and will have to pay an assessment of 10 per cent, but before tills is levied a full report of the amount of the checks issued and all cue facts in the case will be sent to Washington. Now, the Treasury Department came forward after our people had adopted an expedient of this character, which affects nobody but our- selves; if these certificates are not good there will be nobody hurt but the South Carolina people and the Western people, and nobody is obliged to take them; it is nobody's business; it is a private business transaction, yet the Treasury Department rules that all of our certified checks, even' due bills and certificates of clearing-house associations are liable to the 10 per cent tax. Mr. Johnson, of Indiana. Do you mean the Treasury Department did that? ^ „ , Mr. Hall, of Missouri. You refer to the Finst Comptroller? Mr. McLaxjiun. I do not know who did it; but even the threat tends to unsettle business transactions based upon these certificates. Mr. Johnson, of Indiana. Was it Mr. Miller, of the Internal Eevenue? Mr. Hall, of Missouri. I did not uaderstaud that the ruling applied to this more than to the New York clearing-liouse. Mr. McLauein. That article in the Post so states it. Mr. Waeneb. If they will attack both New York and South Caro- lina the 10 per cent tax will not be in existence three months from now. Mr. MoLatjein. Now, Mr. Chairman and gentlemen, without any special knowledge on the financial question, but looking at it simply as a lawyer and a man who claims to have a little common sense, it seems to me that this is the very strongest argument which could be adduced in favor of a resolution like the one that I have proposed. It is the practical operation of the vis medicatrix naturce, being an effort 940 3 34 BANKING AND CURRENCY. of the firjancial body to throw oft diseased conditions by the natural laws of trade and finance. When the Government refhses to allow us to adopt an expeaieni; oi this character— in other words, refuses to allow us to help ourselves she should come in, and give to the sick man the kind of medicme that his symptoms demonstiate is necessary. When she prohibits to everybody else, individuals and States, the power to issue due bills or any bills of credit, and arrogates to herself the full power to do that, it becomes her sacred duty to exercise that power wisely and to exer- cise it as fully as the business needs of the country indicate is necessary. Mr. Hall, of Missouri. And promptly. Mr. jMcLatjein. And by all means, promptly. PKESENT AUTHOEITY TO INCREASE THE CITERENCY. Iv^ow, Mr. Chairman and gentlemen, in the introduction of this resolu- tion I take the position that the Government, without the enactment of another statute, under the laws already existing, has ample authority to give immediate and permanent relief. She can do just what the banks and grain elevators have attempted to do, except that she can do it much mor&thoroughly and effectually than they can, because she can issue the full legal-tender currency, which will be good for all debts, both private and public, at merely the cost, of printing, and thus give to the country relief trom the troubles which are now existing. The authority for this— and I have not been able to find any law which modifies or changes it — is epitomized in this book: "National Loans of the United States," page 156, which reads as follows: The act of Eebrnary L'5. 18(52 (12 Stat., 345), autb.)Tized tin- issue of $150,000,000 United States notes, not Ijearins interest, iiavaljle to bearer at the Treasnry of the United (states, and of such denominations, not less than $.". as the Secretary of the Treasury mi.uht deem expedient, $50,000,000 to he aiijjlied to the redemption of demaud'uotes authorized by tlie act of July 17, 1861 ; these notes to be a h-'Kal tender- in payment of all debts ]>uijlic .and private, -n-itliiu the United States, except duties on imports and interest on the public debt, and to lie excliangeable for (i per cent United States bonds. The act of July 11. 1862 (12 Stat., 532), authorized an addi- tional issue of $150,000,000 of sucli denominations as the Secretary of the Treasury might deem ex]iedient, but no such notes should be ibr a fractional part of a dollar, and not more than $35,000,000 of a lo\Yer denomination than $5; these notes to be a legal tender as before authorized. The act of JIarch 3, 1863 (12 Stat., 710), authorized an additional issue of $150,000,000 of such denominations not less than $1 as the Secretary of the Treasury might prescrilie, which notes were made a legal tender, as before authorized. The same act limited the time in wTiich Treasury notes might be exchanged for United States lionds to .Tuly 1, 1863. The amount of ludes aathorized by this act was to he in lieu of $100,000,000 authorized by the resolution of January 17, 1863. (12 Stat., 822.) The length of loan indefinite; the amount authorized. $450,000,000; amount issued, including" reissues, $1,040,550,947; the highest amount outstanding .luneSO, 1864, $449,338,002, sold at par. Interest none; outstanding .June 30, 1880, $346,681,016. ls"ow, this statement reveals the fact that the Secretary of the Treasury could at any time issue greenbacks to the full amount of .vJroOjdodjOOO. It requires no act of Congress and even this resolution is unnecessary so far as the enabling power is concerned. He has the right to issue these notes at any time; and, in fact, I believe other Secretaries of the Treasnry have exercised the right. Mr. Hall, of Missouri. Let me ask you right there. You sav von have not found since 1863 an act which limits the amount of greieiibacks in circulation? Mr. MoLaurin. No, sir; 1 do not think the Yoorheesact doesit and I have not been able to find anything which does. BANKING AND CURRKNCY. 35> Mr. Haugen. Did uot tlie resumption act pri>vide that greenbauks. should be redeemed, and later was it not by a further act declared that they should be redeemed only down to a certain i>oint— "?.jJ:«,000,000 : Mr. MuLaurin. In regard to fractional currency, I found, under the- act of July 21, 1875 Mr. Hall, of Missouri. But is there not a provision m an additional act that the circulation of greenbacks shall not be redeemed to a less, amount than 1340,000,000? iMr. McLaurin. 1 say that there is, but it does not interfere with the $450,000,000, which is the maximum limit, beyond which they can not go. [ have not been able to find any act that iuterteres with the $450,000,000 maximum limit to wliich they can issue the Treasury notes provided for in the acts of 1802 and 180.1. Mr. Hall, of Missouri. The resumption act provided that the green- backs should be redeemed in coin, and later when they had redeemed down to a point where there was $o40,000,000 in 1878, it was declared that they should not be withdrawn from circulation below that point, but as they returned to the Treasury new notes should be given. Mr McLaurin. The way I understand it is that they vjmld not go^ below *346,000,000, and not over * 150,000,000, and when brought in they shall be immediately paid out; they can not under the law be hoarded in the Treasury. , , ^ , *, •+ + As I said, otlwjr Secretaries of the Treasury have taken authority to- increase the amount in ch'cnlation, and my authority for this allegation, is found in the Statistical Abstract, where, on the twenty-ninth page,, you will And in 1873 that there was $350,000,000 in circulation, and that, in 1874 there was $382,000,000 in circulation. Now, this shows an in- crease of $26,000,000. If they could increase it $26,000,000 in the emer- gency of the panic of 1873, why, in the emergency of the panic m 18. 3,. Soulcl they not increase it $125,000,000, provided they do not exceed the. .$450,000,000 limit? ,..-,..! Mr Warner. I think the gentleman will tind that the resumption! act— I haven't it by my side— but by inference from its permission,, and the construction, I think, has been concurred in ever .since— author- izin"- as it did the issue of bonds for certain purposes practically limitea_ the nower thereafter of the Secretary to tliat covered by the permission ;: and that the resumption act is of a later date than the circumstances to. ^Vhich you allude. Mr. McLaurin. I understand that. . Mr Warner. And the act of 1878 modified i\\ no particular what- ever, "and did not purport to modify in any particular whatever the- resumption act, but simply provided, as to United States notes whicli might hereafter be redeemed, that they should not be canceled but should be paid out and kept in circulation, thus leaving the greenback currency at the amount of $346,000,000, thus upon the uii.ton« ruling of tlie Secretary of the Treasury, which 1 think is Justifaed by the plam terms of the act of 1875, leaving no permission to issue further bonds, after 1875 except under that act, as to which there has always been a doubt raised whether the act of 1878 did not cancel that as weU Mr McLaurin. It is a question of construction; I understand that, but I was adverting to the act of 1873 and 1874 more in the nature of an argument than to cite it as a precedent. , «,„ ,^ Mr Haugen. You have not made any inquiry of the present becie- tary of the Treasury as to whether he regards himself m possession of this power to issue further currency? 36 BANKING AND CURRENCY. Mr McLaurin. No, sir; I did not, because I thought if this resolu- tiou went through it would be a legislative construction act, and he would be spared the necessity of construing it himseli. Mr. Hall, of Missouri. The report of September 1, 1893, of the Sec- Tetary of the Treasury shows that he is above the issue by $6bl,000. How does he explain that 1 . ^ TTtr, -f „,„, i;„„-fori fr. Mr. Davis. I want to make this point. When it was ln"it«'l **> $340,000,000, was there not an implied obligation it ^^o^l^ ^e kept as much as that? I have here an argument made m 1688 by benator ^ Mf WATNEl'Thfi^-vered by the forepart of Mr. McLaurin's joint resolution. . . Mr. McLaurin. Yes, sir; I think it IS. Mr. HAUGBN. Mr. Hall states that the Present Secretary of the Treasurv has made a report, and it shows $34t.,.3bb,000 Mr. HALL, of Missouri. I have no coufldence m that report; i made that statement a good many times. ^,,,i ,.or.u. T Mr Davis. I will state this, further: I have here a second leply. i replied to his report in April, 1892, and he replied to me, and I replied aeain in October, 1892, and I show that he counts various moneys that are not in eSstence here at all. There is absolutely $50,000,000 more than there was in existence; and Senator Plumb showed how it was m regard to the gold. " ^ . ^ j x. The Chairman. The reduction to which yon refer is accounted toi, probably, by the act of Congress approved May 31, 1878. At that time Congress passed an act to prohibit the further retirement of United States legal-tender notes ; and, if you will pardon me, I will have the text of that act put in the record, so we will have it oefore us : That on and after the passage of this act it shall not be lawful for the Secretary of -the Treasury or other officer under him to cancel or retire any more ot the United States leual'-teuder notes, and when any of said notes may be redeemed or be re- ceived into the Treasury under anv law from any source whatever and shall belong to the United States, they shall not be retired, canceled, or destroyed, but they shall be reissued and paid out again and kept in circulation : Prmided That nothing heridn shall prohibit the cancellation ;aid destruction of mutilated notes and the issue of other notes of like denominations in their stead as now provided by law. After the law nassed, the Secretary fixed the amount to be kept in existence at $340,000,090; and between the i)assage of the resumption act and the passage of this act there were retired greenbacks under the resumption law to the amount whicli has been stated. After that there has been no retirement, except possibly by destruction; and while new ones were issued instead Mr. Haugen. You have before you the banking laws, and I would like to have you refer to tlie resumption act and see what it states in re- gard to the maximum. What is said in the earlier laws in regard to the maximum to be issued? The Chairman. It is as follows : And on and after the first day of January, A. D. 1879, the Secretary of the Treas- ury shall redeem, in coin, the IJnited States legal-tender notes then outstanding, on their ^^iresentation for redem]>tion at the office of the assistant treasurer of the United States in the city of New York, in sums of not less than $50. That was the authority to redeem them and there was no authority to reissue. When they were presented for redemption, they were can- celed. Mr. Haugen. I wanted to find out what the maximum was. BANKING AND CURRENCY. 37 The Chairman. I presume Mr. Haugen's question refers to'tliis part of tlie law : And whenever and so often as circulating notes sliall be issued to any sucli banli- ing association, so increasing its capital or circulating- notes, or so newly organized as aforesaid, it shall be the duty of the Secretary of the Treasury to redeem the legal-tender United States notes in excess only of $300,000,000. This is the resumption act of January 14, 1875. Mr. Haugen. Then the maximum of this act was changed after- wards from $300,000,000 to !S;}46,000,000, that being the amount out- standing at the date of the hiter act. CURRENCY LOST OR DESTROYED. Mr. McLaurin. 1 will take up the discussion of that sectiou'iu which I provide that $li5,000,000 be declared lost or destroyed. The reason I introduced a section of that kind was be(iauHe I feared some trouble along the line indicated by Mr. Hall. I find a precedent for declaring $25,000,000 lost and destroyed and anthorizing the Secretary of the Treasury to credit the redemption fund with that amount, in the act of June 21, 1879. In that act, you will see, between $s,000,000,, and $9,000,000 have been declared lost or destroyed; and again the Secretary of the Treasury, in his report of 1884, admits that $1,000,000 of Treasury notes were burned up in the Chicago iire. There are no means, however, of determining the exact amount, but some idea of the amount lost or destroyed may be formed by a comparison with the fractional currency. The lai-gest amount of fractional currency m:,ld„g my e.tim.te I !■" « '»' "" TtorS^SdalSn al»»u.m,t «t 8,»,.W).l'TO- Se,.,.tur Pluml., m ls^8, 5, .d „,d ,, lfcu-tl»n. M. tli«t. ™lira%l'" '»• ■"■'S ;,,;L „;„.v liM 1...™ con...m.4, 'll;Iic««.-M'v°"Y::,,.-,ll B„d.,ryo„ .o,,,,,..!, the a,.„m„t of the national biiuk notes retired, that it is very small. 1& McoIaviun. Senator Geor;^e, of Mississippi, also^m a speech of March 14, 1S02, incidentally referred to this snbject. He states: We Kav,. *|oo,o.)o,..M,, goijt .s ;.^;;.™^;,.- -■-.i- !:t::^::::^jT:^y'^:^. m"'b;..1 \'v" ■u.t t s'n V ' h n sncecssmily ..o„tra,lictea, that *:^0,enO,000 is "i^^^T^^lJ-y a';:i-f^tul^i:UH;«,n,o™; a';f it^;ili r™.ain a sa,e, sound, reaeen,a.le .furrency, equal to eohi. THE PRESENT SITUATION. In this connection I ^^ill say, Mr, Ohairinan and oentleinen I frankly confess my inexperience and i.^noraiice upon many, perliaps tw many, of the propositions which eo to make up the great (|nestioiis of hnauce. 'Cilledto"etherl>Y the President m an extia session to devise means •of relief I beoan, as Ijest I could, an hoiiest study of the situation, ihe press and the iieople were clamoring for more money, a.nd business fiilures Avere seen on every hand l>ecanse of a declared want of money. . Mv o\v. I people were driven to the necessity of issuing due lulls and cleariii'-honse papers, as I nave shown; and, considering their welfare and tindiiig laws upon the statute bonks which seemed to me ample to afford relirf, I introduced this resolution. . ,-, ^ -^ Doubtless one obiection that will be made to the resolution is that it increases the volume of paper currency, and this will be followed by the statement that the present panic was caused by a return and sale of securities which were held Ijy foreigners, who feared that the' volume of paper money would become so great that gold ])aymeiit would not be maintained', and that the princii)al and interest or dividends of their holdings would be paid in silver or pamper. I ha\e heard that objection raised upon tlie floor of the House, and I Ikiac no doubt that, in the minds of many of the committee, this is one of the chief objections to a resolution of this character. BANKING AND CURRENCY 39 But, Mr. Obairman and genliemeii, if it ho true tliat it was the return aud sale of tlie property of tlie foreign security-holders in this country that caused the panic, then it is true that Congress has been called together to enact laws which will be satisfactory to foreign investors. Speaking for myself, I would say that I am too much of an American to be willing to' see any such laws aud tliereby to have ury owu people suffer. It is best, perhaps, to meet that objection fairly aud scpiarely at the beginning of my remarks. It is doubtless true that the return of these foreign securities from abroad is largely responsible for the panic. . . . It is'well for us, then, to consider wlLat kind of securitujs were held abroad and returned here and sold in such large quantities as to pro- duce a panic. The bonded debt of the nation amounts to $58r),00(),000, of which .t20l),000,00(l are held by national bauks. A large portion' of the balance is held in trust funds by estates and for investments of a similar character ; only a small portion, as I am informed, of our national debt is held abroad by foreigners This being true, it follows that the securities whieli were held abroad and returned here m these large quantities were either private or corporate bonds and stocks. This fact changes the entire face of the ])roposition; and because of that I make the broad statement, as my opinion, that at this period ot our national existence we do not want to bid for foreign iin-estmeuts, and I will briefly undertake to give my reasons for making a statemeut of that character. . , , , Forei<'-n investments in this country are conclusive evidence ot tne fact that the necessities of the people here for the use of money are greater, their flnancial standing being considered, than elsewhere, and iience they are willing to pay a larger tribute for the use of the money. The only logical remedy for such a condition is to supply the people with a sufficient volume of domestic money, and thereby relieve tliem of the necessity of going abroad for their (currency, and this, my reso- lution, seeks in part to accomplish. Foreign investineats are dangerous to the best interests of our country, as is disch)sed by the statement that the return and sale of those securities produced the preseiit panic. In other words, we are at tlie mercy of foreign security-holders who, from an unreasonable fear, or from malice, or any other cause, can at any moment produce a pani<' and cause our people to suffer ^'le of the ciiief objections urged against Chinese immigration is, that tliey never become naturalized. They come here and secure a competency, ■either ereat or small, and when it is secured they go back home. J ust so it is with the foreign investor. He comes in here and reaps as much tribute as possible Mr Black, of Georgia. And he does not even come here. Mr \IoLaurin. No, sir; he sends his money and he reaps all tlie tribute possible, and then at the very first token of alarm he takes his flight homeward and leaves us to work out our own destiny. Mr. HAUGEN. Have you any statistics in regard to the amount ot ^'^Mr.\McLAUBiN. No, sir; I have not. I am just making the state- meut on the general tenor of remarks, and ,.,,,, , •,„ Mr HaugIn. I think you are perfectly correct in toat theory, while I doubt the efficacy of the remedy you propose. Mr. MCLAURIN. I thought that inthe-nunds possibly of a i ait of the comndttee that was an objection I had to meet; and I wanted to show I was not unreasonable in making a proposition of this chaiactei. 40 BANKING AND CURRENCY. aud tbat I had at least reasons which were to me of a satisfactory While the primary cause of the panic was a lack of domestic money which made possible this invasion of foreign capital, it is no less true than the immediate cause was the want of currency to maintain prices, and thus enable the people to continue the payment of triDute to foreign investors, as 1 will attempt now to explain. 1 he stocks ana bonds held abroad were principally those of railroads and other cor- porations. Those stocks were usually watered to the fullest extent they would stand. This watered stock is usually more or less divided in its ownership between the resident and the foreigner. JFor years the peoyile have been enabled to pay this unfair and exor- bitant tribute. During this time the foreign investor received his dividend, and as loiin' as he got his dividend he was content, in the meanwhile the stocks of the resident owner were pledged with a trust company and funds raised to start new enterprises. The stocks and bonds of these new ventures were often idaced in the same way and other enternrises built upon that. In this manner a perlect network of such deals were made, all de- pending upon the stabilitv of the first. Statistics show that the rail- loads of the United States cost, on an average, $1^0,000 per mile, while they are bonded at .$G.H,000; the patrons of the roads must pay the in- terest 01) this 843,000 of watered stock. As these corporations became more numerous and the watered stock greater, the demand for tribute . upon the people also became greater, until it arrived at a point where they could no longer stand it. A fall in the price of products made a rigid economy oil the part of the people wlio have to pay these divi- dends and iiiterest a necessity. Hence there was less travel, less freight, less exchange of manufactured and other products. This economy and lessening i)f business brought about as an inevitable re- sult less dividends, and tiie foreign investor l^eca-me alarmed. This ahirm continued aud increased until these investors tlirew their hohlings upon the market. So long as the foreigner was content, the resident liolders of these securities could manipulate his stocks with comparative safety, but when the foreigner began to realize up(ni his portion and the prices declined as a result, the resident holder and all of his interests began to suft'er. It becnme necessary for him to keep his margins good; aud, in such a rapid decline as followed, this became impossible, and he went down, and all the cnteri)rises with which he was connected. In my judgment, it was a fear of the loss of permanent dividends, by reason of the poverty of the people, and not the fear of any particular kind of money used in the final liquidation, that caused the panic. We are asked to enact laws which will protect the foreign investors in gold payments, forgetting that such laws would bring ruin aud disaster upon our people. While we legislate to make the investment of the foreigner satisfactory to him, we are legislating lower prices for the pioductions of our own people and robbing the farmers and pro- ducers of tills country of a just and equitable remuneration in return for the ijroduets of their labor. To this, so far as I am concerned, I will never cfuiseiit, but I will oppose with all the limited ability which I possess. The fear of an increasing volume of paper money is either a cunning pretext or an absolute absurdity. The paper money outstanding is as follows : G-old certifioates .'t;80,I:i4,049 ; silver certificates $.326, 206^336 ; Treasury notes (greenbacks) A34:(!, 681, 016 (nominal'?); Treasury notes BANKING AND CUREENCY. 41 of 1890, $149,881,958; national-bank bills (about) $175,000,000. The gold certificates are payable in gold de])osited for their issue. The sil- ver certificates are payable in the silver dollars deposited for their issue. The Treasury notes of 1890, issued in payment of the purchase of silver, are payable in silver dollars as is shown in section 3 of the Sherman act, which is as follows: That t]i6 Hrcretary of the Treasury shall each mouth coin 2,000,000 ounces of the silver bullion Tiurcliased under the proyisions of this act into standard silver dollars, until the first day of .July, 1891, and aft*r that tune he shall ■;om ot the silver purcliased under the prcn isions of this act as much as may be necessaij to provide for the re.leinption of the Treasury notes herein provided for and an j^ gain or seigniorage arising from such coinage shall be aecomite.l ior and paid into the Treasury. , This leaves the Treasury notes amounting to $346,681,010 and natioual-bauk notes amounting to about $17.5,000,000, or a total of $521,681,016 of paper money, whose final redemption can become a matter of dispute. Upon this point I would like to submit the lollow, ing, although there are volumes of such statements. Ihis is troin Mr. Pilrrepont, Attorney-General of the United States, and atterwards minister to England, in a letter in the New York Times ot April 18, 1884, ill which he says : There is not an outstanding bond coupon, or greenback i«™«;\),7,,,,^'^f.^,^';,^^';'J States which may not lawfully be paid m silver. Not one ot them on its ta< e or ba^ko; in the statute authorizing tie issue, or in '^'^'^-^-^-'\'^ ^JZ^^'^ Con.Aess, has any proviso that they shall be paid m gold A"'! the act ot 1 eb raarv 'o 1878 directing the coinage of silver dollars, declared that such doUaTS shall b; a legal teiuler at a nominal value for all debts and dues, public and private, except where otherwise expressly stipulated in the contract. In the discussion of the silver question in the House, which if refer- red to escaped me at the time, as I have not heard it mentioned in the debate, there was a resolution which passed the United States Senate, January 25, 1878, and the House of Kepresentatives on January 28, 1878, by a vote of 42 to 20 in the Senate and 189 to 79 in the House. It was to this effect: That all the bonds of the United States issued or autliorized to be issued under the 'ai.l acts of Conuress hereinbefore recite.l, are payable, principal and i.itciest, at th option of the Government of the United States, in silver do ars ot he ..linage of the United States, containing 412| grains each ot 8tan,laid «1;«^.^'^^| «.«* ° restore to its coinage such silver coius as are a legal tender in p.i^mcnt ot saitt bonds piin<.ipal and interest, is not in violati<,u of the public ia.th nor m delega- tion of the rights of the public creaitor. The Chairman. What is the date of that act? -, ^, « +„ Mr McLaurin. This was a joint resolution which passed the Senate Jauuarv 25, 1878, and the House January 28, 1878. The ChaIrmAN. That was not an act, that was a concurrent resolu- *'Mr MoLaurin. I so stated. The national-bank currency can only be made a charge upou the Treasury through the Treasury notes, ami the CeK^.res^'v declares that such notes shall not be retired, but shall be pTt hnned ate y into circulation. But counting the entire Volume of ^521 681,016 with the amount of pape. money wh,ch js Provided for m my resolution, $125,000,000, we would l^^Te >?646 681 016 m all. If we deduct from this amount the amount lost or destroyed, $25,000, 000 we would have, in round numbers, $575,000,000. Tins would give as a reserve 17* pe^ cent, which, under the circumstances is plainly Xmdan as can be, briefly shown by the national bank statistics. I have a report 1 ere from the Comptroller of the Currency, which I will 42 BANK NG AND CURRENCY. not read, but from wliich I can suumiaiize the facts ^iliicli I want in this Ayay. The deposits in these national banks amounts to $1,050,701,^30. I will not read all these items, but they anjount to si, 754,13122,429. 3Ir. Hau&en. What is the date of that? :\Ir. McLauein. August 17. After deducting the clearing-house certificates and otlier items counted as currency that are^ unavailable for immediate use iu pavment, there remains only $271,183,295 as actual reserve, or 15i per cent. The situation then is as follows : The Govei-nmeiit would be doing Inisiness with the full amount of f 450,000,t'00 legal tender issued and the present amount of national bank issues upon a reserve of 17-^ per cent, wliile the banks would be conducting their business upon a'margin of only 15.^ per cent reserve. 1 subuii't that it is unfair to demand of the Governmeut more and a better reserve security than they are willing to put into practice among themselves. With this statement, based upon the facts and backed up by the business intelligeuce and experience of the banking interests, I submit that the fear of an increase of paper money is without any logical foundation. PEKSK^T AUTHOKITY T(I INCEEASE THE CUEEBNGY. Mr. JHall, of Missouri. What authority is there in law for tVie Sec retary of the Treasury to issue an>- legal-tender greenback notes for money lost or destroyed? I want l^o read the only authority you have thus far cited. I read from the act of May 31, 1878, omitting the first part. That from and after the ])assaj;-e of fliis act it shall not liehiTrful tor the Secretary - wording ot ^Mr?HALL!'of ^Missouri. I will say in explanation of this, I heard this obiection made, and I wish to say 1 am favorably "f 1^"^; *« the g^n^ tlenian's first section ; but I want to hear him on that point, knowing that he has given it some examination and I have not Mr MCLAURIN. 1 thought of that, but did not think i ^^<:^^^ for this reason: 1 do not pretend to be an expert fanancier, but in look- g ound got this idea, and thought I would present my vle^^sb7 embodying ttiem in a resolution; then as to technicalities, that is the busi^iess of this committee. I have plainly stated our .™ub es n Soath Oarohna and elsewhere; and, if you can give us help of any l.u , we would be very glad to get it, without regard to the particula. foim in which the blessing is to come. THE BEST EEMEDY. Mr Warner. If the g.-utleman from S(nitli Carolina will permit ine, ■ in v^wi^tT^ewhat extended and very ibrcible pi:esentatiou mat^e by 1dm in the early part of his remarks, of ^^^'^^.^l^'Zte^ Carolina, and the very effective way in which it ^^^^ 1°'^ I^V^^V^.^^'f^ eiallv in view of his own reference to the argument made !>> Col.Uatcs vester a.v 1 would like to know if I understand h.m correc ly in this staten ent hat the means adopted by the bankers m Columbia, S. C prov e here was no question about its legality, were such as practi^ eallv to solve the probh-m as to the shortness of currency, and tliat if thev are evm t^^ to do that in a legitimate way for themselves or it some phu like that proposed by Col. Cates-if some such phin could be adopted as a permanent matter, would that m your view be a sat^isfac- ton solution I But so l.nig as the Government does not permit Co Ses's Pl ( r the plan of the bankers of South Carolina to be carried fnto elteS 1 nderstand that you insist that the Government provide the gi^enback or currency whi'ch it does not permit you to provide for ^TrrMcLAiTRiN. Yes, sir; that is one of the branches of my argu- ment' ut I ™'ther ;nd say that what the banks adopted as an expe- die t' 1^ le G^ven meat can do more thoroughly and effectually, and she oil *t to ^01 m and do what the symptoms of this financial disease show is necessarv to be done. The trouble with the certificates is they . St be subject' to the manipulations of speculators. Give us a good ^'^Ir^^i^R'^'eSion presented by the gentleman, as I } tn,tf nrTwide^ for two things: First, a rehabilitation, if you understand .P^^"^^^^./^?^ .^^^^t fo'one reason or another has become may so 5^^1 .;*'«* "^^^^^^^i^JSon. In that, I may say I regard the useless to the P^«P«;'^;:]^^*^^',^'^;'';^e. The second one is, the increase ^!f etmount ^f J^e^^^ estimated amount of ^00,000,000. Sr' WARN™ \s I u.'derstand, that increase is to take the form of notesissitS S'the Government and paid out by the Government for its expenses, debts, etc. Mr. McLaurin. Yes, sir. 44 BANKING AND CURRENCY. ■ EMISSION OF CURRENCY: LOAN TO BANKS. Mr. Warner. E"ow, in view of tlie suggestion of the geutlemau that tliis was proposed in tlie midst of a pressing emergency, may I ask him to dwell a little longer upon the precise means for the placing of these notes to be issued and in the possession of the Government, by which the present or any other similar emergency would be met. Say they have got them in the Treasury here or in the Printing Office. Mr. McLaurin. That is the milk in the cocoanut. There is no doubt about it. It is a question of emission. How are you going to get rid of them! I have thought of two plans, and one was suggested by the speech of Mr. George, from which I read a few moments ago. There are a large number of contracts under the Government which have been susi>eiided for want of funds. It might be used in this way, to pay current expenses of the Government, etc. This idea is from^ the speech of Senator George, but my original intention at tlie time of the introduction of the resolution was this : We were in a tight place and we needed help, and that quickly, and I realized the fact tliat the only relief from tiiis panicky condition was to come from the cotton crop of the South and the wheat crop of the West; that as soon as we could get these big money crops upon the market, gold would begin to come in, and everything would lighten up. Z^ow, I beiieve during Mr. Cleveland's administration — and if I am incorrect I know the geritlemau from New York will correct me — at one time, when there was about to be a panic in iv^ew York, $60,000,000 was deposited by the administration in the Wall street banks without interest. Mr. Warner. 1 think that is a slight mistake, but at the same time I do not tind any fault, because deposits have been made to relieve stringency. Mr. McLaurin. This is the argument that I uurke: Before tliistime when there was a mone.\' famine or likely to be tightness in the money market, the administration would go to the relief of the isew York bankers, and when the Government gets in a tight place it expects the Xew York bankers to return the favor. Sometimes it is hard to differentiate between the Government and the Xew York bankers, to tell where one stops and the other begins. Now, then, realizing the importance of marketing the cotton and wheat crops, I did not see why this currency could not be taken and deposited in the country banks. Whymtt pirtsomeofit in the Colum- bia banks; and, if the Treasury wanted to have a proper understanding with those bankers, it could be placed in there coupled with the con- dition that they would charge farmers only G x)er cent. There is no better security in the world than a bale of cotton, for if there is any money at all in the country, it will sell for something, and this was the idea I had at the time the resolution was introduced. Mr. Warner As I understand, the resolution provides only that a sum should be credited to the general fund to pay current expenses. This proviso was simply to define the amount of money, and not to indicate the use to which it was to be put ? Mr. jNIcLaurin. Yes, sir. Mr. Warner. And the use contemplated by this was the deposit of the money so issued in different parts of the country that nrio'ht need it in the emergency? Mr. Mglaurin. That was entirely with the Secretary of the Treas- ury; a matter within his discretion. BANKING AND CURRENCY. 45 The Chairman. Allow me to suggest that the indications are now that there will be a deficit of probably $50,000,000, and $25,000,000 of bonds which have been extended, to be paid by the Treasury of the Government, and those two items must absorb $75,000,000, and it is conceded by all persons that our finances are rather lower than they should be for the successful administration of the Treasury Dejiart- meut Mr. Foster testified before the Ways and Means Oommittee that the Treasury ought to have $50,000,000 more than it had m order to meet its obligations. . , ^ , Mr Warner. I do not think the gentleman misunderstood me. My question was not as to the possibility of this Government using $125,000,000. My question was, how was it to be made immedmtely available? Because by the wording of his resolution "the same is to be credited by the general fund and to pay current expenses, and 1 wanted to know how that was to be paid out immediately. Mr. McLaxjrIN. Yes, sir; that is the idea; and, lu addition to whatthe gentleman has stated, it seems to me, as a matter of business, in place of the issuing of gold bonds and selling them abroad to bring money here, it would be far better for the benefit of the people if Congress should issue these notes, which would bear no interest at all, and which our people would very readily accept, than it would be to issue gold bonds, sell them abroad and pay interest upon them. Mr Warner. A prompt use of this permission is practically a further issue of greenbacks to be loaned to local banks in parts ot the country where currency is most needed'? Mr MoLAURIN. That is exactly it; better than I could have said it. The Chairman. I desire to direct the attention of the committee to the constitutional authority to issue any more legal- tender notes thaii $360 000,000. The Supreme Court held in the legal-tender acts that issue was a war issue and grew out of the necessities of the war, and 1 think there was some doubt whether they could increase the legal- tender issue under these acts mentioned in this bill and make tfi em legal-tender. I do not want you to answer that, but I merely direct the attention of the committee to this. THE PRESENT SITUATION. Mr Johnson, of Indiana. You spoke in the early part of your argu- ment about the planter having brought his cotton to town and having been obliged to take it home because there was no money. Is this the first instance that has occurred in your history down there ? Mr. McLaxjrin. This is the first time I have ever known ot such a Mr.' Johnson, of Indiana. During this late money stringency, has there been any run upon your banks down there* Mr. MoLAURIN. No, sir. , t -, , 4.1 1 Mr. Johnson, of Indiana. Was money hoarded down there— such monev as the people had"? -, -rxr -, ^ Mr MoLAURIN. No, sir ; we did not have it to hoard. We have been making cotton at a steady loss for several years, and I could tell you something about the banks there, to show you our people have conti- dence in Sur banking institutions. There is a ^^^^'\^fj'^^}\}?^^, in which I live, and at one time it did not have over |2,000 or $0 000 in it, but our people were not uneasy. They knew it was safe, and that it was honestly administered, and therefore we had no runs m South Carolina I do not recollect but one single bank failure m the whole 4(3 BANKING AND CURRENCY. State, ill spite of all the stringency in money matters, a°'^;i^*l^f J'^,^^ banl' which resumed very speedily-only suspended by reason of the failure of a bank outside ot the State. , , , ^„ , of^+P h-mk ' Mr Black of Georftia. Was it a national bank or a State bank. Si-: McLait'rin It wiis a State bank at Florence, but it very speed- ilv resumed and is now perfectly solvent. , t i i «• Mr jSVon, of Indiana. I understood you to say you did not suffer from a scarcity of money for marketing your crops . Mr McLAUPaK. We generally have plenty of money to market the, crops Our terrible time in the South is in the summer and spring, when ever \hing runs on a credit, and that was why I was so much hnlnessedVith Col. Gates' argument. He evidently understands the situation in the South. . -wi,pf-i,pr Mr JOHMSON, of Indiana. What I am driving ac is this Whether the'e has occwred at ^-arious times recently m the history o your people a scarcity of money other than what you cite as having occurred in the last four or five or six mouths, or is that simply au unusual con- "^'m^McLauein. It is an unusual condition. They will send from New York all the moiiev we want to market the crop m the fall; tliere has never been auv trouble about that. There is no scarcity ot money at some price, but sometimes there is little scarcity ot change, and alwa^'S a low price. , , . Mr. AVarnbk. You are dependent upon the actual currency being forwarded from New York aliout three months every year? :Mr. MoLaxtrtn. Yes, sir. ^ t,i v. j- •+ ill-. Johnson, of Indiana. You have never had any trouble about it before? , .,, i Mr McLauiun. Not until now, except with low prices. Mr. JoHKSox, of Indiana. Your remedy is designed t.) meet this specific trouble which existed? Mr. IMcLaurin. Yes sir. . Mr. Johnston, of Indiana. Then it is not necessary tor the general condition, which lias iwevailed there? Mv. .MoLauein. No, sir. Mr. Cobb, of Alabama. I would state that the farmers had to pay too much interest for this money which comes from New York. Mr. HauCtEN. How do you expect to get this money out of the Treasury'? , , ,. , , i'^Ir. McLaurin. I just answered Mr. Warner: by the way of the- de])osits t>f which I spoke. Mr. Spbrrv. You would have it sent down by express? Mr. McLAruiN. No, sir; the question of the gentleman from Indiana was about the scarcity of money in general, and that opens up a big question; and. wlienever you come to study that and reason it out, you will see what caused the organization of the Farmers' Alliance and uave birth to the subtreasury bill and every measure of that kind. It IS just like the working of the laws of evolution, and it is going on now aiid getting worse, and worse, and will continue to do so unless there are some iiieaiis devised to remedy it, by giving elasticity to the circu- lating medium. volume of money in circulation regulates prices. ]\Ir. Sperry. Yon attribute the low price of cotton to the want of money, to the want of circulating medium? BANKING A>'D CURRENCY. 47 Mr. McLauein. I certainly do. Ml'. Sperry. Mr. Gatchhigs in his speech attribatedit to two extra- ordinarily large crops, and said that the agricultural associations throughout the South were trying to get together in some way and curtail the output of cotton. Ui: McLauris. I listened to Gen. Catchings?s speech and I thought it was one of the best speeches from his standpoint that was made on the floor of the. House: but he did not state the condition of the South, and the causes of our poverty correctly, aiul I believe that if I had the time I conld answer the argument, because it was the special pleading of a trained lawyer, from the Wall street standpoint. ]\[r. Sperry. The Statistical Abstract shows that the two crops of 1889 and 18'J1 were two of the largest crops you had, and that tlie surplus in sight was so great that it caused the low price in the market. Mr. McLaurin. The price is dependent upon the volume of money. Mr. Sperry. Bather than the volume of the product in sight ? Mr. McLaurin. Yes, sir; that is my idea. Mr. Sperry. That is absolutely different from anything I know. Mr. McLaurin. Just let me ask you a question, if you will pardon me. From the Statistical Abstract of 1892—1 do not know I can give the exact figures, but I can give you the idea. In South Carolina in 1873 there was 97;:;,1.").S acres in corn and there was raised thereon 9,24r),0(»() bushels, the value thereof being ft,S,(;90,30(l. In 1893 South C'arohna had in corn 1,091.077 acres and raised thereon 10,713,000 bushels, the value thereof being $9,530,000. Thus we have in 1873 and 1893 an increase of over 03 per cent in the number of acres, ot 80 per cent in bushels, and less than 10 per cent in value. You can not account for this if the volume of money be not taken into consideration. Mr. Sperry. I do not understand you; perhaps the rest of the com- • mittee do. Mr. McLaurin. If I couhl get the Abstract I could explain it to you. , , Mr. Cox. He means that the increased price received Iroin the crop ill 1890 was nut equivalent to the smaller crop of cotton made in 1880, when money was more pleniiful. Mr. McLaurin. I do not want to undertake to go into all that; but I got the idea— I mav be incorrect— that if you take the amount of money in circulatioi'i and the amount of crop made, and take the decrease in the amount of money in circulation and the increase in the crop, and run them down each year tt.gether, a man can not avoid the conclusion that the volume of money has an efiect upon the price of products. . ^ .^ . , -. . Mr. Cobb, of Alabama. Anything which influences its price at^ Liv- ei'pool has an effect up(m the Southern prices. Does it control it? Mr. McLaurin. I thiak so. That is the place where the price tor cotton is fixed forthe world. .^Ir Sperry. If it is true tliat the Secretary re])orted that there was more'money in circulation in 1890 than in 1880, then, on your theory, it ought to be higher? -. , ^ . Mr McLaurin. I know the Secretary ot the Treasury can get up some very pretty reports, but I agree with Mr. Hall thatwehave learned not to have a great deal of confidence in them. I do not believe that, on the average, there is over sl.,50 per capita in circulation in South Carolina the year round. . , , , , Mr Warner. You mean outside of the bank reserves ? Mr. McLaurin. Yes, sir. Xow, you take it in New York, where it 48 BANKING AND CURRENCY. is Stated there is $272 per capita in circulation, and iu South Carolina, according to the same statement, there is $12 40. Well, I have iio doubt that 8272 in New York is about right, but there is not even tbe $12.40 iu circulation in South Carolina. Mr. Sperey. Just wait oue moment right there. I do not care how much per capita is in circulation. That is a greenback idea. My sug- gestion was that there was more circulation iu 1890 than in 1880, aud the Treasury statistics as given in 1880 and 1890 are on the same basis exactly and the bank reserves remained the same, and the detailed statements of the ditierent classes of money reinamed the same, and relatively it is precisely the same in 1890 as in 1880, and with this dif- ference there is more volume in 1890 than in 1880? Mr. MgLaitrin. And more people in 1890, too. Mr. Spbery. So, if the Treasury statement is noi correct m 1890 it was not correct in 1880, but it was made up m the same way by the Department, and the point I am trying to make, and which I wish to bring to your attention, is that in 1890 there is more money in circula- tion according to the Treasury statement than in 1880 according to the Treasury statement. Now, on your theory that it is the volume of money which makes prices, will yon explain to the committee why, in 1890, 'with a larger volume of money, prices are lower thau 1880 when we had a smaller volume of money? Mr. McLauein. I do not admit as a matter of fact there is as much money in circulation now; as a practical fact I can not admit that. Mr. Sperey. Then you dispute the detailed figures of the Treasury of the United States iii relation to the amount of money in circulation? Mr. McLauein. In circulation among the people; I know it is not in South Carolina. Mr. Speeey. How do you account for the fact that the New York banks are surrendering their circulation now? Mr. McLauein. 1 do not know, uidess it is for speculative purposes or to produce another panic. Mr. Speeey. You would not conclude that they were surrendering that circulation because they could not i)roperly use it? j\Ir. McLauein. Well, 1 would not tliink they would keep it out- standing if they could more properly draw it iu. I am certain they would do what they thought best for their own interest. Mr. Cobb, of Alabama. I do not know whether I understood you. Do y(ni mean that the volume in circulation- in this country controls the price of cotton in the South ''. Mr. McLauein. No, I mean the amount in circulation for the pur- pose of buying that cotton; I do not care where it is. Mr. Cobb, of Alabama. You agreed to my statemejit just now that the price of cotton in South Carolina was based on the price at Liver- pool ? Mr. McLauein. Yes, sir. Mr. Cobb, of Alabama. If that be true, how can your other state- ment be true, that the amount of volume in circulation iu South Caro- lina fixes prices? Mr. McLauein. I was answeriug Mr. Sperry's question then in regard to the correctness of the figures of the Treasury Department of the amount of money in circulation. Mr. Speeey. You said that when the crop was harvested you had an abundance of money, which came in there from New York? Mr. McLauein. We had an abundance of money, but they fixed the 1!ANKING AND CUliKENCY. 49 price of our cotton by combinatiou between Liverpool and New York, and sent just enougli money to buy it at that ynice. Mr. Sferry. Then it is your opinion that Liverpool and the New York Cotton Exchange are in a combination ? Mr. McLaubin. VdU know very well, and everybody knows, there is a coiubiuation of those exchanges to hiiminer the price of cotton down or up for speculative purposes, without regard to the amount of cotton produced. Mr. Speruy. You have the opinion that a great body of flat money issued by this Government would break up all possible combinations to control prices? Mr. MoLauein. I am only in favor of flat money to a certain extent. Mr. Sperry. Not unlimited? Mr. McLaxirin. No, sir. Mr. Warner. I understand the gentleman that his proposition is to only meet an emergency 'I Mr. MoLaurin. Yes, sir. I agree with what Mr. G-eorge says m that speech, and it seems to me very sensible. He says: We Iiave $10(1,000,000 in gold as a fund, as Mr. IJeck says, to guard tlie greenbacks. We have $346,000,000 of these greenbacks or legal tender Treasury notes. Mr. Beck says and he has never been successfully contradicted, that $50,000,000 is .ample to guard the $346,000,000. If that be so, and he proves it, as I have read in the hearing of the Senate, it is (dear that we may increase the volume of greouback currency double the $346,000,000, and it will renuiin a safe, sound, redeemable currency equal to coin. I do not make any such statement, but I say it would be safe on a reserve liind of Hi per cent. Mr. Sperry. Is it your idea that the price of cotton is fixed m Liverpool ? Mr. McLauein. I have always heard that and always read it was true, and have no doubt it is so.' They fix it low enough, God knows. It is fixed very nuich without any consultation with the man who makes the cotton, and at such a price that everybody makes a profit from, it except the man who raises the cotton and who has the best right, therefore, to expect a profit. Mr. Sperry. Now, if the cotton price is fixed in Liverpool, that is a gold price? Mr. MoLaurin. Yes, sir. Mr. Sperry. Liverpool ilraws London exchange to pay for cotton, and that is gold. If you state that the price of cotton is fixed in Liver- pool in gold, how can any quantity of paper in South Carolina help you out? .,. . , ^, , , Mr. McLaurin. I do not want to go into a discussion of the whole financial system. Mr. Sperry. Only a little piece of it. Mr. MoLauein. Yes, sir. But my idea is this, that with a proper system of finance, with something that was fair and just, that we would break up the fixing of the price of our cotton in Liverpool, and that America can fix the price of her products here. My whole argument was directed against your allowing these men m Liverpool, foreigners, to come in here and fix the price of our cotton, wheat, or anything else, which they can only do by our adopting the single gold standard. Mr. HaIjgen. You believe in manufacturing the cotton in this coun- try^ Mr. MoLauein. Yes, sir. . . t i Mr. Sperry. If you intend to break up Liverpool prices and London 940 4 50 BANKING AND CURKENCY. exclian£;e, do not you tliiuk you ought to liave moretliau $125,000,000? Mr. ilcLAXJRiN. Yes, sir; but we will take that if we can get it I Mr. Johnson, of Indiana. But you think they could increase that quantity ? Mr. MgLauein. Yes, sir. Mr. Johnson, of Indiana. Could you upset the Liverpool and Lou- don exchange with .§125,000,000. Mr. McLaukin. No; I do not propose to do that. TALUE AND PRICE. Mr. Hall, of Missouri. 1 object very much to the gentleman from Connecticut mingling and obscuring the distinction between price and value as utterly as he does. I^^obody maintains for a moment that the price of cotton is fixed in Liverpool. Mr. Spbeey. Do you understand there is any difference between price and value ? Mr. Hall, of Missouri. Yes, sir; and everyone who has studied the works of political economists understands that thoroughly, and would agree with what 1 say. v-'vrra«i Mr. Sperry. Following the suggestion of the distinguished political economist from Missouri, will you describe to this committee the pre- cise difference between the price and value of a commodity when it is put on an au-ction market ? ^^^ Mr. McLaurin. I have no doubt that the gentleman from Missouri can describe that with a great deal more accuracy and ability than my- self, and I will yield the floor to him. I might say, however, that value is utiUty, price 'is debt-paying power, and while the price is artificially fixed in Liverpool, the value of cotton is determined by the number of naked backs it will clothe, and is the same whether they get oar cotton at 5 cents or 10 cents per pound. Mr. Hall, of Missouri. I am very glad to take the position. I main- tain, with Prof. Taussig, of Harvard, that the man who does not draw a distinction, and keep it fairly in his mind, between price and value is a mere tyro. Gentlemen, I claim that the political economists — and I do not pride myself on that — and the gentleman, I suppose, sprays down his blood by speaking of me as a distinguished political econo- mist from ^lissouri Mr. Sperry'. You spoke of other political economists agreeing with you on the subject. Mr. LlALL, f)f ilissouri. I think there is not a single writer that I have examined, and I think I cited some fourteen in the argument I made on the floor of the House on this question Mr. Sperry. And a very good argument it was. Mr. Hall, of Missouri. Thank you. I know in that argument I cited the leading political ec(momists of the diflerent universities of this country and abroad. I quoted Adam kSmith, the professor of Amherst, the professors of Williams and Yale, John Stuart Mill, Prof. Taussig of Harvard, Prof. Sumner and others, in which they lay down the doctrine and principle that any increase whatever in the Volume of the circulating medium increases piices, and any decrease in the volume decreases prices. Xow, I am going to quote John Stuart Mills's exact language, and refer the gentleman to volume 3, chapter 5, sec- tion 4, where he states: That an increase of tbe quantity of money raises prices, and a ilinilnntion lowers them, is the most elementary proposition in the theory of currency, and without it ■we should have no key to any of the others. BANKING AND CURRENCY. 51 ISTow, 1 take tliis ilhistration. There is a building, say liere in this city, and if the cirouhiting volume iu the United States was $115 pei? capita, which it is not, and the price of that building in the market will sell for $10,000, increase the volume of tliat currency to •'ij.jO per capita in circulation, and the price of tliat luiilding will be double that amount. If this volume per capita should be lessened, the price of that building will follow the lessening of the per capita. I can explain why that is. In increasing the volume of the circulating medium, that increases the value of the crops not a dollar; it does not affect the value of the crops at all, but it does increase the price the farmers receive,, and prii'C is what they pay their debts with. Mr. Haugen. Is it not true, in lixing the value of this house, that, it must be fixed where the house is located, and it can not be fixed in Liverpool or elsewhere, and for that reason it differs from the valne of a commodity that finds its way to a geneaal market? Mr. Hall, of Missouri, i say that the value of the house is not changed by the increase of the volume of money; the value remains the same, but the price is increased, and if that man has any debts to. pay, he pays his debts with iirice and not value. Mr. OoBB, of Alabama. I would like to put this question, and have- you draw a distinction: What is the distinction between the effect wliich the Liverpool market has upon our cotton crop and the increase or decrease of volume in our own States 1 Mr. Hall, of Missouri. The effect of increase or decrease of volume in our own States is the increase or decrease of the price of products^ Mr. Cobb, of Alabama. Without reference to Liverpool? Mr. Hall, of Missouri. I can not say without reference to Liverpool;, but a correct statement of the matter would be this, that, by limita- tions and surroundings, the supply and demand being the cause in one instance the same as it is in other instances, then the price would be- affected by the volume of circulation; it is a thing like real estate, that is affected by the volume of the circulating medium. Mr. Cobb,' of Alabama. Then, if the cotton producer gets more for- the cotton, he pays more for anything he consumes. Mr. Hall, of Missouri. There is no question about that. Birt what I want to say is, a report has been handed in fronfthe United States Treasury, and read in the United States Senate not over thirty days- ao-o in which it was stated that the volume of the debt of the United States to day is $31,000,000,000, and that debt has to be paid by price- and not by value; and this gentleman comes forward here and argues. the proposition that we increase the volume of the currency Mr. GOBB, of Alabama. Would you advocate an inflation of the cur- rency simply in view of the debtor and creditor relations'? Mr Hall, of Missouri. Understand me in this way : When I was asked by a Is'ational Alliance, the State Alliance, and by the suballi- auce known as my Congressional District Alliance, if I would agree to. a per capita volume of $50, 1 said : No sir • I will oulv pledge rovself to vote one v,-aj ; that yon sliall have the right to pay your debts in the same value of money as when the debt was contracted; but it- $50 or $20 enables you to repudiate 1 cent ol your honest debt I shall never vote in Congress in favor of that proposition, but I shall demand,. as tar as my ability is, that you have the right to pay your debts in the same volume of money as when the debt was contracted; and that is a doctrme that is sustained by all writers, and is a doctrine that is sustained by the plainest tenets and principles of Christianity. Mr Spbret. Mr. McLaurin and I were not talking about this house- on the other side of the street, but we were talking of cotton in Liver- g2 BANKING AND CUIiKENCY. pool Will you describe to this committee the difference between the thoiiht I made that question clear to everybody and I thought even ^^rS^K? y^lTha^^S^ft mus.ration ot some hous. on the '*Mr HAL? of mssouri'l'^d an increase of the volume of money in'^SdlS^r:;:;^ not.affect the ^^^^^^^z, " mS Oobb!^ SS^a. Did you ever know cotton to sell in America Tt n nrice hioher than the value m Liverpool ! . , , • Mr hIll of Missouri. 1 will answer that, gentlemen m this way: If you mean' that the value of the cotton in the U^/^.! states ha. new exceeded the value of the cotton in Liverpool, I answer you no, but ^f>ou mean that the value of the cotton in Liverpool has not been dit- fereut from the price of thecotton in the United States, I answer you yes. ^lv 1867 f I Potatoes bushels. 1888 >\ 1867 ( I Hay tons. 1888 51 1867 I Tobacco pounds . 1888 > 1870 Cotton bales. 1891 J Aggregate crop. ( 768, \ 1,628 97, 202, 26, < 313, 665 3, 441, 400 949, 000 320, 000 464, 000 783, 000 365, 000 277, 000 643, 094 724, 000 795, 000 114,592 , 662. 597 Home value. - $421, 322, 610, 642. 89, 81, 372, 408, 41, 43, 303, 366, 796,460 111, 881 948,390 146,630 276, 830 413, 589 804,670 499,565 283,431 666, 665 600, 000 863, 788 Thereupon, the committee rose, to meet ou Tuesday, October 3, 1893. Committee on Banking and Ourrency, Washington, I). G., Tuesday, Oetoher 3, 1893.. AN INCREASED VOLUME OF CURRENCY. STATEMENT OF HON. JOHN DAVIS, REPRESENTATIVE IN CONGRESS; FROM THE STATE OF KANSAS. Mr Ohairmau and <>-eutlemen of the committee: I appeared originally ou an invitation froin Mr. McLaurin to speak on behalf of the bill which he has before this committee. I have also a bill here, and probably these bills all look to the same thing, increasing the currency of the United States There comes in a very important qnestioii, the ques- tion asked bv the gentleman from Connecticnt, Mr. Sperry, which, to- my mind, was not fully answered. The question is, will tlie increase m the currency in, the United States increase the gold price of cotton, wheat, or any other article sent to London, and in any way attect the gold prices in London? .'54 BANKING AND CURRENCY. JEOW YOLUME OF MONEY IN CIECULATION MAY REGULATE PRICES. I take the groniul that, to increase the currency of the United States will increase the s^old prices of cotton, wheat, and other articles m London. All must adndt that gold prices are fixed by supply and ^demand. If we can increase the deniand in the world for cotton, then we can increase the liold price of cotton in London. I propose to show that we can do tliat. I'here is a statement made on good authority, the authority of the report of the Labor Commissioner, as well as promi- nent speakers in both the House and Senate, that 1,000,000 people are usually out of work in this country, and, being out of work, are not buyers of goods. It is also admitted that many more than that have been thrown out of employment by the present panic. Some writers have stated that the laborers out of employment are now 2,500,000. Assuming, then, that half of these laborers are married men, and assuming that 0,000,000 of persons who should be consumers are .not now buvers and consumers, because they are out of work, we will start with that proposition. If we can devise some waj which will put. them to work, and enable them to buy goods, we have increased the sale of ucjods. This increased demand for cotton, wheat, or any other product marketed abroad will increase the demand of the world for tliat commoditv. And we may safely assume still further, that if •6,000,000 of people are so reduced that they cease to be buyers, at least .30,000,000 more are buying less than they should. They having ceased to buv, in whole or in 'part; the merchants and farmers, having failed to sell, also cease to buy; so that at least 60,000,000 of people in the United States are buybig smaller amounts than usual. So that '60,000,000 of people would double their present purchases if they had the -means, through constant employment and good markets for their pro- •ducts. Xowj will the increase of the currency in this country set these people to AYork and furnish better marlcets for products? All history answers in tlie attirmative. I have liere the reports ot the Xew York clearing house, from 1854 to 1892. I take that clearing house because it does two-thirds of the clearing-house business of this country, and therefore is a. good index to the ])rosperity and business of the country. We all agree to that. If, now, by contracting the carrency we check business, and tlirow labor out of employment, we liave reduced the purchasing power of the ])eople. If, by contraction, ^^ e have changed the amount of cur- rency employed, we have stopped tlie purchasing power and the con- sundng power of tliat much money. Tliat being so, Avill not an increase of currency raise prices, employ labor, and increase the ]>urchasing power of tire people? Plainly it will. Let us take the condition of the country at the close of the war, when the Secretary of the Treasury reported tliat the people wei'e out of debt and jirosperous. In 1866 we passed a law cutting off the currency; and in 1873 we cut off silver. The effect on the clearings were at om'c seen. The clearing-house re^iorts sliow that clearances sTop])i'd rising until 1868. In 1868 there was a law pas.sed to stop tin- decrease of the currency, then the clear- ing-house receipts went u]) to •'?37,00O,O()0; more than it had ever been before in the history of the country. But tin.', suppression of money in the United States Treasury checked the clearing after 1869, and the demonetization of silver in 1873 added to the depression until 1878. Then the law of 1878 to prevent the further retirement of greenbacks, and the Bland law for the purchase and coining of silver g'Jive instant BANKING AND CURRENCY. 55 relief. The eleariugs indicated that relief by increasing flgurew until 1881, when they went above forty-eight billioT)s. Then came farther hoardings in the Treasury followed by the retirement of bank currency, which have perpetuated falling prices and hard times to the present moment. With a large increase of population the clearings of 1892 are twelve billions less than in 1881. The following is a comparative statement of transactions of the New Yorl; clearing house for thirty-nine years and shows for each year the number of banks, aggregate capital, clearings and balances, average of the daily clearings and balances, and the percentage of balances to clearings : Average Bal- Nil. .jT biiiiks. Balanees paid ill money. Average da il,y clearJii,gM. dail.v liid- mees to Year. Cai.ital.* Clearings. ance.s paid in money. eleai- ings. Per ct. 1854 50 $47, 044. 900 $5, 750, 455, 937 $297, 411, 494 $19, 104, 505 $988,078 1 5.2 1855 48 48,881,180 5,362,012,098 2.^9, 094, 137 17, 412, 052 940, 565 5. 4 1856 60 52, 88;), 700 6, 906, 213 328 334, 914, 489 22,278, 108 1, 079, 724 ; 4. 8 1857 50 64, 420, 200 8,333,226,718 365, 313, 902 26,968,3,1 1, 182, 246 4. 4 1, 016, 954 6. 6 1,777,944 j .5.6 1858 46 67. 146, 018 4, 756, 664, 386 314, 238, 911 15. 3.93, 730 1859 47 67, 921. 714 6, 448, 005, 956 363. 984, 683 20, 807, 33,3 1860 60 69, 907, 435 7, 231, 143, 057 380, 693, 438 23,401,757 1.232, 018 : 5. 3 1,151, OSS 6.0 1, 344, 758 6. n 1861 50 08, 900, 605 5. 915, 742, 7.58 353, 383, 944 19, 209, 520 1862 50 68, 375, 820 6, 871, 443, 591 416, 530, 331 22, 237, 0K2 186:i 50 68, 972, 508 14, 807, 597, 849 677, 626, 4H3 48, 428, 657 2, 207. 252 4. 6 2,860,.! 0.5 3.7 1864 49 68, 086, 763 24, 097, 196, 656 886,719,205 77, 984, 465 1865 55 80, 363, 013 26,032,384,342 1,035,705,108 84, 796, 040 3 373, 828 4. 3,472,763 3.7 1866 58 82, 370, 200 2,-1, 717, 146, 914 1, 066, 136, 106 93, .541, 105 1867 58 81, 770, 200 28,075, 159,472 1, 144, 963, 461 93,101, 167 3,717,414 ' 4.0 1868 59 82, 270, 200 28, 484, 288, 637 1,125,455,237 92, 1K2, 164 3, 642, 250 ' 4. 3,637,307 ' 3.0 3,365,210 ' 3.7 3,927,666 , 4.1 1869 69 82, 720, 200 37, 407, 028, 987 1,120,318,308 121,451,393 1870 61 83, 620, 200 27, 804, 639, 406 1, 036, 484, 822 90, 274, 47i) 1871 62 84, 420, 200 29, 300, 086, 682 1,029,721,029 95,133,074 1872 61 84, 420, 200 33, 84-4, 369, 568 1, 428, .5.82, 707 109,8,84,317 4, 636, 632 I 4. 2 4,818,664 1 4.1 187:: 69 83, 370, 200 35, 461, 052, 826 1,474, .508, 025 115, ,X,S5, 794 1874 69 81,635, 200 22, 855, 927, 636 1, 286, 753. 176 74, 692, 574 4, 205, 076 5. 7 4,603,297 5,6 4, 218, 37S 5. 9 1875 59 80, 435, 200 25, 061, 237, 902 1, 408, 60,8, 777 81,899,470 1876 59 81, 731. 200 21, 597, 274, 247 1, 295, 042, 029 70, 349, 428 1877 58 71, 086, 200 23, 280, 243, 701 1, 373, 996, 302 76, 358, 176 4, .504, 906 ' 5. 9 4, 274, 000 1 5. 8 4, 560, 622 i 5. 6 4, 956, 009 1 4. 1 1878 57 63, 611, 5IJ0 22, 508, 438, 442 1.307,843,857 73, 556. 988 1879 59 60, 800, 200 25, 1 m, 770, 691 1,400.111,063 82, 015, .540 1880 57 60, 476, 200 37,182,128.021 1 1, 516, 638, 631 121, 610, 224 1881 60 61, 162, 700 48.665,818,212 1, 776, 018, 162 159, 232 191 5. 823. 010 i. 3.4 3.9 4.5 1882 61 6U, 962, 700 46,552,846, 161 1,595,000,245 151, 637, 936 5,195,440 1883 1884 6:-j 61, 162, 700 40,293,165,258 1,568, 083, 196 132,513,307 5, 161, 129 61 fiO, 412, 700 34, 092, 037, 338 1, 524, 930, 994 111,0-18,982 4, 969, 202 1885 64 58, 612, 700 25, 250, 791, 440 1, 296, :!55, 252 82, 789, 480 4, 247, 009 5. 1 4.5 1886 1887 1888 1889 - 1890 63 59, 312, 700 33, 374, 682, 216 1,519,565,385 109, 067, 689 4, 965, 90i) 64 60,862, 700 34,872,8-18.786 1,569,626,326 114 337,200 5, 146, 310 4. 5 5.1 6.0 63 00, 71)2, 700 30, 863, 686, 609 1, 570, 198, 528 101, 192, 415 5,148,192 63, 60, 762, 701) 34, 796, 465, 629 1,7.57,0.37,403 114,839,820 5, 800, 784 64 60,812,700 37, 660, 686, 572 1, 753, 040, 145 123, 074, 139 5, 728, 8S9 4.7 4.6 5.1 1891 63 60, 772, 700 34, 053, 698, 770 1, 584, 635, 500 111,651,471 5,195, 526 1892: 64 68, 233, 500 36, 279, 906, 236 1, 801, 500, 576 118, 561, 782 6,083, :;35 Total--. t68, 515, 265 ;986,.597,212,.585 {244, 285,630,426 1 182,470,719 13,701,883 4.4 ' The capital ia for various dates, tlie annrants .at a uniform date in eaeli year not being obtainable, t Yearly a.-\-erage for 39 years. ; Total'for 39 years. I have mentioned the law of 1878, which stojjped the further burning of greenbacks, and added $2,000,000 per month to the supply of silver. Business increased everywhere, and the clearings in 188 L were over $48 000 000,000. They were more than ever before m the history ot the United States, -ifter that the hoardings in the Treasury increased up to $400,000,000, and, went up to ^.500,000,000 at one time. That was followed, as already stated, by the retirement of bank currency as described by Senator Plumb in 188S and in 1890. 66 BANKING AND CURRENCY. In April, 1888, Senator Plumb, of Kansas, discussed this contraction subject as follows: But this contractiou of the enrreucy, by means of retirement of national-hank circulation, hiis been S'oins on for more" than ten \ ears, and all the committee has to say now is that it has considered some bill, hut it is not completed. If the com- mittee will not complete some measure the Semite must. If the Senate will not, and the other House will uot, then the country is going ujion the breakers of hnancial disturbance. As a Senator says in my hearing, " it is there now." I thinli; it is ihere now. We are dealing with a question whicb'has more to do with the welfare of the people of tlie IJnited'States, .which is of more concern to them than any other thing that is pending in either House of Congress, or which can be pending— the volume of the circulating medium of the country, the value of its property, the dihereuce between debt and bankruptry on the one hand and freedom from debt with pros- perity on the other. It is estimated that there are in circulation, including that which is locked up m the Treasury and held in the hanks as a reserve fund, about $1,600,000,000 of all kinds of currency of the Ignited States, gold and silver, the overplus of gold ana silver certiticates, greenback notes and national-bank notes, all told, and there are more than $60,000,000,000 of property vrhich mngt fiuallj' be measured by this volume of currency. It has been contracted during the last year more than 5 per cent in addition to' all that has occurred by reason of abrasion and loss. No man can tell the volume of greenbacks outstanding. Nominally it is $346,000,000 and a fraction, but that volume has been subject to all the accidents which have occurred during the past twenty-five years, whereby money has been consumed, worn out, lost, and it is doubtful if the ainonnt is really over $300,000,000 to-day. But saying nothing aliout that, the retirement of the national banking circulation during the past twelve months has been 5 per cent of the total amount of the cur- rency outstanding. There has been during that period a phenomenal depreciation of the prices of property. There has been the greatest depreciation of the price of agricultural products the country has ever known. The contraction of the currency by 5 per cent of its volume means the depreciation of the property of the country $3, 00(3,000, 000. Debts have not only increased, hut the means to pay them have diminished in proportion as the currency has been con- tracted. Events based upon non-legislation have proved of advantage to lenders but disastrous to borrowers. rf vr * ^ X ■:•■ Tf The Senator from Delaware [Mr. Sanlsbury] the other day spoke with great feel- ing about the mortgaging of farms in this country. So far as that complaint relates to a general conditiou, to the lack and to the shortcomings of legislation, it is more nearly related to the diminished volume of currency than to a.ny other (me thing. In June, 1890, Senator Plunib continued tlie discussion of this sub- ject, as follows: Let us sec, thi'i'cfore, how much money is available for actual use among the peo- ple. From tile total of $1, ."160,000, 000, arrived as above, must be deducted an average of $200,000,000, which the Treasury always keeps on hand, and about which some- thing has licretoforc been said in the debate on this bill, and that leaves as the maxi- muiu which can by any possibility be used $1,300,000,000. There ought, in fairness, to be deducte)ily. If I were deciding this case upon what I consider the best evidence, 1 would be bound to say that I believed the money in actmil circulation did not much, if at all, exceed $500,000,000. U]>on this narrow foundation has been built the enormous structure of ei'edit of which I have spoken. It is the greatest of the kind that was ever built, because it was built by the. best peoiile that ever built anything, Over twenty thonsa.nd millions of delits, the enormous a,nd widely extended busiiiess of sixty-hve millicms of people, all rest upon arid must be served by a volume of cur- rency which must seem to the most \-et»rau fiuainder as alisolutely and dan"'erouslv small, ■ ' ^ ' ^ BANKING AND CURKENCY. 57 By iucruasiug the cuvreuoy we start tlie spindles of industry and business, and start tlie people to work. By increasing the currency we give the country rising prices, making the employment of labor profitable. Labor is hence employed, pr(jsperity becomes general, and the aggregate purchasing power of the people is greatly increased, if not doubled. In discussing this question we must not confine ourselves to South Carolina or to Kansas. We must take in the whole country and the whole world. We must n it forget these localities, however, because they are important. What we are experiencing now is merely a. repe- tition of what has transpired before in other countries, what transpned in England after the wars of I^apoleon. It is stated by various writers that when the people of England had passed through' the terrible struggle ending with the battle of Waterloo, they stood before the world victorious and jubilant. It is saul that had it not been for the issue of paper, the British Isles would have become a province of France. In 1816 there \vas a law passed to cut off silver: in 1810 there was a law passed to cut off paper. By the year 1826, according to Peter Cooper, four-fifths of the land-holders of Englaiid had lost their lands through the contraction of the currency and the foreclosure of mortgages. And they had troopson foot day and night to keep the people quiet while they starved. J^ord Castle- reagh became alarmed, and he brought into the House of Commons measures which, under the suspension of the rules, were passed, making money plentier.' They passed five money bills, reassuring the pe^)ple. They authorized the circulation of one-pound notes for ten years. That law increased the money facilities. Factories were soon busy, mnies and shops soon began to' go, the people were employed and contented, and the troops were dismissed. Mr. Chairman, the experiences of the English people should teach us a lesson. i . ^r. At the close of the wars of Xapoleon, in 1815, England stood at the front among the victors, in a blaze of glory uuequaled in modern times. She was mistress of the ocean, had acquired an empire which encircled the eartli, and dictated the policies of Europe. Her people were prosperous, happy, and jubilant. Ignoring or defying the lessons of history and the "inexorable laws of finance and trade," the British Parliament enacted a law restricting the use of silver, in order to establish tlie famous single gold basis for money. This checked the prosperity of the country by decreeing falling prices for agricultural products'aud the commodities of commerce. Then were heard the first nmrmurs of distress among a people that tor twenty years had uncomplainingly paid the troops which met Napoleon on so nianv bloody fields; a people that had carried victory on their bayonets tiiroughout the Peninsula, on the Khine, and on the field ol Waterlo"- a people whose cannons had won the victories of Trafalgar and the ^Tile and maintained the glory of British arms and British power as only Anglo-Saxons could. These people were now to be sacrificed by the millions to the false god known as gold-basis money. In 1819 in pursuance of this murderous policy, the British Parhament enacted a law forthe retirement of the paper money which had conquered I^apoleon-that money which Mr. Alison, the great Eughsh historian, said had saved England from becoming "a province ot trance. ilie process of contraction, bringing falling prices, began in 1816; it was accelerated in 1810. By the year 1820, we are told, four-fifths of the landholders of England had lost their lands and the laboring people of 58 BANKING ANiJ CUKKEJNUl. the country were in snob a condition of suffering that troops were necessary to compel men, women, and children to starve m peace. Landlordism was greatly extended, the relative rnimber of the serfs and tenants of tlierealm was greatly multipled, and the pnblic distresses among the innocent people were snch as no tongue can adequately describe. , . ,, t As far as possible, I think we should in these money discussions relieve our minds of all prejudice and all preconceived opinions. But there are two thin-s which I refuse to relieve my mind of. I will not consent to trv any new experiment in finance. I thmk men and nations have tried experiments enough, and we can choose from the well-tried systems what we prefer to iiave. It is too late to invent any new sVstem. And I think it criminal to adopt an old system winch, when fairly tried, has failed . We should adopt a system which has been tried and which has succeeded even under the most difficult circumstances; such as have succeeded at all times, when they have had a fair trial. Out of these we can choose our money system. Now, then, as to the s>old prices in London : If the people of the United States— throuo-h' increase of money and rising prices should find employment, as they did in England in the case I have cited, and as they did in tliis country after the law of 186 i, and after the law of 1878— should all find regular employment, at good prices, by earning something, they would be greater buyers of cotton, wool and wheat." This would increase the gold prices in London of those staples. Havin"' settled that point, I think there is no doubt but the addition to the'^currcncv of the United States, I mean the money of final pay- ment, would add to the purchasing power of this country at least twice over. It would add to the demand for cotton goods, and for those thni£>-s which we consume, and which meet us in the foreign markets. I will now pursue that point no Inrther. I think these examples m the history of this country and Great Britain, should teach us some- thing. I am offering you 'nothing new and untried, and I shall not do so. PARITY BETWEEN GOLD AND SILYEE. There is one more point not mentioned here, but which has been mentioned by prominent members both in the Senate and in the House. It is a thing which Jias great influence on foreign markets for beef, cotton, wool and hides, etc. In 1873 silver bullion had uniformly, with some exceptions, been hi.i^her than gold bullion. At that time it was 3 per cent higher. The law of 1873 cut off the demand for silver and increased the demand for gold, until there was a sep;iration. Cut- tin.i;- off the demand for silver lowered its price, and, adding to the demand for gold, raised its price. That is the case uniformly every- where. Supply and demand are the agencies which fix prices. As we cease to use and treat silver as a money metal, the i^rice will fall. There are three demands on the money metals, and if they are allowed to work out their own ends without coercion by law, they will perform their functions naturally, and will preserve the parity between the metals. The first demand is a demand for export. That uniformly falls on. tlie dearer jnetal. Before 1873, the demand fell on silver usnally. That is wliy M-e coined so little silver. Although wc coined so little silvir at that tijne, we used silver for export, whicli permitted gold to remain at home, li we had not nscd silver for ex^iort we must iiave used gold. And, in either case, with two money metals one is BANWrNG AND CURRENCY OJ retaiued at home as a domestic money metal; but as it was, silver was generally vised to pay our balances of tiade, and hence was l)nt little coined for home nse. Suppose a man has two horses; either one answers his purposes for home use. But he is compelled to sell one, which one will he sell ? He will sell the one which ^vill bring the most in the money market. For that very reason we formerly sent silver abroad to pay trade balam;es, because "it was the dearer metal. The demand for export always falls on the dearer metal. There are two home demands which always fall- en the cheaper metal, if permitted by law and practice to do so. I mean the demand for loaning and the demand for payments. If I bor- row money from a man, he loans me the cheapest money he has at hand. That is his option. The debtor must have the same option, to pay in the cheapest money he can get. When I come to pay my debt I should not ask which money I must use. I should be permitted to pay in the money which is easiest for me to get. I should pay m the lawful money of the coTitract. I should exercise my option the same as my debtor did. That works naturally and satisfactorily, and it will always preserve the parity of the moneys in use. As an example, I will say I stand here on my two teet. I have a double standard. I am harder to push over wben I am on a double standard. How do 1 preserve the parity of my two feet— my double standard— when walking? Simply by calling on my hindmost foot tor action. I lay mv hands on the cheaper money for payments, ihe Secretary of' the Treasury is not doing that. He holds the dearer metal to'be the proper one, and that keeps it high. Suppose I attempt to walk by calling on mv front foot for action. I call on my gold loot and move it forward, and I continue to do so in every effort to walk; very soon I get into trouble and a condition arises which calls for the convening of Congress to redress the situation. We ought to alhjw the people their option in payments, as we allow an option in loans. Before 1S73 we had a parity of metals, and during that period of 80 vears there was a time when silver was produced about four times a"s fast as gold; and then there was a time when gold was produced about four times as fast as silver, yet there was no trouble as to the paritv of the metals. Mr Warner. I understand you to say that you favor (or trom your remark I suppose it would be proper to infer that you favor) absolute laws that would interfere between citizens as to the parity ot gold or silver or the metal in which payment is made. Mr. Davis. I would have a law which would make payments m legal tender. ., , , Mr. Waunee. You would have a law to compel a man to accept one metal as being worth a certain proportion of another met^l '? Mr Divis'l would start off' with this arbitrary rule, that gold weio-ht for weight is more valuable than silver. I would fix the ratio of tiie weight of gold and silver, and stick to that all the time. J claim there is nothing to prevent the parity of 16 to 1 as the ratio. There is no trouble as to mating payments. Usually contracts are made m the cheaper metal. The metallic value of silver is different m buUion and ill coin Our silver bullion is worth less than when it is used as com, but that is not important, as the value of the money is monetary value, and not metal value. But, silver bullicm would rise m price, it the legal discriminations against silver and in favor of gold were removed. Treat the two metals fairly and equally and the parity ol metal values will take care of itself. QQ BANKING ANjJ LuiixiJ^ixv^i. Mr Hall. T understood you to criticise the Secretary of tlie Treas- ury because you claim he discriminates against silver. • Mr. Davis. The law gives the optiou to the Secretary aud he pays out the higher monetary metal. ,-, n/ i i i Mr. HALL. Suppose the Secretary ol the Treasury had done a^s you suo-o-est, would not that in effect be a recognition by the Unit«d States that there is not a perfect parity between the two metals, and would it not have the effect of depressing business more than anj^thiug that could be done"? . ,•+, tt •+ /i Mr DAVIS. No man has the right to demand gold com of the United State's Treasury on merely coin contracts. A man has the right to demand lawful money, but he has no right to demand aiiy particular money. He has a right to demand any legal money. The law says greenbacks sliall be money and that gold and silver com shall be money When a man brings a monetary obligation of any sort to the Secretary of tlie Treasury calling for. money in general he can be paid in any lawful money. If the obligation calls for coin, then it is withm the option of the Secretary to pay either coin he pleases. If the Sec- retary should pay out silver it would have a tendency to increase the demand for silver, and it would increase the price of silver bullion. Demand and snpplv controls prices. Mr. HALL. That would be an admission that Congress was unable to maintain a parity between the two metals, and thereby it would ruin silver. ii -o- Mr. Davis. The Secretary should have settled that matter. Me should say: "You demand gold when the obligation calls for coin, and I will pay you coin. I am not representing the bondholders. I will pay yon iii the cheapest money mentioned in your bond." Mr. Waenbk. Am I correct in assuming that it is your suggestion that we should have an arbitrary law allowing a debtor to exercise the right always to pay in the metal or money which commercially or financially speaking is depreciated, and do you claim that that would keep the two metals together? Mr. Davis. I take the ground that the value of both gold and silver is fixed by law. They are together by law. When we borrow money the contract fixes the money of payment. I would pay according to contract. Even Shylock should ask no more. Mr. Waumee. Is'^it tlie basis of your argnment that it is arbitrary law which depreciates silver ? Mr. Davis. Very largely. I will take the case of gold and silver when not used as' money. If you will look in Prescott's History of Peru you will find a statement there which says that it took 8110 in weight of gokl bullion to buy a quire of paper, a.ud a proportionally large amount to buy a bottle of wine, a sword, a cloak or a saddle, and that it took $.>(), 000 in weiglit of gold bullion to buy a horse. Mr. Warnbk. It is }>ossible that that may have been by reason of the scarcity of those articles. VALUE AND PRICE. Mr. Davis. The law of supply and demand oiierated in that country at that time. There was no otlier Jaw to interfere in the matter. There has been some discussion liere in regard to values. In discuss- ing values we should separate them. Monetary value and price are tlie same. Tliere is a value which is not price. Air and sunlight have great valne, but no price. They taxed windows at one time in England, BANKING AND CURRENCY. 61 and ill tlnit way it might be said that theve was a monetary value attached to tlie air indoors, but it did not increase the intrinsic value of the air out of doors. Suppose 1 am cast away on an island. Oil that island I can crack nuts with a stone, and therefore that stone has an intrinsic value to me. The next day I get on a ship and go to a city and I tind that my stone is pure silver and it has commercial value. With it I can buy a hammer, which is a better implement with which to crack nuts. 1 remember a conversation 1 had with a gentlemen now in the Senate, and he said to me, " Mr. Davis, do you propose to say that if there was no money, horses would ha\e no value J i saul, JN(), if there is plenty of money, horses will have high monetary value; it there is little money, horses will have little monetary value; and it there is no money, horses will have no monetary value. J3Ut tiie horses will have a value expressed in the units ot the article ot pay- ment, as so many pigs, or whatever else they are exchanged tor. If yoA decrease the supply of pigs, you decrease the price of horses If I have enough money" to buy one hundred horses, and my supply ot money is cut off one-half I can then only buy fifty horses, unless I reduce the price. MAINTAINING EQUAL PEICE^^. This money question may be made very plain by a simple statement of an arithmetical example. Thus : Divisor, \ Dividend, /Quotient, Commodities ^Volume of money Vl^r ices. The i^eople and their oommedities are tire divisor in the problem which we are solving in this country. The volume of money afloat is the dividend. The quotient is the general average of the prices ot property. The divisor is continually increasing, througu the inoi'ease of population and the energy and enterprise of our people. Ihe divi- dend decreases tlux)ugh the various devices of the gamblers m corner- ing and suppressing money. Is it any wonder that the quotient is less and less from day to day, in the form of declining prices 1 There is but one practicable remedy, namely, add money to the circulation as the people and their transactions increase. Increase the dividend as the divisor increases, that the quotient may remain the same. I his can only be done by supplementing the coins with legal-tender Treasury "°Ii?the school of ftnance to which I belong this is our doctrine. That is where I would stop in the expansion of the currency. I w-ould maintain level average prices. Money is valuable lu proportion to its limitation. KBDEMPTION OF CUEEENCY. Mr. Spbeey. What is the name of your school of finance "« Is it the ^^Mf dIvis. Yes, sir; I never saw any other kind of money except flat money. We believe in lawful money only. +•,,•, Mr. Johnson, of Indiana. Is that money redeemable entirely m ^'m? DAVIS. I am in favor of the broadest and most liberal redemp- tion ■ Money that is irredeemable is worthless It must a 1 be redeemed. Both coin and paper must be redeemed with commodities. Q2 BANKING AND CURRENCY. Mr. HaitCtEN. You want to keep below the danger line in issuing flat money? , , .i i t Mr. Davis. Yes, sir; we would not approach the danger line. The Chaieman. Would you redeem in gold*? Mr Davis. Primarily, the redemption of money is receivability m the revenues by the issuing government. Paper and metal have been so redeemable' again and again by governments. We had about twentv issues of paper prior to 1862. PJvery paper dollar ever issued by the Government in this country prior to that time was made receiv- able bv the Government of the United States in the revenues, and it was always as good as o-old. That was set forth very fully by Mr. Calhoun. ' He says that such issues in a reasonable proportion to the revenues are alwavs as good as coin. Mr Johnson, of Indiana. From what book are you reading? Air. Davis. It is a book entitled " Money of Nations," by the late Jud^-e Martin. ^, ,. In the years 1837-'.".8 John 0. Calhoun, of South Caroliiia, discussed this matter of government paper very fully in the United States Senate. i\Ir. CalhoiTU said: I now uiiilertake to affirm positivelr, and witboiit the least fear that I can be answered, what heretofore I have but suggested— that a paper issued by govern- ment Avitb a simple promise to receive in all dnes, leaving its creditors to take it or gold and silver, at their option, would, to the extent to which it would circulate, form a perfect paper circnbition, ^^'bich coublnot bea.bnsed by the government, that would be as steadv and unilorm in value as the metals themselves. I shall not go into the discussion now, but on a suitable occasi;.> ■ ^ | ^ faster notwitli- a questiou of easy debt-paymg. k ^^si:inAs~:"^^i^^s;f^^' «... .» ..-e. Sre-liyiSymenrSSr «S°.' S^ iu „■«„ ,.,„...er, ,u. idle, and _great distress and loss ensues. FAR3[ M0RT(tAOES. The Chairman. What do you refer to when you/;^y - we can not r.a V our debts ?" Whom do you mean by " we" m that case ; ^ Mr D™' I n.eau that the people of the Uuited States, with present gold prices for products, can not pay their debts. Mr HALL. You do not mean the people of Missouri. Mr' DAVIS. Then the neople of Missouri are an exception Mr' SpbrRY. mr do vou mean the people ot Oonnecticrit. Mr JOHNSON, of Indiana. It is not true of the people of Indiana. S^e Chairman. I would like also to take the people ot Illinois out ''^£*'d?vis. Mr. Joseph H. Walker, of Massac^husetts, in Msy, 1892 T^as sneaking with reference to the prosperity of New England farmers. nt w^s spealing of their great prosperity, and went on to discuss he «uert on, and, finally said that the farms m IN^ew England were on the uveraoe selling to-day at "about one-half the first cost of improve- ments^" This nieans that the lands are worth nothing, and halt the imnrovements thrown in. , . , ,, , j. „ The Chairman. Please state why you think the people can not pay their private indebtedness. Mr DAVIS Because their ijroducts will not sell for enough money to clo' it' The annual products will not pay the annual interest on their aione'tary obligations, and we are getting deeper and deeper m debt. The property of the people at present prices will scarcelypay the debts «f the country at forced sale. . . , ^, ^ ^i q+ + „f The Chairman. Please state whether it is true that the btate ot Kansas is largely reducing the mortgage debts of her farms year by "^*^Mr Davis. Yes, and I will tell you how she is doing it. There were thirty-five cases of foreclosure at one time in one county. The debts on the farms were $64,000. The farms passed to the creditors. The mortgages were canceled, and so published widely in the papers. Yet there remained $28,000 unpaid, resting on the former owners, m the BANKING AND CURRENCY, 67 form of judgments. This mode of payment simply means the nnhonsing and eviction of the people. Mr. Haugen. Do you mean that the mortgages are being foreclosedt Mr. Davis. Yes, sir. The editor of the leading Republican paper in 1890 wrote to all the clerks in the county courts in the State of Kan- sas, amounting to more than one hundred, and received replies from about sixty counties. Those replies indicate that in the State of Kansas there is about one mortgage foreclosed per week in each county. There are fifty-two weeks and one hundred counties, which shows that there were 5,200 foreclosures in the State of Kansas in one year. Yet he said that the farmers need not trouble themselves, as other people were bankrupting also, tie congratulated the farmers on their outlook. 1 think the farmer ought to be congratulated on something, and an "outlook" is about theoaly thing a farmer has to be congratulated on. The Chairman. State to the committee how long each individual existing mortgage contract has been in existence in Kansas. Mr. Davis. Some contracts have been in existence perhaps, by fre- quent renewals, since 1880, but mostly they are later than that, because it is not an old State. The thing has come to a point where a man can not sell his land at any fair price. There is no price on real estate except in select spots. The Ohaieman. Real estate mortgages did not run mure than live years on an average. Mr. Davis. Usually about three to five years. The Chairman. Is it not true that the existing mortgages in Kan- sas if renewed within seven years are on a gold basis? Mr. Davis. And there being no gold to buy with, there is no price on the farms. I have in mind a case which will illustrate the situa- tion. A man had a home that six years ago was worth $4,000. He needed money, but did not want to sell his home. He borrowed $1,800 on it, and that shows that it was worth at least twice $1,800. 'i'he mortgage fell due and he could not pay it. The place is taken by the debt, and the man who got it is cheated, because it is not now worth $1,800. The former proprietor of that land is now on the property and is paying rent, $8 a month, and the owner keeps up the insurance and taxes. This leaves only $4 a month for a home which, six years ago, was worth $4,000. Mr. Warnbk. How large a place is that? ' Mr. Davis. Three acres laid out in town lots. Mr. Warner. Do I understand you to say that for the purposes of a farm that was worth $4,000? Mr. Davis. Yes; he borrowed $1,800 on it, and the improvements cost over $U,000, perhaps $3,000. Mr. Warner. It was not a farm, although he was using it as such, and it was probably in the suburbs of the town. We, in New York, have had real estate booms which for luridity are superior to anything produced in the West. Mr. Davis. There has been no such boom in my part of the State of Kansas. We are no worse oft' than other States ; and the county I live in has the smallest delinquent tax list of any in the State. Mr. Warner. How can the effect of the rise or fall in value of a farm come up with reference to a 3-acre lot which somebody thought was worth $4,000 five or six years ago? Are there any farm lands there worth that money"? Mr. Davis. There is another point. I suppose that property which has risen may still rise gradually. gg BANKING AND CURRENCY. Tx'aiisa^ under tLose circumstances 1 j. Mr dIyis I do not kno.v wliere I .vonld advise a ^a" to 8^;., J*^ could buy lands in Kansas as well as in most ot the States, as cheap as even Shylock himself could desire. LEGAL-TENDER TEEASUEY NOTES REDEEMABLE IN PAYMENT OP TAXES. The Chairman. Will you explain to tlie committee what your plan is as to tht ™s of supplying the people with sufficient m..ney ? Mr DAVIS Why, sir, I would authorize the Treasurer ot the^United States to Issue leo-al tender Treasury notes, in addition to the free coh a -e of gold ami silver. I would require enough to be issued to re- store to the countrv normal prices; such as existed a dozen years ago. So that our people could pay their 'debts with money about as valua- ble a^halwe borrowed. 1 think creditors should not be cdreafed by rindue inflation, nor debtors by undue contraction. I ask only for jus- *"weCTmurof chSand drafts in business, and that with them very little money is needed. That is true, birt what money is needed is badly needed, and it can not be dispensed with. In practice it is found that checks do not balance and cancel each other in full, as men do not owe each other the same amounts, but that there must be used in every clearing house some money ot final Payment ; that is money, or general checks on society at large, issued by the soverei'oTi governmeat or society in the concrete, which all are willing to accept as money of final payment. By the records ot clearing-house business for long periods it is found that, on the average, the amount of money of final payment necessary to settle balances is about o per cent of the business done. j- i, i • This is not much, but it is absolutely necessary to prevent bank- ruptcies Ninety five per cent of the business is done with individual checks and drafts, 5 per cent with money of final payment. In view ot these well-settled facts some flippant writers and speakers have taken the o-round that all business may be done with individual checks and drafts and that the volume of actual money cuts no figure. This is not correct. The 5 per cent of actual money is small, but it is abso lutely necessary to prevent bankruptcies. The entire business is based on tliis 5 per cent; and for every dollar of this money which may be withdrawn from circulation $20 of business must stop. This shows the importance of watching closely the volume of money of final payment. Even a small contraction deranges business, causes bankruptcies, and reduces the volume of the business of the country. That final payment must be good money. Some men contend, as I have said, that' because we do so much business with checks and drafts we do not need any money. It requires, as I have said, abso- lutely 5 per cent of money of final payment to meet this 95 per cent of drafts. Of every dollar of business done we must have 5 per cent, BANKING AND CURRENCY. 69 or $•") out of every $100, of good mojiuy with wliicli to do business. It does not matter whether it is United States notes or other good money. I am in favor of actnal payment of balances with money whieh is as good as gold in law. 1 am in favor of a currency issued by the General Q-overninent, and received by the (jovernment for all dues, and which shall be a general legal tender, and I am not in favor of any other sort of money. RISING PRICES PREFERABLE. Mr. Sperry. Before you pass from that subject of prices I would like to ask you a question. Does your school of finance claim that the American people in general are benefited by downward or upward prices? Mr. Davis. We claim that the people are benefited by rising prices. Mr. Sperry. Your suggestion, then, is that if the people pay more for bread or more for clothes they will be better off than if they pay less? Mr. Davis. No; if we have something with which to buy we are better off than if we have nothing. Falling prices compel idle labor. When prices are rising the industries are going, and the people are ' prosperous. A man who has nothiug can buy nothing at any price. If you double wages you double the ability of the people to buy. Mr. Sperry. You do not expect to level pricesin that way? Mr. Davis. Yes, sir; first raise prices to the former average level and maintain them there. Mr. Johnson, of Uhio. You are not in favor of scaling prices? Mr. Davis. 1 have quoted Thomas Doubleday on that. Mr. Sperry. Do you think it is injurious to the people of Pennsyl- vania that they have constructed railroads and can get bread cheaper from the Northwest than they formerly could from Buifalo without railroads "! Mr. Davis. The building of railroads has been a benefit to the East and the West both. , Mr. Sperry^ Then it is not true that rising prices are a benefit to humanity in general? Mr. Davis. It is true. Eailroads are beneficial. Mr. Sperry'. Then you think the building of railroads has benefited everybody by raising the prices? Mr. Davis. In bailding railroads prices are both lowered and raised. Lowered to the buyers of the East and raised to the producers of the West. Both sellers and buyers are benefited. The Chairman. Do you not think that improvements in machinery tend to the reduction in prices? Mr. Davis. If you have increased the money as the surplus com- modities are produced you have maintained the general level of prices. Particular commodities may rise or fall as the billows of the ocean, but the general sea level of '^prices should be maintained by the addi- tion of money as commodities increase. As already mentioned, we must add money to the dividend as commodities are. added to the divisor, in order to maintain the quotient, or general prices, at the same average level. Mr. Sperry^ It has lowered prices without regard to money at all. Mr. Davis. You can not make prices or do justice to humanity without regard to the volume of the money. Mr. Sperry-. Without regard to the money in circulation improve- ^Q BANKING AND CURRENCY. meuts in machinery have cheapened production so that the consumer ^aT?et loVer prices. Has not that been a benefit to the people J Mr DAYis. Money is valuable in proportion to limitation. If there is a genexal increase in commodities through the increase of machinery, then certainly there should be more money. .r^^v,:,^„,,„ x.„„ ^j-o iVTv Spfkuy Keen vour eye on the question. Machmeiy nas pro- du?ed artMes and maL thJm cheaper than they would be without machinery. Sr' siSS^'S^ not been a benefit to mankind in general that both machines and commodities are cheaper than belore T Divis Thatis true, if in the process of cheapening thousands of men htve not become idle, and hence unable to purchase even the cheap ax Teles. The men who make our laws to contract our currency knowquite well what they do. Mr. Doubleday speaks of the matter in England as follows : It is not easy to believe that the bill of 1819 TN-as brought iu ami passed in utter materia cUfflcult^ The minister fouucfit prudent, by withdrawing a portion of Sie^^ r money^to enhance the value of the currency "^ P°>-t"gL^l ^^-^^XrVeM ' He did so, but at the same time he made a commensurate reduction on '^H ^ebts, fubl and private so a^ to adjust the payments to a higher standard, and the faii- Cs of thKs so'mauifest aid price's so rapidly adjusted themselves "Bdj tl^e enhanced c'lrrency, that few murmured under the measure and no one was apprecia- bly injured by it. (Doubleday's Life of Sir Robert Peel, Vol. ii, p. 16/.) That is the only case I have been able to find where contraction has not damaged the people. It is usually a ruinous process benator Sherman once called it "an act of folly without example tor evil in modern times." Senator Wade said it would be "about as bad as a fire." Mr. Sperey. You mean paper money ? Mr. Davis. I see no difference in lawful money. Ihe quality or value of the monetary material cuts no figure. Mr. Speery. In increasing currency to the extent that it will make prices higher, do you not expect prices of commodities would also be Wgher 1 " , . , . . 1 ^ ■ Mr. Davis. Yes, sir. And a paper money whicli is not equal to coin I would not have. FIAT MONEY. Mr. Spbrry. Does your fiat school of finance contemplate paper money which is immediately redeemable in coin ? Mr'. Davis. They can be made exchangeable if you like, but there is no necessity for it.' It requires about two years of time, they say, for a man to get over the difhculty under which you are now laboring. We must have a money which rests upon something, not only on gold, but upon all values, in former times people differed much as to the foundations of this earth. They said that the earth must have rocks to rest upon. If a man asked what the rocks rested on it was found easier to silence him with an edict than to answer his question. Finally, men investigated and found that the Avhole thing, this great earth, 'was a round globe sweeping through space, and that it rested on nothing but the fiat of the Maker — of the issuing power. Mr. Spbrry. It was not a fiat of Congress 'I BANKING AND CURRENCY. 71 Mr. Davis. Congress does uot make globes, but it can make money, and tbat money sbould, like the eaitb, rest on tbe flat of tbe maker — of the issuing power. Mr. Sperry. Without regard to tVie redemption of paper in coinf Mr. Davis. Paper rests on the same basis that coin rests ou^the quality of legal tender. The trade dollar of 1873 was made a legal tender for five dollars. It was then good money. We removed that legal-tender quabty and it immediately went down to ninety cents. Congress can make a dollar by attaching to it the monetary function, which is the material thing. Mr. Sperry. The flat school of government teaches that a piece of paper is pist as good as coin. Mr.* Davis. When paper and coin are treated just alike. Whenever that has been the case, from 1812 until now, paper has been uniformly preferred to coin. Mr. Johnson, of Indiana. Do you think we could pass an arbitrary law and compel the people to respect it ? Mr. Davis. If the Government respected its own enactment by receiving its own money in the Government revenues, yes. Let us for a moment compare coin and paper under the most trying circumstances. At the beginniijg of the American Eevolution coin, or intrinsic money, failed to materiabze. It was not to be had. It was an utter failure. Onr fathers had no resources but paper. They had no government capable of issuing a proper money of any sort, but they did the best they could. They could print paper and call it money, but they could not receive it m the revenues of the Government, because the old confederacy did not collect revenues. They could not endow it with the quality of legal tender, because the old confederacy was not a sovereign government. They could not even make it redeemable m coin, as there was no coin to be had. Coin is always absent when most needed. But the patriot fathers had wit as well as patriotism, and they issued the best money they could. It was rudely executed and easily counterfeited, hence in practice must be unlimited m amount. People were expected to take it as a matter of patriotism. This was the only foundation of that continental money; yet for five years it met the requirements of the country, and Mr. Albert Gallatm after- wards spoke of it as follows: The paper money carried the United States through the most arduous and peril- ous stages of the war, and, though operating as a most unequal tax, it can not Be denied tliat it saved the country. If the American colonies had depended on coin money as a war power they would have remained subject to the tyranny of King George. American liberty would never have been born. Mr. Warner. Would it not have been equally as efhcacious in say- ing the country if the Government had simply gone and taken it by force from the people"? Mr. Davis. Mr. Gallatin said the currency saved the country, ihat currency was largely overissued, and also counterfeited by the ship- load by the British Government; yet it was five years fighting the battles of liberty as it gradually reached the point of worthlmess. Let us take another case. „ ., , . t^ i j m ^ In the year of 1797, money of intrinsic value failed m England, ihe bank paid out its last silver sixpence, and the nation was on the verge of ruin A paper money not redeemable in coin was adopted, which met every monetary requirement for twenty-five years, through all the terrible trials of the wars of Kapoleon. It earned the country 72 BANKING AND CURRENCY. triumpluiutlv through every crisis, coufeurmg oii t^i^ J'^'^1''^'^' ^ ^'I'^f, perity aud glory imequaled in ancient or modern times. »^n rms, subject Sir Archibakl Alison says : It is 1.1 these moments of public an,! piivate suffeiii.g tliiit tlie !f P;?,^';'^';:;}^^j'"J steps in to sustain public and private credit rturm^ the ^^^.t^^'^^;^^'^" ' f" industry has been paralyzed by the disappearance ot the precious luetals ij "' "^cu- lation * * But for its aid the Empire ^voald certainly have beeri destroyed. • * '* Had bank notes been rendered scarce .vhen gold disappeared the n:>tion and all its trading classes would have been bantrupted, and we should long since have been a province of France. And there are other cases. , , ^. , .■ -i j In the year 18i:J, during the wars of Napoleon, gold latterly tailed to meet the needs of the allied armies on the continent of Jimope. England, Kussia, and Prussia issued ajoint paper money, whidi sup- porteil the armies, broke the power of Kapoleon, and saved the conti- nent. The late Judge Martin, in his work on The Money ot Nations, says: It met the emergency as coin could not. Mr. Alison says: It passed as cash from Kamchatka to the Rhine, and brought the war to a siicoessful issue. » * « \vithout this paper money, the vast armaments of the allies would have been dissolved for want of funds for their support. During the war of the rebellion, when gold left the held, there were three kinds of noumetallic war money which stood the shock of arms to the end. The revolutionary government of the South Issued the best paper possible for such a government. It was precisely as good as the issuing power — no better, no worse. It was a brave money- far better than cowardly metal. It staid with the armies, and fought with them to the end. Mr. Warner. Was that money at par with gold? Mr. Davis. Most of the time it was, though it was never made a full legal tender. It was receivable by the Cxovernment for certain pur- poses. In lS13,K^apoleonwascarryingeverythingbeforehini. England formed an alliance to fight jSTapoleon. England, Eussia, and Prussia made a joint paper in 181.3, which beat Napoleon and saved the conti- nent, as just stated. At one time, the coins of England were worn aud clipped and they had decreased in weight very much. IMacaulay says, to restore that currency cost the country more than all the bad laws and all the wars of the bad kings that the country had ever had. Mr. Warner. That was the cost of recoining it ? Mr. Davis. The* recoining cost a mere trifle; it was the contrarfion of the number of iiieces that did the damage. Mr. Haugen. Alai-aulay attributes that to the clipjiiiig of the coin. The Government bore the expense of recoining it, aud it cost the Gov- ernment twelve million pounds sterling. Mr. Davis. Certainly, the Government paid for the lecoinage, but the bill was footed by the people. The reduction of tlie number of pieces was the main damage. It was a contraction of the money. Mr. IlALL. Was that at the time that Xewton was director of the mint? Mr. Davis. Yes, sir. The clipping and coinage altogrther made the damage complained of. Mr. Hall. He attiiljuted that solely to the consequences of the clip- ping of the coin? BANKING A.ND CURRENCY. 73 Mr. Davis. Vus, sir. Of course, the cost of recoinage and tlie coa- traction of tlie money were all consequent on tlie clipping; biit it was the contraction Avliich did the great damage. !\[r. Alison attributes the dark ages to the contraction of the Eoman money. At the Christian era there were $1,800,000,000 of metallic money afloat in the lioman Empire. By the thirteeutli or fourteenth century there was only two hundred millions of money. Society was disintegrated and people living in clans upon each other. When the American mines were discovered money increased, society became rehabilitated, and human rights gained ascendency. Mr. Hall. What kind of money was discovered then? Was it flat or gold? Mr. l^Avis. It was flat. Before it left America it took $116 in gold bullion to buy a quire of paper. When the gold was carried to Europe, where it became flat money, it rose in value. In ancient Peru, gold was plentiful; but it was not used as money. There was no artiflcial monetary demand created by law. It passed from man to man on its commercial value only. When thus left to itself, on its own merits, it had very little commercial value. Mr. I'res- cott, in his Conquest of Peru, tells us that on one occasion, in the open market of Cuzco, the capital of Peru, it required gold bulhon of the weight of $116 to buy a quire of paper. A bottle of wine sold for the weight of $690 in gold bullion. A sword was worth $500; a cloak $1,160; a pair 61 shoes $400 or more; and ahorse about $30,000 weight of gold bullion. Between that low price of gold and the high charges for it by the gold gamblers of our time, there is room for ten thousand stages and degrees of fluctuation. Mr. Warner. Was not silver oidinarily flat as a matter of fact? Mr. Davis. It was both coin and flat. Mr. Warner. Was it not so in England and Prance! Mr. Davis. A portion of the time it was. Mr. Warner. Was not gold doing its work as money! "COINING" PAPER. Mr. Davis. Usually it was. Men could pay gold on their obliga- tions. Gold was not good money at one time. I claim it is the con- stitutional duty of the American Congress to coin gold and silver and paper until we have enough money to maintain prices on a just and reasonable level. They tell me that coining paper is a far-fetched and inappropriate phrase; that coining only applies to metal. Some great writers have said that coining refers to paper as well as to ihetal. If yon will notice, the first meaning of the word in Webster is '' to stamp." Mr. Johnson, of Indiana. To what book do you refer? Mr. Davis. This is "Alison's History of Europe," Volume Vix, p. 92, Speaking of French paper in 1805, Mr. Alison says: In the midst of the apparent prosperity produced by that excessive increased (of paper money), the sagacious mind of Napoleon perceived the seeds of fntnre evil; and amidst all the turmoil of his military preparations at Boulogne he immediately wrote to the minister of finance on the subject and warned him of the danger of the Bank of France trusting too far the delusive credit of individuals engaged in exces- sive transactions or pushing to an undue length in the form of paper circulation the royal privilege of coining money. September 24, 1805, Napoleon wrote from Boulogne as follows : The evil originates in the bank having transgressed the law. What has the law done? It has given the privilege of coining money in the form of paper to a particular company ; but what did it intend by so doing f Assuredly, that the circulation thus 74 BANKING AND CURRENCY. created should be based on solid credit. * ■; * I'^/''l^r''^^^" '^jl^n^'erf of su^^^ this manner the T>a,d: is anning fahe money So cdearly do I see ^^'^ f'^^Se^-- o* ^^c^ a course that, if necessary, I would stop the pay or my soldiers r-^*'/,^ .'^^ ^Wch" Tere in it. I am distressed beyond measure at the necessities of nl^ s t. ati n wh ch, bv compellino- me to live in camps and ensagin- me m distant expeditions with- draw Tattentiou from what wo'ald ?tberwise.be the chief ob.ject., my =uix^^^ first wish of my heart-a good and soiid organization »\/" 'i'^,^* ^°'\';^™'/f.J" "^^ est of banks, manufactures, and commerce. (Alison s History of iurope, \ ol. \ ii, p. 92.) That statement was written only sixteen years after the adoption of the American Constitution, which authorized Congress to com money and regulate the value thereof." It was not uncommon m those days among good writers to speak of "coining" paper currency. _ ihe word "coining" applies to paper as well as to metal. It is the business of the United States Government to furnish the people with good money. Mr. Warner. Is that your opinion or is it something yon are quot- ing! Mr. Davis. It is the opinion of Napoleon. , ^ ^xr i Mr. Warner. I would as lief have your opinion as that ot JNapoieon. Is it an expression or a quotation ? ^v ,. ^ at Mr. Davis. I give this as my own opinion as well as that ol Alison, Napoleon, and others. Mr. Warner. That is satisfactory. . Mr. Davis. I say that it is the duty of the Government to furnish this money. There is now no question but what the Governnaent can issue paper money and make it a legal tender. In that case it will be uniform in all sections as long as the Government exists. Mr. Johnson, of Indiana. Do you not think there would be danger of an excess being issued by the Government? value and volume. Mr. Davis. I said, "Sufticient money to keep prices on a level." Is there any other method by which paper money can be issued! I think there is not. I know that we have a decision of the Supreme Court that national banks are constitutional. But there has never been a question before the court as to the validity of the question of banks issuing lawful money. I have not been able to find it. If they are necessary fiscal agents of the Government, then the court held them constitutional, but they are not authorized to issue money. That ques- tion has never been adjudicated. It is the prerogative of the Govern- ment to make money, and when Congress so authorizes, it is the duty of the Government "to coin money and regulate its value. Money is valuable according to its limitation. The Government can coin money and control its value, or fix its volume or value. The terms "volume" and "value" in connection with money are interchangeable. Mr. Warner. Could the word " volume" be inserted in the phrase, " to regulate the volume thereof and of foreign coins ?" How could the Government regulate the volume of foreign coins? Mr. Davis. Before we coined silver to any great extent we admitted the Spanish dollars which Avere a legal tender for debts. Werepealed that law. Now we regulate the amount of legal money which comes from Spain. That is to say we do not admit it as lawful money. My. Warner. Is that what the law means — to regulate not the value but tlie volume of foreign coins! Mr. Davis. I take the ground that it means to regulate the value of dollars by regulating the volume. BANKING AND CURRENCY. 75 Mr. Warner. Does it not mean that they shall regulate the value at which they shall be received? Mi'. Davis^ The G-overiuneat regulates the volume of foreign coins which come into this country, by regulating the value at which they shall be received, or by refusing to do so. Mr. Warner. Then the United States Mint may be wrong in sup- posing tliat the settlement of the value as distinguished from the vol- ume of foreign coins is authorized by the Constitution? Mr. Davis. The Mint has a perfect right to do that. Mr. Warner. My question is whether there is any distinction between " value'" and "volume" in the way you put it. Mr. Davis. There is none as itrelates to money. The valueof money is in proportion to its volume. You cannot regulate its value, unless you control its volume. Another point I propose to make now is this: First, we have a deficiency of money in the Treasury. It seems that we have reached the sky in our tariff income, and have not enough money to meet the demands of the Government. There is a great want of money among the people. Can we increase the volume of currency at present by act of Congress? It is stated on good authority, and it can not be controverted, that there has been a great wasting away of greenbacks. Mention has been made as to how much the greenbacks have wasted away. In 1888, Senator Plumb stated that there had been at least $46,000,000 of greenbacks wasted and destroyed. The banks have retired about $150,000,000 of their currency, besides the bank currency which has been Wasted and destroyed, during the twenty years of its use. I think at least $L'00,000,00(» of greenbacks should now be issued to fill the place of the wasted, destroyed, and retired currency. There would be no iaflation in that. When William H. English, some years ago, retired from the presidency of the Indianapolis National Bank, he issued a statement to the stockholders in which he said that the capital of the bank was about half a million dollars, and thecurrency of the bank had decreased $30,000 in bills lost or destroyed. That occurred in fourteen years in a bank having a capital of one-half a million dollars. Then it appears that Senator Plumb was not far wrong when in 1888, he said that $40,000,000 of currency had been lost or destroyed. In looking over the tables of the national banks, I find that they have not issued as much currency as they have retired by $150,000,000. If we are to keep the currency (m a level, in view of the increase of population, we would require more and more money, and now we should issue at least $200,000,000 or $300,000,000. The green- back currency should not be reduced below $346,000,000. Mr. Hall.' While you are on that point, I want to know where you find any authority in law for the United States Treasury to issue money to take the place of that lost or destroyed. Mr. Davis. There may be none; but we as a Congress have a right to make a law. Mr. Hall. You do not claim that there is any authority now ! Mr. Davis. No, I do not blame the Secretary of the Treasury for this. I do blame him, however, for not showing all the facts; that the people may at all times be fully and truthfully informed in the matter. The Treasury Department has made an admission that there were some eight or ten millions of fractional currency destroyed. The greenbacks, then, must have been destroyed too to some extent. There was not less than one million destroyed in the flood at Johnstown. We know that by fire and flood there has been a vast amount destroyed. There is a great waste each year in mutilated bills. We certainly have a 76 BANKING AND CURRENCY. right to issue additional bills for those destroyed. , We «m authorize ?ls?s?s^tSSf ht^iJ :^Z^£^ s^eS- ^ ?heTst and desSyed fraotioual currency, he ought to give us some L -fs^to whatte tiinks is the -ouut^of other currencies dest^oyed^ I think he should be allowed to issue at least f ^*|"'^^*^y''j"^ 'i^^l^'^^^^^^ the retiring of bank currency and the vacancy by this loss and destiuc- *' Mr' HALL. You cannot criticise the Secretary of the Treasury for " MB"DlYit"No:"lf 'l were the Secretary of the Treasury myself,! wo^S not sssue the currency. But I would say to OoBgress tha tin all nrobability a vast amount has been lost or destroyed. I do not blame the Secretary of the Treasury for not issuing more^ curreucy Sr the vrelent faws. But he should inform Congress that more 'X'wIrker ' You have referred to the propnety of making good the contrtction of the currency. As a matter of fact has not that lost money been more than made good by aaditional issues ! Mr Davis. Certificates have been issued. _ _ . Mr Warner. Do not understand me as criticising you m that regard. What I want to get at is this : if we issue more currency, have we eot to issue it upon the same basis'? , i i ■ „„ Ml DAVIS. I have a speech made by Senator George and he is no tiatist), in which he claims that according to present conditions we^are ius ifled in issuing more currency and that it can be done without increasing the gold reserve. He quotes Senator Beck showing that t could be fncreased to double the present volume. It does ^ot require a large reserve to float legal tender greenbacks. President Hayes in his message to Congress of December 1, 18/9, said: Thp ilpTiiind on the Treasury for gold and silver in excbiiuge for United States nols hafbeen comparatu'ely Lall^and the Toluntary deposit of com and bnlhon m :° hlng for no'sCs beenUry large. The excess of «'V^'--l«--f*S ate? notes or exchanged for Unite.l States notes over the amount ot United btates notes redeemed is about $40,000,000. When the Constitution authorized Congress to coin money, that word "coin" meant the coining and issuing of both metal and paper, it was common in those davs to speak of the issuing of paper as coming money, and an over issue of paper was mentioned as "coming talse money " I have already proven this point by quotations from Alison and Napoleon. Good paper money needs no gold basis, more than we now have. . t xi • i i i o The banks should not be permitted to issue currency, i thm \l banks have no right to perform the functions of Government. It is much more costlv to have national-bank currency. The greenback is manu- factnred in the Treasury of the United States, and is paid out only for Government expenses. It is paid to Congressmen and others who per- form services for the Government. Every greenback thus far hits left the Treasury in payment of Government obligations. The Govern- ment has iust two ways of getting money to pay obligations: one is to make the' money, and the other is to tax somebody. I would make greenbacks the'only paper money, and I would maintain the level of prices by regulating the volume of money. This is the only way that Congress can "regulate the value thereof." Mr. Spbrry. Would you make and pay out enough so that you would not have to levy taxes ? BANKING AND CURRENCY. < i Mr. Davis. I would not. That was the trouble with the continental money. It was overissued by the Oonyress because they could not levy and collect taxes. And it was largely overissued by the English Government in the form of counterfeits. The same was true as to the French assigiiats. During the French revolution, they largely overis- sued the assignats, but not so largely as did the Britisli Government. The British Government had 17 establishments working 400 men in the city of London, manufacturing Frencli assignats. Mr. Wakner. But when the assignats were deprived of legal-tender qualities, did not gold reappear in circulation and remain so through- out the Napoleonic wars? Ml. Davis. No sir; the assignats were all dead in 1790, before the Napoleonic wars had fairly begun. Napoleon was a hard-money man, and got his coin and other supplies by robbing the conquered nations. Mr. Warner. Do I understand you to say Napoleon sent back to France such enormous quantities of money that the whole amount of actual existing coin in France, whether it was sent there or came there, was equal to the amount lost in blood and brawn withdrawn from production to follow Napoleon ? Mr. Davis. That coin had to come from some place. Mr. Warner. It came from the outside ? Mr. Davis. It certainly did. Mr. Warner. The French people are notoriously conservative about accepting foreign coins. History is absolutely clear in teaching that that gold promptly appeared in France and staid there. Mr. Davis. It appeared, and it had to come from some place, and after going to the French mints it was French coin. And here is the way some of it came, as related by Mr. Alison : The victories of Uhii and Auisterlitz provided the means of solving the (financial) difficulty. From the moment the grand army crossed the Rhine it was fed, clothed, lodged, and paid at the expense of Germ.any. On the 18th of November, an edict ot the Emperor directed the transmission of all funds to the army of the north to cease and on the 18th of December a similar order was given in regard to the army of Italy. Thus the three principal armies of the Empire ceased to he any longer a charge upon its finances, and the tributary or conquered states bore the burden of the greater part of that enormous military force by which they were overawed or retained in subjection. This system continued without intermission during the whole remainder of the reign of' Napolecm. From the castle of Wurtemburg Napo- leon wrote, October 4, 180.5, to the minister of fiuanies at Paris : "Thi; army maintains the most exact discipline; the country hardly feels tlie presence of the troops. >\'e live here on bom ; I have no need of money from yniir These hons were treasury bills, wdiich were discharged by the French Government out of the contriliutions levied on the inhabitants, or the sums extracted trom the conquered countries.- (Alison's History of Europe, Vol. vii, p. 100.) The Chairman. Will you appear before us at the meeting to-mor- row morning? . , , . , T • , i Mr. Davis. Yes, sir. There are several points of which i wish to speak. I wish to mention the comparative cost of bank and greenback money. , . ., . , I am much obliged to the committee for its kindness m hearing me at such length. Thereupon, the committee rose, to meet to-morrow, \\ ednesday, Octo- ber 4, 1893, at 10 a. m. 78 banking and curkency. Committee on Banking and Cueeency, Wednesday, October 4, 1893. The Committee on Bauking and Currency this day met, Hon. William M. Springer in the chaii'. STATEMENT OF HON. JOHN DAVIS, A REPRESENTATIVE FROM THE STATE OF KANSAS— Continued. Mr Chairman and gentlemen of the committee: I am very much obliged to have this second opportunity to say something which I was diverted from by the great number of questions yesterday; questions, however, that were very proper and useful and I enjoyed them very much. The points I want to make tliis morning I can pass over very rapidly and 1 will not occupy more than thirty minutes unless I am interrupted. One point I tried to make yesterday was this: That the addition of money in this country would give our people rising prices, and, hence, call into action all the activities of our people, all idlers and tramps and all such men; and, employers would be hunting employes instead of employes hunting employers. A change to that policy can be easily done, according to the history of this country and other countries, by the addition of money and rising prices. It would make all the people prosperous; and having done that, having called into existence -all these activities of our people, we have increased consumption by this nation of the products ot the world; thus raising the gold prices of cotton and wheat in London. By increasing tlie demand, by doubling the demand, from this country, it would be adding the demand of thirty million people in their consuming power above what we have now. Having decided that, the point comes : How are we to increase money, and wliat kind of currency are we to iioat ? T think we should float the United States Treasury note. The Government of the United States is authorized to coin money for the people. "Coin," I proved yester- day, applied to paper as well as metal, and I proved it by quotations from Alison, Hume, Napoleon, and other writers of the times when the Constitution was made. Napoleon Bonaparte was certainly considered a hard-money man, and he declared over and often that he never would issue Treasury notes, and you all know the reason for that, yet Napo-' leon applied the word "coin" to paper. Hume speaks of "coining land " into money. We should adopt the gold and silver coin of the Consti- tution, making them full legal tender at the present ratio; we should then add legal-tender United States Treasury notes, as much as needed to maintain reasonable and level prices for property. We should adopt the idea of Treasury notes as the proper money; first, because it is constitutional; second, because it has been the practice of this country ever since 1812, about eiglity-one years; third, because 1 do not think the Government of the United States can delegate an act of sovereignty to a corporation or to an individual. I do not think the Congress of the United States — the Government of the United States — should del- egate the power of declaring war or making peace or issuing money to a corporation or to an individual. No corporation <^>r individual should be authorized to issue money or to do any other sovereign act. I am met Avith the claim that the banks issue currency, and that banks have been declared constitutional. As issuers of currency they have not been declared constitutional; they have been declared consti- tutional on the ground that they are necessary fiscal agents of the Government. The question of banks issuing currency has never come before the court in that particular form; hence, let me add, bank cur- BaTnRiTSG ~aSj3 CURKENCy. 79 reiioy of this coiiutry has not been made a le^al tender because that would at once bring the question of issuing "lawful money" before the courts, and the banks are afraid to do it. Bun suppose the Supreme Court has decided that bank currency is constitutional, which I deny, then this question may go to the very highest court; and then comes the question, What is tlie highest court? I remember in 1858, when Senator Douglas and Mr. Lincoln were discussing the Dred Scott decis- ion of the Supreme Court, and Mr. Douglas asked Mr. Lincoln how he would get around the decision of the Supreme Court of the United States. Would he appeal to a town meeting? Mr. Lincoln replied in effect : Yes, sir; I will appeal to a town meeting, aud to auothev town meeting, and another town meetinR, and all tlie town meetings; aud I will reverse that decision. So there is then a higher court. The people are a higher <:ourt than the Supreme Court of the United States, and on five occasions they have decided that "a national bank is unconstitutional and dangerous to hberty;" at five different elections, commencing with the second election of President Jackson, and then the election of Mr. Van Ikireu, on up through the forties aud lifties. Jackson was elected tlie .second time on the absolute issue of the banks. He was 0])posed to the banks, and he took that ground absolutely and positively, iis message after message show; aud in documents to his own cabinet, and in various ways he affirmed that the banks were "unconstitutional and dangerous to liberty." Mr. Van Burcn was elected on the same ground. There was no platform reported, but he said in regard to the bank question that he would "walk in the footsteps of his illustrious predecessor." That was his position and he was elected. There were seven times, including two verbal statements, five written and two oral, where it was stated that "a national bank is unconstitutional and dangerous to liberty," and that the fuuds of the United States should be kept sep- arate from all banking funds. In 1840 the Democrats weakened on the bank question, and Mr. Harrison occupied an equivocal position. The bank was not strictly the issue. But five times in seven the Democrats gained the day, showing that the people were of the opinion that a national bank is unconstitutional and dangerous to liberty. Thomas Jefferson, the first great Democrat in this country, expressed himself on varioits occasions substantially as follows : Bank paper ranst be suppressed and the circulation restored to the nation to whom it belongs. The power to issue money should be taken from the banks and restored to Con- gress and the people. I sincerely believe that banking establLsbments are more dangerous than stand- ing armies. I am not among those who fear the people. They, and not the rich, are our depen- dence for continued freedom. Aud to preserve their independence we must not lot our rulers load us wath perpetual debt. Put down the banks and if this country could not be cfirned through the longest war against her most powerful enemy without ever knowing the want of a dollar, without dependence on the traitorous class of her citizens, without bearing hard on the resources of the people or loading the public with an indefinite burden of debt, I know nothing of my countrymen. The first, real contest with the bank power occurred under the admin- istration of President Jackson, who in one of his messages described the case as follows : It being thus established by unquestionable proof that the Bank of the United States was converted into a permanent electioneering engine, it appeared to me that the path of duty which the executive department of the Government ought to pursue was not doubtful. As by the terms of the bank charter no officer but the 80 BANKING AND CURRENCY. Secretary of the Treasury could remove the deposits, it seeiued to me that this authoritV on-ht to lie at once exerted to deprive that great corporation ot the sup- portanc^ coBtlnuance of the Government in^uch a use of its funds and s.jch e^ertj^^n of its power. In this i.oint of the case the question is distinctly presented whether the pi pTe of the United States are to govern through Representatives chosen by S-uilbiased suffrages, or whether the po^ver and -"''^ ^^ ^^ f '^Z;, /^XMonT are to he secretly exerted to influence their judgment and control then ^I'-'Cisions It must now be determined whether the bank is to liave its candidates tor a 1 offices in the country, from the highest to the lowest, or whetlier candidates on both sides shall be brought forward, as heretofore, and supported by the usual means. Tiiomas H. Benton, in the United States Senate, declared himself as follows : Tlie Governiuent itself ceases to be independent, it ceases to be safe when the national currency is at the will of a, company. The Government can undertake no great enterprise, neither war nor peace, without the consent .and cooperation of that tompany; it can not count its revenues sis mouths ahead without reterring to the action of that company-its friendship or its enmity, its concurrence or opposition- to see how far that company permit money to be scarce or to be plentiful; how tar it will let the money system go on regularly or throw it into disorder; how tar it will suit the interest or policy of that company to create a tempest or suiter a calm in the mouey ocean. The people are not safe when such a company has such a power The'temptation is too great, the opportunity too easy, to put up and put down prices to make and break fortunes; to bring the whole community upon its knees to the Neptunes who preside over the flux and reflux of paper. All property is at their mercy. The price of real estate, of every growing crop, of every staple article in the market, is at their command. Stocks are their playthings-their o-amblin.' theater, on which they gamble daily with as little secrecy and as little morality°and far more mischief to fortunes than common gamblers carry on their operations. The sad experiences of the country in its struggle with the bank power in the earlier days of the Eepublic, and the bold and patriotic teachings of the great Democrats of those times, instilled into our peo- ple a j nst and prudent jealously toward the banks which usually insured the success of the Democratic party at the national elections. Presi- dent Jackson began his memorable contest with the bank power ditring his ttrst term. His second election was on the bank issue. His signal and glorious victory showed that the people were with him. He declared in his ftght that a national bank is unconstitutional and danger- ous to liberty. And at the polls the people declared that Jackson was right. Marti u Van Bnren was elected in 1836, because i-t was understood that, on this bank question, he would " walk in the footsteps of his illnstrious predecessor." Seven times the people \-oted on this bank question, with the e.5.pressed or implied understanding that the Demo- cratic party was in deadly hostility to the existence of a national bank and was opposed to the mixing of the Government money with the funds of banking institutions. Five times a-t those seven elections the people elected the Democratic ticket on the antibank platform. In 1860 and since that time the Democratic platforms have expressed no hostility to national banks. Since 1860 the Democrats have been beaten seven times in nine. And a new aiitibank party is organizing and coming to the front to renew the tight of the old Democrats on the money question. To sliow the form and nature of the contests in the national elections referred to, I quote from the Democratic platforms of 1852 and 1856 the following resolutions : Resolved, That Congress has no power to charter a national bank; that we believe such an institution one of deadly hostility to the best interests of the country, dangerous to our Republican institutions and the liberties of the people, and calcu- lated to place the business of the country within the control of a concentrated BANKING AND CUEEENCY. 81 money power, and that above tlie laws and will of the people; and tli.-rt the result of JJemocratie legislation in this and all other finaucial measures upon whirh issues have lieen made between the two political parties oftlie eoiiutrv have deuioiistr:it(;d to candid and practical ni(.-n of all parties their soundness, safety, and utility in all business jiursuits. liesoived, That the separation of the moneys of the Gmerniiieut from baukin;^ insti- tutions is indispensable for the safety of the funds of th(- (ioverumeut and the rights of the people. Mr. Ohairmau, that was the emblazonry ou the proud and victorious banner of the ancient IJemocracy hoisted by the ijumortal Jackson at the close of the most memorable political contest in our history. Through seven Presidential campaigns it was carried aloft to ahiiost certain victory, winning tlie day by the approval of tlie people five times in seven. All this, the ancient leaders of your party and their followers did, with that hydra, chattel slavery, gnawing at tlieir vitals, and on there shoulders that pile of tigers — the moueyedinstitutioiisof theeast. Speaking of Jackson's victory over tlie national bank and its branches. Senator Benton said : She is not dead, but holding her capital and stockholders together under a State charter she has taken a position to watch events and profit by them. The royal tiger has gone into the jungle, and, crouched on his belly, he awaits the favorable moment of emerging from his covert and springing on the body of the unsuspicious traveler. During the late war, when this country was in a death struggle' tO' avert dismemberment, and while the minds of the i)eople were intensely occupied with that contest, the "favorable moment" came; and for thirty years the progeny of that "royal tiger," in the form of 3,000 whelps, have had this great nation by the throat fattening on its life blood. Mr. Chairman, let us compare the national bank note with the Treas- ury note as to the matter of economy. The greenback is manufactured by the Government in the Bureau of Engraving and Printing, and when a bill is completed it leaves the Treasury of the United States ; it passes out and tire people get it, When the greenback lea\'es the treasury it pays a monetary obligation of the Government and the taxes of the- people. The Government has two ways to raise money to pay exi^enses ; one is to make it as currency or greenbacks, and the other is to tax somebody and get it to pay out. These are the only ways in which the ' Government can get money. Even by borrowing they have finally to- pay the money with which to meet the loans. The bank bill, manu- factured by the same Government, leaves the Treasury of the United States without value received. It goes out but does not pay any debt when it leaves the treasury; it does not pay any monetary obligation of the Government. At one time there was over $350,000,000 of bank currency afloat. When that currency went out it paid no monetary obligation whatever. We had just as many debts to pay and just as much interest to pay as formerly. That currency went into tlie hands of men who make money by loaning it to the people. It went out with- out value received by the Government. If that $350,000,000 had gone out in the form of greenbacks, it would have saved $350,000,000 of taxes. Now, if the matter stopped there we might make it a loss and let it go. But when the bank bill went out from the trea.sury a bond went in; that bond draws, say 4 per cent interest. It costs us 4 per cent per annum to jjut these bills into the banks. But that is not all; they go into the hands of the banks. The banks loan them, say, at 6 per cent. The banker receives 6 per cent from the people and 4 from 940 6 ^2 BANKING AND CUERENCY. tue Government, on the bond., so^Ue^e i. 10 per^e,^ wM s nv port theiiGoverninent! its functions do not include the support of the ^'Tiei'.t- "Thank you, Mr. Secretary, for your kind advice. I know thVt I 'md my people are not very wise, but by keeping ourselves m a ■eceptit^^^ f"mrof\m we may learn something, /erhapslinay vea- tnre toassert that just now I am learning very fast. The intormatiou you have ustin.parted gives me a wonderful nisight into the philoso^ -phy of government. The members of our corporation knew o an fnstenocfwherein a certain banking corporation was granted a loan o *45 0(0 in currency for twenty years, at 1 per cent per annum, on Sposit of $50,000 in United States bonds as security, and we inno- cently supposed that our corporation, for the same security, would be BANKING AND C'UERENCY. 83 granted an equal sura to be used in industiial x:)ursuits wliicli will give employment to labor and develop tlie resources of the country." Secretary: "That is entirely a different matter, sir. For banljing purposes you can have all the money you desire (u}) to 90 per cent of the bonds you deposit) at 1 per cent per annuju, on twenty years' time. 1 will pay you gold interest on the face value of your bonds, while they are on deposit, one year in advance, exempt youi- currency from all State or local taxation, and renew your currency when old bills become mutilated, without extra cliarge. Your bonds are already exempt from all taxation. Your currency, which costs you 1 per cent liere, can be loaned in most of the Western States at 10 per cent, compounded from four to twelve times per aniuim. Your taxes will be light, and the profits on the cost of your currency will be approxi- mately $10 to $1; or, a protection of about 1,000 per cent. No busi- ness in this country is guaranteed by the Government such profits as banking." Agent: "Again, Mr. Secretary, I thank you. But is there no pater- nalism about this?" Secretary: "You will get all needed information regarding details of the loan from the Comptroller of the Currency, who will, in due time, forward you the money. I will be mudi pleased to see you at any time you are in Washington. Good day, sir." I claim,'flrst, that the national-bank noteis unconstitutional, so decided by the people; second, it is costly; and third, it goes into the hands of men who are dangerous to the country. The great case in which the right of Congress to charter a bauk was passed upon by the Supreme Court is that of McCulloch rs, Maryland, decided in the year 1819 and reported in -1 Wheaton, p. 316. The main point decided in this case is that a State lias no right to tax the constitutional means employed by Congress in carrying into effect its constitutional powers; and it was incidentally decided that the United States Bank was constitutional. The case was argued by the ablest constitutional lawyers, among whom may be noted Daniel Webster, and the decision was delivered by that great jurist, Chief Justice Marshall, in one of his ablest opin- ions. The decision has been confirmed a number of times by the Supreme Court and stands as unquestioned authority in all that it passed upon. It is because of tJm incidental finding of the court in this case tliat the old United States Bank was cinistitutional, that the impression has become general that "national banks, as banks for the issue of money, have been held constitutional." In McCulloch r.v. Maryland, the question of the right of Congress t(.) charter a bank for the issue of money Avas not before the court at all. The question was simply whether Congress had the right to char- ter a corporation to carry on a general banking business. Mr. Web- ster, in his argument for the bank, contended for its constitutionality on the ground that it w^as a suitable and proper instrument to assist the Government in the collection and disbursement of revenue. The grounds of contention on which the constitutionality of the bank were based is indicated in few words in the following from the argument of the Attorney-General (p. 353 of the report) : We contend that it was nocessary and proper to carrj^ into execution several of the enumerated po'-vers, such as the power of levying and collecting taxes through- out this widely extended empire ; and of paying the public debts, both m the United States and in foreion countries; of borrowing iponey, both at home and abroad ; of regulating commerce with foreign nations, and among the several States ; and of raising and supporting armies and a navy, and of carrying on war. 84 BANKING AND CUEBEiNUY. Oouusel who opposed the bank did so pruicipally on the gTonnd that Con™ had not power to charter a corporation of any kind, and that it was not a '-necessary and proper" means tor carrying into execution any of the granted powers to Congress. They were caxefu noUo con- tend for the rioht of Congress alone to issue money; tor they wished to substitute State banks for the national bank as banks ot issue. They contended that the l\inctions of the "national bank had been and could be all performed by the State banks as well as could have been done by a bank incorporated by Congress. Towhere was the question of the right of the bank to issue money presented to the court; nor did it consider it m deciding the case as may be seen by the following extract from the opmion of Chief Justice Marshall (p. 403 of the report) : Uthnuoli amono-the enumevateA powers of tlie Government, we do not find the ^^d'bankC ''incorporation," we find the great powers to lay and collect taxes ; to horroTmon^y; to regnlate commerce; to dechiro and conduct a war; and to raise ancl sunnoit armu,s and navies. The sword and the pnrse, all the external relations, :nd irfneonsideralde portion of the indnstry of the natron are -t-«ted t^ rte go v ^^^!^^^^^^^^ '^^ Iti«n->t denied that the powers given to the Go'4nment inpirtie ordinarv means of execution. That, for example of raising ?eXne and nmlying it to national purposes, is adndtted to imply the power ot conveying money froiu place to place, as the exigencies of the nation may require, and of employing the usual means ot conveyance. The ciuestion whether the bank was a necessary means for executing the power "to collect revenue," the court would not decide, saying that Congress was the sole judge of that. Thus the court decided that the United States ]3ank was constitutional as a bank to aid in the collec- tion and disbursement of revenue, etc., provided Congress thoug-ht it a necessary and appropriate means for that purpose. The question ot the power of Congress to delegate the right to issue money or currency has never been submitted to tlie Supreme Court. The late Senator Plumb, who was then president of a national bank, and for fifteen years a Senator oi the United States, and who doubtless spoke from observation and experience, said at the time of making his speecli "that the banks during the last twelve montlis have contracted the currency 5 per cent of its volume, whicli has reduced the price of property in this country .f 3,000,000,000." His statement proves that one single financial stroke by the banks hurt the finances in this country as much in one year as the late war did in tour. Mr. Speery. Do you believe that"? Mr. Davis. I believe that it is half true. Mr. Sperry. Do you believe a contraction of the currency is as dangerous to this country as a war ? Mr. Davisi. I did not say that ; I said it Nvas as damaging to our finances. I said it cut our finances. Yesterday I said it was as much as the national debt was at the close of the war. Now, I will tell you somethino- more while we are on that subject: Senator Plumb said this, contraction had been going on for ten years, and that it had driven the country on to the breakers. Have I answered the question? Here is Senator Plumb's statement : In April, 1888, Senator Plumb, of Kansas, discussed this contraction subject as follows: But this contraction of the currency, by means of the retirement of nntioual-hauk circulation, has been going on for more than ten years, and all the committee has to say now is that it has considered some bill, but it is not completed. If the com- mittee will not complete some measure the Senate must. If the Senate will not, and BANKING AND CURRENCY. 85 the other House will not, then the country in ,i;oiug upou the breakers of financial disturbance. As a Senator says in my hearing, "it is there now." I thinli it is there now. We are dealing with a (fuestion which has more to do with the welfare of the people of the United States, which is of more concern to them than any other thing *at is pending in eith<',r House of Congress, or which can be pemliiig— the volume of the circulating medium of the country, tlie value of its pr(jperty, the difference between debt and banlo'uptcy on the one hand, and fteedom froin debt with prosperity on the other. It is estimated that there are iu circulation, including that whicli is locked up in the Treasury and lield in the banks as a reserve Innd, about $1,600,000,000,000 of all kinds of currency of the United Stat<.'S, gold and silver, the overplus of t^old and silver certificates, greenback notes and national-bank notes, all told, and Uiere are more than $60,000,000,000 of property which must finally be measured by this volume of currency. It has been contracted during the last year more that 5 per cent iu addition to all that has occurred by reason of abrasion and loss. No man can tell the volume of greenbacks outstanciing. Nominally it is $346,000,000 and a fraction, bnt that volume lias been subject to all the accidents which have occurred during the jjast twenty-five years, whereby money has been consumed, worn out, lost, and it is doubtful if the amount is really over $300,000,000 to-day. But saying nothing about that, the retirenient of the national bankiug circulation during the past twelve months has been 5 i)er cent of the total amount of the cur- rency outstanding. Tliere has been during that period a. phenomenal depreciation of the i)rices of property. There has been the greatest depreciation of the price of agricultural products the countr\ has ever known. The contraction of the currency by 5 per cent of its volume means the depreciation of the property of tlie country $3,000,000,000. Debts have not only increased, but the means to pay them have diminished in proportion as the currency has been con- tracted. Events based upou non-legislation have proved of advantage to lenders but disastrous to borrowers. The Senator from Delaware [Mr. Sanlsbnry] the other day spoke with great feel- ing about the mortgaging of farms in this country. So far as that complaint relates to a general condition, to the lack and to the shortcomings of legislation, it is more nea.rly related to the dluiinished volume of currency than to any other one thing. In June, 1890, Senator Plumb continued the di.scussion of this sub- ject, as follows: Let us see, therefore, how much money is available for actual use among the people. From the total of $1,560,000,000, arrived at as above, nnist be deducted an average of $260,000,000, which the Treasury always keeps on hand, and about which something has heretofore been said in the debate on this bill, and that leaves as the maxinuim which can by any possibility be used $1,300,000,000. There ought, in fairness, to be deducted from this $150,000,000, error iu estimate of gold iu the country, which would reduce the money outside the Treasury to $1,150,000,000. From this is to be subtracted the $600,000,000 kept as a reserve, as iiefore computed, leaving a balance of $.550,000,000, which is available for delivery or use in the trans- action of the business of all the people, or a trifle over $8 per capita. But the force of my argument is not materially weakened by conceding the gold coin to be as estimated by the Treasury Department, which would lea\ e in actual circulation $700,000,000. In order to make up this auiouut all doubt nuist lie resolved iu favor of the Treasury and against the people, both the doubt as to the amount of lost and destroyed notes and that as to the gold su]iply. If I were deciding this case upon what I consider the best evidence, I would be bound to say that I believed the money iu actual cii-culotiou did not much, if at all, exceed $500,000,000. Upon this narrow foumlation has been built the euormous structure of credit of which I have spoken. It is the greatest of the kind that was ever built, because it was built by the best people that exer built anything. Over twenty thousand millions of debts, the enormous and widely-extended business of 65,000,000 of people, all rest upon anil must be served bj- a volume of currency which must seem to the most veteran financier as absolutely and dangerously small. Mr. Warner. Let me understand. You have made a distinction between harming the country and hurting the finances. Xow, as I understand it, so far as the matters to which you have referred are concerned, the country at the end of the particular contraction to which you have referred had the same number of bushels of wheat, the same number of hoirses, the same amount of real estate, and, iu other gg BANKING AND CURRENCY. respects, the same conditions as ^^-^'^Z1%<^:'U ^^ amount of money in tlie conntry-jus as much i apei J bullion, just as "''^"^^ e^<;7thmg ^e «« '\^[f Xa 1^^^^^ ccntdition I understand tlrnt Y'^V^^tteidy d . avo^^ tt c dea tn ^^^^^^ ^^ was comparable to that o^. '| ^ouutiy deso -?^..,^gas and I will leave a matter nruch better tium a, «<^l^oolboy o Ka,ns^^^ ^^ pamphlet here for the edihcation «^ -^Y^i^XSe it by another learn, ^ow, tiien the po nt i thi^ Bntlh war with Napoleon the case m history At t c dose ot ^^^ ,ircumstances. They had, people ot Great Lntaln^^ele i" «^^"^''; thev had during the same during that war, created more '^^^f^'^'^J^ oi since. The whole time in a state of peace, m ^'^^ :^^Xu^i\^ During- that war Inj- prices, and enforced uUeness. lull? ^:S%l^'SS^:^^ resumption was passed, Mr. Oobbet predicted tiiat it would ne^■er be fully enforced. Mr. Cobbett said : Toak a^a Ca,>ni„^- stood by to make a je.st of lus groans. Even as late as lS3(i the time for broiliu- Oobbett had not yet arrived Bxpedcmts were still being devised to enable tiie bank to resmm. I was^rranged ultimately that a portion of ^^^^^'gf^^Z H^ 1p..-i1 tender (luality, amuuntnig to about £1'S in 187-4 they hail thirty and one-half millions without gold or silver behind it, the English banks having 15,000,0()0, and the rest divided among the Scotch and Irish banks. Mr. Wabneb. Do not the reports show steadily that from late years,, dating clear back to the time you mention, the amount of uncovered cirrrency is not far from .$50,000,000 or ten million pounds sterling? Mr. Davis. I am giving this statement according to the quotations I have here. I will give you the authority and 1 vs^ill stand precisely on that. Mr. HALL. Quote the page in Jevons in which that is stated. Mr. Davis. I am giving it here as Herbert Spencer quotes it. The statement is this, that the law authorizes the Bank of England to issue 14,000,000 to 16,000,000 without the gold being behind it, and the other banks make up the thirty and one-half millions. That was the con- dition in 1874. Mr. -JOHNSON of Indiana. You do not claim that it is issued to that extent? Mr. Davis. Yes, sir; it was issued to that extent in 1874. Mr. Waeneb. But was it issued and wncovcrcd to that extent? Mr. Davis. Here is the statement. Prof Jevons, in Herbert Spen- cer's work. Tampering with the Currency, is quoted as saying: TUe acts of 18U and 1845 jilaced a fix(-A<\. At presdut (April lS7o) the Bank ofEnolaud can issue without K'old, lifteen millions; the private and .loint stockhanksofEno-land are individually restrieted to iixed amounts, which added too-ether malce abcuit i:(i,460,000, while tlie Scotch hanks can m a similar manner issue notes to tlie amount of £2,750,000, and the Irish l.anks to the amount ot £H,350,000, makiu'v in all about thirty and one-half millions. In addition to this, the Bank ot Encdand and the Scotch and Irish banks can issue as many more notes as they have dep'osits of bullion or coin, and in the year 1874 the extra amount thus issued was. about fourteen .and one-half millious. Mr. Warner. Does not the word "deposit" there mean a special deposit? Mr. Davis. No, sir; it means currency issued. Mr. Warner. The "deposit of gold" means a si»ecial deposit as distinguished from a general deposit? ■ Mr.^'DAVis. It means precisely that the gold is not in the banks on which the banks issued tlie currency, thirty and one-half millions. Mr. Warner. Not as a special deposit? Mr. Davis. I do not say so; I can not infer it from that, ^ow what I want to get at is this. I have given yon one condition, und I do not want to be diverted from my point. If I say or (]uote anything in which. the authorities do not bear me out, I wish to be corrected. 1 can only learn from what I read, see, and hear. The other paint I want to make- is this- At the close of our war we found more I'ailroads, more manu- factured goods, we found more things in existence in the form of products created during the war than we had before the war, notwith- standing the destruction of the war. When we call into activity all the labor in this conntrv by an increase of money and raising prices you have no idea wliat we can create. We are losing at this moment by an absolute close calculation, daily, by the idleness of unemployed labor more than we lost during the most disastrous period ot the war daily There is not a particle of doubt of that. Take the case of France and Germanv. At the close of the German war with France,, 38 BANKING AND CUKKKJNUl. France wmA to Germany a thousand million dollars in gold; that put ^aermany in a good fix and France in a bad ^\^l\''''''lf}]j^^,..^^^. Mr. Spbery. What authority have you tor stating that l^iancepaia that money to Germany in gold? ,oi. ^nTA^Hmi* JMr Davis Please go and study something betore you ask questions as^to matters of curre^it history. It is understood by all that i ranee paid it m gold; that is, money on a gold basis But it hurt the Bank of England more than it did France because they were able to dra^ on the Bank of England in making payments. I will now add that France paid an indemnity of one billion one hundred niillion clollars including interest, lines on cities, and incidentals; will you take that as the true statement ? j. ^- „ f v^-,, Mr 8PEERY. Wait a minute; I am taking your statement. You make the statement that France paid an indemnity of a thousand mill- ion dollars in gold? Mr. Davis. It practically amounted to gold. wi <- ■ Mr. Spbery. What is your authority ? 1 say it is not true. What is your authority ? , ' Mr Davis I have it here, and I (;au refer you to a great many books when it is necessary. There is not any doubt but what she paid an indemnity, is there? . . Mr. Speeet. 1 have not disputed that point; she paid an indemnity, but she did not pay it in gold. . Mr. Davis. 1 say it was paid on a gold standard. Practically m gold. Mr Sperey. She did not pay it all in gold or silver. Mr. Davis. She paid it in gold, silver, and flrst-class exchange, and that is why I sav it hurt the Bank of London more than it did France. Mr. Spbeey. Then it comes down to this, she paid an indemnity? Mr. Davis. She paid an indemnity of one million one hundred thou- sand dollars. Will tliat do ? ' , .-, ^ Mr Spekuy. As a matter of fact there is a discount trom that. Mr. Davis. Well, here is the statement from reliable histories of the Franco German war. McCabe's history of the war between Germany and France, p:ige 071, says: Heavv flues were imposed on several of the eities occui)ied Ijy them (the Germans), a.nd the contriljutiou oF L'OU,0(l(l,000 francs ($40,0(10,000) 1<-Tied on the city of Pans was exacted and collected by tlie letter of the armistice. On page 701 the same history says: "The third part of France had been overrun, lavagcd, and laid waste; enormous fines had been levied on the eities of Tunis, hidd by Hjc- conquerors. Apart from the Ave millia](ls ($1110,000,000) to be paid to ficrmany, the nation had incurred a war debt, etc. As to the payment of the indemnity, Uustow's Plistory, Vol. iii, p. 285, says : Payments can only be made in the chief counnercial towns of Germ.any, and must be paid in metal (,i;-old or^^ilver), Irank notes on the banks of En}>ta.ud, I'russia, Hol- land, and ]>id,niaui. in deniajids ]iayalde to order, or in first-class TiilLs of exchange. When it is remembered that silver at that time wasM'orth more than gold, it will Ije seen tliat the indemnity was paid in funds as good as gold, or o'old basis funds. And that the indemnity and fines, interest, etc., would lie at least «!, 100,000,000. So you see France paid Ger- many in " fiat money" — that is, lawful money — or exchange payable in lawful iiioney on a gold standard. Mr. Speery. Xo, it was not paid in flat money. BANKING AND CURRENCY. 89 Mr. Davis. Well, in gold-standard money, legal tender wiiieli is fiat. Law is flat. Mr. Sperry. But you would pay it in flat money? Mr. Davis. We never pay with anything but liat money, that is, lawful money. France paid it in flat money, as there is no other money but flat money, and alleged money that is not flat money is not money, as it lacks the flat or legal tender quality. But to take up that point: France was evidently in bad condition, financially, after giving the indemnity of gold, silver and first-class exchange'^ on London, Amsterdam, etc. Germany was in good fix finan- cially, (xermany then started on a gold basis, having a thousand mil- lions to start with. What was the effect u])on the country? Germany resolved to stick to a gold basis. She started with high prices, which encouraged the enterp'rise and industry of her people. Slie contracted her currency and demonetized silver. Then came falling prices, and next the idleness of her people. Our consul, in 1S89 or 1890, residing in Germany, said that 80 per cent of the German real estate was mortgaged beyond redemption. France, on the other hand, considered herself in bad fix, and lience kept afloat plenty of silver and paper. Our consul in France reported in 1890 tliat about 13 per cent of the French real estate was encumbered with mortgages, and tliey were paying them off. Tliese are the two extremes. France with a full flow of currency and Germany with a small volume of currency — one pros- perous and the other sinking deeper and deeper into debt, going down to the bottom loaded with mortgages. One started at the bottom of the ladder and The other was at the top. They have now changed places througli opposite flnaiUcial systems^ Now, the question arises, does the contraction of the currency hurt anj^body? 1 will revert to the case of England again. Althougli the English peoi>le were prosperous at the close of the war, they could stand but little contraction. In 1819, when the last law of contraction was passed and they were to go to the resumption of specie jiayments ' in 1823, they were prosperous, but in 1820 four fifths of the landhold- ers of England had lost their lands, and the people were in such a condition of suffering that they had to have troops on foot day and night to keep the people silent while they were starving. Mr. Castle- reagh became frightened. He went into Parliament one night and told them that something must be done. So they suspended the rules and passed flve money bills to make money easier. In a short, time the mines, sho])S, and' factories were going, the people were employed, and the troops were dismissed. Mr. Warner. May I ask the gentleman where lie gets his author- ity for sayiiiu- that four-flfths, or one-half, or one-third, or one-fourth, of the landholders of England then, or at any time in the last hundred years, lost their property"? Mr. Davis. That statement has often been made. You will And in Mr. Doubleday's history of Sir Robert Peel that all the smaller land- holders were reduced to the sorest distress ; and Mr. Peter Cooper tells us that in 1816 the landholders numbered 160,000, and, when they got through, say by 1836, there were only 30,000 landholders in England. Mr. Hall. Does that mean that these men might not have become prosperous and bought out their neighbors'? Mr. Davis. It me'antthat there was a fall of prices, and consequently their estates were mortgaged and they got into debt, and the same causes which compelled the debts prevented the payment of them, so 20 BANKING AND CURRENCY. tliat these fanns, tliese lauds, these homes were transferred under ffirpi'losure of mortgate for debt. ,. Mr W irLb. Does the gentleman Tuean that there has been a time when there has not been but 30,000 laudholders-m historical times, '"^Mr "?)TviS I do. Landholders are now less uumerons than formerly. The^; is .imSher point I want to get at. ^-^^^f^^;^^'^^:^ ^^.^ French assignats. They were not a g»«rlc ated they were invested in lands by the poor people These SdsJoild be paid for with assignats and the people buying them cut Ih m into snmn homes, and Mr. Alison ^^-^-'.^^^^Z^^S^ of people who have subdivided France into small homes, and ^Ir. Alison ^'S? wlS2^"fetthe assignats or the confiscation that author- iz.^ the .tie of the lands in small tracts'? I agree with the gentieman thoroiiohly on one point, and I hate to differ with him on the other. I understi?d these eltates were m the main confiscated and sold by the ""T BiT^S'^^m. Alison. Alter describing the evil consequences of the failing of the assignats, Mr. Ahson says (History of Europe, Vol. iv., p. 371, A. D. 179'^^ ■ On the otherhaud the (lehtors throughout the whole coimtry found themselves li) erVted from their euoa^eiuents; the national domains were purchased alnaost for cuH on im -ed Zoill ehan.es more durable in their influence, and tar more imrortantn their final results than all the political catastrophes of the Kevohi- tU^ufoithev entirely altered, and, too, in a lasting manner, the distnl)ut.on of property, and made a,%rmaneut alteration in the form of government nnavoKlahle n-om a total change in the class possessed of substantial power. ' Now then, if it is better for a country to have a great many small estates which ^Ir. Jefferson said were "the most precious part of the community," than the larger estates, then the assignats did that thing. Mr Warnek. Does my friend say the assignats could possibly have' made a subdivision of the property of the landecl proprietors excei)t by a pryor confiscation of those lands by tiie Government? Does the gentieman believe for a moment, but for their benig com fiscated by the General Government, they could have been subdivided? Mr DAVIS. 1 claim that the assignats did the subdividing'? Mr Warner. Did not the French Government confiscate them ^^ Mr D WIS. ^o, sir. "The various revolutionary governments did tiie confiscating. ' There was no French Government at the time. Mr. Warner. There was no French Government ? Mr. Daaus. I am going according to history, and Mr. Ahson says: "The various revolutionary governments." ilr Warner. Well, any government. They confiscated the lands of the oreat proprietors, and sold them out to small proprietors just exactly^as they did in the State of New York after the Revolution. In Putnam county and other counties in New York, after the Kovolu- tion, tiiat very thing hap)»ened. Mr Davis. 1 gave you the statement ot Mr. Alison, ihe <-onfisca- ticins'converted 'tiie land into "public domain." The assignats sid> divided tiiem into small homes. I am not discussing the subject ot the various confiscations. I \vill proceed to another point, Mr. Chairman. I stated, m regard BANKING AND CUREENCY. 91 to the Treasury note, as being a benefit whicli goes forth to the country ■ to bless the people, because it pays del)ts and taxes, passes from hand to hand among the men who earn it. Tlie bank note does not do tins. It goes into the hands of corporations, and it goes forth without value received by the Government and the people. It costs 4 per cent on the bonds, and, as we will say 6 per cent on the note ot the man who borrows it from the banks. This makes 10 per cent per annum to keep this bank money floating. It goes into the hands of cor_ noratioTis whicli have the power of contraction and inflation, and ot damao-ing us largely. Senator Plumb stated that the damage was $3 000,000,000 in twelve months. Then Senator Benton says that when you put this currency into the hands of a, corporation the Government ceases to be independent, it can neither declare war nor make peace, nor do any other important thing, without consulting the neptunes who preside over the ebb and flow of the^currency. Mr Garfield, I remember here, thirteen years ago m the House, said mat whoever had control of the volume of the currency was the absolute master of all industry and commerce. That being so, it is very dangerous to place the money in the hands of corporations who can raise or depres.s prices without consulting the people. In 1881, there was what is called "a bankers' strike," like we have now, to compel President Hayes to veto a bill which they did not like-a refunding bill Senator' Voorhees made a speech on this subject at the time, just as during the present bank panic, and even the President of the Ijnited States now says he hopes the Senate will not compel the country to ■ endure a greater panic than we have already had, and advises that we must let silver go. . „ ,. ,1,1, Mr Haugen. You advocate the discontinuance of national- ban li notes. Do you want, arbitrarily, to take up the bonds before they are due? The bonds that are now outstanding; how would you get ritt ot them? , , 4. t- v^r Mr DAVIS The people and the bauKS have made a contract, iiv- ery contract has two sides. We have agreed with the banks that they Shall have a charter for twenty years, and, if they have understood that we will not interfere with those charters prior to that time, then are not they bound, also, not to stop the issue of currency during that time« They claim the right to cut loose from the banking system, to ■ retire their currencv, and even their charters, when they choose to do so Should not the people and their Government have simdar rights J Mr. HAtTOBN. Does any of your bills provide for tliis?^ Mr. DAVIS. One provides that, if they voluntarily withdraw their ^^^Mr^WAENEE. The gentleman knows, of course, that the withdrawal is lim'ited by law to $3,000,000 a month? Mr. Davis. No, sir; it is not limited at all. ^. „ -, . ., „^. Mr. Warnee. May I ask tlie gentleman a question? I want to get at this 10 per cent business. ^i n i f Mr. Dayis. Ten per cent is very low. In many cases the banks get 12 and 15, and even more by evading the law. n„,+ .,, .Mr Warner. I understand about the i per cent, which is lost as you claim, and I admit that you are correct upon the facts as claimed by you. -j. ^i i Mr Davis. I am glad you admit tliat. Mr. AVARNER. Kow you add C per cent as the rate at which money WIS hvmed and what I wish to get at as this: How would it be pofsiWel no inTter how great the issueof greenbacks, for gentlemenm 92 BANKING AND CURRENCY. Kansas or elsewhere to borrow monej-, even with these greenbacks, without paving interest for them? Mr. Davis. I will .state that this money is not loaned bj^ the Gov- ernment, that is, the greenback money, but is paid out for running expenses of the Government and for monetary obligations. It goes forth, and if issued as fast as needed in order to keep prices level, our people do not want to borrow money. The borrowing of money proves an abnormal condition of things. If we had not been compelled to get money mostly through the banks, if we had not been compelled to ac- cept falling prices, through currency contraction, we would not have been in debt. Mr. Johnson, of Indiana. C'au you conceive of any condition of so- ciety in which there would be no borrowers? Mr. Davis. There were no bonds at the time I was born; we had a very small debt of the old Eevolutionary war, and I remember when I was ten years old it was all paid and the General Government had a surplus to distribute among the States. Mr. Hall. Is it not a fact that the best business men we have in the States and in the country, as far as that is concerned, are the largest borrowers ? I\[r. Davis. That is true under an abnormal condition of things; under falling prices men must borrow; and, even under level prices, they borrow" temporarily, but there are no dangerous mortgages or long debts. \A'ith level or rising prices a man borrows if he sees he can make something by it, but under falling prices and in bad times he lias got to borrow or lose his home. j\[r. Warnbe. Then I uuderstaud the 6 per cent which would be gained by the people of this country is simply that they will be kept from debauching in loans to the extent which now causes them to obtain loans at the rate of per cent interest? Mr. Davis. If you will change tlie word "debauch" to the word "compel," I will agree with you. I want to mention another subject. There is proposed by some an issue of State currency. There are several things necessary to keep any currency good; one is that it must be legal tender; second, itinirst be received in the revenues of the issuing x)Ower. !S"ow a State can not . make legal tender paper money, and that is one big cog knocked out of the machine. The State government which owes debts payable in coin can not receive currency in its revenues, because it must receive a money in which it can pay its debts. So you see it is impossible to keej) this nonlegal currency good. I am very much ])leased, geutlemen, to have had this opportuuity of stating my views, and I will not now take up your time any longer, only to say to those gentlemen who have asked me so many interesting c|ues- tions, that there are also several other members of Congress who are seeking information. These important financial questions are worthy of the most serious consideration and study. 1 am very much obliged to you for this i)resent hearing. At the meeting of the committee on Monday, October 9, 1893, the following occurred : Mr. Warner : With permission of the committee I will put ui)ou the I'ccord a letter from the editor of the Engineering and Mining- Journal, ^fr. E. P. liotliATell, a well-known authority upon financiab BAKKING AND CURRENCY. 93 matters, which bears upon the point alluded to the other day by Mr. Davis, of Kansas; that is, the question as to the extent of the uncov- ered currency of the United Kingdom: [The Engineering and Mining Journal, 27 Park Plauo, 1' O. box 1833.] Nnw York, October 7, 1S93. John De Witt Warnek, Ks(i,, House of BepreHentaiiccs, Washinijiov, D. C: Dear Sir: In reply to yours of the 28th ultimo, I beg to say that the figures of my little book were made up by Director of the Mint Leech from the Bankers' Mag- azine of Loudon for iScptember, 1893. On page 473 of that magazine it appears that the total note circulation in the United Kingdom in August averaged £41,252,516. Against this tlie issue department of the ISauk of England (see same magazine, p. 466) held on August 16 £16,630,115, and the Irish and Scotch banks (p. 473) £7,755,197, making the total amount of cash held for the redemption of outstand- ing notes .£31,385,312. Deducting this sum from the notes outstanding we have for uncovered notes £9,867,204; in round numbers £10,000,000, or $50,000,000. Very truly, . R. P. ROTHWELL. NATIONAL BANKS— SECURITY OF DEPOSITORS.— ISSUES TO FULL SECURITY VALUE- ISSUES ON OTHER SECURITY. STATEMENT OF HON. MICHAEL D. HARTER, A REPRESENTATIVE FROM THE STATE OF OHIO. Mr. Chairman and Gentlemen of the Committee: I am much obliged for the courtesy which enables me to occupj^ a part of your time, and I shall try to show my appreciation of it by not being prodigal in its use. In regard to this general matter of the currency I entertain no peculiar, and certainly no opinion, which ordinarily would be considered among the general business public as cranky. In fact, I can not say that I have any ideas on which 1 have any patent right. I think that the views that I have to express are those which have been crystallized by the experience of the world, broadly by the experience of the world. My ideas of money are those of the commonly received authorities. I regret that there has ever been such a thing as legal-tender money, and I think the occasion for it never existed. The best money is that which by its real merit finds acceptance everywhere. I think the matter of contract would be all. sufficient in lieu of all legal tender. Legal tender, or the forced quality of legal tender, is a nest of fraud always. I have no desire to present a system which will enable the Government to regulate prices; neither to keep prices high, or to keep them level, or to keep them low. I consider that is beyond the rights of any govern- ment. I have taken the liberty of presenting three bills before the committee. The first bill to which I wish to call your attention is number 04, and that simply goes to the end of proposing and authorizing the national banks to put in circulation money up to the par value of their bonds. It seems to me the justice and wisdom of doing this has scarcely been questioned and I will not occupy your time upon it. There is cer- tainly nothing like original thought in the bill, but I claim for it utility, safety, and common sense. Mr. Johnson, of Indiana. It has been a question that they would not take the full extent of the circulation. How would it be in regard to that? Mr. Hartee. The best answer to that, Mr. Johnson, is that the plan proposed would add to the profits of the bank, and if you add any- 94 BANKING AND CUKKJiiM,;i. tMBg to the^r profits tUey will take ^^^^J^^^S^^'S^^ '*S'".temS!o('indiai,». It i. claim.d ttot tlie profit wottld „ot be "'t'SSpTrt ti^l^SraVatlo,.,! l.u,t to „Mcl, tl„s bill ""inSsoN, Of Indiana. Why are the banks surrendering tlieir "'mJ^hS-^I' Banks are surrendering tlieir ekculatiou very nai^- ralh 1 "tnse ft is ot profitable. This wonld nuxke it more profitable N^il^k J^ve a'circulation within 10 per cent of the par value ot' the bonds and it is not as profltable as it would be at 100 per cent of the par valuc'of the bonds, 'and by this step I make eircnlation more ^'^S'^l^'xow'lS'a well-known f^ict that there are bankers in the Un tec^St'tes who take their bonds and comply -ti^ tlie^law by the deposit of bonds and they take out no circulation at al . l)oes not you bm leave the whole question to the discretion ot the bankers whether *'^L: niSS' ?i^ "nd of course that >s Just where it ought to rest, ^'^Mr Cox. Xot to make an arguuient, as I do not want to i^ake au argument with a man on the floor, that being true, the nationa] banks ^S'^r Stement with an increased eircnlation that might perhaps also increase tlie advantages which national banks now ha^e loi the contraction of a currency or expanding it at their wifL ! Mr BAUTVAi. I think that the idea that they exercise such a pi iv- ileoe 'is that is pure! v chimerical. I have never been a believer m this octrne that the banks were the engineers of any of our F'^ics *> striu'-encies. I know of no interest during the last seven mon lis which suilfeml so severely as the banks, as the ftgares showmg he liabilities of defumt institutions in e-,ery line of business mdicate.^ ^'U S w(n'(ls, among the failures ot the ITnited States, not speaking by the book, i should say nearly 00 per c'eut of them have been ^•|»^fa';'-;;\ *« banks A humlredfold more destruction has therefore resulted to the banks than their fair proportion, and it seems i)reposterous to adnut or ima'-ine tor a moment that intelligent men would be the architects of the destruction of their own wealth. I know of no set ot men who eat so little or sleep so poorly during periods ot panic as the bankers, autt the idea that they conspire to bring about such conditions is more than i can imao-iue anil more than I am willing to ask others to believe, i here could have been no sane motive for it. The very first effect of a strm- o-ency reaches the banks; it renders their means unavailable. You will Sot find at such times the discounts of banks as large as under ordinary circumstances, notwithstanding the pressure of their dealers and cus- tomers So anything like panic or stringency m the country acts with doubled distilled potency upon the banks and bankers, and the theory BANKING AND CURRENCY. 95 that they coiiibirie, or connive to briug about their own wretcliedness, misery, loss, aud sutt'cring is certainly chimerical. Mr. Cox. I have not made that point. Mr. Hartee. I would not have spoken, Mr. Cox, if you had ex- pressed it. INIr. Cox. I want to call the gentleman's attention to one point. I am not discussing the motives of the banks or bankers. We know as a fact that since 1882 the banks have retired a large portion of their circulation. H"ow, there was some motive for their doing that. Mr. Haeter. And you would like to have my views as to what that motive is ? Mr. Cox. I do not care anything about the motives; I am trying to get the result. Tliey did retire the circulation, and do not you think that was a serious disaster to this country ? Mr. IlARTBR. I do. Mr. Cox. If you increase the circulation and increase the power, whatever maybe the motives for what they have done since ISSii, would not it bring about the same result? Mr. Harter. In other words, would it be a proper incentive to any- body'? I would put a proper incentive before them. I do not regard banks as different from other institutions. Mr. Cox. Nor do I. Mr. Harter. I consider the same hmnan feeling of selfishness and desire for profit pervades the bank circles as it pervades all others. I have had dealings with all classes, aud I find the same kind of human nature in each of them. Mr. Hall: I object to the gentleman from Ohio speaking of people living on farms as Populists. Mr. Harter. I may be as properly considered a farnu-.r myself as much as 99 out of 100 Popuhsts. If every farmer is a Populist, then I would have to sail under that banner myself, because I am to an extent a farmer. But I find this disposition for gain and to take advan- tage of every propei' means for a profit exists in all kinds of natures, under all kinds of names ; that it fills every man's shoes, no matter what his occupation may be. Mr. Cox. Now, referring back to the proposition I submitted to you, if you increase the power of the baidvS to increase tlic amount in circu- lation, of course the object they would have in taking it out is to make money. That is the only incentive that there would be. Now, know- ing what has been the case since 18SU, do you jiroposeto increase the circulation up to the par value of the bonds and then not put any restriction or any compulsi(ui on the banks in any shape to compel them to keep ui) anv amount in circulation? Mv. Harter. I certainly do. I am not one of those people who pro- pose to put everybody into a straiglit jacket l>y law. In fact I take an opposite view of the case. I would take away every law which we could do without and control people as little as possible, and I would put a legitimate nurtive before citizens or corporations which would lead and direct their course rather than compulsion by law. I ani not a believer in much law; I am, a believer in little law. I would let the Populists do without law as much as possible, and I would let everybody do without law as much as possible. I would not put a sentence of law in the statute books, except where it was absolutely necessary, and government, I believe, would be more efficient and purer if that was the rule. . . i ^.-u Mr. Warner. Before you get off that point. I understaml tfie g,; BANKING AND CURRENCY. .entleman has explained that iu liis view there would proba,bly be an increase of eurreucy to the extent of one-ninth ? ^r • ^S t ^ iSer'Sh; gentleoran to urge his bill oaostly ni^-tJatl^nnd or rather upon any ^^^^^^^^r^''^'''' L^^iS^t^ inS- ^Th^^^oitL ^..eolation e.nal to the^a. all that may herealtar be 'deposited ^^'^^^^^^ securities the deposit of more bonds protiabe. J^f]^^^^^ the banks is so mmmmsms W^ eip^s nmlVr his huv the ne^Y money wUl go where it is needed J,S where tl most nsefnl. The negative advantage is also veiy \t Pve V bank with a laree deposit on which it pays no interest; f^y eS>?i^"VllScou!itSy indeed wonld ^e inclined toMy^ S Governmeat bonds and get out circulation, becanse it would then '''^:^ ^' to thM>oint that the banks since 1882 have reduced their eirc at mi That is a pure matter of business, and not ot conspiracy I has bee the individual work of each Ijanking institution not by coiinfvance S others. A bank finding Government bonds bearing 4 rer S interSt old as high as 130 and,knowing that when bought at 130 nd held until 1007 it' would lose the 30 per cent and that mean- while the bonds pay but 4 per cent, and that upon the par value mSv an 1 no upoi/the market\.alue, and as the bank can get but 90 nei cent circilation it knows that it can employ its money more nrofltab ly i direct loans, and therefore banks have had an inclination to withdraw bonds the>' had on deposit, and m many cases they Sought down the quantity of bonds so deposited to the lowest amount that thev were allowed. , , ^ Mr Hall I am, up to the present against your proposition, and 1 want'to get a right idea of it, and I want you to make it clear to me X it is that, if you allow tlie additional 10 per cent to be issued tliat will be an inducement to the banks to take out that additional Mr Haeter Suppose we get at this thing in a practical manner. I now suppose a case where he and I own a national bank, haying a eanital of sl00,000 and some surplus, and say we had on deposit with the United States Government .*100,000, at par, of Government bonds drawino- 4 per cent interest. Now, upon that we would receive $90 O0o"circulation. The fact we had those bonds on deposit and the fact that we had takeu out that circuhition is presumptive evidence that you and I as owners of that bank, up to this time, were doing: BANKING AND CURRENCY. a* Avisfly. Now, UDder this law, without tlie expenditure of another dollar, without the investment of another penny of our assets^ we would be able to take out $10,000 additional circulation. You would come to- me and say, " Mr. Barter, what are we getting for money ? " Now, while.' we may not be getting the rates my friend from Kansas mentions Mr. Davis. Sometimes they get as high as ■iii per cent. Mr. Hartee. I suppose those are Populists who lend money at 36 per cent '2 Mr. Davis. There are none of them in the banks. Mr. Habteb. I did not suppose a national bank would beapt to get 36 per cent, even in Kansas. Mr. Davis. They tell me so; I never paid it. Mr. Habtek. If that is so, I think thd watchfulness of the leaders of the Populist party ought to be confined more closely at home, and after they have corrected^ the evils at home (and 36 per cent interest is a crying evil) they could better correct those abroad, on the i)riuciple that after having disposed of the beam in their own eye they could_ more easily remove the motes in the eyes of others. Mr. Davis. We have done that in Kansas, and now we have come' to Congress to do it. Mr. Habteb. But let us return to the illustration. You would say,. "Mr. Harter, I discovered by a law passed the other day, which was signed by the President, that we are entitled to take out ^10,000 addl- tioual circulation; ought not we to do it?" And I say, "Let us see- what effect it would have upon our profit for a year. Ten iier cent cir- culation would give us $10,000." I say, " We could not, under the law',. lend all of that, but we can lend $8,500." Ten per cent (the Kansas rate) on $8,500 would bring our bank $850 a year net profit, absolutely with no expense to us. Mr. Haugen. There is the expense of the tax on this additiouaJi circulation ? Mr. Habteb. That is $85. Mr. Hall. It would be $100, as it would be 1 per cent on the $10,000:. Mr. Habteb. You are right. So we have $850; and, taking $100 from that, would leave us $750, which would be absolutely net profit to be divided between you and me jointly and equally, which would not be possible, of course, under the present law. Mr. Cox. Most every banker has gone through that reasoning time and time again. Mr. Habteb. Y^es, sir. Mr. Cox. Let me call your attention to this. Of course, we started upon the point that there must be an inducement to take out circula- tion; that is the only method. If you have this issue increased in that way it would naturally advance the price of the bonds. Mr. Habteb. A little. Mr. Cox. And it is impossible to prevent it. Now, we know as a matter of experience that the reasons that the banks retired their cir- culation so much was the bonds got to such a high price that wheu they sold at 130 the bankers made more money by withdrawing the bonds than by keeping up the circulation. Mr. Habteb. Now, I may with proper courtesy answer my friend's question? Mr. Cox. Certainly. . Mr. Habteb. Wheu he assumes that the price of bonds would advance he answers himself, because the advance iu price would be owing to the fact that more bonds were being bought for deposit. 940 7 98 BANKING A^'D CURRENCY. Mr HALL Bat would not that very advance prevent their taking ^1^1^ W^li:! i:;Scr^re fto.n the pr^sMent of one of the largest banks west of the Alleghenies-President Ga^ge of Chicago- n whiih he sav.s that his bank has not taken ont a dollar's circulatiou. Mr Harteu. That bank is a notable exception and it is one of the greatest banks in existence, and it enjoys advantages which areuncom- n on amont- banks. It has a perfectly enormous deposit without any hlterest, and circulation is of no consequence to such a bank; but such "^ m" S^^'l'il^beeu inibrnied that the same is true of five of the ''If ^Skter! ^:^y^are- also -exceptions, and we must not judge business by exceptions; an exception usually proves a rule Mr Spbrrv. I would like to call your attention to the lact-it s assumed that these banks deposit bonds to the full amount of the capital. Mr' Skerry.' They deposit the minimum amount which the law allows them to deposit under the national bank act'? Mr Haeter. Therearesome things to account for this, itissome- th n^' to say, for a banker like Mr. Gage-it is a pleasant thing perhai^s o him to bl' able to say that his bank has no '''^■^^'-^^'f,^^", ^^^^J^'^^^^* '^ does not care for it. But there are not many banks bke l^^^s touk 1 am not proposing a compulsory measure, but I am doing that which I believe is fir better. I present to the bankers of this country an oppor- tunitv for an additional prolit without any additional investment. Mr ('o^: Sow, 1 want to call vour attention to this, for I am greatly interested in this bill. You propose to issue dollar for dollar upon the par value of the bonds? Mr. Barter. Yes, sir. Mr. Gox. You put that in the hands of a corporation, and it goes to work with that ]noney? Mr. Hartbr. Yes, sir. , ^.i + Mr Cox ]N"ow, then, yon turn around, and after you have done^tliat and given dollar for dollar for the bonds and tax the people of the United States 4 per cent in order to pay those identical bonds that tliey have, let me ask you now, as between man and man, and as a legislator, if that is right? . . . ,,,■,:„ Mr. Haeter. I think the gentleman is mistaken m his view o± this, luat+er. Tliese bonds are already in existence. Mr Cox There is only one tax on the banks and that is charged up on every man's bank books as part of the expenses, 1 per cent; but I ask you as a legislator, would you provide a system that gives a banker dollar for dollar on his bond to loan to people at such a rate of interest as rules, and they pay for it a<'Cording to what it is worth; now, what ri£;lit then, when they do that, have you to turn around under your sys- tem of taxation and make them pay 4 per cent more on that same identical bond? The Chairman. Allow me to suggest the additional question, as to whetVier the same principle would apply if you allow the State banks to issue circulation upon State bonds and get interest on the State bonds, and also from the people. Do you think that is right, or not? Mr. Harter. I think it is, but 1 think the whole situation as stated by -ny friend Mr. Cox is a fallacious one. BANKING AND CURRENCY. 99 Mr. ("ox. The chairman's question seems to be a part of your argu- uient, ;uid that is what it was iutended for. Tlie Chairman. I simply desired to have that go along with your question. l\[r. Harter. I will not incorporate it as a part of my argument, but it is proper that I should take the opportuuity which is giveu to make use of it, and I know that uobody would be more willing 1 should than Mr. Cox. But the point is this: Your question is stated in this way: "Would you have the Government issue bonds expressly for this purpose upon which it should pay 4 per cent interest; would you have the G-overnment go into debt to pay interest for the purpose of providing security for these notes?" I should answer no, sir. But we must take the situation as we tind it. These bonds are in existence. The (iov- ernment is comi^elled to pay the interest upon them whether iu the hands of i>rivate holders or not, so tliere is no loss of interest to the people, there is no heavier burden upon the taxpayer because these are deposited by banks, and therefore there is no room for the question Mr. (Jox has asked me. There is no td-x put uixiu the country becausea bank bays bonds in the open market and then deposits and gets circulation upon them. They arc iu existence now and the Government is obliged to ])ay interest uiion them, and it makes no difference to the Govern- ment or the taxpayer whether that interest goes into the hands of a bank or to a private holder. The national-bank system puts no burden upon the people and it is a. mistake, it seems to me, to urge tliat view. I certainly would be willing that any mitional bank in the United States should buy in the oi^en nu^rket existing Government boiuls and deposit them as security for circulation. Mr. Cox. Now, right at that point, 1 understand that worked very well. Suppose you take your bonds and deposit them with the Gov- ernment of Che United States and you get issues on that bond dollar for dollar of its par value. The tax upon the circulation is nut i^aid by the bank — every man understands that — it is a part of the expenses of the bank, and tliat is 1 i)er cent. Now, suppose you take the bond and get dollar for dollar of the par value and you repeal that 1 per cent tax on the circulation and you have got no use for the 5 per cent, assuming yon admit that. Now, then, if you get tliat money dollar for dollar, clear of all expense, clear of any cost, what can be unfair in that proposi- tion to you and which w(Hild relieve the people; you get the very thing you are trying to get, an increased circulation, and at the same time you reduce the t;ix that has to be paid on the bonds? Mr. Harter. I believe the gentleman is now alluding to the John- son bill ? Mr. Cox. What would be the harm iu that? Mr. Harter. I confess 1 have no objection whatever to the Johnson bill. I think his bill is very wholesome legislation, but his bill in no way interferes with the measure we are now talking about. They may well go hand in hand; and the passage of the Johnson bill would be no objection to the passage of this bill; but I would like to answer the question of the chairman also. I can see no injustice if State banks were authorized to issue notes after depositing adequate securities, and if it should be clone I see no injustice whatever in the State banks receiving interest on these securities they deposit. I have another bill which 1 am about to present, in which I endeavor to provide circulation without collateral security, which would do away with this entire ques- tion Mr. Cox has just raised. Mr. Warner. Is it not a fact, in addition to whatever force there IQQ BANKING AND CURRENCY. may be ia the au.we. of the geutleman fr.^m TennesBee tlu.t th^^^^^^^ melt of i per ceut interest upon the bonds is ^'-"t ^, P;'f^*;\';;^^i.;eaased &^euS^f^^m\ large Vort^of^^^^^y^^^;^^ rS'fcinrtheSte of ^ the Government has had to pay-tronr , .3. ''%^S^l'Sr£'t.. gentleman I ^^^^J^^gt and I am obliged to him for the suggestnni, which adds a gieat deal *1£^oknS;:;^'Su"' Repealing the 1 per eent tax on nations- bank circnlation wonld be an additional incentive t... get the monej , you would not advise that, however t . i-,ponlp and Mr HAETER. Yon would intrench upon the rights of the people a^^^^ inSi ™l element of iniustice in pla.e of ^'-^^^^^J^^.^ lias been suo-^-ested here to-day. In other words, I think tne ux ox x ier cenMs™ moderate and a very fair tax indeed upon bank-note m'culTtion and I do not think it ought to be decreased, especially at Tt me when the revenues of the United States -f- ^^^^^^^^ exnenses are increasing, and when we are tare to face as eveiybocly rnow"wh[r. Cox, I t^mk fie b H reported is a good bill, and I am one ot those men who ^^^^ w lli^ to take less when he can not get the whole, and I Relieve you bill m the right direction, and I am very coufacieut that the result will sliow it to be so. Your bill will be a we.lge which will nltinnitely secure the passage of such a, bill as this of mine, and I shall vote tor your bdl with a ffreat deal of pleasure. ,-,.,, ^ i i Mr! HAITGEN. Wlierein does your bill differ from the bdl reported by ^Mr 'habtbe. It does in this particular, that under no circumstauces does it permit an officer or an employe of a bank, directly or uidirectly, by overdraft, discount, or loan, to borrow anything from the bank he is connected with. It makes him absolutely a trustee tor the capital and deposits of that bank. . „ „ +<^ ,,f tiio Mr. Hall. Mr. Cox's iiermits no borrowing except by a vote ot tlie directors? :\Ir. Haeter. Xo. ilr. Hall. Tours allo^^■s the directors to borrow ! Mr. IIAUTEE. Just as now. , i-ii.) ^Ir Hall. In that regard, your bill is looser than .">Ir. Oox s bilU The Chaieman Mr. Cox's bill does not refer to the directors at aU. Mr Cf)X I ))eg your pardon. When you get your uuiid on the prop- osition >ou wdl find no trouble with this bill. The bill m the House which was rei)()rt.'d b\' this committee prohibits the directors, presi- dent vice-president, and employes of any character in the bank Irom borrowing any of the assets of the bank except in a certain way Mr. Hartee. By giving due publicity, I believe. Mr. Cox (continuing). And it must be kept as a partol the minutes; and in addition to that there is another restriction upon them, that it is made upon the reports called for by the Comptroller of the Currency showing the liability of everyone in any cai»acity whatever who is connected \vith the" bank, though that report is not made public tor reasons very obvious. Now, let me give you tlie reasons why the bill was made so it would be stringent, but not absolutely prohibitive. You take the rural district, take my ovni country, where our banks hardly ever exceed .tilOl),n()(i. You can not (irganize a bank with such stringent restrictions. There are very few men who have got the money to go into it. .And if you say. to them that they ar(- absolutely restricted and can not borrow money out of the banks, that just leads the officers into amither bank. That is tlie result and that ^^ as the reason last Congress that we qualitied your bill to that extent, so as to facilitate, if possible, the organization of banks in the rural country with small capital, so that the directors and president or vice-president u^i^ixii^ul AND CURRENCY. 103 could borrow money under sucli conditions as I have stated to encour- age l)anking in tliat way. Now, when you come to the proposition of overdrafts, this bill that is in the House absolutely prohibits it because there \yas no way to get at that only to cut it off. Now, I thiuk if you will take your bill, if I had your bill before me, and examine it care- fully with the bill before the last Congress and then take into your mind the scope of country which it is intended to cover — tlie agricul- tural and rural country— 1 think you would see that we have gone pretty nearly as far as we can in that direction. Mr. Haeteit. While I (;au not say I am entirely con verted to the view expressed by Mr. Cox, I can say, with the utmost heartiness of this measure that it is a wholesome one, a, long step in the right direc- tion. As a. member of the House I will vote with great cheerfulness for that bill. Mr. Cox. Tliis bill in the last House was submitted to the Comp- troller of the Currency, who made an examination of it very carefully and it met with his approval, and I have not had time to submit it to the present Comptroller of the Currency, but I am sure that no one will object to that bill when he understands it. Thereupon the committee, with the understanding that Mr. Harter should continue his remarks at the next meeting, rose to meet on Thursday, October 5, at 10 a. m. Committee on Banking and Cuerenot, Washington, D. C, TImrsdai/, October 5, 1893. The committee met at 10 a. m., Hon. William M. Springer in the chair. rUKTHER STATEMENT OE HON. MICHAEL D. HARTER A REPRE- SENTATIVE IN CONGRESS FROM THE STATE OF OHIO. Mr. Haetee. Mr. Chairman and gentlemen of the committee: I believe, with your consent, 1 will ask to have the Jiearing ou House bill No. 66 begun de novo, from the fact that I thinkif there are fewer inter- ruptions during my main statement, 1 can make it both biiefer and clearer. The Chairman. The notes taken in reference to the bill will be erased, and you ma>- start dc novo. Mr. Haeter. I wish to say that I will be glad to answer any ques. tions which my statement may call forth. The object of this bill is tO' perpetuate and extend the usefulness of the national-bank system,, not to cvu'tail it in any way, and to do tiiis in a safe manner by making just as lew chauges ill the' existing law as possible. It has been my effort to have tliese changes so clearly stated that their effects can l^e followed readily and therefore the (consequences of the adoption of this bill will be foreseen from tlie start. Clearly, I think, unless the Government is to increase its bonded indebtedness, the limit of circulation of the national-banks has been, if not reached, nearly so. As the country goes on developing , it would seem to an impartial' observer that it would be a great misfortune to abridge the system, certainly it would be in tlie mind of a man wlio considers the system to have been safe and useful. Owing to its wide dissemination 'through the country and the dependence upon it of ;^04 BANKING AND CURRENCY. i nf m,?ionn bxnks ^dU always be thorous'lily secured and safe, ?^ vfrnment aS^ Lud at tbe same time to put uo uureasonable bur- ^I^^X^Si.. I believe tbe efforts to make the system more motiHb e t' tkebauks, and tlierefore more attractive to capital with- S any respect burdensome to the people, can be ac;comp ished The first section of the bill provides for doing away with collateral security in the sbape of Uruted States bonds for the circulation ot notes Tn Sona/Liks and authorizes banking ^^"^^^^'0^^^ collateral bonds on deposit to remove them from the custody of the ""Sr" presents a security ^hich it is proposed to ^^^^^ the collateral security, and this security is a first lien upon all assets of every national bank association. ,,,,,. i,,„ Sect on 3 proposes to insure the Government absolutely troui any loss by adding another kind of security, which is the power to ^^ake asse s- mentsupon the other national l>anks in any given State m which delin- quTi tbanks may be located, to make up any deficiency m the security which the Government receives under secti. m 3. You will observe that it is arranged tlnit those assessments shall be equitable, being based on the cap al .tnd sur,.lus of the banks located in the State in which the dehn^ quent bank had been doing business. It is very cle^ir that section 3 protects the Government absolutely and perfectly Iroin any possible loss -rowing out of the substitution of the security described in section '> for the securitv wliich the Governinefit now receives from the banks in the sViape of United States bonds. A clause should be added to the bill as a part of section IJ clearly making the United States res|,onsible for the redemption of national bank notes issued under it, which i have in the draft befoie you overlooked. , , , , , ■ r f, ;,,v. To a practical man the first question arising would be this, i tfiiuk. Had theprovisiinisof thishiwi>itivailed since IbU:;, or during the whole of the last thirty years, what would have been the result to the United ,States and what would have been the effect upon the banks themselves growiu"- out of tills change in the method of securing the circulation of their notes ? I ;rnswer that a first lien iii>oii the assets ot the banks, as pro\ided for in section 2, would liave supplied the (Government with the funds to make it whole for its full and prompt redemption ot al national bank notes, less an aggregate sum of not more than oneunl- lion and a half dollars. Tliis deficiency, covering a, period of thirty years would, under the terms of this bill, liave to be made up of assess- ments upon the banks, which is provided for in section ;!. An assess^ ment a,mt)unting to about one-sixth of 1 mill per animni upon the capital stock of the national banks in existence during this period would have made up tlris deficiency to the Government. It is easy to see that an assessment of this size is so infinitesimal as not to give rise to any crit- icism or to be oi)eii to objection on tlie part of stookolders in these institutions. . , ;-, ,, ■• -, ^ ^ , The Chairman. Will you explain whether there might not be a HANKING AND CURRENCY. 105 greater liability of loss if the bonds of the Uuited States were not put up as collateral? Mr. Hartbr. I think probably that there would have been a some- what greater liability to loss, but, iu view of |)robable legislation, which will reduce the ijower of the officers of national banks to borrow the funds of the banks over which they have charge, and the fact that my bill in section 4 provides that the aggregate circulation, secured in the manner proi)osed by the bill, shall not exceed 75 per cent of the amount of the paid in and unlmi)aired cash capital of each bank, I think that losses would not be as large in the coming thirty years, with the cir- culation secured in this manner, as tliey have been during the past thirty yeai's of operation of the banks under the existing law. It might [)ossibly be contended that in giving the G-overnment a first lien upon the assets of national banks asits security would in.jnre to some extent the interests of depositors, but this objection 1 think disaiii)ea.rs when you remember that under the present system the Groveriunent already has a preferred lien upon every liank in the shape of Uuited States' bonds deposited as collateral security for the circulating notes. Directly replying, sir, to your question, I think there would be no possible loss to the Government. The Chairman. The Government has never been compelled to assert its lien, owing to tl»e fact that the bonds have always been sufficient. i\Ir. Haktbr. The bonds being a portion of the assets of each bank, the result is finally tlic same, that the Government has a preferred lien upon the assets of each bank to secure its circulation. The ('HAiRMAN. Not upon the assets as represented by the deposits, but ujion the assets as represented upon the capital stock, which is merged into the bonds. Mr. Harter. The lien would be of the same general nature. The bond lien of the Government is a first lien upon the total assets, no matter what they may consist of. Under this law a lien of the Gov- ernment would be a first lien upon the assets of the bank, and while it might be said there is a distinction, there is really no difference, and that, so far as stockholders or depositors are concerned, it makes no difference whether the United States is secured by bonds or in the manner the bill under consideration proposes. The Chairman. Not unless it should be dissipated by losses or be stolen. Mr. IlARTER. I think also the fact that under section 3 each bank would have a tolerably direct interest in the control ami management of the other banks in'the State would l)e wholesome, and would result from the passage of a bill like this. During the last thirty years the Government has received in taxes on the national bank note circulation about $72,0()(»,0OO; and even with the omission of section 3 — a section which, however, I think is very necessary to the completeness of the bill and just to the baidvs, as well as necessary for the full protection of the Government— the Govern- ment losses,' as already stated, would have amounted to only a million and a half dollars, leaving the net profit to the Government in the shape of taxes on circulation of the banks during this period about $70,000,000. The Chairman. You do not take into consideration the cost of print- ing? Mr. Hartbr. From which, of course, would have to be deducted the cost of the printing of the bills and the administration of the comp- troller's office. The expenses attending these items I have somewhere among my papers, but I have not had time to look them up, nor do I ]^(j(j BANKING AND CURHENGY. tMnk it is necessary, tor I can say ^1- ^^;:^ -j^^SSvi fr2 suiall part iudeed ottlie sum ^^'l^i'^lt. of t^e Ss Under a bill like SitrsIatS I ^^l(^ndeavor to make this clear as it appears to my ™ Mr' Waknbr. Do you mean as a basis for currency? Mr' HAKTER. 1 meiaii as a basis for loans to tlie public. Mr ToTTOSON of Indiana. For all banking purp'>«e« ^ „ .,, ^ Mr' IIARIER ' For all banking pnrposes. For tbe purpose of illus- tratV/iothl feature in a general way, and avoiding unnecessary frac- S^sim^, ;;^will supi^se tl-t a national bank i. now me^sten. i,.j.H,,o- .1 p^niital Stock of *10(»,000 and a surplus fund ot ^1.j,uuu. vve ^mnow^'wc^VStlds^llK^^ In thit tins' sum has enabled the bank ^^^V^^'^^^^^l^"^^^^ United States, through the office ot the ^.^'ll f™"^^ ''f ^*^^"„J^\™ «io(i 000 at nar in 4 per cent bonds of the United btates, ana tuai. lue *S ha^Jce^d $90,000 of circulating notes, ^^e* us suppose «ra this bank has no individual •l^P'^^it^i'^t*^^''^'^^"'^ ,2^^^* ,*lf S^ *^^^^^^^^ are renresented by the tigures just stated. Let us see under this state Shirs what sendee, in the way of aceommodation to borrowers, this v>.,iiK- f'oiild render to the coinniunity in which it is tocatea^ S e Ssent law, i think wisely, requires that at least lo per cen of the l^Mity ..f a bank-wh ether such liability be caused by circulating note o S deposit account-shall be held by the bank as a re^erve^ Thit would require that the bank should keep on hand, out of the iJo (.00 of circulating notes received from the Comptroller, the sum of il '-^00 Ths would leave available for loans upon the part ot the ban! S;e sum ^f *7.;,.500. N.-w let us see what amount ot a^commo- datn^t ^r^omnmnity in .vhich it was located a bank cou d extoid^ if Its circulation was secured under the provisions ot thebdl^^eale ""^ ti;fi{!SpLe, its $115,000 of capital and surplus could be loaned out a ttere IS nothing in the law, and there should be nothing, requiring anv reserve to be held against the capital and surplus Mr IiIktbr. The bank wUl start then with au abdity to loaa $115,000, and the bill i)rovides that a bank under these circumstances would be entitled to $75,000 of circulating notes, and under the law it would be necessary to hold a reserve of 15 per cent against this $75,000 liability. ^ .^ , ^i ■ ,■ a.-- aao This reserve would amount to $ll,2oO. Take this sum from $ , o,000, the amount of the circulating notes received, and it would leave «63 750 which the bank would be authorized to employ m discount. By 'adding this $63,750 to the $115,000 already referred to, we find uAiNj^iiMij AND CURREACY. 107 that the b;uik would have power to accoiiimo(hit(_' the commuuity depending upon it for hiaus to the extent of •Sj178,750, instead of hav- ing the power to loan only 'if"6,500; so that under this bill the national bank capital of the United States would be practically doubled. In section 4 an emergency circulation is iirovided for. The security ■ for this, it will be noticed, is made the sami' as the existing collateral security provided for by the law now in force. This circulation is intended to meet a sudden and desjtei'ate conunercial condition in the •country — such a state, in other words, as we have been going tlimugh for seven montlis, more or less, in tlie United States. This circulation, as the bill describes it, is not intended to be of a permanent character, but to operate as a kind of safety valve, and would be elastic in its char- acter, providing this very necessary element at a time when, under our present system, it is always wanting. It provided a bridge, it seems to ine, over every dangerous crisis likely to occur, linancially speaking, in the future history of fclie country. You will observe that the tax upon this emergency circulation, instead of being the ordinary tax of 1 per cent, is fixed at the enormous rate of per cent. The object in fixing so high a rate is to cause the prompt withdrawal of this emergency cir- culation as soon as the necessity for it ceased. One of the misfortunes of the ordinary way of meeting commercial panics and financial crises in this country has been that the cure has been, in its results, almost, if not quite, as bad as the disease. The locking up of money (caused in the main by the timidity of those who held it, and rarely, perhaps never, by organized banking institutions) under panicy circumstances has always and largely reduced the supply of current money in tlie country. Section 4 of the bill would meet this condition, and upon the return into general circulation of the ordinary currency of the country so locked up, the emergency circulation provided by the bill would be promptly retired. I think it would be a calamity in the future, as it has been in the past, to aUow all emergency money, thus called into existence by dangers of a temporary cliaracter, to remain in circulation, producing a redundancy, after the crisis is over; for, considered iu connection with the business interests of the country, immediately succeeding a period of p;inic, it would probably, in its consequences, be only second in injury to the real business interests of the country of the panic or condition of the crises itself. Section 5 is the usual section which provides for the repealing of such portions of the law as would be in conflict with the bill under discussion. I have stated briefly, and as clearly as I can on the spur of the moment, the objects of the bill, and the manner iu which these objects would be carried out if the bill became law. I am conscious that in doing so I have overlooked, perhaps, some features of interest, and liave probably disregarded some of the apparent objections, at least, that may have arisen in your minds, and if you desire to ask me any (|uestions in con- nection with the bill to tlie extent that I am able to answer, I will do so with gj-eat pleasure. Mr. Johnson, of Indiana. Under the existing law each bank is responsible only for its own administration. Mr. Hakter. Yes, sir. Mr. Johnson, of Indiana.. And under your system the banks in a given area are made responsible for the proper administration of each one of the banks in tliat territory? Mr. Farter. To a very limited extent. "Sir. Johnson, of Indiana. That would be a drawback to banking? Mr. Habtee. I would liave to answer that by saying that people IQg BANKING AND CDKKKJNtJi. Sra'SSo^lof ^^il''^Xl"(>ove:..lu,eut bonds .ere up as security. tiicf- hut T wish to say this: Thenum- Mr. BARTER. I am aware of tliat, but 1 wisiiw say u t think wn^accouuts, di^ctly c. -^-f y^^;^'" ^^.^S m Si^SlS^^ ss;s^."\i:;^tSLSsS^^;S[rwi iX- and t this IS true (and I believe it is), then the mducemeut to "St ii uatiol.al-bauk stock would be increased rather than decrea^ed^ Mr JOHNSON, .)f Indiana. It seems to me you attach ^o ™ im^i^rtance to tile effect of this bill U^niiting loans to officers of bank^ ^lul it does seem to me that the making of each bank lesponsiDie loi the'conduct oTevery other bank in the «tate would b^ such a dra^w^ hnr.T- that i>eoiile would si'o into State banks ot issue, ana tncreoy brS.- afout^sSrcIt"- of money, instead of a sufficiency of money. \ r Harter. Tbe' safest prediction for the future must be town from oni experience of the past, and fortunately an illustration which w 1 r to establish the correctness of my prediction m this matter is at haml h>r- I recall that one of -the most popular banking systems we evei h.il in the State of Ohio was our Ohio branch, or State banking svstem Under that system each bank was liable, to a greater extent fa r'his bdi provides,'for the debts of the other banks; -d not on y was there no difficulty in inducing capital to go into our State bianch bankino- svstem, but charters were very eagerly sought tor Mr JOHNSON, of Indiana. That was probably before the presen system was known. Banks might be willing to accept circulation under the conditions existing at that time, but might not do it now. Mr. AVarner. What was that system? „f nnin This Mr. IIARTER. It was the branch system m the State of Ohio lis class of banks were all closed up in consequence ot the 10 per cent United States tax placed on State bank circulation ,, , • ^ Mr JOHNSON, ot- Indiana,. The point I was making was tbat since this time it has been developed that there is an easier and safer system of banking than existed then, and perhaps with tiiis knowledge a man who would have gone into the old system would not be willing to do so now and be liable lor the defalcations of other banks. Where do you get your ideas which are embodied m this biiti Mr Harter. Tt is a littie hard to answer that .piestion positively. This is a subie<-t to which I have given more or less attention tor about thirty yeai-s,' and 1 have been obliged at times to change my opinion and to shift my views ui)on these questions The strono-est ai'gument I have ever read or lieard m tavor ot notes secured as proposed in section "J of the bill was made l»y iMr. Horace BANKING AND CURRENCY. IDS' Wliite, at Droxel Institute, in Pliiladelpbia. Up to tlie time I heard liis argument, I was of tlie opinion that it was essential that banli-note circulation should be secured by some liind of acceptable collateral. Since tliat time I have changed my mind on that subject. The addi- tional security proposed in the bill, which gives the Government the right of assessment, 1 got from a booli published, I think, by the presi dent of the Philadeljthia National Bank. The emergency-circulation feature, I supposed, 1 had discovered for myself Mr. J( iHNSON, of Indiana. You evolved tliat from your own inner consciousness? Mr. Hartbe. Yes; I supposed I had evolved that from my own inner consciousness,' so to sx:)eak; but I found within a very short time after 1 had made this supposed discovery that the same general prin- ciple was embodied in a law which controls the operation of the Keich- bank, in Germany, and it is not very dissimilar from the protection given to the business interests of Great Britain by the suspension of the bank act in that comitry. I claim no g]iecial merit or novelty in the measure. I simply claim for it that it takes the national banlcing law as it now exists, and, upon safe and simple lines, modities that system so that it may continue to be at least a~s useful in the future as it has been in the ]3ast. Mr. Johnson, of Indiana. Under the present system the people are protected against failures; but under the system which you proi)Ose banks would have to go into liquidation. Mr. Harter. This bill makes no such changes as the gentleman's question would indicate. Mr. Johnson, of Indiana. The Government would have to settle for the bank? ■ Mr. Harter. Yes, sir. Mr. Johnson, of Indiana. Do you consider it safe to the bill-holder? Under the present system it is impossible for a Ijank to squander the people's money; but under this system they could do so. Mr. Harter. Section 3 of the bill provides that these assessments shall be iraid within thirty days. I think assessments, however, from the experience of the past, would be exceedingly infrequent. Mr. Johnson, of Indiana. I did not notice whether you gave a lien on the bank for assessments to supply deficiencies. Mr. IIakTBR. The power to assess would be a lien on the bank sub- ject to assessment, and therefore there is no special clause to that effect in the bill. Mr. Warner. You refer in section 2 to this Government guaranty of a note. There is no guaranty. Mr. Harter. I would x>rovide for such a guaranty. Mr. Warner. In other words, you do not propose that the Govern- ment shall give a guaranty? Mr. Harter. I propose that the Government shall guarantee the redemption of the notes. Mr. Warner. What is the present Government guaranty? Mr. Harter. Eedemption guar^anteed. Mr. Warner. Is there any such guaranty? Mr. Harter. Yes, sir. It will be found in one section, I tliink, of the so-called Sherman law. The Chairman. He refers to the Government holding bonds, and when the bank is dissolved the Government takes up the notes. Mr. Warner. In other words, it is an acceptance of the notes. This is an entirely different thing from a guaranty. -,-^Q BANKING AND CURKENCY. TT^^o la n urir^ipal o'aarantv which is almost as efficient ^'/- ''Tlfo^u^uecmc terms f^^^it\ live-dollar bill issued by ^^'^J'''^^i\''-^''%^^^^yTnrimdo Fla., which shows the nature of taxes and excuses and all othei dues ^" i^ ■ , ^j,g united States to mdi- ti^rt^:ai^:*'^.'t-.^^^- -^i- ^^^^^*- ^*^^^^' '^^^^^* ^'^*^^^^* vTOon the pul)lic debt. r, i j. i !v thi^ i^;ii Q ipo-al tender ])etween national banks. '^ Mr WatSfk^ u^ to this guaranty by the G^.vernment to whiS; yotreS; yoVdo not refer to any aovernment habrhty beyond *^^r"S^RT£" yS; "She full and prompt redemption of such notes Mr wl™ Do you propose that these notes should be nrade a legal tendei 01 JJSlly rlceilable in any other degree than as under the ^^■^rilS^^'l dll^S ia other words, I would make no change in ^'S/^'wS^ Y^aSvf Srred to the branch ^^^^^^^ vr.m fitate How was that managed? Was each of the banks left ^^■mZiel^ own business affairs, or was it managed by some committee or representation of difterent banks '. A^rHATiTEB That was managed by a central committee oi boaid of contS,H,S;d at the capital of the State, ^ut the supe^on o^^ tlvit baukiuo- system bore no comparison lu promptness and tlioiougu ness to tke rujirvision of the Oounrtroller of the Currency as exercised over the national banks of the United States. Mr Waknbr. As I understand the arrangement ot that system described by you, it was sometliiug of a Lloyd's arrangement. Mr Habtbr. In a general and modified way. , ^ ,. , ■ Mr WARNER. Whcn^e is there a precedent to any extent tor bus^ ness men being willing to "t. into such a Lloyd's arrangement as is p^ Is^ by^mr bill? ^ Is there any pre<.edeut from the beginning erf the Insiness of the world to the present time where men have been w n g to become partners with other men in liabibties withou a pos- ribilitl' of sharing profits and without the possibihty of sharing m the *'"Mr.*'HARTBR. I think the case I have cited in Ohio is only one of a laree number in point. ' ■ ■ Mr. Warner. I appreciate the fact that iii some respects it is ^^"^mV^Harter. It becomes a precedent, and will become more valu- able than ever be(;a,ase the supervision exercised over banks then was not as thorough and careful as that exercised over the national-bauk associations now, and the liability under such a system as is proposed bv this bill would be much smaller for stockholders than it was then, and I argue from that that the wiUingaess, and I may say the anxiety, that existed during the time that that system was in use m Ohio to invest iu the capital stock of banks would be increased instead ot '""Mr Warner. While you do not claim that there has ever been a precedent which involves the distinction which I make, yet m your BANKING AND CURRENCY. Ill opinion tlie plan you propose is less obiectiouable as an original prop- osition tlian that outlined by my ([uestion? Mr. Harter. 1 mean to say tliat 1 do not think tbey are exactly parallel, but practically so. Mr. Warner. The Ohio circulation was secured by collaterals. Mr. Harter. Xot the circulation of the branch banks. Our stock banks, organized under our free banking law of 18,5 J, were secured by deposits of public stocks. Mr. Warner. I do not quarrel with the gentleman as to their proba- ble safety. I wanted to know whether there was any precedent on earth for this. Mr. Oox. How can it be expected that a man would take his money and invest it in an institntion that was subject to danger from the action of other institutions ? Mr. WARNEit. I am free to say that I would not; but I agree that Mr. Harter is as good a business man as I am, and I do )iot want to quarrel with him as to a matter of opinion. As I understand, there is between *(;00,000,000 and $70u,000,0()0 of national-bank capital now employed in this country. I may be mistaken about the amount. You propose to peruut this issue to the extent of 75 per cent and an emer- gency issue of 50 per cent '! Mr. Harter. Y^es, sir. Mr. Warner. You are providing for a currency which is enormous — between $40(t,000,000 and $500,000,000— and wliich, in an emergency that might arise, would ))e increased to between §700,000,000 and $800,000,000 perhaps. If that be the case, what earthly basis of argu- ment, as regards possible risk, does the gentleman nmke, from our experience with the national-bank currency, which is now outstanding to the extent, I believe, of less than one-fourth of the capital of all national banks, and Mhich, before it was allowed to be issued, was backed by special security ? Mr. Harter. I really (;an not understand the scope of the question. Mr. Warner. It is this : We have had an experience with currency which has been but a comparatively small per cent of our banking cap- ital, and \vhich, antecedently to being issued, was backed by special dei)osits. Even if the result is as you have stated, what conclusiim can ba drawn from that fact as to what the i)robable results would be of a currency issued to two, thiee, or four times that amount, upon the same capital, without any special security whatever? Mr. Harter. I answer that secnritv would be precisely the same in one case as in the other, or, rather, under this bill the security would be greater, because the percentage of circulation to be issued would be smaller; it would be smaller as 00 is to 75. Under the present law there is no legerdemain by which the assets of the bank are in any way increased. In one case the assets remain in the bank, and in the other case a portion of them are specially set aside and are deposited with the United States Government. Mr. Warner. I doubt if I have made myself clear. You say that our experience has showu that the Go^'ernment has called upon the banks of the country for only $1,500,000 in thirty years in which we have had a national-bank system; and you say, even if there had been no special security there, that the risk would have been infinitesimal. Admitted that the risk was only $1,500,000 by a system which provided ample security to meet it, and under which the result of experience shows only one-fourth to one-half of the capital represented was at any time represented by notes, now I ask Mm if that is any criterion of -^^12 BANKING AND CURRENCY. the r.ks that would be involved under his ^y^^-^^' ^t^J^ proposed to leave the ^".<^|te^/^f ^^^^ ,;" ^'^ J^^.'^ow le.^sens risk, and kt^S^^ro;^sSet^— - '"^^SEliiAN. That matter will be considered by the committee ^'^^^^ fJ^^vv^i 1 will endeavor to answer the question. When I "'S^KISeb'- u'Sfuot tl.e ga,tle.»an'a plan involve an incMase of cimimy torgwattr an,oa«t than is ao, takeu ont l.J tie banks i ^l;: l^lSi. a '° *;r,?^S'*;n„rea,o tke an.o„nt of o„r»nc, "IrtSS" TL''\»Sag'fo1'.i.bilit,v of loss -onld no, be 3Ji. iiARii.K. ^"^1 ^prniities received from borrowers would rncre..sed the eb^^^ be an offset against the mmmmmmm the abfl t> to bear such losses would be correspondingly increased. Mr wimYoa depend upon the virtue of a hrst 11^11701; *!«* iui. wiLUit^ nniAthpr nnestion You were speakmg about assess- ^;if ' H I'^^^l/^SarmSer rf\>ank no4s, sa/ ^100^00, aud SV tal a,ssei:t::.;unted to $2()0^000, that^ first ^^^^^^^ ■A mortc'-aoe of 50 1 .er cent on all ot the securities. It I issue bank noteb fotle extent of $150,000 against assets of $200,000, the result is that the ectSty is onlv that of a mortgage of 75 per cent on the assets. *' Vir H VRTER. ^rire assets have in the meanwhile been increased Mr. WAENEE. You do not consider a mortgage ot ff.^^^ 1°^ $200,000 collateral as good security as a mortgage ot !pa0,000 upon SlOo'oOO collateral, do you? Mr' wiE™EE."l''am trying to draw a parallel between these two 85-^^- tems How can vou say tha't your first mortgage lien, which is secured by a margin of only 15 to 25 per cent, is equal to a first mortgage lieu, whi.'h is Snly about 10 to 50 per cent of value ot the '-O lateral^ mHABiEK. The assets necessarily increase with the habihties ot ^^ Mr^'wARNBR Exactly; but the value of the preference is in propor- tion to the percentage of the lieu to the security, is it not ? Mr. Barter. The ratio of lien decreases somewhat, but not m a BANKING AND CUERENCY. 113^^ rapid proportion, especially as the amount wliich this bill provides for issuing IS only 75 per cent of the paid-up ital; whereas, under the present system, 90 per cent may be issued, so that in the end the secu- rities vary but little, if any. Mr. Warnbe. But the gentleman has already admitted that the amount of the currency now outstanding is somewhat less than one- third of the capital of the national banks. The object of this bill is to increase the amount outstanding iu proportion to that capital. If you increase that, doubling or trebling that amount of the lien upon the same amount of capital, do you not thereby reduce the comparative value of that lien ? Mr. Harter. Necessarily, somewhat. We fall back upon the expe- rience in these matters in the past, and that experience will amply jus- tify the position I have taken before this committee. Mr. Warner. You think that the notes will be entirely safe? Mr. Harter. The bill amply provides for their security. Mr. Warner. Is there any reason why the State banks should not be included in the operation of this law, except to the extent to which they are not at present subject to inspection? Mr. Harter. I think the only reason why State banks sliould not be included iu this bill is it would mix the authority of the State with that of the nation, and would result in complications highly undesir- able. Mr. Warner. In other words, it is an attempt to confine the con- trol of the currency to the Federal Government, because you recognize that complications might arise if you attempt to do otherwise. Mr. Harter. Yes. Mr. Warner. Would not a result of the passage of this act be to drive out of business instantly and finally every national bank doing business which did not wish to substitute its present method and join this combine? Mr. Cobb, of Alabama. I would supplement that question with the inquiry whether you have a right to do that under the law? Mr. Warner. I have assumed that the law would be gotten around. Mr. Harter. As to the legal portion of the question, I am unable to answer; nor can auv other man until after a case is made and a decision secured. As to the other part of the question, I would say it would necessarily result in the retirement fi^om the national-bank sys- tem of such banks as, after weighing the advantages and disadvan- tages, concluded upon the whole that it was undesirable to do business under this system. Mr. Warner. So that the extent to which the currency might be increased would have to be discounted by the extent to which it would be decreased. Mr. Harter. The gentleman's statement is entirely accurate if he takes into the account the increase due to the organization of new banks. Mr. Warner. Your hypothesis, I presume, is correct, upon the hypo- thetical statement which you make as to the inducement offered by your bill to issuing more currency on a given amount of banking capi- tal. It was, however, I believe, based upon the assumption that there were no deposit accounts ; that is to say, your calculations would have to be varied to the extent to which deposit accounts would vary the figures. Mr. Harter. I think that the deposit accounts need not be taken into consideration, because the size of them is not controlled by law, 940 8 j^^ BANKING AND CURRENCY. , „ f^n+r,^^ whifli can be safely eliminated from the rSV^^ - ^^Vr f ;:'wtrrSSS£?:a;- your intent. That being Mr. WARNER. Tliat i« ^hat isuppo&eu w o^^^ of a final the case, the only security that sleit^^^^^^ ^.^^^^ ^^^^ .esorttoassessmentp^^^^ upon a fund (.Illy -o per ceutg amount than the notes at par bank becomes impaired to the «", ^^J^^ tCj. „uieli would be aZe.r.srtbf;iL"2iUs. e'S°5^."t »•«.*> »-« » "»'- statemeot ^vhat wo„M *«5t?fta. '^,"1^ srS a", i.ierease of the n^"wl'i\^'?»,S^;''£5t.i.al »»» ..,* ,be amonat of ri* '°;i;. HA,.™.. Tate ,l,e «»^t ^!r;e'.W#,n''e„ttoaea. 1a1u« »U6,000, iadadi„g ™'1''»?. '?'* J-,S»„SS^^ the Govetn- £: r.'S. 'iifd^PS r H:;."* S";h",Sii;,d f„a, fh. •^ »'"»:». I do not think yo„ anderstood me tally. f>n>fo« j nrnhablv be nearer three times that amount; but suppose the deposit ruld Sual the capital stock, then the assets of the bank would aggre^ gate not $115,000, but $215,000, so t^e lien of the United States would be ao-ainst, not $115,000, but against $215,000. ...t^thA M? WAm That is quite clear. Now, your assumption as to the secuiity foV the notes is based not so much upon the I'^'O^'lf "^f "^ *^^ bnias upon your knowledge of the banking business, so that it seems thatS' th^elegitimateelerciseof ban be not merely upon the capital but upon the deposits, which would be largely in excess of that. Mr."HARTER. You are quite correct. „itl,n,it Mr WARNER. Is it legitimate to do a banking business without deoosits, but simply for the purpose of floating currency -. Ml HARTBR. Banks might be tempted to do that, but would natu- rally wish in all cases to add the profitable featiire of receiymg deposits Mr Wa-rner. Tliey should not be tempted to do that which tliey ouffht not to do. Having the Government's franchise for that purpose, do you think they ought to do that instead of doing a legitimate busi- ness^ BANKING AND CURRENCY. 115 Mr. Habter. That there would be cases of that kind I have no ques- tion, but the circumstances are such that they would be very limited in number. Mr. Wakneb. There would be no objection to providing something in the bill to guard against that ? Mr. Haetbb. There might be a proviso that each bank should open its doors and do a legitimate business. Mr. Wabner. Or that the currency outstanding should not exceed 75 per cent of its capital or 33J per cent of its gross assets ? Mr. Habtee. I shonld not object to that. Mr. Wabneb. The next question is this: You provide a tax of live or six per cent upon the emergency circulation *; Mr. Habter. Yes, sir. Mr. Warneb. That, of course, would be issued at a time at which the ordinary limit of circulation would have been practically reached and at a time at which it would be profitable to a bank to pay this 6 per cent per annum for the right to have further currency? Mr. Habtee. Yes, sir. Mr. AVabNee. What is the reason that you pi-efer a lump tax of that kind instead of a progressive tax to allow for a steadily increasing stringency? Mr. Haeteb. For this reason : Our experience in the past has been that banks having that privilege take out emergency circulation for an extremely short period of time. During this progressive period of stringency referred to, the banks usually fortify themselves in the ordinary manner. Mr. Wabner. By reducing discounts? Mr. Hartee. Yes. It is a wholesome thing to do and often times checks the growth of a panic and brings borrowers gradually to realize that money is ditticult to obtain, thereby inducing them to curtail operations and limit their wants. Mr. Wabnee. Your answer is, that while a progressive taxation might be theoretically preferable, this would not compensate for the complexity involved? Mr. Habtee. Yes. Mr. Speeey. I do not see in your bill where you provide for any circulation whatever. Mr. Habtee. Section 4 provides [reading]: That each national banking association shall be permitted to issue and circulate notes, as per section 2 of this act, equal to seventy-live per cent of its paid-in and uuimpaired capital stock, and every national banking association shall have the right to issue and circulate an additional amount of notes equal to fifty per centum of its paid-in capital. The provision, of course, is not mandatory. Mr. Speeby. Section 2 reads : That the United States shall have a first lien xij)on all the assets of every national banking association to secure it from loss growing out of its guarantee of the notes of such banking associations. That does not provide for notes or anything. It merely assumes that there are notes. Where do you provide for notes except the emergency notes? Mr. Habtee. Section 2 provides that the Government shall have a first lien. Mr. Speeey^. That assumes that notes have been issued, but where in your bill do you provide for them ? Mr. Habtee. That provides security, and authorizes a bank under 21g BANKING AND CUEBENCY. ™ch security to issue tbem. It is not maudatory but permissive. It does not coSu.aud, but gives them permission under section 4. Mr Black. Yon autliorize an additional t5 pei cent. Mr' HAETER. Tlie bill does not command the issue of notes. It is ^'^^ipE^^'l^'Xf next section as meaning the emergency cir^ulaSToiely. Where do you provide for a guarantee ot circula- '"Mi?HAlS.'ft siouTd appear in section 2, but has been uniaten- *' Mf SpbTry'^ You intend that that shall be stated when you get your bii? to svfif yon-that the United States should .n fact redeem all the notes! Mr- ?o^HN?o N, Sl:ndu;na. The loss would fall on the Governuient. Mr Harter. There could be no loss to the Government. Mr BLrcK i confess my unfamiliarity and lack ot knowledge on thSe Satte" for I have a^eat deal ^^f o7the\rSetbf t^Gov- law as it now exists contains a guarantee ot these notes by tne v^ov ""Mr.' BARTER. It does not contain a specific guarantee. Inasmuch as the Government receives this money in the payment of dues of the [fnited Stltes it guarantees them. Section 2 should be so amended a to make the Govlrnment responsible for the prompt redemption of all notes issued under the bdl. Mr Sperky. You can not find any such law. +i,„ n^„ Mr! BlIck. It seems to me the provisions of your bill gives the Gov- 'XHrRSR^E^en as the bill now reads, if it became law the Gov- ernment would be liable practically for every dollar of this money because iiT case of the failure of a bank the people would pay every Sr of the notes into the Government on dues and tberefore the Government would be liable in reality for every dollar issued by a "''Sreupofthe committee rose, to meet on Monday, October 9, at 10 o'clock a. m. Committee on Banking- and Currency, Monday, October 9, 1893. The Committee on Banking and Currency this day met, Hon. William M. Springer in the chair. REPEAL OF TAX ON CIRCULATION OF STATE BANKS. STATEMENT OF HON. R. E. LESTER, A REPRESENTATIVE FROM THE STATE OF GEORGIA. Mr. Lester appeared before the committee in favor of bill No. 97, which is as follows: A BILL to repeal sections thirty-four buBilred and twelve and tMrty-tour lumdred and thirteen of the Eevised Statutes of the United States, and ail other laws which impose a tax on cir- culation other than that of national hanks. Be it enacted hij the Senate and Honse of Representatives of the United States of America in Conqress axeemUed, That sections thirty-four huDclred and twelve and thirty-toiir hundred and thirteen of the Revised Statutes of the United States, and all amend- BANKING AND CURRENCY. 117 merits thereof, and all other laws or parts of laws which impose a tax of ten p'T centuni, or any other sum, on circnlatiou of notes or otlier things of onrrency, or which impose a tax on all banks and associations and persons who receive or pay out the notes or circulation of other than national banks, or which discriminate in taxa- tion against circulating notes, be, and the same are, hereby repealed. Mr. Lester spoke as follows : Mr. Ohairiiuiii and gentlemeu of the coniiuittee: I shall not detain the committee a great while this morning or at any other time. The matters that I may suggest to the committee are those with whioli the committee are all familiar. There are some provisions of the Constitu- tion, however, which bear upon the question in the bill I introduced here so old and hackneyed I am afraid, Mr. Chairman, that their being- old and hackneyed is some reason even for their being overlooked and not considered. The bill I ii'troduced is simply to repeal the provis- ions of the national bank act, which imjioses. a tax of 10 per centum on the notes of all banks, banking associations, and persons who may issue them. The provisions to which I refer are sections 3412 and 3113 of the Revised Statutes. Section 3412 j)rovides that — Every national banking association, State bank, or State hanking association, shall pay a tax of 10 per centum on the amount of notes of any person or of any State bank, or State banking association used for circulation and paid out by them. Section 3413 provides : Every national banking association. State bank, or banker, or association shall pay a tax of 10 per centum on the amount of notes of any town, city, or municipal corporation paid out by them. This bank act inaugurating and putting into operation the national banks of the country was made, Mr. Chairman, as we understand and as we know very well, for purposes which the conditions existing at the time of the making of that act made something of a necessity. The purposes and objects of it, like the purposes and objects of every other act and measure, ought to, be considered when we come to the question whether the law shall stand or whether it shall be repealed. The reasons why those provisions, at least of the national bank act of 1863 and 1864, should be repealed independent of their unconstitution- ality, are two. One is tliat the reason for the law has long since ceased to exist. The other reason is (and I think it is clear) tliat, having served its euds, it now stands as an obstacle in the way of what we or I conceive would be the interest and the convenience of the people. The national bank act took the place of the policy which was adopted during the war of issuing Treasury notes, commonly called greenbacks, to meet the demands of the Government. It was sug- gested (and it was put into oxieratiou), arising from tlie necessity of raising funds with which to prosecute the war, that national banks, such as we have, should be put into existence for the purpose mainly and chiefly of sustaining the credit of the Government or sui^plying the Government with the means of prosecuting the war. I think, Mr. Chairman, that this is a historical fact known to everybody who has any knowledge whatever upon the subject, viz, that that was the main and chief object and purpose of the national bank act — to furnish the means of disposing of the national obligations, tlie national bonds — that is, to furnish a market for them by supplying inducements to individuals to take and use and pay for tlie national bonds the national obligations. In other words, to furnish a market for the national bonds. The devices which they undertook to make are expressed in these national bank acts — that private corporations under one general system under the law of the Government should be ^^^ BANKING AND CUKRENCY. inaugurated, should be chartered, which charter and which right livS by the Government were inducements, ot course for mdividua s to phice their means and money into these institutions, the result beino the benefit which the Government itself of course re<;eived by the fUsBOsal of its bonds. That it served its purpose and it served it well thSecau be no doubt. It did accomplish that object in a larg^ mSsure-pe haps to the fullest extent of what was expected of it That act however, made for the purpose of meeting an emergency and fbfthrmirDOsrof helping the Government and assisting the Govern- ment bf^ts"^ operations has been continued after the emergency had i-iassed and the reasons for it had ceased. ^"^^r oSman, this law having an ^^i^^^ice under the author^^^^^^^^^ the Government, and serving its purposes, as 1 have stated, had the efttct and^ntended efiect I may say, of doing an injury which was con- sidSd of course an incidental and a minor one at the tmie by giving an absolute monopoly of the circulating medium, as we may call it, of the whole country to these institutions, thereby depriving the citizens andThe countrv of the use of such means as might become a^necessity fri W to tiL of facilitating^their exchanges, ^^ transactu^^^^^^^ business of carrying on their affairs. It destroyed all State banks by S tha monopoly to the national banks. It was not considered fufflcient, or to auswer the purpose, that the national banks should have the right to exist as corporations, to have the many privileges of corporations. But in order to make it effective still more m tavor of tKnks and to have what was considered to be a ^^ ;«^^^1 ^^^l^^^^/ This provision was made, viz, of putting a tax "P«"^;^« ^^^f ^.^'t^^^ issues and the State bank notes, and the notes, I ^^y ^^j. jVIr Ghair- man, of any individual person which might be used one time oi a hun- died times^over the ccuinter of a bank. That was to perfect the monopoly. That was to drive out of existence all curreucy, notes, papeA" Jnd documents, or whatevex might be used tor tbe PuiTOse o currency in the common business of the country, and to dme that all away in order that the national banks might have, as I said, the monopoly of the business. That was the effect. The State banks now, Mr. Chairman, and banking institutions can not in a single transac^ tion use your note or my note over its counter even t(j pay the banks own debt. If I owed you $1()<) and my note is in a bank, that note can not be passed over the bank's counter to you in payment ot a debt which the bank owes to you. It is about as strict and as perlect a piece of legislation, taking in the amendments and constructions which have been placed upon it (which I think are legitimate), as has ever been accomplished to serve an intended purpose. , , , , Mr Cobb, of Alabama. Do vou mean to say if the bank hehl your note for $100 and the bank" owed Mr. Springer $100 that the bank could not pay Mr. Springer that except Mr. Lester. Except by paying the 10 per-ceiit tax. . , , ., Mr. Johnson, of Ohio. How about the clearing-house certifacatesJ Mr. Lester. It is the same way; in other words, you can not adjust the balances which individuals owe one another in that bank. :Mr. Cobb, of Alabama. Would that sort of transaction come under the definition of " used for circulation ?" ]Mr. Lester. Yes; that has been construed so, and the hmit has never been given to the term circulation. :\Ir. Cobb, of Missouri. That has never been enforced? Mr. Lester. Perhaps it has never been discovered. It may or it may not have been. I am telling you now the scope of this particu- BANKING AND CCRRENCY. 119 lar provision. At any rate I linow banli notes, and muijicipal corpora- tion notes, and all other kinds of notes and obligations or even indi- vidual private notes can not circulate tlirough a bank, without payment of the penalty tax of 10 per cent. Mr. Johnson, of Ohio. How do you get around the clearing-house certificates; are they violations of law? Mr. Lester. They violate the law, so they say, that is one trouble. Now, to see how this thing works. The national banks have a mon- opoly of the currency. That is clear. Now, there is no provision of that law which seeks to compel the national banks to issue the amount of currency beyond, I think, about one-fifth of its capital; is that it? Mr. Hall. They are not required to issue a dollar. • Mr. Johnson, of Ohio. Not a dollar, but they are re(juir d to put the bonds in. Mr. Lester. That is what I mean. They have to put in the bonds equal to only a small amount of their capital stock. It is true that they have to deposit a certain amount of bonds. Now, say a $250,000 bank deposits .f .50,000. Mr. Cox. One fourth of the capital stock. Mr. Lester. Now, they put in the bonds and, as you say, they are not required to take out currency, but may do so. Assuming they do take it out, as I understand it, they put up their bonds and take out currency, as they have done. It is all very well and very easy for them, if a national bond would remain at par or below par. It might be a good transaction. But it depends upon the business of the country and the state of it, whether it would be to their interest or not, as for every bond they put into the Treasury they have to pay for it. Of course that is known. They have got to pay for them, and the very act of putting those bonds in the Treasury incieases the price of the bonds and, therefore, diminishes the inducement for them to take out the issue. Now, the last report of the Comptroller of the Treasury, I think, showed $143,000,000 of currency of national banks in use. Mr. Warner. Two hundred millions in all taken out, and I think a hundred ard eighty odd millions in use. Mr. Lester. They have taken out some since the last report. Mr. Cobb, of Missouri. That is not all in circulation. Mr. Lester. There is uo provision in the act to compel them to sup- ply the currency which is necessary for the country to have. They have not only a monopoly, but an option. Even if the act was consti- tutional, if the act was right and proper, and the Oovernraeut's duty was to supply currency to the people, they have not provided dud can not well provide for the issue through these national banks of enough of the currency to supplv the demands of the people. You all know that .$143,000,000 will not do it, or $200,000,000 will not do it. Now, to show the effect of the stringency of this provision. If you and I and all the members of this committee are interchangeably dealing with each other from time to time, and there is a balance in favor of you against someone else, we could meet through our banks or associations, per- haps, in our business and settle our balances there. But, as it is noAv, unless you use national bank notes, every single one of these transac- tions is a separate one, which must be adjusted and fixed upon its own basis. The banks of New York and other places undertook to ease the pressure which was brought upon them by the tying up of the money, which lately occurred, and undertook to do what looks like ought to be a legitimate transaction, and whether it affected other places and banks or not, it was a convenient one, and there was nothing against 120 BANKING AND CURBEJNDl. it except tlastax law. The ba^ks ia New York aud othei- places laro-e balauces against each other. So mstead of paying the balances n cua^ncy they issued so-called cleariug-house certihcates. Ihe deaduAoVse i J an association of the banks, by winch one den.and goes against another, and one transaction closes up tl^e whole busi^ess^ Now, this looks like an innocent helpful transaction, f * \t o' «f tjjf^^^ certificates passes over the counter of a bank m an ordmaiT tia sa^^^^^^^^ between the bank and an individual, it or rather the bank beiomes liable to this penalty-tax. .-,■., + „f;..,. fi,i, fi,r.Qo Mr GOBB, of Alabama. Have you any judicial construction toi those words, '' used for circulation," the words of thafi act? Mr LESTER. I think I have a construction ot it made by the Comp- trollers of the Currency. I went with some gentlemen before the Comptroller of the Currency and they discussed this question with him when the trouble came up, just after Congress met in August, when the banks of Savannah were apprehensive ot trouble, on aeeouut ot -the stringency in currency, when they could not even draw their balances from'the banks which owed them. They were about to undertake_ to be security each for the other, and those banks wished to do something or other by which balances might be adjusted and their matters car- ried on without greenbacks or national bank notes. They went before the Oomi.troller and submitted to him various forms ot obligations. Certified checks was one, then these clearing-house certihcates was another, where each bank became pledged to pay the debts ot the ottier, so much of the securities of each bank being up as security—— Mr Johnson, of Ohio. You mean so many securities, collaterals? Mr. Lester. Yes, sir; in other words, each bank being surety for each other for the amount each bank took the certificates tor. ihe Comptroller referred to the constructions which had been placed upon this act and it was just as I tell you now. They applied to every single transaction which might have the appearance of passing notes of any person over in payment of a debt. ^ Mr. Johnson, of Ohio. They would not allow you to do in Savannah what thev did in New York ? ■ ^t ^^ i Mr. Lester. I believe they are going to take them up m ISew Yorli. I understand that matter is to be investigated. Mr. Warner. All over the country ? Mr. Lester. They did not do it in Savannah because they happened to get along without it. They did not care to take the responsibility. Mr. Johnson, of Ohio. They perhaps were more law-abiding citizens there than in New York? Mr. Lester. I would not say that. ]\Ir. Cobb, of Alabama. Has your mind been directed, and that of the Comptroller, to this point, passing over these certificates of the bank and class of i>aper attempted to be put out, in regard to the certificates issued upon the sale of cotton and such tldngs? Did you have a dis- cussion with the Comptroller of the Currency in regard to the tax upon that? . . Mr. Lester. Whatever the paper may be, 1 do not care what it is, it the bank ])assos it over the counter it is liable to the 10 per cent tax. Mr. Cox. If it is negotiable, it is subject to that rule? Mr. Lester. If it passes, if it is a note of any person that passes over their counters, they are liable to pay the 10 per cent. Mr. Cobb, of Alabama. As a lawyer are you prepared to sustain the construction of the Comptroller? BANKING AND CURRENCY. 121 Mr. Lester. I am, I tliiuk. I do not comphda of the coustraction, but of the law itself. Mr. Cobb, of Alabama. And the words "used for circulatiou" will apply to circulating notes ? Mr. Lestbe. -Used for circulation. Mr. OOBB, of Alabama. The words in the act there are "used for cir- culatiou," and the poiut I want to make is whether or not it is used for circulatiou to pay out to them aiul Mr. Lester. They pay out Jiis note to you, and you take the same note and pay it to somebody else. , Mr. Cobb, of Alabama. Not necessarily. Mr. Warner. Is not there a distitietiou betweeu puttiug out a note for circulation as distinguished from putting it out for collection ! Mr. Lester. Suppose the same note got back to the bank again and they put it out twice, do you think twice would make putting it out for circulation where once would not"? Mr. Cobb, of Alabama. It seems to me that in construing the act something of the iutent must be taken into consideration. That is the difference between taking your note owned by the bank, paying an individual obligation to the bank is a different thing from an issue for circulation which bears upon its face the intention to circulate from hand to hand as money. Mr. Lester. It is a "note" "of a person" and they use it whenever they pass it over in payment of their obligations. Mr. Cobb, of Alabama. Jfot for circulation; to pay a debt. Mr. Lester. That is what every circulation is, everything which passes for money goes for that purpose. It would make no difference for my ])urpose even if the construction should not embrace clearing- house certificates This tax, excluding the class of cases you sx^eak of, would embrace enoirgh. Mr. Cobb, of Alabama. I agree to that. Mr. Johnson, of Ohio. Do you favor the repeal of the 10 ])er cent tax for the purpose of increasing the circulation as the best means of getting more money iu circulation, or would you prefer to have a national currency, a national bank currency'? Mr. Lester. I will show you before I get through that we can not have ai^ exclusive national bank currency. That is not feasible, iu my opinion. Mr. Johnson, of Ohio. We liave it now. Mr. Lester. No, sir; we have something which does not answer the purpose. Mr. Johnson, of Ohio. All the currency we have in circulation is national currency? Mr. Lester. Simply because it is marked "national currency," and all other excluded. That is about the only reason for it. It is not a currency furnislied by the Government, and is not a national currency in that sense. Mr. Johnson, of Ohio. The national banks guarantee it. Mr. Lester. It is. a currency that happens to be national because there is nothing else but that to have, but it is not a national currency. Mr. Johnson, of Ohio. I do not thmk you mean that quite? Mr. Lester. Yes, I do mean that. STow, I was speaking of the effect of this act, which is to give to the national barks a monopoly of the currency without any provision in it to compel them to supply what is sufficient and what is necessary, but with a provision that 122 BANKING AND CUEKENCY. practically prohibits every other kind of currency but that of the ''tXno:^-^'^t they have provided here in tl^e national^bauk acj bv reason of this little provision imposing this 1«,?J\^ f ^^ ^f j/^t^2 =nffipipnt to sutoIv the wants of the people or to take tlie place oi oinei the acx tms P^ " ". /^ ^^ jf the Government had tlie power Tnot think with my ideas of the Constitution, that the national-bauk acts were coiirttuti^nal; yet, at the same time, they have been passed upouTn'the country, and t'here are rights vested which wou^^^^^ make it not proper to destroy them, no matter what coustiuction ot tue OonstitVtion would be placed upon it now. It seems to me that, not- wStanSg this repeal, they would still have a.ll the rights and priv^- wes that t#ey now have except that harmful one, the monopoly of the I^i^rrency and r would let'them supply it as far as they can and as much as they lawfully can. r ,o,r +Uo+ Hip (^nvprnment of Now, taking up the other proposition, I say t^at the <^overument oi the TTiiited States has no power and no authority to fax oi tasten a cur- rScv Si the country. It is under no obligatiou to supply the peo- ple wit a circulating medium, although I know that some ot the courts havrassumed to flml such new and latent power m the Constitution. Judge Chase in his report as Secretary of the Treasury said it was a necessary power, and I believe President Grant may have said m one of his messages that it was the duty of the Government to supply a c rculatmg mediuui. Well, I say this, that we ought to have a supply S paiTmoney, but I submit, the Government is un«ier no ob igations to fmnish the supply; that it never assumed any such obligation to do it in the 70 odd years of its existence before the passage of this bank- ino' act or rather before the act authorizing the issue ot greenbacks. What powei^has it? As I stated, these are old and hackneyed things of which I am speaking, but the Government's duties are prescribed clearly enough in the Constitution. If this Government was a sover- eign state of itself, there might be some question as to what it migiit assume to be sovereign powers, or sovereign duties if you please. But it is not It is a Government as we all know ot limited powers ; limited to the extent given to it by the States and by the Constitution of the United States, that is of the States united. Now, that Constitution is either the limit of the Government's ]3owers or it is not. It it is, tlien it is to be construed with some regard to propriety, with all regard as to the meaning of it, I say with all regard to the meaning ot it. It it is not, then we have no Government at all, yet are of course, all, under obli'^ations to support, it and as Representatives we have sworn to do so. ' Wliat do we mean when we say that! We mean to say we will maintain it of course as we understand it and as it is written. Some differ about the construction of the language, the various parts ot it; but Mr. Chairman, there is little difficulty in the construction m my BANKING AND CUREENCY. 123 mind of the Coustitution in all of its essential features and none what- ever with reference to the question of finance. Mr. Johnson, of Ohio. Has not the Supreme Court decided in regard to that? Mr. Lester. It has, in regard to the legal-tender quality of green- backs. Mr. Johnson, of Ohio. Do not you agree with that ? Mr. Lester. It has decided it twice; it was decided one way in one court, and another in another. Which one do you think is right? Mr. Johnson, of Ohio. The last one! Mr. Lester. No; the first one was influenced only by considerations, I believe, of what the court understood the Constitution to be, and the other by considerations I know not of. At any rate, the two opinions are irreconcilable. One court or a majority of it decided, Judge Chase at the head of them, that Congress could not make any- thing legal tender except gold and silver. When the case came up again two judges had been added to the court, and they decided it difierently, and they had a majority of, I think, 5 to 4, just about the same as the first decision, except the other way. Now, which is worth anything? Mr. Johnson, of Ohio. I think the last decision was wrong, but I am glad of it. Mr. Lester. You mean you are glad of the decision. Now, if it was a question of our making a Constitution Mr. Johnson, of Ohio. They made it? Mr. Lester. I think they had hardly any power to do that. Mr. Johnson, of Ohio. They stretclied it like thunder. Mr. Lester. They stretched it, and they broke it. It is liable to be stretched some, perhaps, but not as much as that. Now, 1 say you can not find in the Constitution a po\yer in Congress to do this. The enumeration of the powers of Congress on the subject of money embraces these two only, viz, "To coin money," and to "regulate the vahre thereof and of foreign coin," and "to borrow money on the credit of the United States" (Art. I, Sec. 8, Const. U. S.). The framers of the Constitution of the United States evidently recognizing the fact, which they had apparently expressed in that provision, gave Congress the right to coin money. That coin only should be money, and that gold and silver only should be the coin by providing that the States should not "make anything but gold and silver coin a tender in payment of debts" (Art. I, Sec. 10, par. 1). Mr. Johnson, of Ohio. And that prohibition was not against the Federal Government ? Mr. Lester. That was in the interest of the people, and in the inter- est of the policy which api^arently the authors of the Constitution had in view or acted upon when they put that provision in giving Con- gress the power to coin money. In other words, the framers say that nothing but coin should be money or tender money, and in order to keep it from being anything else they curtailed the powers, or rather did not give the powers to the National Government to do this, viz, to coiir money, and then took away from the States themselves the right to make anything but gold and silver coin a tender in payment of debts. The power to make anything a legal tender is not given to the United States. Powers not delegated belong to the States (amendment to Con- stitution, X), but the States are prohibited from making anything but gold and silver coin a legal tender, therefore gold and silver coin are the only legal-tender money. J24 BANKING AND CURRENCY. Mr HALL. Alexander Hamilton in a letter, in twothirds of it, is ^tr J^oS;^^h£ Was not an argument made here that coining "Mr^^St^S'sS^thS snch a proposition is too absurd to . be conSere'f by people wh^. undertake to construe the Coust.tution " Mr" JoHNSorof Ohio. The gentlemen had pretty good authorities! Mr. Lester. What were they? Mr ToHNSON of Ohio. I do not remember tliem au. m. LeSh'! heard another proposition viz, ^^-^^^ttT^^ value of money" meant to regulate the volume ot it; that is to say, Congress when it imdertook to com money—- orcniment- Mr Johnson, of Ohio. It seems to me that you heard that argument 'trS;sTEnS.''ThS*;^S; money and regelate the value of it, m^anfto make money, and as you said the 8-'f.-^--^ ^^^f ™^^th' think the coining of money to be the making of it, that is, that jne sSnino anything with the Government stamp is money a" d that the .S o SiConev and fixing the value of it, meant the flxi.ig the vol^ ume of it That to me is aS absolute absurdity, as a proposition. Why If tL Government has the right as expressed here to «— ^^alue fix the value of it and that meant to make money, and to fix the value of it I would ask, why is there a provision of the Constitution giving to the Gorrni^t the p'^wer to boA'o w money ; why should it not make all *^Sr!VoHXN"of Ohio. I did not hear the f^How answer that questio,. Mr Lester. The Government has power to do what? It lias tlie powe; to borrow money. It has the right to com money and regulate the value of it. What is money then! We can understand th^^ t t mean coin, and the Government has the right to borrow com^Bnt^if this means'that the Government may make "^'^^y' «^ °\^^^,^"^ ^i"^ monev it pleases, why should the Government undertake to borrow S which it can make and which it may declare to be money! Of coursl I hardly think that proposition wortl«y of consideration at all. But it 'comes ith these theories and demands made -1""- ^e^^, occasioned bv pressure owing to the .condition ot financial aftaus as they were for s^n" tune in this country. There has been great st^ss upon the people in reference to money and in reterence to pi iocs eCcially in reference to the currency. We know how people comedo make construction of laws by their own feehngs and Jy their own desires. Some one suggested that proposition that this was the meaning of the Constitution, aud of course it took at once with some- body else who wanted relief and wanted money; so, wanting money, needing moTiey, that, as they thought, being a cure for aU evils of the kind from which they suffered, it was easy to consider the Go^ ern- ment to be the source of money. i-;f„H^n The Chairman. Will you explain your views of the ConstitutioE in section 10 of article 1, wherein it is stated tliat no btate (omitting the other part) shall emit bills of credit. How do you reconcile that with your desire to have the State banks established by the States authorized to issue bills of credit! c,^ ^ i i ^- i . oofah Mr Lester. I have not said that I desire State banks to be estab- lished They are already established and may issue bills if the State shall so authorize, provided this prohibitory tax imposed by the national- bank law is repealed. To issue bills of credit by the State is a ditter- BANKIKG AND CURRENCY. 125 eiit thing from the issuing of bank notes by chartered banks, because that is not issuing bills of credit by a State, but they are bank notes, issued by the maker and not by the State and must be payable in gold and silver coin. The Chairman. Do you hold that the creature is greater than the creator ? Mr. Lester. I do not, but I do not consider the creator or creature has anything to do with that question The Chairman. A State has not the power to emit bills of credit, then how can it give the power to a corporation created by its authority? Mr. Lester. It is not a State bill of credit. I had a decision here, 1 think, made by the Sui)reme Court in 11 Peters' Eeports, page 257, where that question came up and it was decided that a bank bill was not a State bill of credit by the State. It was the case of Brisco, vs. Bank of Kentucky. A State may not issue bills of credit, but it may charter a bank, and the bank may issue a bill of credit, if you are pleased to call it such. It is its own obligation, and it is bound to redeem that obligation in gold or silver coin. Mr. Johnson, of Ohio. Would they have the right without the inter- vention of law — would they have the natural right? Mr. Lester. A person has the right of doing anything not restricted by law. Mr. Johnson, of Ohio. The chairman makes the point that we have a law and they can not pass that, because the State could not give a power which it did not have. Mr. Lester. It does not require any law to do it. Mr. Johnson, of Ohio. Then they have a natural right? Mr. Lester. Only iu so far as the charter of an incorporated bank gives permission to issue notes and bills can they do it; only because of the fact that in all the States, wherever they had banks, the issuing of bills of that sort Avas prohibited by statute or regulated by statute. Mr. Johnson, of Ohio. Does not this cover the point that State banks have all the powers not expressly granted to national banks? Mr. Lester. The chairman's point was that this power was taken away from the State. Mr. Cobb, of Alabama. Do not you strike the point here that. in the absence of any provisions of the law of the State any individual or combination of individuals may issue money at pleasure and circulate it as money? Mr. Lester. Anyone may do it. You can do it in Alabama to-day and I in Georgia. I may issue bills and pass them to any person, pro- vided there is no law to prevent it. Mr. Cobb, of Alabama. The power to issue money; is not that right conferred by the States when not prohibited by a State? Mr. Lester. In the first place, it is not money at all. Mr. Cox. Take the clause of the Constitution which prohibits a State from having anything tendered for debts except gold or silver, l^ow, if the power has been conferred upon the States, or the power had remained in the States to issue bills of credit, could not you see at once that the powers existing in the States to issue bills would have provided another thing and been in contradiction to the clause cited? Mr. Lester. I suppose that is right. That may have been the rea- son. I do not undertake to say what the reason for this provision is other than I have already stated. Mr. Cox. Would it not have that result? Mr. Lester. But for these provisions the States might and perhaps 126 BANKING AND CURRENCY. would have issued bills of credit and might have made them a legal "'lestee. Well, it so happens so far as the ^}^^fj,f..^^^^^^ *^^^* 10 Ber cent off, that prohibition m other words, call it what you ^le^Z of c rculating money or a similitude of money, that it might Sake kVedundancy of the currency, that whatever may be the appre- hension aW that it could be no worse than the present condition is under the other system. The notes would pass m the community for Ih tpurpo' e of paying debts by agreement of the Pames ; and wherever that mio-ht be the case, bills would be issued where they aie permissi- ble but by the law of almost every State a prohibition is placed, and doilbtless would be placed, on every bank they chartered limiting their amount aud a prohibition is put upon the issuing ^f ^^^ ^ bi Is or anything that has a similitude of money by individuals. That is the caS in Georgia, and I believe it is iu Alabama and a number of other States That was for the protection of State banks, I beheve. Mr Johnson, of Ohio. Was not that wrong ? Mr Lester. No ; the State has the power to do it. Mr. Johnson, of Ohio. Is not that the same character of wrong of which vou are now complaining? ,i +i,a tjt-ctf. l.f,fl Mr Lbstbu No, sir. Those were communities, and the State had the power to do that. I do not believe, Mr. Chairman, that when you eome down to the circulation of promises to pay but that everybody would desire to know the source ot them. Mr. Johnson, of Ohio. And you want the best? _ Mr Lester. Yes: you want some restriction, otherwise you might flood 'the country too much, and I say that such Pro^™^/?;f,f l''^?. hibition, or rather a safeguard, against the over issue of ^t'lte »ill^ It they are not good, if these bills are not as they should be, if confidence in them is lost, having to be redeemed iu gold or silver or legal-tender monev, they will be presented for redemption, and that ends that ques- tion of their existence. If they did pass and are taken by the com- munity in its transactions, and they settle balances and differences between the people, is anybody hurt! The difflculty with the present svstem is that the currency is liable to congestion all the time, whereas the other plan would not be so liable to it because it would be more generally distributed. Why, suppose the banks of any State, m the Imero-ency, had been called upon, and the communities had the right to settle" their obligations with anything they pleased to settle them with, commerce would go on, trade would go on and continue, prices ot com- modities would increase and be advanced m a way, or at least com- modities would commandreasonable prices, not being dependent upon a restricted currency; whereas, if currency is cornered and restricted, prices do not obtain at all, and there is a stoppage of business. It has been suggested, I believe, that we need a national currency. For what? Convenience. Does it make any difference, Mr. Chairman, so far as that matter is concerned, does it make any difference to the people generally of a community whether they liave that convenience ornoti The great business of this country is not traveling. The busi- ness of the country is producing and manufacturing and the exchang- ino- of commodities. This is done most largely at home. Transactions are made and business is carried on there. Why does a man want a national currency or something that will circulate in every State of the tjnion— and I do not say a good bank bill would not do that? When you go to New York and travel, as you frequently do, when you go there BANKING AND CURRENCY. 127 to buy goods or to sell goods, ov for any other purpo.se, do you carry your money iu a roll of greenbacks "? Mr. Johnson, of Ohio. You htid to do it lately because you could not get anything else. Mr. LestbS. Because your check was not good there. You could not get anything on the check lately and you had to do it. You do not do that unless you are obliged to do it in such an emergency as Mr. Johnson mentions. Y'ou take your money and go into your State bank and you buy a check on New York, reserving only euoiigh to pay your traveling expenses, so that the inconvenience arising from the fact that the currency may not be current everywhere is iiitinitesimally small. It is not of sufficient consideration, it seems to me, to outweigh the other considerations Avhich go into this matter. Mr. Black. What you propose would not diminish this so-called national currency? Mr. Lester. I say no. You would still have the so-called national currency. Mr. Johnson, of Ohio. But you are opposed to it? Mr. Lester. Xo, I am not. I am opposed to its exclusiveness. Mr. Johnson, of Obio. 1 thought you were. Mr. Lester. Do not misunderstand me. I would not interfere ♦rith national-bank notes or the national-banking system now, except to take away the evil features of the uational-bauk acts. Mr. Johnson, of Ohio. Or greenbacks t Mr. Lester. No, sir; of course not. Now, the currency is congested and in places where it can be controled like New York city it has been sold at a premiui^i, because people must huve it to effect exchanges and discharge obligations which might as well be discharged with some other means. Mr. Johnson, of Ohio. What other kind of currency is best: is it not best to extend one that has proved itself than to create a new one that may be doubtful! Mr. Lester. How can you exteiulthe national-bank matter? Mr. Johnson, of Ohio. You can extend the luitional currency. Mr. Lester. In what way? ' Mr. Johnson, of Ohio. Bj^ converting bonds into greenbacks, if you want to increase your gold reserve. Mr. Lester. Suppose you have not got the bonds? Mr. Johnson, of Ohio. When you have not any bonds, you decide that when you get to that particular place. Mr. Lester. That would not do much good for our country in the south and west, I mean in regard to the currency. We want to increase the general yjrosperity. The trouble is not so much as to the quantity of currency as to its distribution. Mr. Warner. Do I understand the gentleman from Georgia to suggest also that if the inconvenience should occur, which the gentle- man from Ohio apprehends, that that very fact would give a market for the national-bank currency, and his question would answer itself ; that the mere deprivation of tlie national -bank currency monopoly would not deprive its bills of the market which they hav« ? Mr. Lester. That is correct. Mr. Warner. And if anybody wanted them Mr. Lester. They could take them. Mr. Johnson, of Ohio. I am not advocating the national-bank bills, vou understand. 128 BANKING AND CURRENCY. Mr Lester Wheu you talk of national banks and their issue »[ bins vou Sid bear iu mind that recently bills could "ot be had a though tt Outstanding issue was 1200,000,000. This sho^^^s that they do not meet tbe emergency ^^'^^en the emergency comes. T^^ can provide another meaus by which the troubles ^ «\tbis cofneimg and hoardino- may be prevented, why should it uot be done ? ine repeal oniiis c'liL, th^ereby giving the State banks and peop e the Tia-ht to use uotes and bills, would supply a remedy. You stiU retain what you have and all that is good iu the national-bank system and yoxft Ike a^w from it all the" bad, and in taking away the bad you give to the people something that supplies a deliciency made by the ewlusive character of the national-bank currency. ,:,,,^,.? Mr. JOHNSON, of Ohio. Do not we issue greenbacks to buy silver? Mr. Lester. How? Mr. Johnson, of Ohio. Treasury notes are greenbacks. Mr Lester What do you mean by that? . Mr' JOHNSON, of Ohio. Does not the law which we are now trying to repeal provide for issuing Treasury notes to bay silver Mr OOBB, of Alabama. I do not know of any law to issue a iieas "']^rJo™,?/ohio. The Sherman law which we are trying to^ rpnpal is a law issuing Treasury notes to buy silver bullion ! I^r LesteI Yes;lam afraid I am detaining the comimttee too long if you are to get into a silver discussion. 1 do not thiuk that has anything in the world to do with this. The Chairman. We are not on that subject. . Mr JOHNSON, of Ohio. I was only showing yon that it we bought silveV with Treasury notes, we could buy other things and get more "Mr^LESTE? Whit right has the Government to do that? I would "^t.; JohSn^'SS: f luM S'il-t the Supreme Court decided '^ilf LESTER.*ThenIwonld say the Supreme Court lias stated the case both ways and you are left to yonrselt to determine. Mr CHAIRMAN. 1 do not know that I have anything further to add Mr Hall You have discussed thus far the coustitutionality ot this mattc^r and the public policy of it. I would like t« ask you, if m your ludgment, a limit, or what our friend from New York would call an adininistrative control over this State bank currency would be a viola- tion of the Constitution? Mr Lestee. By the Government? . . Mr' Hall. Just this far. Suppose that there was a provision, con- ditional repeal in the line of the bill contemplated by Col. Gates, ot Alabama, in his argument, that it should be conditionally repealed, that the banks should comply with certain conditions, for instance, that all moneys issued by these State banks should be stamped here by the national Treasury and an administrative control of that kind given as distinguished from economic control, now, I want to know whether that would be iu violation of the Constitntion? Mr Lester. That would, in my opinion, be as much as the other, i do not think the General Government has the power to do anything ot that kind, of course. As a matter of policy or a matter of practice it would be a great deal better to do that than not to do anything at all, but I do not see that the Government has any power or right to inter- fere iu such matters. If it has, then you may as well adopt the propo- BANKING AND CURRENCY. 129 sition which imposes upon the Govevument, by virtue of its sovereignty the duty to provide a currency lor the people. If you do that, if it is the b-overnment's duty to provide a currency for the people, why then the (xovernment ought to issue its own notes or whatever else it can do in that way directly. To such proposition, of course, I am thoroughly opposed. I do not believe in flat money, and I do not believe in it simply because I say the Government has no power to make it. Mr. Johnson, of Ohio. If it is redeemable in gold it is not flat money'? Mr. Lestee. What is redeemable in gold? Mr. Johnson, of Ohio. All these notes which are put out are redeem- able in gold ? Mr. Lestee. What is put out! Mr. Johnson, of Ohio. Treasury notes ; these national currency notes, they are redeemable in gold by the Government at the option of the holder of the note, then they are not flat money? Mr. Lestee. What are you discussing now? Mr. Johnson, of Ohio. You were answering him, and you said you were opposed to flat money; is that flat money when the Treasury note is redeemable in gold? Mr. Lestee. No ; provided the Government borrows the money and issues the note. Mr. Johnson, of Ohio. If it circulates- Mr. Lestee. Let it circulate, there is no question about the Gov- ernment borrowing. By virtue of that power, I suppose it has the right to issue notes. Mr. Johnson, of Ohio. If the Government makes legal tender, is that flat? Mr. Lestee. I understand "flat money" to be inconvertible paper money not containing even a promise to pay, but issued by the Govern- ment upon the assumption that mere fiat of the Government can give value to it as a circulating medium. Mr. Johnson, of Ohio. And irredeemable? Mr. Warnbe. Whether irredeemable or not? Mr. Lestee. Irredeemable. Mr. Waenee. May I ask the gentleman from Georgia, because my Mend did not exactly express my idea, although he referred to it. A tax for purposes other than revenue I take it every Democrat deems is absolutely unconstitutional and absolutely indefensible. Now, sup- posing this tax was absolutely repealed, but that the Government, in recognition of the condition of things which would be left by a naked repeal— a condition of things due to restricted development during the last thirty yearsf a paralysis during the last thirty years of the State baaking system — should undertake to exercise its power of regulating commerce between the States and insist as a prerequisite to the per- missioji of any currency to circulate outside of the State in which it was issued, that, for example, it should be printed all at one place to obviate counterfeits, that it should be registered at one place to obvi- ate overissues, or such other administrative provisions as should have nothing to do with the amount, from time to time, of the currency — would that, in the gentleman's view, be unconstitutional? Mr. Lestee. I think that would be unconstitutional because there would be no power to do it. To those who believe that the Govern- ment has power to regulate commerce and apply it in every sort of way, of course that would be legitimate, but to me it is not. I do not think that under the power to regulate commerce, to coin money, or to 940 9 -^30 BANKING AND CURKENCY. tlx, tUe Govennuent .^any p^ to -^^Sd \£^^SS, renoy, the represeutative ot ino lej -^^ ^^v regulate internal that the Govenunent has the nght to ^^^ ^ ^^g form, and commerce, and thereby the right ^J^^f']^^^^^^^^.y to internal com- dimensions of a steamboat, and as "^o'^^y '/ "^'f'Xr of money. But Irce, It follows that Congress can^^^^^^^^^^^ toaSy it to this mat- if we extend this analogy a Ij^^^le further so^ u , ^^ ^^^^^ ter of money, we would S^^^Jli^^^^^^^^'^Sicular person should own should not be a steamboat, ^f ^hat some pamcu i ^^^^^ ^^^_ that steamboat and nobody else. That jl^uW ^ot - ^^j^^e it. merce. It ^^ould be a power to destioy it^^^^ ^^8 ^^^ ^^ ^^^ Mr. WAKNEK. ^^^«/|;f;/^*uie is absolutely unconstitutional, but taxing power, except ^V.^fJ^ice between the States-though erumenf? Mr. Lester. Yes. „ -..^...o in • Wc are absolutely aban- Mr. WABNEE,. So tins distinction comes m^ Tot legally exist^which doning the exercise ot a ^''J"}''^^^^^^^^^^ is absolutely unconstitutional-to ta^ «\ ^he puip i .^ ^^^^ That is not in ^l^e CoristitatK>n.^^ M^^ ^^^^,^ „^j,,t to legitimate power can be touna ineic, lih. ^ '* yfLESTEE. If yon iind a legitimate power under the Constitution I r;SS" to lis exerciseif it^ser^^s a^oc^pui^o^ ^^^ «t?&Sri^^^tJ^r power t^ you could get any question of th^s^^^^^^^^ H^^ has 'putting fesSloVTil^if ri^sii^'of monSy or promissory notes anything to 1:^1^^^^^ dt^^uished from taxing power, would not ^%T?LEs™E^'i perfectly agree with you. If you can find a provi- ^^k^A^^c^d r^lsfS^ IeSm.i ^m O^ga SovernmLt is liable for the national-bank issues as coming withm the ^"m?Lestek^I So'notliink'the States ought to do that I do not thS,' they ouoht to be made responsible for the debts of the bank Tf iwever thev allow them to issue their notes upon State bonds of ^onrs^there should be some provision made by the St^te tor the SmpSon of the bills as a matter of policy, because the State has to redeem its bonds in gold or silver. . rocee.ing^f Ij;. A^eric^^^^ of Political Science. I found m ^^^ P^«?«^^^^^l Walker, of Massa- article by Mr. Horace White and anothuD^^ 11 ,_ ^^^^.^^^ chusetts, and various other artagsfi^^^^^^^^ ^^ ^^^ Suffolk bank S^t^iJ^Sa^LlEttt a^^s^thUank systems of Indiana, Louis- iana. South Carolina, and others. , ,^^,,,.-,„ ^^stem with me are two tlAderlying the whole q^e^JV^^f /^^t^i^"|oSrnme^t has no right central cardinal ideas ; one idea s that tlie*^^^^^ uiy mind to make anything a legf^^ender excBi« ^^ ^^. J ^^^ being that nothing 18 money except 8om(^^^mng^u ^^^^ Constitution saying Congress ^i^^^^^.^^^ti^'' money" and indioat- " coin" fixing the significance of the substantn e "^"^'^^ ^ „ r^^^^ ing clearly metallic ^--l^l'^^^^Xt^^^tlf^^ value of last phrase means that Oougiess had tne iignt ^ ^^^^^ one coin with reference to that of the otil*^;^^° f \ „ '^{^ J"^^^^^^ of that, BANKING AND CURRENCY. 136 up to a point where it is difficult for them to understaud the difference between money and a promise to pay money. The first clause in this bill is that the Government shall not hereaf- ter guarantee the payment of the circulating notes of any banking association. The G-overnment does not now guarantee such notes. The clause is inserted for its educational influence. The people down in my section of the country think the Government does guarantee the payment of national-bank notes. At the forefront of legislation that announcement should be made, and it is important. Although I do not think the Government has a right to make any- thing except money a legal tender— either the Government's promise, the State's promise, a bank's promise, my promise, or any kind of a promise a legal tender — yet I think the Government has a right to say, where a man or a corporation proposes to put in circulation, not as money, but instead of money, notes to pass current as money, and that it is the duty of the Government to see, in behalf of its citizens, that that note has the soundest, safest, and best possible security back of it looking to its redemption. The main fault in our national-bank system is one which, in my mind, was not sufficiently construed by the Supreme Court in the Veasey case. That was that the national -bank note was not payable in money, but in a legal tender; so I think the first thing we have to do is to provide for an ultimate redemption in coin, and not in what is called " lawful money of the United States." The next idea following that was this: that there must not only be ultimate redemption, but there must be current redemption, which is lacking in the present system, and which deprives it of all elasticity. You will find that I provide for that. With the permission of the committee, I will go on and take up the bill clause by clause, explaining it as well as I can. Section 2 is as follows : Sec. 2. That there shall be no limit to the amount of circulating notes which any national-bank association may issue, except that said notes shall at no time exceed one hundred per centum of the par value of the bonds and coin deposited to secure the same by such association. In reference to this, I want to come to the question how a national- bank system and a State-bank system, both of whom issue notes, shall go along side by side in carrying on the business of the country. The question occurred to me that they ought to go along on an exactly equal footing; so that this bill provides — for it is entitled "A bill to amend the national banking acts, to repeal the ten per cent tax on State bank issues, and for other purposes" — it provides for certain amendments to the national-bank act, and then generally it provides, in the first place, that any bank chartered by a State to issue notes may do business on the same sort of security, under the same charter, provisions of inspec- tion, examination, and reserve, as national banks may, the only differ- ence being that when they are chartered by a State there shall be such verbal variations as are necessary in order to adapt the banking system to the State machinery instead of to the federal machinery — that is, wherever the words " Comptroller of the Currency" occur, the proper State officer will benamedtotakethe place of those words; and whenever the United States Treasurer is mentioned, the proper State officer will be inserted, my intention being to put the two systems upon an exactly equal footing in the bill; then to leave things to the law of nature, which is the " survival of the fittest." My idea is that the national-bank system will continue to do most of the business in the large ^Qg BANKING AND CURRENCY. want uniformity as well as P^ifect satetj bo diversified may reach out to a very g^at distance, and may ao y Althougli busiess, almost international in Its natuie^^^^^^^ itistruetliatgoldisakinclofinone^ ^^^^^ ^^^^^^ balances are made payable, ^ \"0J^ ^'^f/^Pfan wants the stamp of the and elasticity. „i,nnl(l hp taken in connection with Section 2, which has been read, »^ ^^^^^^^^^.^^^^.^^^'lic secnritieg, must connection with this clause in section 7 : with the Treasurer of the Ujuted btates aay ii ^^ ^^,. ^^^enty per fharaoter hereinbefore provided for. That is the most important feature of ^^J^^^^^ Z- sists in this : it requires not a deposit of bons alone but z fold feature It^re^uires a de^^ ,,,^ ,„,, amoirnting *« A^*^^ ^ .*^\,„Xot the total amount deposited to secure cir- :ssris s sst^io \:t ^li^f pos.^s5^-,r;f t ^- t^o^ ^'Tharkhid'i.f mSd deposit of coin and public securities is the basis f^S^Z.J^nfTdn.M^^ system the soundest i-titutxoMwifch^ f^n^prnment securities and it issues notes upon that basis, to the ftillvXe The E is dvided into two separate departments: the • ?epoS department and the issuance department. T^^^y are kept o P^tirolv senarate that the banking department can not go with a note oftheBank of E.glancl itself to the issuance department and get it blck in tie shape o'f a note. It was found that the Bank of England could not supply a paper currency -f --^ .J- ^J^ — -- g^<^ ^ Britain upon the l>asis of this amount, £14,000,000 stei hug. J^^^nce n. was permitted to issue other notes on deposit of com. Frequently cri- seTwou 1 come to the bank, as we have found that one has come recently in tlTs country. In «nch cases it would be found that tlie banking depa tment would hold immense amounts of (lovernment securities over and above the amount required as security for its notes, and it would BANKING AND CURRENCY. 137 be found wlien it was necessary to convert its securities into money in order to meet a run, that the securities could not be converted. There was no law for this system. It was an expedient of Parliament. That shows how our English friends have established their system. When a run was made upon the banking department of the Bank of England, and when finally it was found that a run might cause a suspension of the bank, the officers of the bank would indicate to the officers of the " Government," or the Cabinet, and would receive a letter from the Gov- ernment saying: If you transceiid the amount allowed by law we will stand between you and Par- liament to the best of our ability. In that case the Bank of England would be made safe. Invariably Parliament makes that rule. The banking department of the Bank of England carrying the securities would take them to the issuance depart- ment and receive in return notes of the Bank of Englami, and that would give this margin of elasticity in times of crises. Everybody would know in that case that the Bank of England was safe. Every time the Bank of England has received that Government letter, it has stopped a panic in Great Britain. There is a provision which Parlia- ment always subsequently makes, and that is that the bank must pay over to the Government the amount of profit which it has made on this excess, and this acts as a check upon the bank to prevent harmful or unnecessary inflation. As the bank makes no profit it does not want to continue, except to save the bank from impending ruin, or in answer to positive necessities. My bill provides for that in this way: In the Bank of England they have a provision to prevent the bank in ordinary times from transcend- ing that amount, unless it deposits par for par coin for the Bank of England notes which it issues; so that the Bank of England's system practically rests upon a mixed deposit of bonds and coin, because it has never been found that the original amount of issue was sufficient to do the business. About one-sixth of the circulation of the Bank of England is how — and the general average varies — secured bj' deposits of coin in the vaults of the bank. I provide here that there shall be this mixed deposit. I think it will work this way : Instead of checking the panic by taking the profits on excessive issues when there is a crisis, it is provided that there shall be no limit to the amount of notes it shall issue, except the amount of its deposits; but there is here a check upon the bank which will pre- vent it from undue inflation, and that is that for every $100 in notes which it issues it must deposit $20 of coin in addition to these public securities, which it must buy in the market, and for which it must pay or has paid money. It will prevent in ordinary times banks from over- issuing, and will enable them, with a slight increase of securities in times of crisis, to convert (for otherwise they would be inconvertible) public securities into currency for purposes of relief, and to avoid impending trouble. If that system had been in vogue this year, for example, when the banks had any amount of public securities on hand, they could have simply carried those public securities to the Treasury of the United States. The banks could not sell them. There was no sale for them, not because they were worthless, but because there was no money in the hands of the people with which to buy them ; that is, in the hands of people who had "confidence." The banks could then have relieved the currency stringency — and this was a currency panic, and nothing ^38 BiNKING AND CURRENCY, else under the sun-by coming up to f^ treasury and obta^^^^^^ instead of tHese securities $100 m 'I'^tioif l-^^*^^,,^^*f^f^Lo in iS coin of tLe ligM «gm-e. The Bank »» fiance has P™o>;'^«' , England has notes t..«l« »°?,f^«X ' ,°£ of a« wnnds, and I think Therefore the coin staid m the country. Sf«tps oould have redeemed its money m specie, iliis i® an ngni^ ^lereisToetterpeace-and-prosperity currency than a^^^^^^ "^'dotfCV'thatl couM explain any further the effect and advan^ tJeythenixll deposit system unless I were to give you a general idfa of nw Ss of tiie system and its actual working. Ton have he- t! ^ou irbToh fro3n wl^ich I have -^d contalning^tlieBe proceedi^ and it is not necessary for me to read it all. You will hnd ''TheoriesandHistoryof Banking," by Mr. Dunbar. Mr Gox Concerning notes of small denomination, your idea is now n?J Wi'SImb' Ye:;\S * 0?S£.r, I do not drive them out, but I prevenTi^iem from coming into existeilce . As to nationa -bank note I do not drive them out, but after a certain date "f ^^^'^^J.^jJ^i^.^i' below a certain denomination are not allowed to be a Pait of the cur rency. I think one of the greatest benefits accruing fro™ t^^^f/.^J^?! of State banking on county and district and State s^^ur tie^ is t^^^^^^ that it will decrease the interest burdens now I'^stiDS ^iiPO"/^^^ P?^ff_ There has been much discussion about the advisability of having m each State or national bank charter a provision that no bond should be BANKING AND CUERENCY. 139 accepted which bore above a certain rate of interest unless the party depositing such bond and getting currency upon it woukl agree that dur- ing the period for which he deposited the bond it should draw interest only to a certain amount. I call the attention of the committee to that, and that may be fixed hereafter. A provision might be put in the law that a depositor should receive interest at the rate of 5 per cent in payment of all interest. I concluded in this bill that that was not neces- sary, because I believe the effect of it would be that the States will control the niatter. I think that the system itself will provide a means so that whenever refunding time comes along, the counties. States, or districts will be enabled to float their bonds from that time on at a decreased rate of interest. It will be a natural effect of the increased demand for the bonds. This would not be coercing anybody, but if banks take advantage of this they should agree as part of the consideration not to receive over a certain amount. Section 3 reads as follows, and I want to call your special attention to it: Sec. 3. That State banks, State banking associations, and bankers expressly author- ized lender State statutes to issue circulating notes shall pay no Federal or United States tax upon such notes: Pro widerf, That all such notes are secured in the same manner and to the same extent as the notes of national banks; that is, by coin and bonds of the precise character designated in this bill, which bonds and coin must be duly deposited with a properly designated State officer in the State in which the issuing bank or banking association or banker is domiciled, and provided the State charter authorizing such bank of issuance contain provisions safeguarding issuance and depositors identical with the provisions herein contained, except in so far as a change of verbiage is necessary to adapt such provisions to State instead of national governmental machinery. No circulation of any State bank or banking association, or banker, not having complied with provisions identical with those of this act, is or shall be hereby in any manner exempt from taxation as now established by law, and every national banking association shall pay a tax upon the circulating notes issued by it and in circulation of one per centum per annum upon the average amount of the same. Such taxes shall be paid semiannually, and shall be collected by the internal-revenue collectors of the United States. Under the present law there are certain limitations as to capital, both as to the amount of notes which can be issued and the minimum of taxation that a bank has to pay. There is in this bill no limitation upon the amount of the notes which a bank can put in circulation except as to the amount of coin and* securities deposited. That is variable from time to time as the needs of business may require, and for that reason when I came to the provision in reference to the 1 per cent (which has been read) upon the average amount of circulating notes for the year, I put in the provision regardless of capital or individual deposits, " such taxation to be paid semi-annually," etc. Mr. Oox. At what rate do you fix that in your bill? Mr. Williams. At 1 per cent. But I devote its net proceeds to the establishment of a "redemption fund." That is a feature of the bill which is not at all new. It has been tried in several banking systems and has been seen to work very well. I took this tax of ,1 per cent to make a fund for the protection of the note holder. After that there is a provision to reimburse the Government for the cost of engraving and printing the notes. Mr. Cox. That is for the benefit of the note holder? Mr. Williams. Yes, sir; that leaves the stockholders' liability over and above the stock for the general protection of all the creditors of bank. It was my idea that bonds of the character designated here to be deposited, together with this redemption fund, and standing also in the back ground for the protection of the note holder, and also giving ]^40 BANKING AND CUEEENCY. beiieat of the note holder. , ^^„,h litp to mention in connection that very ably. Annals of the American Academy of Tolnme m of the date of March 5, Ib.W.J Section 9 of my bill reads as follows: . 1 i- •n;nr, flnllnrs sball be created out of the taxes col- SeO. 9. That a fund of one miUion dolj'^/'^il i the GoTemment of the United lected nBder this act (after '^e-^7*™f.<;';|/„°le circulating notes), and the said States of printing, engraving, ^JJlV l^^^ l^^'^^.fe and If the coin and the proceeds of fund shall be maintained from the ^^^ .';,^°^.f„'?' f ^n' banking association and the the bonds deposited to -^^^f^J'X^^'e.^nt to Since the^utst.^^^ notes of practical consideration of in|r ITtStTiire c^ne* w1k.f;niS ^^-^ f-^ ^^f^^ also about the legislatures ot some otfier States JJ»~i^*^'^^Jg^^ T^TPvflda and nerhaps some other Western States, they migiit issue systems which were rotten and visionary, more than to the foity-t^o fhat were sound and all right. There is need of education upon the Selt of the uniformity Sf the circulation and the security ot our monev because as soon L the American people get it into their heads TatTome wb^re there is unsound money in circulation there wouhl be a reaction a|ainst the State banking «y«te"} ?^,^^«^^T*^°^\^^\,J\^l^\est want to introduce a State banking system which shall stand the test If time. It might be a fact that two or three of the States, so far trom hav ng a system of sound notes, would have a system which ^A^ould be the by word of the American people for visionary and nnpracticable provisions. What we should do, in my opinion, is to provide a means to lid us who want to carry the Government back to its orig mal moorbigs upon this question. You should consider the condition m bringing it back so that when you get it back it will be there to stay. BANKING AND CURRENCY. 141 I think we have got to come to it gradually. At the present time the Federal Government does not redeem notes iu coin, but in fiat money. The Government made that flat money a legal tender, and followed it with this legislation, and started out upon a system which is wrong. I do not believe we can remedy it in a day, but must work to it gradually, and after a while we Avill have a system not only practical and sound, but thoroughly sound for all time. I will read section 4 : Sec. i. That in addition to the United States bonds now required by law to be deposited with the Treasurer of the United States to secure the circulating notes of national banking associations, the Comptrollerof the Currency is hereby authorized and required to accept registered bonds issued by any State, county, municipal corporation, or taxing district of a Scate, subject to the following restrictions — I want to explain what I mean by the term "taxing districts" of States. The soundest bonds afloat to-day in the State of Mississippi are bonds of the levee district, and in the State of my friend Mr. Oox, they have taxing districts, for instance the city of Memphis. I thought I would insert that language in reference to taxing districts so as to include those municipal corporations. These bonds are subject to certain restrictions, as to being at par, etc. The bill of my friend Mr. Harter, which was introduced in the last House, provided that those bonds should be listed on a stock exchange. Mr. Harter did not understand the business as it is conducted down our way. We have no stock exchanges upon which bonds can be listed. He also provided in his bill that they should be listed on a stock exchange of a city of not less than 500,000 population. I would rather have a Yazoo County bond than a bond of any other kind. It can not be bought. I do not suppose that it is listed or that it could be listed in any stock exchange in a city of 500,000 jjopulation. And yet it is perfectly good. Our people who would do business with local banks know that it is good. The local bank could deposit that bond under the provisions of this bill, because at par and above par. It could not be deposited in a Chicago or New York bank because they always deposit securities which are listed upon their own exchanges, because they are in the habit of judging of the soundness of securities by the fact that they are listed on their own exchanges. Mr. Cox. Do you know of any existing bonds which have the provis- ion to be paid in coin, which you require. They are mostly payable in dollars. Mr. Williams. There are a great many payable in coin. Mr. Cos. I suppose that bonds of the State are payable in dollars like they are in my State 1 Me. Williams. It would come about finally that they would be pay- able in coin, and it is the underlying principle of which I spoke in the beginning of my remarks, when I said that I wished to bring about a system as nearly as possible where promises of all sorts are payable in coin, and I think that State bonds in nearly all the States of the South to-day are simply payable in lawful money of the United States. But there is no reason why they should not be made payable in coin. The idea in my mind was that bonds deposited ought to be like the notes issued, made payable in coin. Paragraph 3 of section 4 is as follows : Third. No bond shall be accepted upon which payment of interest has at any time within live years been in default, or which at auy time within two yearn prior to the date of its offer for acceptance has sold publicly upon any stock exchange where it was listed, or in market overt, for less than 100 cents on the dollar of its face value. ■j^42 BANKING AND CURRENCY. Mr Harter's bill contaiuexl nearly this exact language, except that he confined the text to sale on stock exchanges. ., , ■ Fourth. No bond shall be accepted If the ^otM^evy of the county cxty^ortaxi^^^ district issuing it exceeds 2 P.^f^^" .",^ P^^^tT'lu or taxinrdistrict issuLg it tothedepositofanybondthelevy of the «°^°'^y' ^^^ g per c?entum per annum, shall be increased, so that the t»tf ^^p. ',^^\\ ^e M, dutv^o ca the Comptroller «tall have the right and it shaU be hx«to^y^ ^^ ^^ deposited. in the stead of such bond, of the «^f ^^^^"f "' ^^ji l„e permitted to have more than ,^I^J^r:r^^^'oX;^^^ of a^y one State, any onecounty, -^xtcj^:^i^s?;^^-P^tha^-^pu^^^^ for the period of thirty days on ^^yf^^^K'ltaCe for thirty days has been below par, r ComttJ^rhrrr^ut^^^^^ -''' '- ^'' -^-'^ meet the requirements of this act. „„ tr, tba That is all in reference ^ the limitations or safegaai^ds a o^^^^^^ character of the bond^^,^*^,.^^^^ ,,Sts t'o bTpart ctn\nd ciently upon this .f^^tmec^f the security ^^^^ ^ ^^^^^ ^.^^ ^^ Mr WillIIms. That depends. The I^ational Government wou d issue charters to national banks and the State governments would ^^Tr.tTfi:; wSluthS- would a State l^ave to issue a c« which would be under the direction of the Comptroller of the Unitea Itates Ti'atury ? What power does this bill give the Government '''^:^'S^lTmi:i'<^,^n^^^^^^ sun. This biUdeclares that nil State bank issues which are relieved from the 10 per cent tax shall be le issues of banks having State charters whose provisions are identfcal with the provisions under which the national banks are oro-aSed bebig subiect to like provisions for examination and inspec^ ?End foi the safety of the notes issued. The Comptroller of the Treasury never ^ ^ith the administration of the ftatebankmg svstem The line of demarcation between the State-charter mstitutaon aS the Fe eiS institution I keep perfectly clear all the tune The only thing in the bill that would seem to confuse the two systems is S that'the 10 per cent tax is not repealed out and out. It is repealled onlv as to such banks and bankers as issue notes or are arithonzed to issue notes by the State under charter provisions prescribed as neces- BANKING AND CURRENCY. 143 sary and prerequisites; such as shall have in their charters provisions for examination, deposit, etc., that are required of the national banks. Mr. Hall. You have in one of the subdivisions of section 4 a pro- vision that where bonds fall beloAv par the (Joniptroller shall have the right to call for ncAv securities. Mr. Williams. Another clause provides that every clause of any State banking act shall conform to the requirements of the national banking law, except so far as a change shall be necessary in order to adapt the verbiage to the State-government machinery. The name of the proper State officer would be substituted for that of the Comptroller. Mr. Cobb, of Alabama. That is, where State charters apply? Mr. Williams. Yes, sir; and that would work in this way: You are a banker and you establish a bank in the South. The G-overnment would come to you and say " Your circulation is subject to the 10 per cent tax." You would say " ]S"o, I am exempt;" and you present your charter from the State which authorizes you to do business. It is found to be in proper shape, and you are exemjit. Mr. OoBB, of Alabama. Suppose it is not so decided? Mr. Williams. Well, you would appeal from the internal-revenue collector to the courts. But practically that question would never come up, because nobody would undertake to float any very considerable quantity of notes without being satisfied, before doing so, whether the notes would be subject to the 10 per cent tax. Practically charters would have the opinion of the United States Attorney-General. What I want to emphasize upon that subject is that I have studiouslv drawn the line of demarcation, so that under no circumstances could a Fed- eral oflicer supervise or examine into the administration of affairs of a State- chartered institution, dictate its management, or do anything else. The only thing that the G-overnment can do is that before it surrenders its right under the law to certain revenue, it shall see to it that the State charter conforms to the Congressional requirement. My idea is tbat these systems should run 2}ari passu on an equal footing as to burdens and opportunities. After they are established they are separate and independent systems, under separate and independent sovereignties, for the purposes of control and administration. I am willing to let the national-bank law stand, provided State banking can be put on an equal footing with those institutions. WLenever we pro- vide State charters and put State banks on the same footing they should be exempt from Federal taxation. The provisions of this bill are not all that can be put into a State charter. It provides that these pro- visions shall be put into a State charter, but other things may be put in besides, provided they do not conflict. Mr. Hall. In other words, you inject into the State statutes the national-bank statutes ? Mr. Williams. I do, in so far as it is capable of adaptation to the State government machinery. Mr. Hall. There are a great many provisions in your bill in regard to the circulation of national-bank notes; you make it a condition, precedent to the establishment of this system, that we shall inject the national-bank law into the State statutes; suppose these provisions are not complied with in a State charter? Mr. Williams. Then a State bank would not be exempt from pres- ent taxation. Mr. Hall. In other words, one of the conditions is that the United States Government has absolute control over the matter ? Mr. Williams. Not absolute control over the matter. -(^^4 BANKING AND CURBENCY. ^- ^i^ '^^^l^ZrtS applies a.d the banl^ and started a bank ou cottoD, S^'^^'^' f^^^^j^'j^'X ^e i^ P«^^ ««^* *''^- as security lor their notes they would ^^^^^^ ^^ ^^ ^j^^^_ It would be in the interest ot the btate banRuy ^^.^^^ While there might be ^^^^^ "l^" J^^* ^^ *S^^^^^ would have a good, sound, f f^, unitoim sysxemo j perfectly securities and the deposit of f^'/^^^.^l^^iJemes those two Stated good yet if only;-o States started wildc^^^^^^^ ^^ ^^.^^ ^^^ would be more ^^i the Pubhc mmd, ana ^^^^^, i^g .^^ti,. rZ.^MriS^'iTe'^^^SS^^^ -f^ fasten upon us the S^?1l^^l>^Sf £SS?r^^sSS -^ throughout the wh^e country? ^^ ^^^ ^^^.^^ p^^^,. of the make them safe It is not an ^^J?^ ^ ^^em for the States as "'M^rnT SuODOse YOU deposit, say (Jo.mty bonds. I know tow the tA nrPVPTit the levying of taxation, what would you do? *''l^rWiLSlM7 The State officer, who takes the place m the bill of »EaJt£^s»T.StStor=uS^^^^^^^ ?S" W^^^™ 'T\m^'g?ad yon mention that. A bank having com- required under the provisions of the bill. Mr. WARNER. Your plaa provides m some reg^^d^.^V.t Imir rea imitation of state banking institutions. You explain that youiiea- soTTsto\'rovixfe against possible trouble and to avoid any apprehen- sion of unsound flnanciedug in currency issues '. ^■wl:iiiTlI"^i'ott^..t aim allow me to as;k j^u whether it would be well or in accord with your scheme to provide for some judr rial nroceediug by which the Comptroller of the Currency might at "ny tC,Tn cate he saw lit, test the extent to w^ch the co^esponding officer in each of the States had carried out the law? Would it be ™er under your plau to provide some means or some process sim lar ToTquTlarrantohj which the Comptroller would have the right to inquire into this matter? , . - ■ ^^ i + i ^„^ .inrl It Mr Williams. ITo; and my ob ection is a tundameutal one, and it is on; whi^h g?ei to the very soul' of the matter. I think it is proper that a strict line of demarkation should be drawn between the State Ind the Government machihery. I believe that the Government ot the Unitexl States has a right to say that there shall not be injected into the system by unsound charter anything which would unduly antt BANKING AND CURRENCY. 145 imfairly discriiiumite against its own fiscal asents, the uational banks. When you come to the i)oiut of saying that a Federal officer shall iuter- tere with or at anytime supervise, correct, or sit in judgment upon the administration of a^ State bank by State officers, then I should object. Mr. Warner. The gentleman misunderstands me Mr. Williams. No, sir; I do not. Mr. Warner. Let me explain. My suggestion would not exclude any person from bringing similar proceedings in court. It is a sugges- tion which would not work either in favor of the Government svstem or the State system. Mr. Williams. If you aie speaking of the Comptroller as an indi- vidual, I think he could do that anyway, provided he had an interest and status m court, as any other individual might, but he could not do It as a Government officer. Wherever the Comptroller of the Currency thmks that a State charter did not comply Avith the law, of course the collector of internal revenue simply goes to the bank and levies the tax. Then the question would necessarily come up as to whether the State charter had provided tiiese safeguards which are a prerequisite to the exemption of the bank issue from taxes. When it comes, however to the administration of the system, that must be left to the State,' because the moment you overstep the bounds of the State autliority and allow a Federal officer, .judicially, or otherwise, to exert authority of this kind over a State bank, that moment you have done a thing which would be of more importance than the entire financial question itself. Mr. Warner. I do not become euamored of these thiugs on short acquaintance. As 1 understand the gentleman, he calls to my atten- tion the fact that as a necessary result of the poAver of collecting the 10 per cent tax, all matters which have been suggested as a basis of litigation would actually become such, and as I understand the gen- tleman, he sees nothing insuperable in that objection ? Mr. Williams. The distinction in my mind is one that is clear to me, but it is one that is difficult to make clear to others. In my mind the two are entirely separate and distinct. Mr. Warner. Has the gentleman suggested any way by which the taxing officer of the United States, the Secretary of the Treasury, or any other officer could meet this question '? Mr. Williams. Not at all. The officer simply meets one question, and that question is, does the charter of the institution comply with the law? Ai'c its provisions such as are required in a charter before exemption can follow! The question of administration and the faithful performance of the conditions of the charter by its officers and agents is a question to be determined by the authority which grants the charter. I want the committee to understand distinctly that this bill is introduced as a mere means of getting the general idea before the com- mittee, as a basis to work from, and is not to be considered as a bill which is complete in all its provisions. I think the bill you agree on ought to go more into detail than I have done — ought to be, m fact, a codification of the banking laws, with these amendments. Mr. Johnson, of Indiana. It seems to me that the logical course for you gentlemen to pursue who are jealous of the power of the National Government and its right to interfere in these questions is that you should introduce a bill for pure and simple State banks. Mr. Williams. That is my ideal exactly, and it is the thing towards which I am aiming. I Avould introduce such a bill uow if I considered it safe now. The education and experience which State legislators have 940 10 -j^46 BANKING AND CURRENCY. anraicial matters is t," 1)6 "''™*''- " I woukl be gl»d ao"«""rj,,T£«.?r,:s.israT,,tt,e .,ai.i«g «.„ ,. ";,Misutvebee„.«^i;ij=ji<«2,s'5;i;'^:r^^r™5 tie minds of tlie peoi.le ol '!»„ F" ^ ™es have come in contact . 'T'S?'nr:.*Te*™ foils" g^^^^^^^^^ SsiaSin ^^»!^^^'""""i("'^^:;S^S^ have been .ni. Mr. WILUAMS. Yes s.r. 1' '"»'*; ',™'d™. „„t nnderstand Ite edncated until tl.e ordraavj- »"'™°° "«"™„ sippl'^as i» favot of tbe »"»«"K\™::i, ,„nch snrprised if some ''tfi^cSursi^sSit-^s'"^^^^^^ its start in the. banking- system ; .^ -gn^tioji oueht not to start any Mr. Williams That r^,^ f ^^^^^^J^ Aw ,-s onght ultimately to be sort of a false system. 1 ^^"'^^ *7" 'I'lj^^i ,i1je eiTors, if they choose. left to the State legislatures ^^^^^J. ^^^J ™^tnd soundness. But why ^ St pr^^^'^i^^y^ --" ^^ ^^^■■* '^ ^^'^^^^'^'-' '^SrCoBB, of Missonri. Then the people would have to suifer for those ^^^^"WILLIAMS. The peopl. who >^nt those l^^Jg^-^^^^^St tive halls would have to suiter .f , //^f^^^Jtio^ ^l^M^^ do anything of a kind ^^f j;f" VntVeatUC S ale banking. To on this question and a '-•■o|'f«*i;^^f /„!^{^,°^ ' It is very seldom that r Jo^ iX^SZ^^^^'^^^^^^ -- 1 ^^ ''^' *^^ is the practical and politic thing to do. iuy officer or directt.v of a i^^'t'o^'^fl^^'^f^^evt^ officers, airector or directors, mouev from it on the nidorsement f.* '"^l.'^.^L'^'l^^^es accru nu' from an infraction Any director shall be i"dn-idnally ah e c.r any losse^ ace ^^^^^ ^^^ ^^.^^^^ of the laws governing^ national ?;'':f i^' « ;\;"°[' :!,„^"d i^i^ vote to lie entered on the unless he shall have voted «g'\'° *;' f^J'^^the C, ir^ey of such infraction withm minutes, and notihed the t^'''"P*V^lf/ ,f*. .^„,;,Vt ^T^ infraction came to his knowledge. Section 11 is taken from the old Massachusetts bankmg system, ana is as follows : :, ItoX of a national bank ^hose stock ts pledged tor debt. I want to call especial attention to section 12. I ^limk o"e of the -IL^srfSr^isssr^jSaf^^^^^^^^^^ but there is no provision for current redemption. BANKINO AND CURRENCY. 147 Section 12 is as follows: Skc. 12. Tbat the refusal or failure tci pay coin for its own notes on presentation at its lonnter, and on demand of coin therefor, at ome or within feu ««»• T, to c»«U5- ttot is the ouly verity me., b.ve. We UcmTo Itonters 1,».6 M otter seeunt, unjep fte s,m^ trtlon rS estate has no speculative value. Its value has been abou to be so governed. BANKING AND CDERENCY. 149 Section 14 is as follows: Sec. 14 That all parts of existing laws coiitrolliug national-baiilting associations not in ••onfliet or mconsistent with the provisions of this act are hereby rernacteil mcludnig all provisions for examination and for protection of depositors. There is a good deal of meaniuglu that. It requires that the pro- visions of the iiational-bauk law for examination and inspection shall also be substantially a part of the provisions of the State banking sys- tem. I think the provisions for examination and reports is the most important, safest, and soundest feature of the natjonal-bankinc system Section 15 is as follows.: Sucj 15. That no State bank or banliing association, or baulcer authorized by the law ot a .State to issue circulating notes, shall be exempt from the oiieration of the present existing Federal law taxing such notes, unless in the charter from the State so autliorizing it to issue circulating notes there be provisions comiilying with and accordino- with the requirements of each and every provision of this act, except section nine hereof, and lines nineteen, twenty, and twenty-one of section three hereof. The State banks and banking associations hereby intended to be exempted are not exempt until they are chartered with provisions substantially identical with the provisions of this act, such compilance of provisions being prerequisites to the exemption herein and hereby enacted. If that section had been read earlier it would have saved a good deal of discussion. Mr. Hall. Is it made a prerequisite to the issuance of the charter? Mr. Williams. Yes, as to the provisions being in the State charter, no, as to the administration and performance of the charter require- ments under the charter after its enactment. Mr. Hall. Under your bill can a State issue a charter? Mr. Williams. Yes, sir; but the banker does not obtain exemption from the 10 per cent tax on circulating notes unless the ciiarter under which he operates be a charter whose provisions are in compliance with the provisions of the national bank act. Mr. Hall. Who says whether a charter complies with the provisions of that act? :Mr. Williams. Ultimately the courts might. It is the duty of the collector of internal revenue in the first instance under this bill, be- cause it is a Federal tax. If the collector of internal revenue and a bank disagree, then the disagreement must be determined judicially. I do not see anything in this bill which could be construed as allowing either of the two systems to nullify 'the other. Will you state your question again? Mr. Hall. In the last section of tlie bill which you have just read, and which excepts section 9, you say that this charter issued by the State must comply with every provision of this act, except this section 9. Mr. Williams. And lines 19 to 21, which I neglected to insert in the bill. Mr. Hall. That puts the entire State-banking system under the supervision and control of the National Government? Mr. Williams. No; but this Federal ofScer must see whether the charter provisions under which a man proposes to issue circulating notes is in accordance with the provisions of this bill. That is all. If that is determined adversely to the party it is decided judicially. Mr. Johnson, of Indiana. In a State court or in a United States court ? Mr. Williams. In a United States court because it is a question of Federal taxation. The Chairman. The process which the Cxovernment would ])ursue would be this: The collector of internal revenue would demand taxes. ^^Q BANKING AND CUKRENCY. The pe..ou fro.n wUob. taxes were demanded would ..tuset. pay^and, iLn the *=ollector insisted upoi^im ,,^ ,^ protest. He could sue «^e collecto^ to . ^^^^^^^ ^^^^^^ ^^^^^^,.^^ ^^ ^Sd SS £c.rr ;liS as to whether the charter co.phed ,,ust of. course ^^^^^^J^^^ofeX^^te^WoyMons. There rs ^S!^'.K:SSrt?tr\^SiE sat^guard., issues aud •"T'Salt.. It must set Ibrth that every coudit.on precedent has been complied with exceyrt section 'J. ^^^^ ^^^^ conditions ilr. Williams. The charter doe^ ""l.tsfite charter itself, contain- sts?.s^s> SIS t^sr ^ ^^^ „„,,.„„, ,. the collector and the partj^ charter had complied with the Mr. Williams. I^ ^^e btate in its clia te^ h^.ve conferred the requirements, then the Sta^^J.^^^^^^^^'-J^ these notes. There is right of exemption upon the btatebank^^^^ ^ ,.^^ administration has nowhere any question as ^ wlietliei a oa ^^^^^^ question is to complied with tlie P™^i«^°^^,f ,;,l' Httes as to whether the conditions be determined by the Federal f^^t^«"*^'^,^^.\^ave been compUed with, precedent of I'^-^^^rtH determine tbi itself whether the adminis- and the State nmst '^e left t.detei mine toi :^,^^^^ ^^.^^^, ^l^e law tration of the affairs of a ^a"'^.^'^'.':,, f^fi^w In other words, it is or not and to enforce ^'Oinpli^nce ^^ath its lav.^ question of the opera- just like this : When we come *« « ^^^^^^ S passed hx no State a law iion of the l^ifteentb ameaidmen t le,^^^^^^^ ,^^^^^^ ^^ which conflicts with that aw, oi ^ t'^ij^' ?,^; '^. "{„,t ,^iten yori come to carry the Fifteenth amendment int(i ^^%'}'^}^lljfj,%,o^out the pro- the question of determining -^^^ ^^^^^"^{.^^^S^en the State visions of tl^e f f een 11 a^endm^^^ are required to law punishes that, fi f^'® P™ , '4m, 3„ust be on an equal tooting of be in accordance, ^be two system, i ^ administration, leoal enactment, and when ^t/«™<^"^,SKnXbi the legal enactment, subsequent ^o f ^j^^-SfelS^^a^e dom.^^^de4l law.i.quires each 18 separate. ^f^^\^,X? ^"'^ ' r^^ance and substantially identical :itrtre'ei;;;:^i^S^und:r*^:b\he Federal bank system has been authorized. clvirter and says in that charter BANKING AND CURRENCY." 151 requirement for its banks aud the nation enforces the re(iuiremeut for national banks. Mr. Hall. It is necessary that the States should have certified to the fact. Mr. Williams. Yes; and that a man doins' business should do it under a charter with these provisions. Mr. Hall. Without Federal interijosition, nobody would know whetlier it had been complied with or not. Mr. Williams. Your question takes for granted that it .would be possible for some State in the Union to issue a charter requiring that these things should be done, and certifying that they had been done, when they had not been done. That is not even possible of consid- eration. All that is necessary is that we shall have the two systems running- along on all fours, coming under the same character of author- ity with the same provisions in reference to the safeguarding of its cir- culating notes. I Mr. Hall.- Then where is the national inspection ? Mr. Williams. Nowhere; but there is a State inspection for State banks ideutical with the national inspection for national banks provided for under the bill. Mr. Johnson, of Indiana. You have a system for State banks pure and simple? Mr. Williams. Of course; as far as administrative control goes. Mr. Johnson, of Indiana. There is no power in the Federal Govern- ment to investigate that system. If the statutes are disregarded it is for the State to determine. Mr. Williams. Of course. Mr. Johnson, of Indiana. Why not introduce a pure and simple State-bank bill? The Chairman. I think Mr. Williams has answered the question fully, and I believe the members of the committee understand the mat- ter. Mr. Williams. I hope so; btit I am singularly unfortunate in one respect, and I appreciate it as much as anybody can — the difficulty which I have to make clear to the minds of others things which are quite clear to my own mind. I think this is clear. Mr. Johnson, of Indiana. I simply wanted to get it into the record ■correctly and to show very plainly that this is a State banking system. Mr. Williams. I was not thinking of the record, but you can put this in the record: the legal provisions of safeguard for issuance and depositors imder the two concurring systems of national and State banking would be substantially identical. The question as to whether the substantial and identical provisions of law were in each case in good faith carried out in the administration of the respective systems would be left for determination to the officers of the respective systems. The State government after having once chartered an institution in such a way as to comply with the provisions which Congress required as charter prerequisites to exemption from Federal taxation, would enforce its pro- visions; and the act whicb would confer upon the chartered bank a right to issue certain notes, would, under tlie joint operation of the State charter and the act of Congress, exempt the notes of the bank. The agents of the Federal Goverument would have nothing to do witli the administration of the affairs of the State bank by the State officers and the agents of the State government would have nothing to do with the administration of the affairs of the national banks by tne officers of the National Government. If I have failed in any way in the bill to -|^52 ' -BANKING AND CURRENCY. keep the line of debarkation after ^;^^'^^t^S'^^ of exemption has been granted to a ^t^te bank it i. pe ec y^^ ^^^^ you that it has been caused for lack ot ability on my pai distinct. j. i +^ „n,7. i^nt T would like to call attention iu various places the history o^l^ffl^/^Y"- ^^ it ^-o^M strike you as a There is another V:^^fl.^f''^^'''^^^ that a bank practical dithculty, but it is not. f^ J-^'|^ (foverninent officer would Lght be chartered ^"^^Xsafthat tL S we™^^^^^^^^ tax those ^^-^^^1'^^^=^^ October f . f 8.3. at 10 a. m. Committee on Banking and OtTERENcy Thursday, October 12, 189S. The Committee on Banking and Currency this day met, Hon. Wil- liam M: Springer in the chair. STATEMENT OF HON. T. C. McEAE. Hon. T. C. McEae, Eepresentative from ^^e State of A^^^^^^^^ peared before the Committee on behalf of H. E. 12 i , which is as loiiows . BILL for an increase in ,he issue of Treasury notes a,.d the retirement of national-banl. notes Be U enaoua ^ ike Senate <;^.J^:i:^J^Tl^^:^^ySiX:^ America in Covgre.-,, asxemUed riv^t * It^+Vmr or ';t^,';«^'J^;';*f;'J,^,"^;^;t ,oon "s ,>ructioaMe, further increase ?SSe of ^id t.:?^s at^lhl^™g^:\S- -drevenies nray have heen increased ^uHaxes and rcveuues of tl-,U-^\«Xli:^:d'nZ^^^^ -d ^e;;;:fter he year ending June t'^.>';t^,';«^'J^;';*f;'J,^,"^;^;t ,oon "s ,>racticaMe, further increase ?SSe of ^id i.:?^s at^lhl^™g^:\S- -drevcnies nray have heen increased for tlie preceding hscalyeai.. surrendered the Secre ^'^S^^t^at^a*^u'sufflSt;"^r^ur^e provisions of this act i. herehy UnUed states anlaUotler act's and parts oV acts inconsistent with the provisions of this act are hereby rep<-aled. Mr. McEae addressed the Committee as follows: ,,„ fnr Mr Chairman and Gentlemen of the Committee: I thank you for the invitation to appear here this morning and make a statement in BANKING AND CURRENCY." 153 support of my bill 127. I will not undertake to elaborate the princi- ple and idea involved In it but will simply state it and ask the careful consideration of the committee before final action upon the bill. I un- derstand that if the expenditures of the Government are not already in excess of the receipts of the Treasury, they are very likely to become so very soon unless there is an increase in taxes or a reduction of ex- penses. It is pretty generally conceded that we need more money. Speaking from the standpoint of the needs of the Treasury I would say that we must have it soon or run on a credit. Taxes are already too burdensome to the j)eople, and speaking for my constituents I protest against an increase of taxes or the sale of interest-bearing bonds to get gold when we can issue notes just as good without interest. If, there- fore, we can by this measure issue more money for the Treasury, and avoid an increase of taxes, or a sale of bonds without violating any established principle of our Grovernment or of sound finance, then I contend we should not hesitate to adopt it. The first section of this bill provides for an increase of the Treasury notes, known as green- backs, to the extent of the difference between the existing volume and a sum equal to the total amount of taxes and revenues annually col- lected. I know of no authority in finance for adopting this limitation, rather than a fixed amount. 1 have suggested this because 1 believe we can easily maintain a volume of paper currency bottomed on and limited by the amount of our taxes. I think the actual business of the Government will go far toward determining the amount of ])aper that can be floated with safety. When there is a dollar of taxes col- lected for every dollar of Treasury notes issued by the Government I think we can keep such notes at par with our coined money with smaller per centum of reserve than is required now. I believe we can do it with as little or less reserve than is required of national banks. For the most of the time for the last century we have had some kind of national paper circulation. Some of it has been a legal tender for private debts and some of it not. Some of it has been redeemable in coin and some convertible into interest-bearing- bonds. At times of inflation it has been at a heavy discount, while at other times of financial disturbances it lias been at a slight premium. But, Mr. Chairman, when convertible into coin on demand and not issued in excess of the ability of the Government, such currency has always been satisfactory and necessary to the people because portable and conveuient. The SuprOTie Court of the United States has de cided, whetlier correctly or not, that Congress can make these notes a legal tender i-u times of peace as well as war, and so I have provided that the notes to be issued under this bill shall be a legal tender for all debts public and i^rivate. The bill would provide an immediate inc7?ease in the Treasury notes of something over $150,000,000. If it is true that the receipts of the Government are less than the expendi- tures, there will be no difficulty in getting that amount into active cir- culation in, a short time. One trouble about notes of this kind here- tofore has been in getting them into circulation. The receipts of the Treasury have been in excess of the exjienditures, but we are noM- con- fronted with a deficit instead of a surplus. I do not want to be un- derstood by the committee as favoring irredeemable or fiat money, or even an over issue of redeemable paper money. I am opposed to such an idea as much as any person can be. I do not believe that a dollar of paper money ought to be issued by this Government that is not convertible on demand into coin, but in as much as it has been determined to be necessarv that we should have -[^54 BANKING AND CURRENCY. 1 +;^,i cnifl tlif neoDle have found it economical a national paper circulation ^l"\ f ^ ^^'^'^^'f^^e ,,,n witli safety before and serviceable, we should I ^;^^^^^^^U receives it for all we resort to the use of bonds, ii ^^'^ V^" ,. .^^ ,j^e from it, and taxes and debts due it, and pays \t^^tfoi all debts i ^^^.^^^^ ^^ makes it a legal tender between «ti« tbm^^^ difliculty in l^eeping the amount pov led 101 Dyx _ ^^ ^^^^.^ <,oin and in active «ir«^^lation They aie^^^^^^^^ whole value lies in the credit of f \« <^«?^™^^^imau, that there are pledged to their redemption. I know, ^^^y- ^1™^ amount of irre- thosl who contend that we^oan i^^i e au mdi^^^^^^^^ deemable Treasury notes bu ^ ^f ^f ^.^^^^ XyoucTttle point of safety schemes, and I would "«* '*''l\yo^\**' )f'™', ' „4rous The great Ken- and soundness. . Money that is not sate is dan^ei^^^^^^^^le the amount tuckian, the late Senator Beck, ««°tended we cou^^^^^ ^^^^^_^^_ of the greenbacks we now have ^^ f.^^^^Vu "/^^V'^^not asked the com- I do not wish to °o^^t^^«7S^^;: P«t* ^0^^^^^^^^ that as long as mittee to go so far as he thought we cou a ^»- . ^, f It may be we keep within the limits of ^^J^^i^ J*i;;;;i^J'S to go a step farther, that when we go thistar that the way ^^J J^^'^^^^^k ".rrculation , and is The second section is ^nued at the national D^^^^^^ intended to prevent a contraction .l^^^-l^^^^Xre i"et ed. I would like wmmmmm ™ it p5' to the state!.. But it is not my puriiose to discma » »«t want any paper money if it is not redeemed m gold and silver? Sr- B^: would the issuing of this additional sum that you call for involve an increase of gold and silvei' to redeem it .^ M MceIi- It would imt, in my opinion, require any increase ot the J;eserve hdc a^^^ redeem the greenbacks for I contend fe can cairy a very much larger volume than we now have with the ^TKT'I^ iS'If that we Should carry a much larger .olume ''^'ff MciuKThat is the idea. We can, I think, carry all I ask you to issue with the same reserve that we now have. As a matter of fact we have redeemed from 1879 to 1892 only about $50,000,000 ot Treasury BANKING AND CURRENCY. 155 notes. Ill order to aid the panic this year about .$100,000,000 have been presented for redemption. The trutli is, that when the ijeople know that tlie notes are receivable lor all import duties and taxes, as they have been since resumption, and that they are not issued beyond the ability of the Treasury to keej:) the promise of redemption, they do not want them redeemed and will not, as long as the credit of the (iov- ernmeut is good. They prefer to use the notes, and they are kept in active circulation, performing all the functions of money. If you limit, as I seek to limit by this bill, the amount issued and to be issued to the actual amount of taxes and revenues of the Government, it is not necessary to provide an additional sinking fund or gold reserve. Mr. HauCtEN. Yon do not claim that there is any particular reason why you fixed this i)articular amount"? Mr. MoRae. None, except I think there shoxild be some limit, and I have fixed this because I am satisfied it is within the lines of safety. There are a great many people who insist that we should go further than this, and I am myself inclined' to think that we might go further, but I prefer to have the committee and Congress proceed in this matter very cautiously. It seems to me to be conclusive that when the govern- ment for legitimate expenses lays its taxing powers upon the people — taxes that can be paid in notes — that we can carry an equal amount of notes with no larger per cent of reserve than is required of National banks for their circulation. The revenues will, in a large measure, sup- port them. If they are receivable for taxes, and must be taken from the Government for salaries, there can certainly be no serious danger as long as we keep the volume within the limit of our revenues. Mr. Black. How iriucli would this increase it? Mr. MoRae. It would be about $150,000,000. Mr. Johnson, of Indiana. It is now about how much ? Mr. McRai:. I think the revenues are now about $500,000,000 and the notes are about $346,000,000. If the revenues should be decreased, as some of us believe tliey will be, the increase of notes would be less, but the amount for the first year would be determined by the revenues for the preceding fiscal year. If, again, the income for the next year is increased, then to that extent tlie Secretary of the Treasury would- be autliorized to increase the notes, and so in that way we would have, instead of a fixed volume of paper money, a flexible currency, based upon the business of the Government. Mr. Johnson, of Indiana. The objection that has been urged to that form of currency has been the lack of elasticity, the inability to let it out, and of having it contracted. That is the objection I have heard - urged to the greenback issue. It is claimed that the local banks, ■whether national or state, if properly bottomed would probably obviate that question? Mr. McRae. I believe in a well-regulated system of State banks, but this is not inconsistent with the principle I now contend for, that of the United States issuing such paper money as it can maintain at par without increasing its taxes. I believe also in the use of gold and silver to the full extent, and if I could have my way — — Mr. Johnson, of Indiana. You will find in a work of Trenholm, "The People's Money," recently published, a discussion of one phase of the subject which you present, that is the capacity to absorb currency, and you will find it very instructi\'e. Mr. McRae. I will be very glad to examine it, and will do so by the time this question is considered in the House. Mr. Beosius. May I ask one question. Your purpose is to keep the 156 BANKINC4 AND CURRENCY. volume of paper mouey issued by the Government all the time equal to the amount of revenue ueeded by the Government? Mr. McKae. Yes, sir. ^^^Sr^^'^'^nSy"!^ proportion that the, revenues of tireGo'Srmnent and the ,.ecessUiesof public business have increased '*m" BRO™? You do not have m your bill any corresponding n^^^^^^^ ''ltSl^:'nL there is no necessity for an increase in our coin aiet;, as long as our notes do not exceed our revenues. We laj a ^"ift. Brosius. But taxes have not anything to do with the coin assets "'Mr'ScS^^axes are the only assets of the Government of the Unitecl Stttes; in other words this Government can only get assets by ^'^Mr ■ BROSius. If you do not increase the coin assets in the Treasury but continue issuing paper money why your money by and by will be largely paper because the ratio of paper to com is constantly mc^ea^ nifunless at the same time and concurrently with the ^^^^'^^^^f^^^ paper money you provide for the corresponding increase of those """m? Johnson, of Indiana. One part of the bill provides it shall be suStuted to mxtional bank notes, does not that affect the point you make I understand the national bank notes are redeemable in cur- rency and everv time you take a national bank note you do not require '"^"S^.*SSr-t, nor would the slight increase other notes here provided for require any increase of the ^'eserve We ought to cease to use Treasury notes as money entirely or have the full bene- fit of the system. If we admit the right to issue them, and the neces- sity for more money, we can not avoid the further issue, except upon the theory that it is not safe and sound. Mr. Brosius. Are you able to say from your recollection— I am sme I am not— the ratio of increase ? n , ^ q +„ s Mr. McRAB. ISTo, sir; but I would say that it would be from 3 to 6 ^^Mr? Brosixjs. Then you will increase the paper in the same ratio "? Mr. McRAB. Yes, sir. , ^- ,■ r.^nmif Mr. WARNER. May I ask the gentleman what is his reason foi Inmt- ing tiie amount of notes to the amount of taxes'? ^, , t Mr. McRae. I have already stated that there is no reason that i BANKING AND CURRENCY. 167 know of except to make a safe limit and still keep it flexible. Tliis limitation upon the amount is to some extent an experiment, and I do not want the Government to issue for the present any more ]3aper money than its annual income. It is the old idea that Treasury liotes bottomed on taxes will always be at par with the best currency if convertible into it. It is an effort to use the credit of the Government with the people when it can be safely done instead of taxing the people to raise this sum of money. Mr. Warner. I appreciate the suggestion, and it was my fault I was absent at the time, but I take it for granted of course any ]japer money that is issued will to a large extent remain outside iu tiLrcula- tion as distinguished from being jiaid in for taxes ? Mr. McKae. Certainly; if properly limited. Mr. Wabneb. So there may be some sort of proportion iu the minds of people who adopt the idea that taxes or the power of taxation is the proper basis for currency between the amount of taxes wliicli the Gov- ernment levies for a year or two years or something of that kind and the amount of curreu'^y that can be safely based upon it for the pur- pose of circulation. I confess that I do not see, and in the short time I have been here I have not heard the question asked so as to be answered by yourself, any reason why it should be ttxed at precisely the amouut of taxes rather than twice the amount or ratber than half the amouut. I do not understand the gentleman to have said, this is an experiment and that he thinks that this amouut can be safely floated, but the quevstion I would put is, if the gentleman thinks it can be safely floated, why does he think so? Mr. McKae. I think so because the taxes will materially aid us in floating it. Mr. Warner. On that theory can not we float — for example, there would he keptontheaverageoutstanding.f 300,000,000, outside the Treas- ury, and we will say at this time the convenience of the country requires a certain amount of paper money which is approximately $.300,000,000. Now, if that is the case, the question is what amount can be properly used for taxes actually going into the Treasury as distinguished from what is kept outside; why would it not be well to make the whole issue $800,000,000? Mr. MoEae. As I said, I do not want to issue a dollar of paj)er money that we could not keep at par, and I am not satisfied that we can float $800,000,000 without a larger gold reserve. It does not follow, however, that we can float $800,000,000 as easily as $500,000,000. Your question implies that an individual or government can pay twice as much as easily as one-half of his or its income. This I do not believe. Treasury notes are promises to pay, and their whole value lies in the credit of the Government and the taxes levied to secure their payment. Mr. Warner. What I was getting at was this, and I wish to see if it is your idea. In England, for example, they started out on that plan, not based upon taxes exactly, but with the idea that, no matter what would be the character of the currency as long as it was limited to that amount, the people would have to take a certain amount of the circu- lating notes; and, so long as the credit of the Government was good for anything, they would practically be kept outside of the Treasury by the necessities of business. That amount was fixed, I believe, at £14,000,000—1 beUeve now it is £10,000,000— and then they issued a certain additional amount, not, however, based upon taxes, but if they had chosen to base it upon taxes there was no reason why they could not have done it. Now our experience shows that some three hundred |Fjg BANKING AND CURRENCY. and odd nulHoBS is bound to be 1^«P^ «"? ^^tS'SS^ S^a the iiess of people, then ,f you are g^^^S . *«^iJ^';,"^f\U^ cy be, it least, taxes, why should not the ^^^'^^^^^^^^f^MTtoonl year's taxes we will say one year's taxes '^ Sy S- Wt not be limited to six instead 01 two y^Jf^^^^^^^l^ at is the princdple on wlueh months' taxes ? V\ hat l am Y- i, ,mn irp nredicatina' your reasons, yon were working and upon ^'^^^f ^^^^Vreasmrnotes will not be kept Mr. McRAE. So large a part ^>t f ^/ ';;,'^J'"'-| ^ f, ability to protect out of the Treasuryif we ..^ne he.n beyc^d o^^^^ ^LperUney them. 1 am m tavor ot tl^« ^^^i^Xr I am not willing at present it can keep at par, but not another do lai. i . .^ to go beyond the linnt f^^eL^tiLS^^^ because redemp- StK^« " S .t is^w J S— -- - !rtT?irn^t^ee?^et^.l tJ^™-en^^of the Gov- ernment. I prefer this to a fixed volume g ^^^J^ ^^ understand Mr. WAKNER. The necessities of ^^^ ^^^^^^'i"; ^^ed, but not the rise and fall to some extent; o course ^^^^^'^^^^. ,oif there . other things which ^i^^j*; ^o >^e ;rid lor I y thc^^ ^^^^j^ ^^ ,^^^, should be a depreciation of ^^'^ •, ^"^"'^ ' .^. „re higher and the result would have to be higher, then ^^ ^be ;'^^*',\7^^^^^^^ further depre- of your plan of issuing more ""'^'f ^:y;\*^^. J^7"^^i^'*^nd does not that elation, then taxes ^^uld have o be ra sed a^^^ ^^ ^^^ plan involve the danger «Vt7.r^.t. bred Creaso,. of depreciation ncrease of the amount ot taxes le'l^if ^^ f^ ^ ^'^^^ currency to meet troniany cause; then an H^creaseof^^^^^^^^^^^^^ ^^ ^^ ^^^^^1, Kxd I ass me that\t will not depreciate Treasury notes. 1=S J^SrnSS^^^rrt^S^rmes that he dicfnotSrof any relation on which he bases the amount. Mr. Warner. I did not understand that. STATEMENT OF HON. S. B. COOPER. Hon S B Cooper, a Kepresentative from the State of Texas, next appeTred' before tbe committee in behalf of the following bill : [H. R. 21ii, Fifty-thiTd Congrfss, first session.] A BILL to authorize the issue of Uuitcd States notes and for the redenn,tion of the same. Be U enaotea 1>,I the Senate a,ul Ho.se of f^P'-'^^^^'^^^^^J^^ t"^^'lnU^ei inginterest, payaWetobeaierattlio ireasmj ox dollar and not more j;;;ri"""r.rrri2.iT.":,"U%. .• 1.8.1 t^-i" >« ««»"' •» BANKING AND CURRENCY. 159 same mapner as was by law provided for United States notes under tlie aet of Con- gress entitled "An aet to authorize the issue of United States notes and for the redemption or funding thereof and for funding the lioating- debt of the United States," approved February twenty-tifth, eighteen hundred and sixty-two. Sec. 3. That whenever there shall not be sufficient money in the general fund of the United States Treasury to pay the current expenses and indebtedness of the United States the Secretary of the Treasury shall pay off and discharge said expenses and said indebtedness with United States notes authorized to l)e issued by this act. Sec. 4. That for every three dollars of the United States not«s, authorized by this act, that shall be paid out and put into circulation by the Seci-etary of the Treasury, there shall, by said Secretary of the Treasury, be placed and dejiosited in the Treasury of tlie United States one dollar in coin money of the United States, and said coin money so deposited sliall be kept and held as a special reserve fund with which to pay off and discharge said notes when the same, or any of them, shall be presented for payment or ottered for redemption; and to carry into effect the provisions of this section of the act the Secretary of the Treasury is authorized and directed to reserve and retain out of the general revenues received by the United States, from whatever source, sufficient coin money of the United States to make the deposit, and provide and preserve the special reserve fund provided for in this act ; and in the event the Secretary of the Treasury is unable to obtain from the general revenues received by the United States sufficient coin money of the United States to k(}ep and maintain the special reserve fund herein provided for, tlien, and in that event,the Secretary of the Treasury is authorized and directed to issue, on the credit of the United States, registered Vjonds to an amountnot exceeding one hundred million dollars, redeemable at the pleasure of the United States after five years, and paya- ble twenty years from the date of said bonds, and bearing interest at the rate of per centum, payable semiannually, and the bonds herein authorized shall be of such denominations, not less than fifty dollars, as may be determined on by the Secretary of the Treasury ; and the Secretary of the Treasury may sell such bonds, or such number thereof, as may be necessary, at the par value thereof for (he coin money of the United States, and the coin money of the United States so received for said bonds shall bo kept as provided in this act as a special reserve fund with which to pay off' and redeem the United States notes authorized by this act. Sec. .'5. That whenever auy of the United States notes authorized by this act shall be mutilated or otherwise injured so as to be unfit for use, the same may be returned to the Secretary of the Treasury, and said Secretarj' of the Treasury shall deliver to the holder of such mutilated or injured notes new notes for the same, and said mutilated and injured notes shall be destroyed under such regulations as the Secre- tary of the Treasury may prescribe. Sec. 6. That whenever any of the United States notes authorized by this act shall be paid to and received by the United States, the same shall be paid out again whenever it is possibl^e so to do, so that the circulation of said notes shall at no time be decreased or diminished. Sec. 7. That the faith and credit of the United States of America is hereby pledged for the prompt payment of the notes authorized to be issued by this act, when pre- sented for redemption, and for the prompt payment at maturity of the bonds, principal and interest, authorized to be issued by this act. Mr. Cooper addressed the committee as follows : Mr. Cbairmaii and gentlemen of the committee: I will occupy only a brief time with my statement — in fact, I think the bill argues its own cause. By way of apology, Mr. Chairman, I will state that I received your courteous note on yesterday afternoon, but my interest in the ' extraordinary j)roceedings going on in the Senate kept me up pretty late and I am not prepared with the accurate data I would like to have in presenting my views upon this bill. To begin Avith, I can adopt much of the argument that has been used by Mr. McEae in presenting his views upon the bill which he has intro- duced. Now, this bill provides for the issuing of $300,000,000 of green- backs, Treasury notes, bottomed upon $100,000,000 coin money, folio wing- in the line, of the greenback issue of 18C2, but this bill provides for a reserve fund of $100,000,000 of coin money of the Government with ■which to redeem these notes. This $100,000,000 is to be obtained by taxation, by a revenue derived by the Government from taxes, if possi- -j^gQ BANKING AND CURRENCY. <- ..,nffi,.;o.,f rfvpnne derived in that way, tlien the sometliing over $3 per capita. ..i,.f.„ifltion is inadequate aad we I believe tlie volume of money ";"^^„7°;i'^^ dUaud by the ought to increase it, and,beside , the e is a very suo ^^^^ ^^ people for increasmg the cnxu atioiK ^^^^^^^^^^ ^, ^^^^^ ^^^ destroy national banks, '^'^i*;,^^^ ^'^^ ^^l^e^auds of national banks to approve of the PO^^f^i; "o^' I'^^^^ii^" *^^^^^ want this power issue, emit, or put mto circulanon monej • ^je^^ retained in the Government and the ^fOJ^^^^^^^Vare going to have a Next, it is Wf^^?'^,^;^,^^^ sufficie.lt^axes collected deficit, andlunderstandalieadj tlieie aie 1 probable that to pay the current expenses of tl^^^i;;^^'^;^™'^ "^^^ with a char- this cleflcit may «-l^t"l^e^because we are g .g top oc^^^^^ acter of legislation that is going to f^ <^ f>^\' ;;;J^-„,,,,.;but at the uary, but nevertheless hurttul, ^^^J^/,* ' /^J,'™^^^^ Now, this same time it is going to temporarily mtai our e^ e u ^^ ^^.^ ,^ ^^^ bill provides for sapp ymg t^^tint ]s J.V mvi - i^^ out in discharge of money is to be put mto ^^^^^^^^ S bV uppl.ving the deficit the current expenses ot t^^'« J-^J^ ^^ l^'',^^,,^ \Tnd wUene $3 of money in the ^^"^rent revenues ot the Goxe™nt a treasury to place is paid out It becomestheduty ot the ^e'^J'^taiy .^^^^ ^^ in the Treasury a reserve ^/^ ';\«t .,f ^ " ^*^f "^ Tie credit of the Govern- i-n Tcrippiii the notes so put m ciicuianon. j-uc i-ktu rmv ask whv I do not think it is tiue. ± i^cm j>j i Toan Vint- T 1 /t^n la rnn this Government. Therefore, there is more money cou- ^'''' nn J V ?n ?l^^e T easurv of the United State,s, and it is required to be keTSe a d^^, ^rmoney constantly in the, treasuries of tha Sta^e • ™,nme,',tr county governments and municipal governments, and foSrclo'rSrough the labyrinth of corporate '-/ -f^j^- ; i.oo.,v. a« .rnn will find there is a great amount of money kept out oi cinXCn^aiVin de OS in these" special places for the purpose of car>^(n^-^ n^^^^^^^ of the governments, municipalities, andcorpo^ canyin^cmincu , ^ ,^^eg,^u I take it, from increasing the eu "en^y fntlfinc^lsXpon a solid and stable basis. We axe imw carSnl $346,000,000 of this character of currency, and we aje cariying ■1 ■^ %fnn nan noo rpserve fund. It we can carry that, we can carry ;l:^Imot^;S?ded riliis^m, upon the reservation therein pro- vided. BANKING AND CURRENCY. 161 Mr. Hall. You have no axitbority for that statemeiit that we have $346,000,000 iu circula tioii 1 Mr. Cooper. 1 have ouly the published statenieuts of the Secretary of the Treasury. I do not think now there is •'^340,000, 000 iu circula- tion or $346,000,000 in existence, and my reason for stating that is this Mr. Hall. I Just thought possibly you liad some data on that. Mr. Cooper. We had a circulation of fractional currency of some- thing over $75,000,000, and we undertook to retire and redeem that and we found over $26,000,000 that could not be found. It had been destroyed, mutilated, or otherwise disposed of, and if there was that much fractional currency lost or destroyed, between its issuance and redemption, I think it more than probable that of the $346,000,000, possibly one-third of it is not actually in circulation and has been lost or destroyed. Now, Mr. Chairman, I do not want to trespass upon the time of the committee, and I have stated the outliue of the material points con- tained in this bill and the tirst and main object I seek is to increase the circulation upon a solid basis. The second reason is, I believe it will tend to destroy the national banks. IsTow, the national banks, while they are safe institutions and while they supply good money, they are dangerous and undemocratic institutions and are intrusted with dangerous powers. They virtually control the currency of this country and can do great harm and injury if they see proper to exercise that power. Between 1882 and 1892 they contracted the currency of this country $192,000,000. ISTotwithstandiug in 1882 we did not have near the quantity of national banks we now have, they then had in circula- tion $364,000,000; to-day, or rather in 1892, they had in circulation $172,000,000. They have contracted our currency $192,000,000, or more than one-half of their entire issue. Now, I do not like to put such power in the hands of any corporation or person. Power is dangerous wherever you let it rest, and it is rarely exercised for unseMsh pur- poses, but too frequently it is used and manipulated for selfish ends. I do not think that any corporation or individual ought to have power over the finances of this Government By the power they now have they can contract the currency of this country at will, and they have contracted it on an average of nearly $20,000,000 a year for the past ten years. They can not conveniently contract the currency provided in this bUl when it is once put in circulation. Gentlemen, I believe I have nothing further to say, and I am very much obliged to you. Mr. Warneb. May I ask the gentleman whether he has any data as to the amount now held or probably held in State and municipal funds except over what was so held in former years 1 Mr. Cooper. I have not that with me, but if I had had an opportu- nity I think I could have gathered that data. I have a portion of it, not with me, but at my room, but that line I have traveled over to some extent and have gathered some information and I know it is largely in excess now of what it was. Mr. Warner. Will it be too much to ask the gentleman to furnish us with that compilation as early as he may 1 It was a very interesting point of his argument. Mr. Cooper. I will undertake to do so. Mr. Warner. And unquestionably it is a strong point so far as it 940 11 IQ2 BANKING AND CURRENCY. extends Now, as to the proposal. To suui it up, would it be proper to J:lfh!i what you propose is a great national bank of issue controlled TyCd piSSany Situted of the Governnrent as distinguished from the so-called national banks as they now exist? , , , Mr. Cooper. Let the Government do what the national banks are '"'^Mr'^wfRNER. Now, the result of that would be to leave^the amount of currency to be fixed fi^om time to time by the wisdom of Congressi Mr. Cooper. Yes, sir. Mr Warner. On the other hand m CotpBR. I would leave it to the wisdom of Congress relative tothe inci^ase of paper currency. The metal currency will be con^ trolled by natural laws, circumstances and conditions, and the laws "^MrwlBNER. In other words, yon propose to leave the question of co?J curitncy to be settled automatically by the ^^f * f .ff^^X of either or both gold or silver, and you believe that is the best way to do it but as regards the pLper currency you believe it should be arbitrarily I do not necessarily mean wrongfully, Hxea '■ Mr! COOPER r believe it should arbitrarily be left to the judgment *'^Sr°wTRNER. Now, may I ask why you believe that such absolute freedom should be left, on the one hand, for com curreiioy to adjust itselt to the demands of business, and, on the other hand ^^l^^ y^^P^^P^'t^a far as any automatic effect of business is concerned, to put so perfect a straight iacket upon the paper currency? ■■ ^i, i. x. Ml Cooper. I believe in the wisdom of the people, and that they will direct Congress whenever they think there is not a sutfacient sup- ply of money to furnish the money and place it upon a solid basis, and whenever there is a surplus, whenever there is a plethora of paper money, it ought to be contracted, but it should not be m the hands o± any individual to do so. /->j^„„„„cq Mr Warner. What I was about to refer to was this: Ofcouise the Government would presumably— that is, a Democratic Congress would presumably— act in accordance with the will of the people, and I have great faith in Providence, but wonld it not be one objection to your scheme that there may be sometime a Republican Congress} And what would yon do in case a Congress should unfortunately be controlled by the parties who are interested in national banks or inter- ested in the hoarding up of gold or silver, and who might cut down to half the capacity of our currency and leave us that way for years, perhaps, until we could get a Democratic Congress^ ^ . ■. -f Mr. Cooper. It would be evidence to me that people wanted it it Congress did that. Mr. Warner. You think business nught occasionally wait a year or two for its currency rather than to have it left elastic. Mr Cooper. I thiuk this is elastic enough. Mr. Hall. You come from the State of Texas, where you have had to deal with these wild-cat ideas of currency, etc., and let me ask you this • Do not you believe as long as the National Governmeut has con- trol of fixing the volume of currency that it will tend to increase the desire to see these wild-cat theories put on the National Government; but if you put the power of issuing money closer still to the people, not through the national-bank system, but get right down close to the people so they themselves will control it with their State legislation that it will tend to bring about conservatism on the part of the people, BANKING AND CURRENCY. 163 or, in other words, keep them fiom iBdulging in these wild-cat views, and consequently make them more cautious ? Mr. Cooper. For some reasons I would like to, as far as possible, localize the currency, but I do not want individual control. Mr. Hall. I have seen men who were county judges who were the most cautious and careful men in the transaction of all county business, and yet they would advocate the subtreasury in the National Govern- ment; and I have seen the same in my State and other Southern and Western States. Mr. Haugen. You would give the county board the authority to issue money so as to get it nearer the people "i Mr. Cooper (in reply to Mr. Hall). That is an infirmity of human nature. Mr. Warner. There is an objection to your plan from my standpoint. I can not conceive of a more eflective plan for congesting the currency at the seaboard, especially at New York, than the one you propose. Now, have you considered this from that standpoint. Mr. Cooper. Well, I cannot say that I have. I do not understand in what line it would do it. Mr. Warner. The national banks as they now exist through differ- ent parts of the country, if I may use the illustration, while a very imperfect medium of securing currency for the different sections of the country, are practically obliged as a condition of their existence to put out some currency in that part of the country, and as it is redeemed, etc., to put it out again. As a matter of fact, while they do not supply as much as is wanted, they from time to time do supply currency, and as years go on they keep putting out currency in the difierent parts of the' country. Now, I understand your plan would be to issue green- backs irom a central source, and while the difference between that and the present national-bank plan might not be very great in its opera- tions, it would take away your only incentive or pressure to issue a currency at points far remote from the center of government or center finance, and would leave the gravitation, which now keeps currency congested in New York aod Boston and Philadelphia, to act with still greater freedom, andthat would leave the rest of the country still more drained. Mr. Cooper. I think the currency would go wherever there is a sur- plus of products, either manufactured or agricultural products. If we in Texas have something to sell, we will get the benefit of the currency that is in New York, and this bill authorizes it to be paid out where there is a deficiency, and so we can get it generally diffused if there is a deficit. This does not authorize the patting out of $300,000,000 in one lump, but it says it is to supply a deficiency in the current revenues of the Govern- ment and in that way we will get it. Mr. Warner. I do not wish for a moment to argue upon the truism which you suggest, but is it not a fact that drjring nine months of the year under the present operation of the law which you mention, the cur- rency is congested in the money centers of the East and North, and during the two or three months of the year, when your crops are being marketed that the necessity now arises, even under the present system, for coming to these money centers and actually getting bales of bills for actual transportation, to move your crops? That was the suggestion to which I referred. Mr. Cooper. That may be true, but I undertake to answer that by saying I do not think there is any system that human ingenuity could devise by which money would not be controlled by those who have the Jg4 BANKING AND CURRENCY. mpans and opportunity to control it. It would be controlled in the city SSvesto? my own State, if New York was at Galveston. I thmk That mm ey win be controlled by those who have the power and the abtlitv to control it and who can make more money by controlling it. Mr. WAm. I understand you propose to have this currency based upon gold? Mr (JooPER. Based upon coin. , • ^- j. Mr VvSner. I undel^stand my colleague was rather hmtmg at cur- rency" whicn would be based to some extent on what you might call ocal secSr Kow, I confess there will be no question t.hat m New Yoi m Smu a few hundred feet of my office there is held more gold and sLr in private hands than in all the rest o the country put toother K^w, if you take a system which is based upon gold, which can not be expanded without the Government buying more gold, do not you tend to put the control of the circulating -helium of the count y more and more in the power of those who «ontro oi own the gold and silver than under a system based, even to a small extent, upon local 'X!ooOPBE. Yes, sir; but the taxing power of the Government can get that gold without purchasing it. 4. „ -„„.,+^ ^-<^ Mr Warner. Does the taxing power of the Government operate to drain a part of the country or deplete a part of the country where Mr. COOPER. In my opinion, there is no danger of a depletion so long as the balance of trade is in our favor. STATEMENT OF HON. W. J. BRYAN. Hon W J. Bryan, a Eepresentative from the State of Nebraska, next appeared before the committee in behalf of the following bill: [H. E. 3378, rifty -third Congress, first sessiun.] A BILL to secure the aepositois in national banks against loss, and so forth. Be it enacted by the Senate and Bou.e of BeprescMiee. of tl,e UnW'd «^f « "Z;^;™ in Congress assembled, That every natioBal bank organized under tie Jaws of tie United States shall, on or before the first day of January of each year after the pas- sage of this act, deposit with the Treasurer of the United (States a sum equal to oue- fofrthof oneper ce^ntum on its average deposits for the three months precedmg said first day of January. Special notice shall be gn-en immediately in case of delault and any bank failing fo/ sixty days after receiving special notice o deposit such tax shall forfeit its charter: Provided, That whenever the Treasurer shall have on hand in the special fund raised by such tax the sum of ten million dollars the Comp ro ler of the Currency shall by order suspend the tax until the amount in the special fund falls below the said sum of ten million dollars. , ,, , i • i <■ +i,„ SBC 2 That whenever the Comptroller of the Currency shall be advised of the failure of any national bank he shall at once ascertain the amount due depositors a-ad creditors of the bank (not including stockholders, officers, or directors), and from the special fund provided for in section one of this act shall, as soon as con- venient, cause to be paid to such depositors and creditors (not including stockholders, officers,' or directors) the amounts due them. , „, ^ ,. , , „ „^„ Sec 3 That the assets of such failing banks shall be turned into cash as now pro- vided and the amount realized shall be used, first, to satisfy all claims not provided for in section two, and, second, the amount remaining shall be paid into the special fund provided for in section one of this act: Provided, That nothing herein shall be construed to exempt the stockholders from the liability of one hundred per centum of their stock in addition to their stock, and no stockholder shall receive any pay- ments on his stock from the assets of such failing bank until all debts due from the bank have been paid and the special fund provided for m section one reimbursed to the extent that it was drawn upon, as provided for in section two. Sbc 4. That the United States hereby assumes no liability to depositors of national banks' except as a trustee to distribute the special fund in this act provided for, and BANKING AND CURRENCY. 165 the Comptroller of the Currency shall pay out of the mouey in the order in which he receives notice of failure, paying all proper liabilities of one bank as aforesaid before any on liabilities of a bank whose failure is subsequently announced, and in case the special fund is insuflicieut to pay all proper liabilities the Comptroller of the Currency shall cause such uioney to be expended in paying such proper liabilities pro rata, and the amount remaining unpaid shall be made good as the special fund is replenished, and in case the special fund is entirely exhausted banks shall be cared for in order of failure as fund is renewed. Sec. 5. That to provide against a contraction of the currency by the holding of this special fund in trust, the Secretary of the Treasury is hereby empowered and directed to issue and pay out, for the general expenses of the Government, United States Treasury notes, commonly known as greenbacks, like those authorized by the law approved February twenty-'flfth, eighteen hundred and sixty-two, equal to the amount held in said special fund, and such Treasury notes shall have all the legal- tender qualities possessed by the Treasury notes issued under said act of February twenty-fifth, eighteen hundred and sixty-two. Mr. Bryan addressed the committee as follows: Mr. Chairman and gentlemen of the committee: I am very glad to have a chance to present the merits, as I understand them, of the bill which has been referred to your committee. That bill is number 3378. I do not know that there is anything in the bill which will give special advantage to the people of IsTew York, and I am rather glad it does not, because my observation has been that wherever a bill is accused of giving any special advantage to the people of New York it is unani- mously opposed by the ]ieo].)le of New York; and as this bill does not give them any special advantage, but simply distributes the advantage over the country generally, I think I can count upon tlie support of the New York members with much more assurance that if I had anything which specially favored them. I will read the bill, and I will speak of the various points as T read them. The bill provides: That every national Tiank organized under the laws of the United States shall, on or before the iirst day of January of each year after the passage of this act, deposit with the Treasurer of the United States a sum equal to one-fourth of one per centum on its average deposits for the three months preceding said first day of .January. Special notice shall be given immediately in case of default, and any liank failing for sixty days after receiving special notice to deposit such tax shall forfeit its charter. Of course, that is simply a provision by which we can enforce the law when it is a law; and it gives them sixty days' notice, special notice, and takes away any possible injustice that might come from any negli- gence on their part. Provided, That whenever the Treasurer shall have on hand in the special fund raised by such tax the sum of ten million dollars the Comptroller of the Currency shall, by order, suspend the tax until the amount in the special fund shall fall below the said sum of ten million dollars. The tax of one-quarter of 1 per cent would therefore be operative only until the amount of $10,000,000 is raised, and it is easy to take the amount which the banks have on deposit and calculate how long it would take to raise the fund of $10,000,000. Do yon know, Mr. Chair- man, the amount deposited! The Chairman. In May it was $1,900,000,000. Mr. Bryan. Say about $3,000,000,000, and one-fourth of 1 per cent on that would be $5,000,000; so at that rate it would take two years of taxation only to raise the $10,000,000, and I think I am safe in say- ing that during the existence of the national banks the amount of loss to depositors has not exceeded $10,000,000; that is, after taking the assets of the bank and liabilities of the stockholders (100 per cent in addition to their stock), that the depositors of the national banks have IQQ BANKING AND CURRENCY. not, lost *10 000 000. I say that without any figures aud without mak- Tng !t t an Srate state'e^ent, but I think I am safe m assunamg that. Mr Haxjgen. I think it is about some $b,000,000. , , , , ,,^ Sr! WARNER. You say the depositors of the national banks have not lost $10,000,000? t^ nan nnn Mr. HATJGEN. They have not lost over $6,000 000. Mr HALL There is a very interesting article ot Mr. Horace vv iiiie on that very s'lb^ct, and my recollection is he makes that very state- ""mi" WARNER We have had more failures of national banks within thf iast few mlths than we had, I was about to say, from the begin- ning of the system. -u. , i^cc^c Mr. HALL. We are talking about the depositors' losses. Mr BRYAN I am talking about depositors, and you will notice that noSil the Siks that fail cause a loss to their d^l^osi tos; you u^^^^^^^^^ stand that many of those banks have reopened I^P^.^^^t^^^.^^ ^^ to show when that fund is once raised by a tax which lasts two j ears on the basis I have suggested, that fund would be sufftcieut to paj all the losses which havroccurred in the last thirty j^ears for national banks, andT have mentioned it here to show how trifling Jvo^W t>e the wSt upon those banks; that when you have once raised t^is f^"^ /* Tonlv when it falls below that sum that the tax is/;«;?e;^«"J' ^ ^^*^^^^ chances are that the fund which you have raised would make unnec- essary any other fund or any other tax for a great many years, or pos^ sibly one other assessment of $5,000,000 which 7«'i J ^^e rarsed by^^^^^^^ one Quarter of 1 per cent, would save aU losses for ten or fifteen years to co'me; and you^can see' that the burden upon the banks is verymsig- niflcant. Xow, the next section provides : That whenever tlie Comptroller of the Currency shall be advised of the failure of any fatTonTbankhe shall at once ascertain the amount due depositors and creditors of the bank By that I mean the men who axe depositors-not stockholders, direct- ors or officers— and those wIlo have sent money or bills to the bank for'collection, so that every person who is not responsible for the man- agement of the bank may at once receive the amount due him. It then goes on to provide : A,>rl frnm thp suBcial fund provided for in section one of this act, shall, as soon aston inonveSent cairso't^o be paid to such depositors and creditors (not includ- ing stockholders, ofdcers, or directors) the amounts due them. Now under the present system, if a bank fails the Comptroller sends his ao-ent to take charge of it, and the assets are reahzed upon, and during all that time the people of that community have their money- tied up in that bank, and the bank has to collect the money before it can pay it out to any of the depositors, and the fact it does not pay out the money to the depositors makes it difficult to collect its assets for persons who owe the bank have people owing them, and when you have one man's money tied up other men suffer from it. The fact of the Government at once paying these depositors from a special fund the amount that is due to them will make it easier for the bank to collect its assets, its debts from people who owe the bank, and thus the bank is reimbursed, so it can reimburse the fund from which the Comptroller has drawn to pay these depositors and avoid that embarrassment ot the business of a- community which often comes from a failure of a bank. BANKING AND CUrtRBNOV". 167 Section 3 i)rovides : Sec. 3. That the assets of suoli failing banks shall be turned into cash as now pro- vided and the amount realized shall be used, first, to satisfy all claims not provided for in section two, and, second, the amount remaining shall be jjaid into the special fund provided for in section one of this act: Provided, That nothing herein shall be construed to exempt the stockholders from the liability of one hundred per ecu um of their stock in addition to their stock, and no stockholder shall receive any pay- ments on his stock from the assets of such failing bank until all debts due frcun the bank have peen paid and the special fund provided for in section one reimbursed to the extent that it was drawn upon, as provided for in section two. This simply means that those persons who are interested in a bank, for instance, a stockholder, might have a deposit in the bank and he also owes on his stock an additional liability. That is not to be paid,, nor is he to be relieved from this additional liability until the special fund has been reimbursed. It does not relieve a stockholder of the additional liability, and does not relieve an officer of any of the duties which are imposed upon him by the present law, but it simply says that after the disinterested persons have been paid by the Government then the assets shall be used first to settle the equities between those people who are interested persons, and the fund shall be reimbursed to the extent it has been drawn upon, and then whatever other assets there are go to the stockholders as under the present law. It specifi- cally provides that there shall be no interference with the liabilities now imposed by law upon the stockholders of a bank. Mr. Cox. Let me call attention to the proposition you are on there. The present Oomptroller of the Currency reaches the point you discuss this way: Suppose a bank fails and an examination is made, and he makes an assessment. That is collected at once. If he takes that assessment and pays it out to those who are entitled to it, the creditors of the bank, then when he gets through with that, then a§ the assets of the bank are realized upon and that comes in, the creditors being satisfied, that goes to this fund. Is that your idea which is suggested in that part of your bill'? Mr. Bryan. No; my idea is that the disinterested persons, the depos- itors, who are not stockholders, officers, or directors, but outside credi- tors of the bank, shall have their money paid at once, and then the Comptroller shall go to work and collect any assets just as he does now. And let me suggest that, while the law says that the Comptroller shall collect these assessments, he is not always able to do so. In Liiicoln, where a i>resident of a bank, not having learned that "honesty is the best policy," took about ahalf million dollars, andis now suft'ering aheavy penalty of five years in the penitentiary for the act (he has not reached the penitentiary yet, but he is expecting to go there as soon as he gets tired of the hotel), the Comptroller has assessed the stockholders, and has commenced suit against them to collect the money (but remember that this liability of the stockholders is no more than the liability of any other debtor and must be collected just in the same way), and during that time, while the Oomptroller is trying to make these stockholders pay up— and by the way, the gentleman who absconded was one of the largest stockholders, and the gentleman who was with him as assistant of the bank is the next largest stockholder— all the depositors have their money tied up so that it has now been something like three months, and only 10 per cent has been paid to the depositors out of the bank, and it wiU perhaps be three months again before any more will be paid, while my plan gives immediate relief, and then the Comptroller goes ahead just as he does now with the collection of assets. -.gg BANKING AND CURRENCY. iv^ Mr .r^T,' Tf von will permit me I will state that we had a bank taito/whJJ-e the L'Uitorfhad some $400,000 or 1500,000 txed up m *''Mr'''B™''"ln the case where a bank is solvent and fails, as they failed dnrlng tMs p^eseat financial stringjn^^^^^^^^^ his money and they may resume aftei awhile ai^nx^^^^^^^^^ ^^=^irt£^"SaS,t^^^^™sment comes ^1~ i-;£:-uSS£tSJ^:xnhmk.t ought to be provided I will now read section 4: Sec. 4. „... .. That tlxeUnited State. W^yasBumes no lia^n^y^ banlcs except as a trustee to ^istri nUe the spec alfun.^m this^^^^ ,^ ^^.,^ ^^ the Comptroller of the Currency sha P^y ;™* |^^f,,i^?,?;f of one hank as aforesaid receives notice of failure paying; ^1^,?/??.'^ ^/'- , ^"bsequently announced, and in before any on liabilities of '^^^"^^^^^^''^^^^'^l^^^^^^^^ Comptroller of be cared for in order of failure as fund is renewed. The Government will administer this trust fund, ^ikI further than of a national bank perfectly safe, would it not ; Mr" gllfll^ittkuow if that would not tend to cause men to ^^:^;Sl^!fll^:^^^ in^i^f X S^STlo speak on that. Section 5 provides: this special fund m trust the f «"«f ^^^^^^^f .A^enses of the Oovernmcnt, United directed to issue and pay «^^^' *'''^T*^,^„"''i^'"ieen acks, like those authorized by the States Treasury ijo^s, conimonly known as grceiuau^^^^ sixty-two, equal to the law approved February ^.^f " " 'f*^;^'' ^^^"^'^^ ,e„'notes shall hare' all the legal- twenty-tifth, eighteen hundred and sixty-two. This provides for the issue of greenbacks just equal to that which is ^nllL-fcfl as trust monev and held m a special fund. It does not ^S^t^M^l^, but simply provides againstthe contraction of *^Xow' havSo- o-iveu the bill in brief, 1 would like to state to the com- mittee why r^dnk the bill ought to be passed. In the first place, the bu den uplui the banks is comparatively light, and ^t will bnng to the banks m( re advantage in the way of securing deposits than the bur den will be on the otlier side, and I have had several national bankers Stc necLimendingth,n)lauasaplan wh ch ought to ^e adopted 1,1 11 believe it is the onh- instance in which you can help both the men who diposit with the banks and the bankers. It will, as the gen- BANKING AND CURRENCY. 169 tleiimn frou) Missouri states, have the ten.lency to draw money from the State banks to the national banks, because a man who ha.'mone^ on deposit will deposit It where it is safest. Now, that tact does not alarm me for this reason, that the moment the State banks And that the national banks have an advantage because of the security, then the State banks will be interested in having a similar fund provided in every btate for their security, and the result of it will be that this security given to national-bank depositors will tend to make more safe an Jiinds ot bauking, and wheu you have secured all the depositors of a national bank and State banks, a panic such as we have gone through, tor I hope we have about passed through it— a panic will uot have the etlect it has had this year. We will not discuss the financial stringency lurther than to say this, in which I think you will all agree mtii me, that the way the people have felt this stringency has beeu that people drawing their money from the banlis and hoarding it have compelled the banks to draw in their loans, and the banks drawing in their loans, as a matter of self-preservation, have crippled the commu- nities and made stagnant business enterprises. ISTow, if every deposi- tor was sure of his money he would not go to the bank and draw it out and hide it m a stocking, or under the carpet, or in a stove, or between the ticks of a bed; he only does that because he fears he will lose his money. If he knows there is a fund raised and deposited with the ireasury out of which every depositor will be paid, the depositors will not feel as they have done, and that in itself, that protection against a panic is in itself more than compensatory to the banks for all thev pay to raise this fund. Mr. Johnson, of Indiana. What relation do the deposits sustain to the tund— what numerical proportion; they would be vastly in excess ot the fund ? Mr. Bryan. Yes; the amount of the deposits is vastly in excess of the fund. Mr. Johnson, of Indiana. Do you think if that law had beeu in exist- ence at this time it would have prevented runs on the banks? Mr. Bryan. I have no doubt of it. Mr. Johnson, of Indiana. Say the total amount of the deposits is one hundred times the amount of the fund; do you think the depositor would have understood that, and that would have been sufticient nro- tection 1 '■ Mr. Bry-an. I have not any doubt, although the amount is in the discretion of the committee. This amount is an arbitrary sum which I have tixed. ' Mr. Johnson, of Indiana. But when you go too far with vour fund you impose quite a hardship upon the banks f Mr. Haugen. You think it would stoi) the first run, and in that wav it would stop fifty others ? Mr. Bryan. There is no question about that. Mr. Haugen. If you prevent the first you can prevent fiftv more'^ Mr. Bryan. Yes. Mr. Warner. If I understand correctly the amount made payable m the case of a bank breaking is all out of ])roportion to the amount finally lost, in fact so great that there is no relation between them. It may well be that the amount you propose, $10,000,000, may be sufil- cient as a guarantee against final loss; but what earthly good wouhl $10,000,000, available to pay the depositors, be in case of a failure of a large number of banks within a comparative short time 1 Let me explain further the reason why I ask this. We had precisely that sys- -^^Q BANKING AND CURRENCY. /• ,<- +;,,,/:. tTiprf, «aine a crash a tem in I^ew York State, and t^^« ^ f^ ^p^Bed to be secured used few of tliebanks whose deposrtorswe^^^^ ^^ ^^^ ^^^^^ ^,,1,, iTp all tlie funds that Pi-«te*^ted J^^^^^^^ were not carrying any of our State l^^^^o be earned by the bank ^^^ ^ conservative such fund and who !^*^|\r^^;^^|,''VMy point, in other words, is this management protected tl^emsd. es- "^^^ 1^^^^ $10,000,000, the amount that while the ultimate lof ^^8^* ^^,f f^e depositors 'even in a mild that might be required to make goo^^ ^^ .$10,000,000; and that the crash ntight be a great deal ii\«^,^;^^^"^\^^^^^ moment that a bank having a 8^^«f ^^^^ ^ ^itd^hen^e apprised that had been known to go undei, t^^ puDin ^^^^^^^ ^^.^^^^ ^ ^^.^^_ the deposit funds were about ej-bdusteu, m ^^^^^^ ^^^^^ ity was concerned. ^ ^ ^liicii was prophesied ^Mr. BETAN. I think the ^f \*f * ^^^^^^^ gentleman from Wisconsin did not come is an answer to that, 0^™^ ^^^^ ^een ruined suggested, I think, and very aptly ^^f fund that is back of the banks bv runs upon them. Ifo^^, \V ^'^^'^ '^ , i_ .ihsolutelv pi'oof against fail- tJ guarantee the ^^epositor, it may not ^^^^^ ^^^^^^^Pbability of a run ures, or against a run, but it ceitamly uakes i ^^^ ^^ in so far as it prevents ^^^.^^^^^IJ^'^^Zl ''v^n^ce^, I do not think suspend, and whde I do,^^* ^^'^^'^Sy s^cur^^^^^ when our telTatttl a step ^^^^^^^^^t^!^^ national bank with a Mr. WABNER. Suppose for <;^f;?Y®^^^^^^ have, should deposit of •^•5,000,000 which 1 much less mn^ ,,/onit-that is not an have the president abscond and bave a Daa i^^^^ ^^^^^^ ^ uncommon result. It does not l^appen ev y >^^^^ .^ ^^ ^.^^ happens nqt mfrequeutly-the hist tumg ^^^^ one-half of bank untif its affairs can J« straightened oat ^ ^^^ ^^ ^. ,^^ ,, states trust fund -iJJ.^^fgrhef words, does protection protect? ,r iTS^^'-i^ ^^fe . _rity Mr WAENER. Yes; I Relieve that eveiyt me yon yi whi^his inadequate forthepurpose9pe^pc.o^^^ ^^. ^^, fact, absolutey rely upon it until ™^o\^\-^,e this rush. ^X'^^^I^aH?! t^li^^^^^ :^'l. the I^ntleman I certainly would not ^X:tlS^^as been tl. ^^ ^,^, ^^,,., Mr. BRYAN. But my i^'^'^/Vonlfl make niore secure and render less that we could l-^'Lt itliit K^W^^^^^^^^^ a« the gentleman from ^T^?ofk\tLT;Satttm^^^^^^ BANKING AND CURRENCY. 171 ilf^^m''t''F^?r''^''''' ''''"^^•^ aggravate it I would not have, introduced perfSon bSthnHf f ^-""'l *'^"* '' '' "^P«'^«ible to reach aCuS dueed the bin! ^'^"^ ''*'"'' *"' ''''^'^ '^' l^'^^''^^^^^ *« i*' I intro- 1^ u^"^^^^^- ^^ suggestion to the gentleman i.s that the $10,000 000 which he proposes, as estimated from our experience in the State of ^ew York-and I will be glad to get the precise figures in regard to It— was tlioroughly inadequate, and this I think would be so, unless there IS some radical distinction which I do see now between the two con- clitions. Mr. Beyan The bill provides if there are not sufftcient funds that the amount collected m afterwards shall be used for this purpose, so that If there was not enough in the fund at the time, there is a subse- quent collection made, and I can not help believing that this additional security to the depositor will prevent a run in the first place, and make the run less dangerous in the second place. Mr. Warner. We had losses which used up all our fund. Mr. Bryan. The general understanding is that a case decided in court is decided upon the circumstances of the case and without know- ing all the circumstances we can not make a comparison. Mr. Cox I would like to call your attention to the proposition back ot that and see if I get it clear. Take all the banks which are in exist- ence^and your bill provides that these banks shall pay this money into the ireasury by a certain date. Now, as I catch your idea there that money goes into the Treasury and it becomes responsible to the denos- itors tor that money 1 Mr. Bryan. Yes. Mr. Cox. Now, to start with that proposition. Now, say it is known to the people that a large bank with $5,000,000 deposits defaults and I^Mnn rw?n^^^,'''^"*^^ "^ ^ receiver. Now, you take out of that fund $5,000,000 and pay the depositors of that broken bank. Now, say the other banks go on and preserve themselves, do not you work out this ^^?F*^®l3*^°" ^^''^^ ^°" ^^^^ ^^^ *^*^ banks security for all the others? Mr. Bryan. To that extent there is no question about it. , ^^;^°/- ^0*1^ "ot t^e man who acts a rascal in the end get the benefit of the whole thiog? ^ Mr. Bryan. Not at all. Mr. Haxtgbn. You do not relieve the banks! Mr. Bryan. Not at all. Mr. Cox. Now, then, say the broken bank has its $5,000,000 paid ba;ck ; the good banks have furnished the monev. How are yon goiii o- to reimburse this amount and furnish that $5,000^000 : are you goinc^ to go on with your tax again and collect another tax, and then when another bank breaks assess another tax on those who keep up their business and continue and collect in that way to pay those who break ■ what do you do with the assets of the broken bank? Mr. Bryan. Why it states in the bill the Comptroller of the Currency goes ahead and collects as he does under the present law, but instead of paying the depositors, they being already satisfied, it is paid in to reim- burse this fund. Mr. Cox. To the banks who furnish it? Mr. Bryan. I did not say to the banks, but it is paid to the fund, and as the fund is increased the necessity of course for taxation is taken away and the banks you speak of, those banks which are solvent they get their pay for the amount which they have contributed to this fund by the increased security given to their depositors and the increased 172 BANKING AND CURRENCY. advaTitage which the bank has whose depositors are secured. The banks will be more than paid lor this tax in the advantage brought to thembT security. Now, there is a great deal of money at all times which is hoarded by people who are nervous about baiiks^^ ^Tvr" brine that money out of the stocking. Let them feel safe and they will bring it to the banks and that increased deposit will more than com- pensate the banks, so it is really no hardship to the bank which does ^*^M? Oox. The increased benefit of the deposit is more than the loss '""Mr! BEvrN.* Yes, sir; that is what I believe. That is the opinion of a numberof bankers who have written to me. Let me add this although I do not want to trespass too far upon the time ot the committee In regard to the rotten bauk or scoundrel getting the benefit ot it, I think the gentleman is wrong in assuming that any person who violates the law gets any benefit . Mr Gov. I did not assume, but I said there was danger ot it. Mr Bry ix The law provides punishment for embezzlement and tor wrongful acts connected with banking. Now, the man who commits that act is dealt with according to the law. Mr. .JOHNSOA, of Ohio. But you say the man of whom you spoke is living in a hotel? , -^ ^- i j. v-i „„„ Mr Bryan. I think he has not gone to the penitentiary, but there are ncailv Ave years' time in which he can go. I have introduced a bill, which is before another committee, to incrpasc the penalty for embezzlement, and it is not necessary to argue that (inestion before this committee. It is not any desire to make less heavy the pnnishment for these things; it does not bring any aid to an V person who is guilty of any violation of law; but when a man embezzles and he is punished by incarceration in a penitentiary, it does not give I'elief to the man from whom he has taken the money, and this bill is to protect the innocent depositor from the wrongful act ot that man; and mv law takes care not to interfere with any of the penal sta tiites. It is the innocent depositor who suffers now on account ot tbis man's wrongful act. One paper- in St. Paul, I believe— suggested that in the same way I might ask that every business man should be taxea to raise a fund to protect people who dealt with him; but I think the members of this committee will recognize that there is a wide distinc- tion between money and other kind of property; that when we deal with a man and buy anything of hiin we generally understand what that property is worth and make our trade with him upon that knowl- edc^e which he and we have. When we loan money to a man we inquire wirether that ]nan is good or not, whether his security is ample; but when we deposit in a bank we take it for granted that that bank is good and the depositor can not go there and watch and see whether the directors watch carefully the loans made by the banks; they can not go there and see whether the president is putting upon the books of the bank what is deposited, and can not see the certificate which is issued. , ., , In the case of our bank at Lincoln the State treasurer depositefl $150 000. which I believe was in one certificate, and the cashier put the money in his pocket and put on the books $50 deposit. Well, now, the depositor can not go and see whether those books are correct. He can not tell how that bank is being managed. He simply puts his money in there for security, and it is the business of the Government to make that bank as secure as possible, and it has acknowledged that BANKING AND CURRENCY. 173 responsibility in various ways. We liave laws that you shall not loan voW^^fA,^"T*^'\*°''r* ^^'^^^ individual. We have la«.s that you shall not do certain things m connection with banking. We have laws to inspect these banks. Is^ow, what are these laws for, except to make more secure the men who deposit their money in banks? The Uovernment, therefore, has recognized the difference between dealing with inoney and dealing with other property, and what 1 ask in mv bill is that the Crovernment shall go a step furtlier and by a simple instrumentality, by an easy process, raise a guarantee fund. In the hrst place this protects the depositors, protects them far more than tlie law which requires an examination of banks, far more than a law which prevents the loaning to a man more than 10 per cent: far more than a law which is proposed here— and I believe the law is a good one, but which I do not think gives as much protection as my law does— the law which provides that a bank shall not loan to its officers or directors, except under certain conditions. Now, the purpose of all these restrictions is the same, and I believe my bill, which raises this sum and which puts a burden upon the banks which is absolutely insignificant, and which guarantees the innocent depositor who puts his money m the bank, Avill do more for the depositor than all these laws which you have provided, and it will do more for the community becaixse when you keep a bank from suspending you have conferred a benefit upon that community, and if the result is to compel the State banks, as I believe it will, to go to their legislatures and ask the same thing to protect their depositors, the result will be that added to your national fund of $10,000,000 you will have your fund in every State for the same purpose, and whenever depositors in both the State and national banks feel secure there will be no money drawn out of the banks in panics, and we would not suffer from such a stringency as we have lately passed through. Mr. Hall. You not only think there will be amendments to laws already existing, but you think they will require a compliance In all their terms, such as throwing further safeguards around the State banks, such as State-bank inspectors, etc? Mr. Bryan. Most of the States have followed in the national bank footsteps, I think. Mr. Warner. I was about to ask whether the analogy afforded by the conduct of State banks since the passage of the national-bank act attorded any support to the gentleman's expectation, and indeed whether It did not rather show it was ill founded. For example, there are these provisos m the national-bank act which are intended to secure deposi- tors, and I take it that they aie to some extent effectual ; but is not it a fact that, so far as the gentleman knows or believes, our State-bank laws have not to any great extent been either assimilated to the national-bank act in these particulars or have greatly improved tliem- selves in the last twenty-five years? Are not our State banks running upon very much the same basis, with practically the same laws that they were twenty-five years ago ? In other words, have not these pre- cautions adopted by the Government to secure the depositors in national banks been utterly ineffectual so far as setting a good exam- ple and bringing about a change in the State banks'? Mr. Bryan. If the gentleman will allow me to reply, I would say I can not answer fi-om an investigation whether that is true or not but I know in my own State we have adopted amethod of bank inspection and I think I am correct in saying that has also been adopted in other States, and I feel sure of this, that if there has been a tardiness amono- ]^Y4 BANKING AND CURRENCY. the States follomug the rales laid down for ^^^^f f^ ^l^^J^/j^^J^^^^^ „^,r,o t,^ n mnttpr like this of guaranteed deposits, that the interests ot th^depositoS w^^^^^^^^ it^Mt the State bank is compelled to pro- tdde the same security; so if the examples thus far have not been fol- M itisnoLgumlnt against their following the example in this ^'X WARNER I appreciate the force of the gentleman's argument, but to a ffi eat extent where the system of inspection exists I under- Sand thfy at ^mply exercising t'he system which was in existence without reference to the national-bank system examnle Mr Bryan. If the State banks did not need to follow the example set b^ the Gove^niment in that respect, because they had inspection, of course tbe gentleman wiUnot complain because they have not changed. Mr Haugbn. 1 would like to ask another question. Mr' Bryan I will be glad to answer any question that 1 can. Mr. H™N. Yon have provided in your bill for an amount to be available upon the suspension of a bank ? ?r' ^TOKN^Aid'that would be a great draft upon the fund in the case of I faihire of two or three large banks. Now, suppose you change the ava labi ty of the fund to such a time as the resources of he bank iave b^n exhLsted, that would secure the depositor as well as your ,^ior, wmiifi if and it would be a safeguard to the tuna . ' Mr b™ Yl';7e Srect, but it would delay the matter some- what and to that extent it would meet with objection. S. WARNEr:. It would not provide the degree of absolute prompt- ness provided in this bill. Mr. Bryan. The great thing I desire is security. Mr Warner. AihI promptness? . Mr. Bryan. Security is the first thing and promptness is the next. Ml Haugen. There is less danger to the fund. S^Y!RNERSt^:a:^ett^S;ayIaskthegentlemanfiwN^^^^ whether there would n,)t be one decided disadvantage m the plan pi-o^ wsed by the gentleman from Wisconsin, not merely that the advantage ^fpromptnesf would be lost, but, to the extent to ^^ich losses were not obviated by promptness, an actual loss m the assets of the bank in realS upon bad debts and everything of that kind would so increas the possibility of an ultimate liability as would probable destroy that '**^Mr" Bryan! 'My opinion is the bill is better with this provision than without it fiom the fact that you pay them Promptly and you avoid the embarrassment in the community. That would enable the bank to collect its assets more easily and would be a greater advantage tnan you would acquire by striking out that provision and making tne depositor wait. , , ^ «„ +i,d Mr. Haugen. And you also remove the legal pressure put upon tne banks to take care of itself ? . , ^ 4., „„»£, Mr Bryan. I think there would be no forcem that argument becaube the stockholders, directors, and ofacers are just as liable under my law as they are now. , . , . ^ ->,„, Mr. Haugen. But he would be allowed to take his time under jom law Mr Bryan. That is true, but he will not desire to take his time. I can say that the director or stochkolder or officer can have no reason, BANKING AND CURRENCY. I75 then, for being- less careful, les. considerate than un.ler the present bank fails the people uaderXU'^tS 'ff It:;"] 'pSd^r^.^i once' the assets will becollected and the fund reimburser ■ ?ml t 1\ '^t once, not a weighty argument in this case%^ca,Se etry^-^^ M time that the fund will be raised and he will be paicLS that I think will absolutely prevent runs which have been niade upon bankst S,^f.f .?^T' a-^d It will prevent these banks failing, S therefore prevent the drawing upon this fund s» '"i-^ meieioie Mr. SSAlTet'S'''''' '""" ''"''""'' ""^""^*"^^ '''''' P""^ °^« to?nyt^M?gf ''"''''''' "" "^■''^* '"''''^ ""^ '^'^''^ ^^"^ ^^««*« '!« >'«* ^^o^iit ba^ks ^thfl^;^!* "'*' ''"''''^' ^^.^*- -^'^ •^" ^^^•^ "^ii-^y years of national banks the tact is, as some one has suggested, the total loss to dewos itors has not been much over $6,000,000, and that shows that von r assumption that the assets are worthless is not weD funded ^ Mr. Cox. I say some of them Mr. Bryan. To no great extent. Mr. Cos. That was not the point to which I was askino- vonr aft(^,^- =gh"tttte?s°srKxfJLk^""'"'**^^^^^"^'^"^^ ^^•^ ^-^^^« Mr. Bryan. Yes, sir. Mr. Cox. That is the onlv way you reach it« Mr. Bryan. Yes, sir. Mr. Cox. mw, the fund becomes exhausted and you have to asse^^s toS^ss^rnotZrf ^ " ''''''^ ^^^^ *^^" ^^^^ *^^* isixhaustl^^ou ha4^ Mr. Bryan. Yes. Mr. Cox. Then how can you arrive at any certainty about it? Take this panic on hand now, and six, eight, or ten banks have broken in a technical sense and the depositors closed out, and thiy want thd^ money, now does it not strike you that yon would have to be continu MiTryTI' * a' «°^TV^^""'^? f «"w'ly *^««« ^^^i«l^ have broken? Mr. Bryan. A greater than I has said that you can only iudge the of w^iL/ *^'P^'*', ^""^ J'^'^^^^S' ^y *« P^«t' I do not think tie danger Tv^ y ®P®^^ ^® a proximate one at all. uanger f^'lv^Z^iJ^^^ ^5®? "^^^ ^° ^"^ *1^'^* extent, does it not result in the end that tie good banks, that the well-managed banks stand as a guard for the badly managed banks? ' ^J^Lf^""^^^^- wt"' ^'"' "^""y- ®^y **' ^'^^* ^* is theoretical. I say the nnirA ^ "^ 'f -^^^y- '''''f'''' '^ ^'■^''*e^ t^^"^ t^e disadvantage imp^osed upon them; and judging the future by the past, supposing that the fill ures m the future will not be greater than those in the past,S will not be a very heavy burden on the bank even if there was no offser n ?he way of advantage, and you can not assume or speculate that the next thrrty years will be entirely different from the past thirty years Mr. cox. But a man who goes into a bank Avhose liability is fixed by ]^76 BANKING AND CURRENCY. law, he is going to speculate all along the line how much it costs him '' '^r^ylN'^^e'L'J^s how much it will be and knows what the past rPPonl has been and he will also be able to see what an advantage it ^m be to hhu "o be able to say to depositors, " come and deposit your money and here is the fund to protect you. Mr! Cox. I do not see how a man Mr BRYAN. 1 do not expect all of you to agree with me Mr' Oori do not see how a man who goes into a bank would go mto't 1? the tax is to be assessed to keep up a mid tor other banks Tf vr.n exhaust that fund you have to assess another tax :Noft , i taRe Vf tC a man wil think over this thing, and if he does not know exactly wlrSt wm colt hi^^^^^ think perhaps if that bank was m Tennessee hf would not want to go into the business. _c ii -,+- i aTi BryIn. He knows that it will not be more than one fourth oil per ent on^Tis deposits. Hfe does not know how many Y^ars that wil ?uii, but he knows it is a very trifling tax, and l^e knows that unless tTiP Vnture is diflerent from the past it will not last long. ^ , , , CcoV You recognize the Lt that a large per cent has to be kept in the vaults of a bank for the protection of the depositors? Mr Bryan. Fifteen per cent outside of reserve cities. Mr Cox One more question. With your proposition do not you thh'k It would be nothing but right you should repeal the 1 per cent ^^BRYlf Tha?TrSgs up an entirely different question. But I wou ld?ay this, tSe 1 per centVhich the Government has levied upon our banki' circulation not upon our deposits was iii^^de^^' f « 1/ ^^l" stand it, to cover the expenses to which the Government was put in the issue of bank currency. ^Ir Cox. It does more than that. Mr' Bryan. 1 know it does more than that. For my part I am not wilUng to take it off because I believe the banks, under tlie present Taw are able to make a larger per cent upon the money actually invested n thecurrency that they issue than an ordinary business man upon his onev invested. I am not willing, that being the case, to take off the tax which realizes something to the Government, and I can not see any ■*'S^'Hl?rTT£S tt.e case, why do not the national banks take ^'^MrBRYTr Thi have taken out something like .$37,000,000 in two '" Mrl^HALL. And there is a bank with !^3,000,000 capital which has never taken out a dollar ? , j- -u i , ^^^ +i.Qt Mr Bryan And the reason was that the demand for bonds tor tliat nuroose raised a premium on the bonds until it became a source of lit- tle profit. When bonds came > it enacted hy the Senate and House ofEepresentatms »/ *'" , ^f f^ f {^^'t,"/ S? u a on wLich notes «hall be a legal tender at their face value for all debts i^^^iblio and nrivate and noninterest-bearmg, and an amount of said notes, not to T^olJd tMrt? dollars per capita upon the population of such State according to the last census p\S 11-^^^^^^ shall, upon application to the Secretary oi the Treasury by sai'l officer, be issued to such State upon the conditions hereinafter ''''sEO.'2'The State making a demand in accord with the first f '"•tf" ."/ ^^*«,,^t"* =i,n 1 fleliver to the Secretary of the Treasury the lawful bonds of said State to th:uamoint°of Government notes demanded', and such bonds shall be t-a^e f the rate of one per centum per annum, said tax to be covered into the United States Trea™, IV on or before the first day of April of each year by the proper State author- ities sad bonds to fall due at the expiration of twenty years from their date. Pjo- Med Tl a s ch State shall have the right at any tinie before the said bonds faU due to turn over to the Secretary of tie Treasury the full amount, or any part thereof, of (ioveinment notes issued to such State; or in lieu thereof saidbtates may redeem and recover such bonds, or any part of the amount tbe^reot with lawW money of the United States. When such bonds are recovered by the return ot saw notes', the Secretary of the Treasury shall destroy said notes. SEC 3 That eacii State to which said notes may be issued shall make provision for the distribution of the same as it may deem best for the welfare of the innaD- itants thereof. BANKING AND CUURLNCY. 179 Mr. Talbert addressed the coimuittee as follows- ,.nv!^''n^^^''"-Vl'"' ^"^^^ Seiitleiaeu of the committee: In appearmg- before yom Committee ou Baukmg and Ourreucy, composed as it is of able lawyers, bankers, and others, it is needless for me to say that a feel- ing- ol embarrassment should take possession of me, only a plain farmer and I thank you tor the privilege of saying only a few words in refer- ence to the bill in question. I have introduced this bill for the enlarge- ment of the volume of the currency and the distribution of the same, and had It referred to this committee for consideration, hoping that some merit might be found in it by your body, and I do not propose to occupy but very little of your time, as I lay no claim to being a financier, thouo-h having some common-sense idea of business, having made a success at my own calling. This bill, as you see by its reading, authorizes the Secretary of the Treasury to issue notes of the Government of like denominations as the Treasury notes at present issued and in circula- tion, which notes shall be a legal tender at their face value for all debts, public and private, etc., and shall, upon application to the Sec- . retary of the Treasury by said officer, be issued to such State upon the conditions hereinafter prescribed. Sections 2 and 3 are as follows : J^ff:, ^;- '^^'^ ^*''*'' making a demand in accord with the first section of this act shall dehver to the Secretary of the Treasury the lawful bonds of said State to the tun amount ot Government notes demanded, and such bonds shall be taxable at the rate ot one per centum per annum, said tax to be covered into the United States Ireasury on or before the iirst day of April of each year by the proper State author- ities, said bonds to fall due at the expiration of twenty years from their date • Pro- vided That such State shall have the right at any time before the said bonds fall due to turn over to the Secretary of the Treasury the full amount, or any part thereof of Government notes issued to such State; or in lieu thereof said 'States may redeem and recover such bonds, or any part of the amount thereof, with law- ful money of the United States. When such bonds are recovered by the return of said notes, the Secretary of the Treasury shall destroy said notes. Sec. 3. That each State to which said notes may be issued shall make provision lor the distribution of the same as it may deem best for the welfare of the inhab- itants thereof. DEPRESSION IN AGEICULTURAL INDtlSTKIES. There is, in the rural sections of our country, the agricultural ele- ment, (an element I claim to represent, composed of the most conserva- tive class of our citizens), a widespread feehng of distrust, dissatis- faction, and discontent, resulting from an agitation and discussion of the financial condition of our country, which has taken the shape of earnest and serious protest against the course of Federal legislation in that direction for the last twenty-five years, culminating in a system of finance which is so adjusted as to be utilized by a few, a system so directed as to transfer the fruits of their labor from their own into the pockets of others. In 1850, in the good old times, the assessed wealth of the United States was $8,000,000,000; and of this the farmers owned $5,000,000,000, or over two-thirds of the wealth of the nation. In 1860 when you know the clouds of war had begun to gather over this nation,' when gold and silver begun to seek their hiding places— and, as I have said in other discussions, the war was not fought over the negro or anything of the sort, but it was fought to enslave the white man under a moneyed aristocracy,— in 18(30, the assessed wealth of the United States was $16,000,000,000 ; and of this the farmers owned $7,000,000 000 not quite one-half. Then closed the most prosperous period of 'this country. In 1870, the nation's wealth was $30,000,000,000: and of this the farmers owned only $11,000,000,000, not quite one-third ^gQ BANKING AND CURRENCY. Mr. HA... Did you deduct tl^H^debtedne^^c. Mr. TALBERT. I Will ««;"^*^,t«^^f f * ^^'•'flVe. vears after the close of the this table. This was less t^'^' oj ^"^^l^^ UnS was $45,000,000,- war. In 1880, the assessed wealth « ^1 u^^^mtm ^^^^^ one-fourth. 000; and of this the ^rmer owned «12^0UUUU ^ ^^ ^^^^.^ No;, I am running l^^V-^dly "vei f'of ^^ouise, beiiU' no financier, I the committee long; and, as a matter ot <-0U^^ ^ ^. - ..^^ i do not I only am submittmg tl^ese limgs fe;^;°^,\,™toi nation on finance, know that I could ^^^^^^J^^^ farmer. Some bill of the being, as I have said noth ng but ^fj^"^,_,,^^,,ess by Col. Livingston, sort was introduced at the l''f session oi - ^ adopting that idea of Georgia, and this ^^ '^^'^^t^'l^oih.ce it and to have it I have been endeavoiiug m a mamiei ro lei ^ ^^^^^^^^ Introduced here witli a ^^-^ ^^^^^s' asTe^sfd a lS,00(r^^^^ 5 and of In 1890, the ^-^tion's^ weaM was^s es.<^^^ t^^^ lands' were mort^ - this the farmers owned *lS'"f|'""'^^.''^^,i;,e say $9,000,000,000, and that gaged for over 50 Pex ce^t oi then vab^^^ one siith.' I have not^the left them only *6,000,000,ouu less , ^ on in that ratio, l^ow, exact figures since that time, but it ^^^^ -«'^7J^, ^^,,, of the wealth of j^^st here, in 1850 our i^'^^.%Zvll^^ I, {S.SO about 33 per cent, and the country; m 18b0 about S? P^^ cent in^ ^^^^ g^ per to-day they own less than -«. Pf^ Ji^f^'T^is is alan ing, and enough r^nt s^s^/S^- ss-^^^^ ^^^^^^ "^-'"^'^ ^TS^ we see, ftom 1850 to ^^XS^^l^^^^f^^ZS, From 1860 to 1870, farm ^If «;,^^^ff,"^*yow t^e^ ^ot^vithstanding this farmvalnesincreasedonly9 pel cent. ^ ^^ ^n^^ '^.^^l^h of the country alarming decline n. farm ^i^.f ' %^^Se tiiose who produce this increased 45 per cent from 1870 to l^^Inl and the agricultural popula- wealth are not the i;e«pients by any means an tion Increased over 29 per cent. J^^yJ^rJ of products; from 1870 to facturing 10 per cent m the I'^i^eased value of Pxom, , ^.^.^^^^^^^^ 1880, manufacture led agricultuie ^'^^'^^^^^^^^ of the ten leading favor of manufacturing of o - _ P« '*' J; i'iVo7 462 231. The value of staple crops of the county in ^.^^^^^ Sg ^i^tiSi^M «xss;r S S st^^ SKSif^iSStolS?La.er^ K-sJ^o£^rs^ in farm values? Mr. Talbbrt. No, sir. BANKING AND CUERENCY. 181 fSw.'"^ '^''''^'^ ^'^ proportionately the same. The same decluie would the felfr^w'.t^f " '^'^ '''?.* ^^r i" «»n.,ectioa with that statement of itlnSl in S ^ "" agricultural products, a table as to how much less costs to produce agricultural products in the United States ? tion Rtf^^fh^^i ^'^^•l^ott^^ statistics, but it is in tbe same propor- tion. But that does not at all change tlie trend of my argument. vnf L r^'^^^f ■/ ^'^^,*^™Ply directing your attention to the fact that you have no statement on that point. Mr. Talbert It is in the same proportion, I should presume, but that makes no difference, ifow, 1 contend, gentlemen of tbe commit- tee, that the gieat question of the day is the money question: financial retorin IS what we need, and the great question of the day is, whether the dollar or the citizen, whether manhood or money, shall rule this countjy;and I contend that this condition of things is the result of a monetary system fastened upon the people since and during tlie war by the enactment of what might be termed seven financial consijiracies ; that is, the enactment of seven laws, l^ow, I have not the time to so into any discassion of those laws, bnt will only just mention them and the dates ot their passage. The exception clause, passed February 25, 180^, which you gentlemen, know was an exception put upon the green- backs which debased them and prevented them being legal tentler for the payment of all debts. Tliey were restricted to the nonpayment of MnrS%^'' ^'A ""'t'* i^'V ^'}\'- "^,''^*- ^^"^ national-bank act was passed iVJaich 2j 1663 which I think has a pernicious tendency, as all will admit witliout debate. The contracti.m a(!t was passed March (i, 1866 by which the currency was lessened and contracted. The credit- strengtheiung act was passed March 18, 1809. Nearly all of the 5-20 bonds which were payable in the kind of currency in whicli thev were bought were made payable in coin, thus robbing the people of mil- lions. Ihe |unding act was passed July 14, 1870, which perpetuated the national debt. Then came the demonetization act of March 12 18 (cJ, which Carlisle said was more destructive than wars and pesti- lence ; and the resumption act of J une 14, 1874, to be consummated Janu- ary 1 1879, thus making it possible to so manipulate the money of the country by the national bankers and Wall street gamblers as to virtually control the price of produce and every species of property and to put a regulation upon every branch of labor. But we are told that a dollar AVill buy more to day than ever before. That is too true, and none know It better than the laborer. Is labor benefited when a dollar will purchase more of its products than ever before? It is not so niucli in the purchasing power of the dollar that the farmer is interested but he IS profoundly interested in the debt-paying power of the dollar! Will this dollar which cost him two to four times as much as when money was plentiful— will it pay more of his debts ? Will it pay more interest '^ Will It pay more on his mortgage? Will it pay more taxes? These are the questions which deeply concern our depressed, oppressed, and debt-ridden people. The dollar controls the price of labor and produce As a matter of course, as this contraction of the currency occxirred it naturally caused a corresponding shrinking in the value of products and 111 the value ot labor and in the value of all kinds of property That was the natural consequence. i i j- of an' ?(ifuctT'"^^'^ "*'* '^"^^ ^^ "^^"^^^ correct if you said in the price .g2 BANKING AND CURRENCY. Mr TALBBET. That is virtually the same thing. mV H at l I cau not agree with you there. S: ?^'bbrt*: well, the difference is amm^r on. Mr TALBEBT. About the close ot the war ivir. uiui.u I .e^ in the neax future -™is ansmg wMch uu.er^ --^ tie for the safety of tliei^ation As the^ result ot , ^^^^^^^ ^^^^ ^^^^ money power enthroned and an era ol '^«"»P*'°^,^°;i'^g\l'ioThy working upon the prejudices of of the country will endeaYor to P'^^i^^f/f.^^i-^Vof a few? the people until wealth is aggregated in the hand. fnlfllled in mercial exchanges and the ff^^^'l^'^^ji^^^Z^d slavery under a moneyed aris oc- rcrw^dltre^irt^t^ Th^^ proT/e^^^ certainly heen fuUiUed m a meas- '^^Ln you doubt to-day, looldng -und, audioes it ^^^^^^^^ any thinking man the co^fpl'loi^our ifee° . stitutions, so to speak; to day has fastened its ^^''^^^''f'^.Zlhefy^e^S^^ home'of the brave and that to-day, li^^^f/" ^^^^^"."^^.elMngS^^^^ underthe domination oTa^rnty^preranfar^^^^^^^ - - -^^ Tames A. Garfield declared m 1^80 that— Whrertontrols the .olnme of currency is a.solnte master of the industry and commerce of the country. ^Ttrnino' I tMnk that is true. Thus . ^^^-^tSi^^ri^^^^^^^'^ the railroads, telegraph }™'„fXtte^^acS^^^ds, and through exchanges. They have gobbled ^^P ^!. *^^J^^f^^ land oans associa- the agencies of banks, «of m^^^^^iVrmSoS^es o^yning nearly every- tions have shingled our homes ^^ t^^,^^^^*^^^-^^ vldyto offer opposi- thing in existence, ^^'^^Z^^heSl^! J^ "^^ ^^P^^^^ ^Ve see central- submli^iog the press f "''f 'f °S *™''^^^^^^^ "«""' and national. PROPOSED MEASURES OF RELIEF. BANKING AND CURRENCY. 183 in dispair. Surrouuded by the uio.st woiidorful progress and develop- ment the world has ever witnessed, yet standing appalled with impend- ing bankruptcy and ruin. 2fow, Mr. Chairman, these being facts whicli I do not think can be successfally controverted, snch a system ought to be changed ; and, believing this and knowing this to be the sentiment of the people I represent, I have brought forward this bill as a substitute for the present banking and funding system, which bill I do not claim to be original entirely, but, as I have said, something like it was intro- duced last session by Col. Livingston, of Georgia. I have also brought it forward as a substitute at the same time for the State-banking sys- tem. I conceive this to be a substitute for the famous subtreasury system which has been so much abused and so little understood. It is nothing more nor less to-day than a jjlan to change the x)resent financial system of the National (jovernment. I also conceive this to be a sub- stitute for the State-banking system. This plan, 1 think, covers the financial plank in the Ocala platform, one of the Alliance demands. And just here let me say, that while I am an Alliance man I am a Democrat. I want to disabuse the minds of the members of this hon- orable committee of tliis one idea, that an Alliance man is a Popnlist. It is no such thing; and there is a wide gulf between them. I claim to- be an Alliance man, advocating certain measures; and yet I have dcme^ and exx)ect to do it, within the Democratic party as long as the Demo- cratic j)arty stands by its principles and platform; and that I submit to be the financial plank of the platform of the Farmers'^ Alliance, strictly speaking. The General Government has reserved to itself the right to coin money and emit bills of credit. You can find that in Article I, section 8, of the Constitution, and section 10 of Article I is plain that the State shall make nothing but silver and gold a legal tender. This Govern- ment has, however, neglected to supply the necessary kind and quan- tity of money to effect exchanges essential to the interests and welfare of every section alike. It is the duty of every national government to institute and regulate a medium of exchange; but that this duty has . been imperfectly performed appears from the fact that wlieu specde is made the only tender in payment of debts neither tlie Government nor the mass of the people have or can have any adequate control over it. The capitalists control the money and through tlie money control the Government. The defects of the present monetary laws further appear in the great power given to national banks, so well described a few mornings ago by Col. Gates, of Alabama, to your committee; also from the variations in the rates of interest of Government stocks constantly fluctuating iii value. If the Government does not secure a uniform value to money for its own use it can not regulate as it ought the currency of the country. It is impossible to secure to labor its earnings under systems by which the Government and the public depend upon a few capitalists to furnish the medium and standard for the distribution of the productions of labor. The bill in question will give to us a uniform currency, a currency to be issued by the nation and the States respectively, each State receiv- ing only so much as it requires under the act when demanded by any regularly legalized ofiBcer, and such funds to be disposed of as each State may direct by law; and that is what I conceive to be a substi- tute to the State-banking system, for each State, by its legislature, can direct how this money shall be loaned. It can be loaned upon any security which is good. The State, of course, places bonds in the National Treasury to secure the National Government, and then loans |g4 BANKING AND CURRENCY. •(-• „,.<, 1,1 «innfh fiarolina or Penusylvaiiia under State try IS A sutuc eut cU «'^^|"'r . '^ system. All of the old authorities are luthorities, but I will only read from Jettersou. Jetterson stated. Bank paper n.ust be suppressed and the circulation restored to the nation to whom it belongs. „i,„„i.l Ka t^iTjen from the banks and restored to Con- .^^^^ ;:.;;i:L'X:S ^'SS^: '"ft^^^ ^eUeve i,anking establishments "are more dan-erous than standuig armies ^.^^ ^^^^ ^^j. 4ZZ1 ^ooItS Sr; a^tJpi^rvJ^^i^dependenee we n,ust not ^^v^'d:;::n^:t,^;r"^j?^J^"9^---^ w.ar with the most powerful enemy «itb ,nt '"."'^ ™°3;"-,\^itliout bearing hard 5rtL^:u;^r:t'tb^^:e^eio:d^S\h: ^1~^ - iniimte burden of debt, I know nothing of my countrymen. Mr tlATTGBN. What is that pamphlet? -i-^/i tsfotoc. Mr' TALBEUT It is a pamphlet called A history of the^United States doS;, ftmn Sdi I ha^ icullld other iuformatiou. It refers to Thomas Jefl'ersou and mauy othei' writers. Mr. Brosius. By whom was it pubhshed '. Mr Talbekt. By N. A. Duuniug. Mr' WaInbe. Does it give the date of Mr. Jettersou's suggestion? Mr". TALBERT. No, sir; it does not give particular dates here, though it i« Tccnrate being taken from best authorities. Mr JoHNS^N?of"ohio. Can you give us the place where we can find that in Mr. Jefferson's writings'? i „..;*-;„„■« T rpfer Mr TALBERT. It is found iu.Teifersou's speeches and writings. 1 refer to this, but I could go and give numerous other authorities. STATE BANK CIRCULATION. To continue my argument, the history of the /t^,t«;^*"\f. «{,*||'f '"^/^ sufficient argument against them under the old plan. This bill, as i undersSnd ft, provides a general substitute for the State and national banks At the beginning of the war, reliable reports from eighteen Seient States show that in 18(10 out of 1,230 State banks 140 were broken lisf were closeay that expense. Mr. Hall. Do not the leading medical men in Gei-many, Prance, England, and United States agree in the existence of bacteria microbes and in the transmission of disease, say by old clothes, etc. ? Mr. OuTHWAiTB. Yes, sir; and even by a lock of hair. A lock of hair has been known to transmit disease, a lock of hair that has been locked up for years in a trunk, and also it has been transmitted by toys, r know of an instance of a book which had been the plaything of a child who had died of scarlet fever. It was taken out by a grand- mother and given to another little grandchild, and the result was two deaths by scarlet fever. Mr. Beosius. I think I remember your bill in the last Congress, before the committee, but I think there is already a provision in the law for the redemption and destruction of mutilated currency. Will not it cover the purpose of this bill to extend that provision of exist- ing law to impure and unclean currency? Mr. OuTHWAiTE. There is no provision in any law providing for the pay of expenses of transmission of money from some place out in the interior to the Treasury»and back again. Now, we have a low rate of transmission by express wherever the United States Express Company goes, but even that is something of a tax if the bank has to pay it. Mr. Brosius. Who pays the expense of transmitting mutilated cur- rency ? Mr. OuTHWAiTE. The banks that send it in. Mr. Haxjgen. The banks constantly keep sending mutilated cur- rency to the Treasury? Mr. OuTHWAiTB. Yes. Mr. Haugbn. So if they included a few dollars more of soiled cur- rengy it would not be any more additional expense, or rather not any material expense? Mr. Outhavaite. It would be some material expense. Mr. Haugbn. Have you made an estimate? Mr. OUTHWAITE. If we maintain the present system of currency with small notes, $1, $2, and $5, the expense would range — it would be something more than $50,000 the first year, but it would be something on an average of $50,000. Mr. Cobb, of Alabama. The United States Government transmits money from post-ofBces by mail; why could it not be done here? Mr. OUTHWAITB. That is a very good suggestion, but perhaps some legislation relating to the postal service might be necessary in that case. Mr. Cobb, of Alabama. The money certainly comes safely by mail. 940 13 -j^g^ BANKING AND CURRENCY. Mr OxiTHWAXTE. Itn.gM be necessary to authorize the Treasury orbankstousethemaUiuslupg^^^^^^^ ^, having clean ou the part of th e bank ? Mr. OUTHWAITB ' That is it remove that obstacle? Mr. Johnson, ot Ohio. ^" ^ e eSense. There is another expense . Mr. OUTHWAITE. Yes, ^^^j.^J^^^^f Seel States paper money; all connected with the ^^-^"^^"^'ZZMTllev certificates and the com United States paper money, e^^^^'^^.^^J-Ited at the expense of the Gov- certiiicates, all of those ^^^^Jl^^^^Ztl^ Goveri.ment. No^, the ernmentor reproduced at the ^^^P^nse oi t ^]^^^.i^g of economy Governmentofficialsalways desue to make a 00 ^^^^ ^^^^^ ^^.^^.^_ and discourage that as nmch as ossiWe ai ^^ ^^ ^^^^ 1 do not mean to ^^^^e any cr cisms l^^^^^^^^^ ^^ pnt upon the reluctance, and ^^^^ss legislation compcimg ^ ^^ ^^ ^^ ^'t^''^'^^tii:'l^^ytf^^^^^ criticL^ by an economic Con- Mr.'oriHWAiTE. Possibly. ^^ it that this the committee. ^^- ^iSh^I^^S"^ a very good suggestion, and it might be ^"i'Xic^N. ?n"case-of loss, who stands the lossi Mr". UOBB, of Alabama. The Govei|imen^^^^ currency Mr. WAKNER In tl^« .ff^ «*ti^f,SSsown,andthe^^ to any person, of course It has a tuUcuecK^ ,vould t not require some ISy^M SSir^^S ^ ^oper kind of voucher which " M ' SHNSON,"roTio."They might pay the money to the postmaster who might transmit it. postmaster-General would prescribe such transmission through tne "^f^'^^ ^ ,';^,^_ ment in reference to its post-office monej . STATEMENT OF HON. J. W. BABCOCK. [H.E. 1591, Fifty-third Congress, first session.] A BILL to amend tlie national-bank act. ^:n^i:::S -ocS ^S^^V t.e la.. of the united States BANKING AND CURRENCY. 195 laws of the United 8t;i,tes ^ baukmg associataon orgaui.ed under the Sec. 2 That the President of the United State.s, by and with the advir-e .in,l ,.nn Z ll i'^h'^'""/ '' f,t' '^PP-'^t «-t^^We persoAs.-not o™ three ftfth.s ot thorn ahall be adherents ot the same political party and not exceeding one hundred T nnmber, to make such examinations of said banking .associations as ?Z' be directed by law, and tor that purpose the persons so appointed shall have power to make a thorough examination into the affairs of any banking association and in so dobis to examine any of the officers or agents thereof under oath ^ l:^:^'^X^^Z^^::^J^Z'- ■''-'-' '^'^^ -*^ transportatZ: .,^^11' *■• l^'""^ f* ''"' ''^"3" "^ "^^*''' ^""""^ i'^^^ '^ll moneys paid into the Treasury iolZiT. "^ "^^ 'T•'!^"°; *° national-banking associations, and not appropriated rot^n^ov^.trtT'^'Tii V'" '"''®^", "^ currency and the expenses of salLies in this act provided tor, shall be covered into a special fund, to be known as the " bank UnUed'states ^'"''^^■'''^' "* ^^^ Treasury shall establish in the Treasury of tSe Sec. 5. That all moneys covered into said bank fund are liereby pledoed and appropriated to pay the loss caused to any person by depositing money with any national-banking association whose affairs may be placed in the liands of a receiver as provided by law; but no depositor shall receive, under the provisimis of tlais sec- „»■''■' ''' Skater amount of money than the amount of such deposits dne him after the attairs of such banking association has been finally wound np Sec. 6. That upon a deposit of bonds as provided by section^flfty-onehundred and fifty-nine and titty -one hundred and sixty of the Revised Statutes, the association making the same shall be entitled to receive from the Comptroller of the Currencv circulating notes oi difterent denominations in blank, registered and countersi>med as provided h,y law, equal in amount to tlie current market value of the bonds so transferred and delivered, but not exceeding the par value of said bonds SEC. I. that any liankmg association organized under the laws of the United States may, at any time withm one year after the passage of this act, comply with the provisions hereof ; but no banking association shall be entitled to receive cir- culating notes exceeding ninety per centum of the p,ar value of the bonds deposited oneh7lt^he'7''''1"'7fi*''" V°'*-^1*"*'^^ "°^«**^ ^"'^'^ bonds exceed in amounF Sfp 8 Th t n t' "rVr/"M ''"''!'i "^'P'*''' "*"''^^" "^ ™^'l^ '^'^°^^i"§- association, of +b; p;.^;^ ^ fl^'^^^^l'^f^ "An act to amend section fifty-two hundred and forty of the Revised Statutes, of the United States, in relation to the compensation of national bank examiners," approved the nineteenth day of February ein-hteeu hundred and seventy-hve and said section fifty-two hundred and torty of the Revised Statutes and all other laws and p.arts of laws in conflict with this act are hereby repealed. Mr. Babcock addressed the committee as follows : Mr. Chairman and gentlemen of the committee: It is not my inten- tion to make an argument on this bill this morning, and I will relieve yoitr minds of that at once. I wish to have you consider for a few moments House bill 1951, which is entitled "A bill to amend the national-bank act." This bill was prepared after consultation with numerous bankers and business men, and finally submitted to the Populists m the West. The object of the bill is, first, to increase the security of depositors in national banks and the confidence in those institutions during times of panic. The second object of the bill is to increase the present circulation. Under the law governing national «fiQQ^noJoon'''^' T *''*' f^\ '}^^f August, 1893, a capitalization of *b9»,000,000, and upon that the banks had onlv emitted $184 000 000 of nationsl-bank notes. This amount has been increased since that date, but application has been made to retire a part of it, which of course, the gentlemen of the committee are all familiar with. ' Mr. Cox. There is not that much in actual circulation; that is the ^gg BANKING AND CURRENCY. . , .1S4 000 000 but tke amount in actual circulation is. amount issued; i^lisiit^^'J^ ' ' , • i„ i.otliiue like tbat amount. • _ , ^ ^^^^ the actual circuia- ""£ Sabcook I l'»»\»;,»»S'bT a! Oomplr»U« to ft« bank,. G„™ Seul Tl,»t . »».o™ « "\,*'5 ™ .cSt redemption fjnd, and TkeOHAiRXAK. ri^e *^^~ ^^, cLestroyed or reserved oi anj- aud not the amount that may oe lu -Sf . ^^-^ wUl read the sta—^-^P--; I do not understand that the -edemirt^^ special deposit with ■ amount of circulation o *1^4, 00,000 i^ ^^^^^.^^ gg^ per cent of the Comptroller of the Cuvrencj. -^.^V^J^^^^^onds at the present time._ ctrculating notes on the par value "^ tj^® 7^^ of course, to a certain "The national ^-'\«' jl^f^^'X Gove ment; and I believe it to be extent have been «"i^^i-olled by ^e v^ov ,^^^^^ ^.^^^ ^^ I ^ ^e the sentiment of tiie West, oi ^\*';^,;^'^, ,,, tT^eir duty as far as circulation is come^n contact, that they are "«* d^^^^^^er pro^ of their capital concerned; tiiat they shoirld enu a greater p 1 ^ ^^ less must Under the' present law a ^.^^f ^.S^/i^rSank $50 000. The Umoa pmit 25 per cent of its capital, and a urgLi $45 OOO with a capi- ^ tioT'arBank of Chicago has a circulation of only * ^ ^^^^ ^^^^^^^^ S of $i 000,000. The question ^^^^.^.^O^^ySt ^l a national bank SUiy t; go before ^^^^^ tgam.aSif ^ow, g-Jlemen, if over and above auy ot^ei bankin. j g ^^^^^ ^^ ^^^^ ^^ least 50 this IS the case, ^l^y .f r}^'^\^,'^i'\^ins^ It would increase the circula- rTer cent of their capital m bank bills . r^ currency upon which Sn about $200,000,000 ^^: ^^^f^L^nt 0. tl value of it. there can be no question ^^ *« \ts uiti i ^y^^ ^.^^,, the bill by sections and explain it a^nearas^ca ^^^ ^^^^ ^^^^^ foi a different ^Y^^^'^^^i^l^^fZ smaUest ever known under any the national-bank acts has been tm3 |m ^^^^ ^^ ^^^ deposits, I banking ^y^tem, less than one-htttot p ^ .^ system of believe that can be stiU .totlier leciuceu ^ ^^^,,5 of banks shaU examination r\*^\v rhnSentIn the same manner as judges be appointed tor lite ^y.^^^^/.^'^fr' it provides further for an exami- upon the bench are appomted to-day. it 1 . ^^^ ^^. ^^^^ . ^ ^^^^^e.rt iiationofthebanksevery .nxgdays.^'^ .^^3,, ^^^^^. ^^^^ ^ et "BindTlNG AND CURRENCY. 197 in many places in the West during the last three months. It further provides that no examiner shall examine a bank oftener than once a year, so that under the provision of this bill any national bank would be examined by six different examiners duri,,- the calendar year. ^ow, 1 have had a large amount of correspondence with bankers in the West (aniong the number are Mr. Gage, the president (.f the First National Bank of Chicago, Mr. Odell, of the Union National Bank), and banks west ot the Mississippi River and as far as Galifori)ia, in regard to the provisions of the bill, and it seems to be the sentiment tliat a quarterly examination woald answer the purpose as well as once everv ,.j^ ^ - - -- - — ... by four ditterent men, putting it out of the question for collusion between the ofhcers and the examiners. Now, the case of the Maverick National Bank which failed at Boston shows that the examiner of the bank was one of the largest debtors of the bank, and had he done his duty the bank would have been closed long before it was. Mr. Hall. While you are on that branch, will it interrupt you to stop for a moment and allow me to interject a question whicli uught be of interest to you and perhaps to the committee? Is it not a custom out West that the national-bank examiners frequently either send notice ahead or let somebody Icnow they are coming and the president and otiicers of the national bank give them a gpod champagne supper when they do come? Mr. Babcock. I do not know about the champagne supper. ^Ir. Hall. 1 mean they are always I'eceived very well, and I have known of the champagne suppers to be fixed up before. Mr. Babcock. I happened tobeiucompany with three bank cashiers, this was in Illinois, and one was an old acquaintance of juine, and this bill was referred to by them and it seems that they had been in a chain of banks where an examiner struck one bank who would telegraph to the other banks: " The examiner hereto-day; lookout, he is coming." So they were notified that the examiner was coining, or in other words, they had due notice. Mr. OOBB, of Missouri. Do you think it would be well that the banks should not be examined at stated terms? You say quarterly, and in that case the bank would know exactly when the examiner was coming around ? Mr. Babcock. The bill provides that they shall be examiued once during sixty days. Mr. Cobb, of Missouri. And you would make it quarterly? Mr. Babcock. Yes, sir. I would leave the date of examination .entirely to the Comptroller of the Currency so that the banks would have no knowledge of the time when the examiner was coming, and I would only say that they must be examined once during that quarter. Mr. Cobb, of Missouri. So that they would be examined either the first, middle, or last of the quarter ? Mr. Babcock. Y^es, sir. I would put it entirely at the convenience of the examiner and the Comptroller. Mr. Haugen. The Comptroller would telegraph the examiner where to go from day to day and no one would know where he is going? Mr. Babcock. The idea in regard to changing examiners is this, for instance. I believe the examiner in Chicago is a resident of the city and he has personal acquaintance with the different banks and there- fore is sensitive about making a report against a bank when possibly BANKIXU AND CURRENCY. Wtis very embarrassing and th^^^^y^^^^^^^ conducted by a entirely independent, and tne ej^i"!!'^^„ ,, ^ase under tlie provisions nonresident .vhich would be a necessity^of the ca^^^^ committee to of this bill. Now let me take ^moment s time ^^^^^^^^^ g ^^^i. say this. In our State ^^''L^'^^^^f^'^^th^t extends the entire cate, a logging and m^nufactM ng oonc^^^^ lengWoftheMississippiEivera^ditsbian^^^^^^^^^ contention to separate logs a year. For many years it was a cwscan^ ^ ^^^^^ and divide these l^g^l^^twe^"^ *^"^^ and n,an when he put the logs on tbe ^^^J^^l^X grade-first, second, they are scaled and giaded -^^f'^]^^^^ credit for what logs go into third, andculls, and tbe theman different mills which r s o?sa\ tt^^ f}rr^:^:r^'^ ^^'— iMr.BKOSius. Itisj'istlikeoloutof apipe^ ^ Mr. BABOOCK. Yes. The Pool piwides a scale^^^^t^^^^^^ and when that was started tiere was a S^fV^^^^-^ g^.ould scale between the mills to get Uttle bettei logs, ^f^^ ■ ^^^ sealer at a for them. Then they P^^ided ^ Y^tem ^t^^^^^^^ I ^o mill every day. Say a man walks ^'^^/^[^''fpy^ the logs and makes not even know who he IS ; he comes^^^^^^^^^^^ a report, and then he go«« ,^0 anc^ther mUl in ^.^^^ ^^^ ^^^ time a scaler can remain at o^^V ..rl it s imnossible, of course, to average work done by the sc^^lers- and t i ^mpo.sm ^^ ^^^ comments m regard to that J- »a i a le ^^^ ^^^ sentiment of the Mdwaukee bankeis ^^'^Jl''^^^^^^^ on the 2 per that it did not seem ^^^'^ ^l^ThZi intlc^not see the force cent bonds as «" the 4 pei- cent boncl^ But i c. .^^^^ . ^^^ ^^^^ of their argument. It ^'^e JTO^ einme ^^^^.^ security 100 cents on a dollar, there was tl^e security, ineie .^. ^^^ on the 4 per -nt bonds uli^^^^^^^^^^^ 'SqTestn as^to changing the Government fulfl Is its oon^auoi \ardlv admits of any argu- tion ot the committee, » "1 « « ' *"aOTt°oy doubt, without »iiy que.- ;jsirySe|ir|^rsi™^^ may have confidence m ^^e^.V^™ ^ffv"' ^^^e been in the past six nels of trade can not be Af turbed as tt^^y have Dee j^,^ ^tant, r a'SeS.SS lu al iSS;,'3t? Of that iW that the e.peu.e. BANKING AND CURRliX('Y. 199 Of the Comptroller's Office be paid, which were «1]8 000 list vear •inrl also the expenses of examinei4 fin- which this bill provide! ^!nd thS 7Ijrmt B acHf"ll''' ^r ''^. *^« '^*?"^^* of depoLo^sT^'r/m othet deposits the Onv.^ '^'''''f' ^^''^ "lat'oi^al banlcs insure' each other's deposits, the Government acting as agent in charge of the fund. ]^ow ia?on of VVe'h^;;! '''T'' ''^ ""T''''' ^« ^'^^^ ''^^ ^ ^^^"dition of exand! ?w h 1 K ^''"''? T;^®'"' y*'" l^"*"^'' 01' ^'ere reasonably certain, that they had been carefully examined, and the assets were known to be in good shape ancl that behind that there was a fund in the hands ofthe ?Z%Tr\ '^^''"f \^ ultimately pay every depositor, then in that case the bank instead of congesting and aiding-aud there is nothing in the world that aids or precipitates a panic worse than a bank, from the very fact that when there is a scare in the country they liave to stop loaning and increase their reserve and protect themselves— now, if there had been this condition of affairs, it would be practically impos- siDle to precipitate a run upon a bank, and instead of having the bank cong-est money they could loan down to their reserve instead of hold- ing 40 to 60 per cent reserve— and I know of one bank that held 90 per cent of reserve— but uiider this bill they could loan down to 25 per cent and be independent, and could help those wlio needed help. By loan- ing a f 0,000 that money would perhaps pay half a dozen debts of like amount. +u^'";>?'^'^^' ^^'^ ^*^" believe in requiring the national banks to hold that Jo per cent reserve '! Mr. Babcock. I would not change that at all under the present laws. Mr. Warner. You spoke of $200,000,000 as being the increase of the currency provided the national banks would take it out to the extent of 50 per cent of their capital? Mr. Babcock. Yes, sir. '^,A Warner. Do I understand you believe under your bill that such would be the result? Mr. Babcock. Yes, sir. Mr. Warner. Now, you have, I take it, considered the question as to the possible rise in the price of Government bonds, provided they had to be bought up by banks for that purpose? Mr. Babcock. Yes, sir. Mr. Warner. You still think the result would be, even if the Gov- ernment bonds should rise in price, to induce them to take out that amount of extra currency! Mr. Babcock. The Government bonds would have to advance 10 per cent to reach the price they were nominally in tlie past ten years. Mr. Warner. And you do not think they would rise over that? Mr. Babcock. No, sir. There is now outstanding $(350,000,000 of bonds, $585,000,000 of Government bonds and $60,000,000 of Pacific bonds. My idea further is that the Government will of necessity emit more bonds. Mr. Warner. The emission of more bonds is necessary for the suc- cess of your system ? Mr. Babcock. No, sir. Mr. Haugbn. You do not make it absolutely mandatory upon the part of the banks to take out 50 per cent, but a bank which does not do that can not get more than the 90 per cent? Mr. Warner. I was asking if he thought it was possible that the issue of more Government bonds would probably be necessary. Mr. Babcock. But not as a result of this. I did not express that 200 BANKING AND CURRENCY. idea. Ithinktl^e -suit of tj.e p..seBt MancMc^^^^^^^^ is thattlie Governmeut f «" J^J^' "^^J^^„^ds in the gentleman's mouth. is^jf^r ^s^:St ^^^^^^ of t^s ^m, is that we would get the full benefit which he suggests? Sr- ^^: Dcfl'understand this bill, providing for taking out 50 per'c^nTof the ca^tal of tl^« ^anks j^%r,^S"IoO cents on the dollar ^ Mr. BABCOCK. NO' «^^,^}'J^ ,^,.S audTthey do not do it they only Tnn«t pmit 50 vev cent of its capital, ana ii lu^-j Mr. CON. Ymr bill stjll rela.M ftM Ni™, m 0" ^^^^^^.^^.^^^ ^^__ Mr BABOOOK. You overlooked one thing. Mr. Cox. Perhaps I do. , ..-^ ^ tl,at is ^!:^:^::j::i^^r'^^s'f^^^ to the hank. bank under your bill ^o.^.y^^^. Sit £ ?ou Innst take out 50 per circulation it you do a '^'^^t'lin thin t lar , ^ ^^^^ ^^^ ^^^ ceut of your capital stock It yo^^^V•'^,',•^^''fit exists and take out 90 deposit one-tV,urth ""f^tt^*^!"*'^^ *''^l^l.''y nS and your bill wffl pel. cent S-Ppose ,the bond go to n or_ 113, a^^^.^3^^ absorb about half ot the om s u c interest is not to Sk^ ^" thr bonS;:^^l£^ ;?^h>^h^ca^s^d the retirement in the "m? bIbcock. May not that be the factor to put the price of the ^^ SXr K S7^^^^^^^ ^-k whether it will '"^'SA^ioCK^lf the market price of the bonds is tbrced up to 150 "^TSX ^L? iflt°t5?-r;o^ect of the biU detfeated in regard 'T^JSr^^^;i^^^^^^y forcing the bonds up to 150, b;it that is something almost IffPOsterous £• '&T™'.rTC-r.Sr.f,T4S]\c.a... un^ .ends c»me doir^eM tl,; bant. couKl afford to buy them. BANKING AND CURRENCY. 201 ^Ir. Cox. And that would retire the circulation; that is the idea that I wanted to draw out. Mr. Hall. The eiiect would be that where you make every national bank of the United States a guarantor of the depositors of every oiher national bank it would virtually close up all the State banks unless they by State laws come to the same condition. Mr. Babgock. That would be the practical working of it in the end. You or I would deposit our money where the percentage of assurance was gi'eatest. Gentlemen, I thank you for your courtesy. Mr. Cobb, of Alabama. I want to ask you one question. You said that under your system that there would be inducements to the national banks to operate under it? Mr. Babgock. Yes, sir. Mr. Cobb, of Alabama. The reason for that is on account of the increased security to the depositors, and therefore their increased busi- ness"? , Mr. Babcogk. Yes, sir; that is the idea exactly. STATEMENT OF HON. G. D. MEIKLEJOHN. Hon. C D. Meiklejohn, a Eepreseutative fi^pm the State of Nebraska, then appeared before the comTuittee in behalf of the following bill : [H. E. 1993, Fifty -tliird Congress, first session.] A BILL to amend section five thousand two liundred and nine of the Revised Statutes of the United States relatinjj to national lianks. he if (Miarted 6// the Senate anit HoKSe of Heprtmii lativi's of tlie United States of America in Conyresb assemhled, That section five thousand two hundred and nine Ije amended to read as follows : " Section .5209. Every president, director, cashier, teller, clerk, or agent of any asso- ciation who embezzles, abstracts, or willfully misapplies any of the moneys, funds, or credits of the association, or who, without authority from the directors, issues or puts in circulation any of the notes of the association, (Jr who, without such authority, issues or puts forth any certificate of deposit, draws any order or bill of exchange, makes any acceptance, assigns any note, bond, draft, bill of exchange, mortgage, judgment, or decree, or who shall willfully falsify any book, report, statement, or account of the association, either by making a false entry, omitting a proper entry, or alteration of any entry in any book, report, statement, or account, or by mutilation of any book, report, statement, or account, with intent to injure or defraud the asso- ciation or any other company, body politic or corporate, or any individual person, or to deceive any officer or director of the association, any otticer of the United .States, or any agent appointed to examine the affairs of any such association, and every per- son who with like intent aids or abets any officer, director, clerk, or agent of the association in any violation of this section, shall be deemed guilty of a misdemeanor, and shall be imprisoned not less than five years nor more than ten years." Mr. Meiklejohn addressed the committee as follows: Mr. Chairman and gentlemen of the committee, I would like to call your attention for one moment to bill number 1993. This bill is to amend section 5209 of the Eevised Statutes. This provision is found in this section : Or who makes any false entry in any book, report, or statement of an association shall be deemed guilty of embezzlement. The amendment which I suggest is to change this provision of that section so it will read thus: Or who shall willfully falsify any book, report, statement, or account of the asso- ciation, either by. making a false entry, omitting a pJ-oper entry, or alteration of any entry in any book, report, statement, or account, or by mutilation of any book, report, statement, or account 202 BANKING AND CUEREXCY. ivTv PoT^Ti of Alabama. Yoii say, " make an alteration in au entry.'' Is^tt^not^sometimS legitimate/' Would you not make it a corrupt "T MeLejohn. I would state to tire gentleman ^lat ^ have «-J read that portion of my bill which is the amendment, and the following language is: With intent to injure or defraud the association. ^ow, Mr. Chairman and .S-^-.^^^^^twl'^^e M£i<^ to define what falsification is ui dei the Present ia« . r«" is BorX covered b, a M»e e.rt.y but tUe, are covered ''Vri5?°!'lVtt\VSd'Efte only way a false eutry eo.ld the m-eseu aSfa™ tlie questioi. was not passe.l upm, by tte com . Mr oS >™ yo« allow me to call attention » "decision whteh has dSbe'a^ion and consideration construed tha^ part ot the statute to fover anv falsifying of any character mside the statute .' Mr. MEIKI.E.JOHN. Was this decision made on this section 5209 I Mr Mfikletohn. Where is that decision reported? Mr' 00 " We had the case before us in the last Congress and exam- ined the bank and went clear through the matters pertaining to that ^^m' Meiklbtohn. I am not familiar with the decision. Mr cox I h^Seinterrupted you; now pardon me for one suggestion. I see my friend and colleague, Judge Cobb was first We«sed with fie idea^hat the langaage ought to be " ^i«^^"^^t*,n /^^ Le niP pall vour attention to that as where the escape comes. v\ e naa nnder cons eration here very fully and examined the Comptroller upon tl i bXoSS^ view of it was that it ought to be made prima fact there was an intent to defraud and to put the labor upon the man Xl^Tndk.ted to show that it was accidental. There is where the ''MrMEiKLE.TOHN. I am of the opinion that an amendment in that direction would meet with great opposition under the criminal ^w Mr Cobb of Alabama. You do not understand my point Making a false entry itself is fraud, but when you go to make an alteration in the entry that is a legitimate business sometimes ; but to make an alter^ ation in the entry with a fraudulent intent is to be gathered from the facts of the case. BANKING AND CURRENCY. 2U3 Mr. Cox. 1 see your point very clearJy. Mr. Mbiklejohn. I desire to say further, Mr. Oliairniau, that if the decisiou to which the gentleman from Tennessee refers has been made that this would only corroborate the findings of that decision hv the court. The Chairman. I do not think in the decision to which you refer that there was any entry made at all. Mr. Cox. The decision is based upon this : The language of that act was construed that it was not in the kind or manner in which you made the false entry or how you produced the falsehood, but the ques- tion was, did you do with the intent as is suggested by Judge Cobb. Mr. Meiiclejohn. May I inquire if the decision goes so far as to hold the omission to make an entry would be a falsification with intent to defraud the association ? Mr. Cox. I would not be prepared to say in regard to that. Mr. Meiklejohn. Now, I will not take up more of your time, but I will only say this is the change I make by this bill in this section. I would like to say further that on bill 265, introduced by myself, to increase the issue of national banks to the par value of the bonds I do not care at this time to be heard, as I believe other gentlemen desire to appear before the committee on the same measure and I will appear at that time. STATEMENT OF HON. H. C. SNODGRASS. Hon. H. 0. Snodgrass, a Representative from the State of Tennessee, then appeared before the committee in behalf of the following bill: [H. E. 292, Fifty-tlilrd Congress, first session.] ^ ^^k^ S''!i'°,S j* 5 misdemeanor for any association doing business under the national banking laws ot ttie United btatea to charge or take an illegal rate of interest, and to confer upon the States and ierritories concurrent .lunsdiction with the United States. Be it enacted hij the Senate and House of Representatives of the United States of America tn Congress assembled, That any association formed and doing business under the national banking laws of the United States which shall take, receive, reserve, or charge on any loan or discount made, or upon any note, bill of exchange, or other evidence of debt, interest at a greater rate than is allowed by the laws of the State TeiTitory, or district where the bank or association is located (except that they may be allowed the same rate allowed to banks of issue organized under State laws or when no rate is fixed by the laws of the State or Territory or district, any such asso- ciation shall take, receive, or charge on any loan or discount made, or' upon note bill of exchange, or other evidence of debt a rate of interest exceeding seven per centum per annum) shall be guilty of a misdemeanor, and shall be punished upon conviction by a fine of not less than three hundred dollars and not more than one thousand dollars for each otteuse. Sec. 2. That concurrent jurisdiction with the United States for the violation of section one of this act is hereby conferred upon and given to the several States and Territories, and they are empowered to pass such laws as will make its violation a misdemeanor against the laws of said States or Territories and as will enable them to effectively enforce the observance of this act against exorbitant, usurious, and illegal rates of interest, discounts, reserves, or charges by said, associations doing business under the national banking laws of the United States. All laws or parts of laws in conflict with this act are hereby repealed. Mr. Snodgrass addressed the committee as follows : Mr. Chairman and gentlemen of the committee, I will not detain you in suggesting the reasons why I think this bill should be favorably reported but for a moment. It is a bill making it a misdemeanor for any associa- 204 BANKING AND CURRENCY. tion doing- business -f ^^^^f.^tSeS^rlsM^dfocoof^^^^^^^^^ States to charge or to take an illegal |^;f^« J^'^^^^^^ States, the States and Territories coTicmentan^^^^^^^^ ^^ .^ Under this bill it mil be noticed that the DauKg ^ ^^^^^ only two respects. It does not yestuct oi exteu .«^^^^ ^^^^^ the law except in two ways. Under the present law ^ ^^^^^ ^^ can not take a higher rate of intere t t£^\«^/*^^i^t,7to recover any Territories. For the y^^l^^^f H, ^^ra cJurt In ou^r State, as in a good penalty is to bring suit in a Federal court^ ^^^ ^^^ ^^^^ many other States where there is f ^^latJ,^^ "^^'^^^^ts, he has to come sees proper to pnrsne the ^^_!;"^«Jy ^^^^^^^^^^^ usually, the men 100 miles sometimes to pros^ecute t^at smt, ana ^ and who are poor and in great need oflnancm^ ^J^ ^^^^ ^^^^ S^JSSSnse^Sa^^^^^^^ on them and crush them now,inour State and in tWounty ^-hit^^^^^^^^^ some men of moderate means who have been ao^o y ^^ ^^ ^^^ usury on the P-V^^^J^^^^^fi.^tnflTa^e to're^Ie^^ they increase the cent for loans. If men come "^ |J"^ instances it has amounted discount, and it has 8-^-^^ ^ .rde'^rd^ " a man from haying to absolute robbery. This bill in "i«,i« ^ ^ ^ ^ l^tgl^er rate of to prefer the charge, provides it a nationa^ bank ta ^ ^ ^^« .^^ ^^^^ interest than that fixed by a State ^^ ^^^^^^^^ will have to take instances where there is no ^^^/^^f ' ^^^^^^^^^^ a misdemeanor, and 7 per cent, instead ot b«"|f ^^^^^Vflne o S less than $300 or more upon conviction they ^^f ^1 P^j ') ™|. °y"^,,^ Territories concurrent th'an 81 000. It also extends to ^^^^^ ^^^ ., ,^^^ jurisdiction ^i*.^ *) f^^V.wTas will give the State authorities power to ]iroper, to enact such laws as ^yui^ Mv . ^ without calling m knd for witnesses ^^^^^POJ^;^ J^^^^-'^.^i, ed W the persecution of these men who would be.^laughteied an a iu;nea uy ^ do not desire banks. If the banks desire to do^ an ^'^^^^^"^^^l'^ inegally from the to commit perjury and extoit monej ^io"'=^ J! because it gives them people tliey can have -ltTZJ\^^^^' iow',^d such banks that that power to a g^*'^ }-P"^,^;'\^^f ^o^Sug^ to have the right to he ^:i:^ ^l^^m:Xto uieet on Monday, October 16, at 10 o'clock a. m. BANKING AND CURRENCY. 205 Committee on Banking and Guerbncy, Washington,!). C, Monday, October 16,1893. IIou. Newton C. Blauchard, a Representative in Con.t;vess from the State of Louisiana, addressed the committee on House bill 1814, introdnced by him and referred tothecommittee, relatiuo- to the repeal of the tax on circulation of State banks. STATEMENT OF HON. N. C. BLANCHARD. Mr. Chairman and gentlemen of the committee: 1 introduced at the beginning of this session of Congress a bill for the repeal of the tax upon the note issue of State banks. A number of bills of the same character have been introduced by other members, and all referred to this committee. Many other memlaers of the House believe, like myself, that we should return to the old system of State bank circulation which existed prior to the late civil war. I believe we should adoi)t that system as a supplement to the currency issued by the National G-overnment. As matters noAV stand in the South, and equally so in the States of the West, so far as our money affairs are concerned, we have been going from bad to worse. Things have been getting a little worse from year to year. Money has been getting scarcer each year among the people. The values of our property have been depreciating year by year, and continue to do so. Mr. Hall. You mean in that connection that the price of all prop- erty has depreciated'? Mr. Blanchakd. Yes, sir. When I said " values " I meant the mar- ket value of property. That is true of all classes of property, and that condition of falling prices has been going on for twenty years, or since 1873. The gentlemen from New York (Mr. Cockran) in his speech in the House pending the consideration of the rei^eal of the purchasing clause ot the so-called Sherman act made a statement which to my mind was a very remarkable one when he said that when Congress adjourned on the 4th of March last the country was enjoying a period of great and unexampled prosperity. Mr. Cockran in making such a statement did not know what he was talking about, so far as the South and West are concerned. It occurs to me that his vision must have been bounded by the rows of brick houses in New York. I know from personal contact with the pieople of the Southwest that for years they have not been enjoying a period of prosperity. The lines of life have become harder and harder each year, and there are now a larger num- ber of people out of employment than has existed in this country for half a century. I believe that is true of every Southern State, and of a great many, if not all, of the Western States. If you believe that this scarcity of money, this dei^reciation in the price of property, this condition of hard times, as I have briefly described the same, is in part due to something being wi-ong in our monetary system, you should make an effort to relieve the situation. Take the condition of the South to day and compare it with what it was in 1860 and prior to that time. The war has been closed now approximating thirty years. A sufficient time has elapsed for us to have gotten upon our feet again in a business way. Signs of returning prosperity ought to be evident everywhere throu ^hout the South ; but are they? I am sorry to say they are not. Befbre the war the very best securities we had in the South Avere our rich agricultural lands, and that was especially true of the alluvial laiuds in my own State, which rank with the finest agricultural lands upon the face of the 206 BANKING AND CURRENCY. globe. lu Louisiana we grow successfully four great staple products fu equal luxuriance, corn, cotton, rice, and sugar. Prior to the war theSitionof the'agriJultural classes was -<^Xf^'^^^'^.C mv State. The condition of the people grew a little better and higiier Tml more prosperous each year. The war came on and, of course destroyecl aU this. After a lapse of twenty-five or thirty years what is the coDdl on of the agricultural people in my State? It is not one of prosperitv. The people appear to be getting poorer and poorer each year ThSr lands are becoming "a drag" upon the market They can I'lot find sale for them, and can not dispose of them except, often- times at a sacrifice. When it comes to borrowing money upon lands, th^y ai^consk eied the very lowest class of security that money-lenders want whereas before the war our rich agricultural lands were held to be tL best and safest security ^l^^t could be oftei-ed for mon^^^^^^ What has brought about this condition? We think it is due in lar-gepart T^ the monetary system of this country As thmgs now Sand, the West and South are absolutely dependent upon New York for their source of money supply. This may be good news to my friend on the committee from New York (Mr. Warner), but the existence of this condition of affairs has been and is disastrous m the extreme to us When our merchants want to make money arrangements they must go to New York. When your note, or mme or anybody else's is Zcounted in the local banks it goes to New York tor rediscount. ThatSition did not exist before the war. That condition of affairs dies iot redound to our benefit. Our people .r^-J^^S.^TuiriherJ from financial dependence on any section or city ot this ^mon ihere is no way to do it except to return to the old system olStete banks of issue, in my humble judgment this would do more good than the pas- "Teie^tlirwaJwe'had in our State, under wise and conservative State banking laws, perhaps the very best system ot State banking that '^^M^Hall!' IWas as good as any other; there were others equally as ^^Mr Blanchard. I say "better," because the national-banking act of June 3, 1864, which is before me, is copied in large part from the State-banking law adopted in Louisiana m 1853. Mr Hall. You adopted tlie old Suffolk banking system l Mr. Blanohaed. 1 think we had a good banking system perhaps as early as any State in the Union; certainly prior to 1853. Mr. Haugen. The law of 1864 is a good law, which, you say, was *^°Mr. Blanchard. In answer to that, I will say that the national- banking law served a good purpose at the time it was enacted. It was enacted, as we all know, at a period when our country was m a crisis, and it was needed to assist the Government in its financial operations. For one, I do not believe— and I state my opinion candidly— that the national-banking system is best for our country m these times. But i am not here to oppose the national banks. I believe that the national- banking system could continue ou, aiul that the State-banking system which I advocate would be a valuable supplement to it. I believe that laws could be framed by which State banks could safely make use ot bonds deposited in the State treasuries as security for their notes. There is no reason why the two systems should not be combined, it the 10 per cent tax were repealed State banks of issue would come into existence ; and to the expressed fear that they might drive national BANKING AND CURRENCY. 207 banks out of existence, I woul.l say that for every national bank which went out of existence two or three State-banking institutions would take Its place, and that certainly would be better for the ijeovde of the West and South. • Mr. Warner. It would be a question of the survival of the fittest ? Jlr. Blanchard. Yes, sir. I do not see why these two systems can not exist together. Under the State banking laws of Louisiana (a copy of which I have here) the money issued by the Louisiana banks of issue was good all over the United States. At no time was a single bill of those banks at a depreciation, nor was any cry heard in any quarter of "wildcat" currency, so far as the banks of 'Louisiana were concerned. Bear in mind that this was at a period prior to the railroad and telegraph and long-distance telephone. Now, the long-distance telephone is rapidly coming into use between the large cities of the country, the telegraph reaches almost every village in the United States, and the railroad penetrates every neighborliood. The railroads anni- hilate space and the telephone and the telegraph annihilate time. I think the conditions existing to-day are fivefold better for the gen- eral and beneficial use of money issued by State-banking institutions than were the conditions which existed at tlie time this system of cur- rency was in operation. To give a practical illustration: I am in the city of Kew York, and apply to the Chemical National Bank for a letter of credit upon their Berlin correspondent. I tender in payment $1,000 of Louisiana State-bank money, supposing we had such a system. Of course, the Chemical Bank would make it its business to be posted, but if its ofacials were not, the long-distance telephone would then be in opera- tion between New Orleans and New York, as it is now between Chicago and New York, and if there were any doubt about the money otfered the bank officials could telephone to their correspondent in New Orleans and inquire about this ])articu]ar issue of money. If word came back that it was good in New Orleans, it would be good anywhere in the United States. That facility of communication did not exist prior to the civil war, yet without it our Louisiana State-banking money was good everywhere, dollar for dollar. The Chairman. Is not that law still in existence because it has never been repealed "! Mr. Blanchard. Yes, sir; but it is inoperative because of the 10 per cent tax. The Chairman. TJjose banks can operate as banks of discount? Mr. Blanchard. Certainly. The old law of 1853 has never been repealed, and if the 10 x>er cent tax be done away with we would at once put it in operation again, or enact another law modeled after it. The Chairman. State to the committee briefly what would be the modus operandi of a State-bank system under that law. Mr. Blanchard. It would be about as the national- banking system now is, except that the bonds would be deposited with the State treas- urer or auditor instead of the Comptroller of the Currency. Mr. Haugbn. Upon what would your circulation be based? Mr. Blanchard. Upon State and municipal bonds. We have in . the State of Louisiana about $12,000,000 of State bonded indebtedness. We have in the city of New Orleans about $15,000,000 to $16,000,000 of municipal bonded indebtedness, the two aggregating $27,000,000 to $28,000,000. The interestjupon these bonds is paid just as regularly as is the interest upon the National bonds. These bonds are now a little below par; but it is only a question of a very short time when they will 2Qg BANKING AKD CURRENCY. ,„ ,„ i,„ or above par, .s fe tire ca,,e, I ara tal.J, iB AUbam., ^l.ere demand for tliese bonds, ^iey co d d be used as a D^ ^^^^^ ^^^^ the issuance of money by ^t^te-ba, king lustit™ ^^^ only have the effect of appreciating tJ^'^^|^,YSoO 000 or $28,000,000 of it wouhl have another good eftect The «- '«^^4"J «^. * r^j.^ people city and State bonds referred to areno^^an ^~^^^;„^i,;e a sinking are taxed to pay the interest upon tje°!^^'f ^^f^^^Eve no benefit fund to meet the principaL The people of thc^ta^^^^^^^^^^^^^^ .^. ^^^-^ from this bonded indebtedness as matteib "ow swiiu tax were repealed we -^^JJ/lJ^i^e ofmon:; by' sS^^ Any the bonds as security ^i t^*^ i^^"t^^® ?i,i^nnder a State banking law banker or banking corporation o^^'^^'f^ ^^'^^ ^^f^^ ,,ity bonds of could deposit in tbe State treasury State bonds oi t^(^c y ^^ New Orleans, and receive notes ^Jo ^^f^™f ^ ^W^ pe/cent of the the market value of the bonds whe }"« «^ P^'^.f ^^^ supplement the face value when at or above P*^" IV^l'^^^^Jg,';e ^f from $5,000,000 to !f^SS^SVve ^--^^^^'^1f^?'r1ta^e'o?SslS;a and The property, the wealth, the credit of the State ot J^o^^^^ ^^ of the city of NewOrleaBS, i^J"!^ '^'^^^ /*';;i-;'of the United States by a deposit of these bonds m the State treasury. if money issued by its banks siioum »'"^"'''" V' „ hankiue law so •,<-^ri Tf nnv State of the Union were to adopt a DanKiu^ law ^^j °t?/HlSr £:n°.r.S:4 ?oSbt?b. tbeir eo.«,«io,. from " Mr" KSiBI,. Tliat istrue; but it tbis 1(1 per eeot taj be repealea ^^mT'haitgen. My State does not prohibit it, but provides that a banking act sliall be submitted to a vote of the people. Mr Hall My State prohibits it absolutely. Mr' BlInchard. It could be changed so as enable^ your People to derive the benefit which would surely result from a return to this sys- *Thold in my hand an article cUpped from a reputable newspaper iu the dty of New Orleans, the Louisiana Keview, touching this verj mat BANKING AND CURRENCY. 209 ter, which 1 will ask the indulgence of the cummittee to read. I know the editor of this paper to be a tirst-class man and responsible and relia- ble in every way. The article makes a comparison between the condi- tion of the banks in the city of Xew Orleans in ISDO, when we had no State banks of issue, and the banks in the city of New Orleans in 1800, when we did have State banks of issue. The article is as follows : STATE BA^'KS— NATIONAL BANKS OF 1890 AND STATE BANKS OK 1860. [Louisiana Review, December, 1890.] Tlie baneful effects of allowing the Federal Goverunieut to exercise exclnais^e con- trol of the tinanciiil system of the country and to limit the amount of the circulating medium, has been demonstrated by the difficulties that the agricultural, industrial, and commercial classes have experienced, owing to the patent insufficiency of money and the high rates of interest that the agriculturalists particularly have have been compelled all along to pay. To these evils must be added the deprechition of the value of real estate occasioned by the provision in the national-banking law which prohibits national banks from lending money on real estate security. ' Naturally, in view of this unwise and unjust discrimination, capital has been turned away from real estate and has sought stocks, bonds, and other interest-bear- ing paper values, the most of which escape taxation, can be readily converted into cash or used as collaterals on loans. Real estate being excluded from these advantages, while it is made to bear the burden of taxation, is virtually unmarketable and can not ))e said to have anything like a fixed value. To us the remedy seems very plain. It consists in the repeal of the Federal statute preventing the issue of bank notes by State banks, and in reestablishing the old State banking system with modilioations that would enable the national banks to act under State charters conjointly with their national charters. We can see no good reason why State and municipal interest-bearing bonds, ipecie, mortgages on real estate, etc., could not be made the basis of a safe State bank-note currency which could be expanded, according to circumstances, to meet all the legit- imate needs of the people. This is no wild theory, for it was successfully operated for many years before the centralization of the finances under the Federal Govern- ment was effected. In support of our views upon tliis subject, we append the following statements of the resources and liabilities of the New Orleans banks, on November 28, 1890, and of the New Orleans banks under the State banking system, in .January, 1860, as given at that time by Governor Moore iu his message to the legislature : 1890. Report of the average daily condition after the morning exchanges of the asso- ciated banks for the week ending Friday morning, November 28, 1890, after the exchanges: Resources. TTii=) wef^lf i This -week ihis week, , i^^^^tyear. ; Liabilities. This week. This week last year. United States legal ten- ders and national-bank i $4, 950, 800 $4, 204, 200 134,900 : 171,100 2,048,700 1 1,986,800 126,900 184,900 498, 600 477. 304 1 Circulation 1 Deposits (net after ex- $762, 200 18, 805, 700 1, 565, 600 2,691,500 97, 900 $941, 700 Other cash items Siglit exchange on New York 1 Due distant banks and i bankers subject to 1 check 1 544 300 Foreign exchange Due from distant banks Otherliabilities to banks 1, 634, 000 30, 000 i Other cash liabilities Loans and discounts 20, 419, 200 4, 083, 800 19, 094, 300 4,452,400 23, 982, 900 23, 156, 000 32, 262, 900 30, 571, 000 940- -14 210 BANKING AND CURRENCY. I860. [Governor Moore's Message.] The latent .,a.k state„.e:^ sho.s ^he^gregat. liabiUti^ of «^ bank, of New liabilities Xy have exchange amounting to $7,356,581, wh.ch is nearly equivalent to oin The tloiteumrepr "sent 89 per cent of their entire indebtedness. Adding to thTthe amouiit of bond deposited -Hh the auditor -^^-^^^^ ^^^^ "^^^^ittfil for free ba.nks, the imn.e.liate availability is $26^688,852, ^S'^^^^f '^/^'^^^^Sl of liabm ties: or 103 cents of means to lUO of debt. This is irrespective o± portlolios ol the linnlis which anjount in round figures to $19,000,000. '''From the abovrit will be perceived that t'^.^t'f l.-^i'"-- ? in Yseo'" " have now, when the population of the State was put down at more than eleven hundred thousand. , ■ ^ i i,+;„„ n■,^r^ -ar^ ^tm nnt If these figures can be accepted as a proper basis of calculation, and we can not see why they should not, our banking capital should approximate eighty millions '"jn vLw o?iws1]Ioreraucy, it is easy to account for the depreciation of real estate, the d acuities u'ndcr winch our agricultural, industrial, and commercial ";t«.rcst. laboring and the freijuent complaints of stagnatiou m many branches of business and ^^TttatS debt which is the basis of our exclusive nati.mal banking system is steadily dimiuishing, while our increasing population naturally lequnes .idditioi »' capital It is obvious, therefore, that the national banking system, wlych is already inadequate to meet th.' public needs, should no longer be looked to as the only source of banking accommodations. „ k.,„„ The finance inu-stion is of the gravest importance, and our public men, our huan- ciers, the press, and the people generally, cannot too soon give it their earnest con- sideration. Mr Johnson, of ludiaua. Do you not think tlie better condition o^ of the banks iu 18(50, is due to tlie fact that railroads have been bmlt since that time and there lias been a change of business from the river, by which Memphis, St. Louis, and other points get business that used to go to New Orleans? Mr. Blanchaed. Perhaps, to a limited extent, that may tig'^'^e «^ this difference in the banking business as shown from ISCO to 1890, but 1 would suppose that it would not account for more than 10 per cent of it. In 1860 we had a little over 600,000 people. Now we have nearly 1,200,000. In 1860 more than half of the population w^ere slaves who were not borrowers, and they must be eliminated from considera- tion. Now they are free, and many of them property holders and own farms, houses, and lands, and must be taken into consideration. Mr. Cobb, of Missouri. They are borrowers'? Mr. Blanchard. Yes, sir; in spite of these facts, we see that m 1860 Louisiana, which was, and had been for many years under a State banking system, was highly prosperous and the people contented and happy. Business transactions was enlarging all the time. Business concerns were multiplying. There was more money— almost double the amount of money, in the aggregate— in the banks of New Orleans then than there was in 1890. Mr. Hall, of Missouri. One argument used by the opponents of the repeal of the 10 xier cent tax on State banks is that the currency runs the risk of becoming a depreciated currency. I want to ask you if, in your opinion, any currency based on State bonds, which are tliemselves at par, or above par, would not be as good as the State bonds? Mr. Blanchard. Undoubtedly. Mr. Hall, of Missouri. My State of Missouri could float iu the New BANKING AND CUEKENCY. 21.1 York market a 3 i^er cent bond at par. If we based our currency on that 3 per cent bond, or if the bonds of any of our municipalities were quoted at par, would not the currency itself be as safe as the bonds, and be recognized as such in the market! Mr. Blanchaed. Yes, sir; it would be as good as the bonds, the basis of security for its redemption. It would be so recognized in the mar- kets of theconntry. With Missouri bonds at3 percent, and being worth par in the market, it is impossible for the bonds to be maintained at or above par, and the currency which is issued on the bonds to fall below par. If the bonds deposited in the State treasury, and registered to prevent a thieving treasurer from getting away with them, are good in the markets of the United States, there can be no question but that the currency issued upon those bonds would be equally as good as the bonds themselves. Mr. Cox. :May I divert you there a moment? Of course the proposi- tion must be understood tii at this circulation is based upon State bonds. Is it your purpose to repeal this tax with restrictions or limitations upon State banks, or just simply a repeal"? Mr. Blanchabd. My own position is this : I do not think Congress ought to do anything more than repeal thistax. I think that the States can be trusted to handle this matter for themselves, Just as they did prior to 1860. Mr. Cox. While the bonds of your State aud my State, are much like each other and would make a safe currency, some other States — South Carolina or Kansas, for instance — might undertake to bank upon a different security or a worthless security; ought there not to be some restriction there? Mr. Blanchard. Perhaps you were not in the room when I referred to that matter briefly in my remarks. I said that the conditions now are vastly different' from what they were when "wild-cat" currency existed iii some States prior to the civil war, At that time we did not have railroads, telephones, and telegraphs. The long-distance tele- phone will shortly be in existence in all the large cities. The telegraph now absolutely reaches every village. Railroads penetrate every neigh- borhood. These are advantages which we did not enjoy in the days of the " wild-cat " currency. We have advauced in civibzation and enlight- enment since that time. It could be done better now than it was then. 1 have no fear that unwise banking laws would be passed by any State which would permit of a depreciation of its currency. An unsound currency would be a stigma of disgrace upon a State, and the legisla- ture, at the very lirst meeting thereafter, would so amend the law as to bring the currency of such a State up to par with that of her sister States. This return to the State banki'jg system would give us a flexible cur- rency. It would emancipate us from dependence on any section, and would give us a source of money supply of our own. This source of supply would be at home. This further remark may be made on that hue, that when a Louis- iana State-bank note left the State, it might make the circuit— would go to Philadelphia, New York, or other city, but is certain to come back to Louisiana for redemption for its domicile is there. The green- back, or the national-bank note, or the gold dollar will not do that. It goes off and stays. But the State money would surely return to the bank which issued it for redemption. Thus the supply of money in the State would be constant. The State-bank currency would emerge from the banks late in the 212 BANKING AND CURRENCY. surino' and tlirougli the summer A^Leu tuucIi money is needled to make thecTOps to gathir them aud prepare them for niarket aud move them to mar et Later, .vheu the cotton of the South and the wheat of the wfst are sold for the gold of the world, the State-bank currency would naturally and logicall^flnd its way back to the banks ot issue and there Tt would remain in the vaults of the banks untal the necessities of the lextvear's cropping operations and business operations drew it out aga n' ft wouMCferthe rate of interest, and we in the Sou h and West need cheaper money with which to raise 7- cent cotton and half- 'Mr-H^'ylitoke of the Louisiana State banking law which was recognized as one of the best of five State banking systems. There were five that were equally good. Mr. BlANCIiaed. I think ours was tlie best. . . Mr HALL. Did you ever have in the State of Louisiana a depre- "^'iSiScS^^'i^ a single dollar at any time in onr State.. On the contrary, the money issued by the Citizens' Bank of Louisiaiia, which was the principal bank of issue, was considered by mauy of the peope^f Louisiana to have been even better than other money of the tirne issued by the National Government, and wa^the class ot money more generally hoarded. Some of it turned up after the^ war. The CHAIRMAN. AVhere are your bonds of the city of New Or cans and of the State of Louisiana held at this time? Are they held m A^our State or in the East? ^ j. j Mr Blanchard. Aboutthedetailsof those matters I am not posted. I think that a large part of the bonded indebtedness of our State and the c"ty oi New Orleans, aggregating about $^8 000,000 is held m the citv of New Orleans. Some are held in New York, and perhaps else- where We have no fear that if we get back the State banking sys- tem which would ena,ble us to use those bonds aud deposit them to secure our currency notes, the bonds, wherever they may be, will not be used for that purpose. . , , ■ , , The Chairman. They would be appreciated in value '. Mr Blanchard. Yes, sir; they would at ouce go to par and above par. ' But I do not speak for the holders of these bonds. 1 do not know a man who holds one. ^ , ^. , .. , i v • i ■ Mr Hall (to the chairman): Did not Col. Oates, of Alabama, in Ins address in speaking of the bonded indebtedness of Alabama say that Sere were $24,000,000 of State bonds, and that $20,000,000 were held in the State of Alabama"? , ■ ^ • ..i The Chairman. I think so. (To Mr. Blancliard.) Your object lu the rehabilitation of the State banks is to secure a larger amount of paper "^Mr.'^BLANOHARD. Yes, sir; to have our source of money supply at liome instead of elsewhere. -^ •■+■;+ i<3 The Chairman. It does not make any diftereuce where it is it it is available in your State. Mr. Blanchard. If it is domiciled in our State, when it goes away The Chairman. If you undertake to establish a State banking svstem you would first have to secure bonds of the State of Louisiana or of the city of New Orleans as a basis for your circulation ? Mr. Blanchard. Yes, sir. ,. ^ • +u^ The Chairman. If you buy the bonds with whicli to start in the banking business, you must put up your own currency, and then issue liAN'KING AND CURRENCY. 213 90 per cent of the market value of the bonds (whicli are above par) in notes ? Mr. Blanchaed. Yes, sir. The Chairman. Under the hiws of Louisiana, how much do you think you would have as a fund for redemption? Mr. Blanciiard. The national-bank law requires about one-third, according to my recollection. Mr. Wabnkr. It requires about -!5 per ceut for redemption. Mr. Blangiiabd. You may be right. • The Chairman. If you were to start a bank, and were to go and buy bonds, when you got ready to loan money you would have 25 per cent less money than before °J Mr. Blanchard. Well? The Chairman. Supposing you as an individual must buy these bonds, and, if so, must you not put up 25 per cent of the market price for the bonds, and then hold 15 per cent as reserve, which would leave you 25 per cent less money with which to do banking than yon had at first? Yon have tied up 25 per cent of your money in organizing. Mr. Blanchard. That which is tied up is, I take it, merely the reserve such as every bank maintains. Anyone going into the bank- ing business must maintain this reserve. The Chairman. If you do not want to buy bonds or start a bank, and owned bonds of the city of New Orleans, or the State of Louisiana, can you not take those bonds to any money center of the United States, for instance New York, and get United States currency within 5 per cent of the market value, and could you not take that currency home and use it among your own people? Mr. Blanchard. AVe have been trying that very system for many years but the result is that with our population in Louisiana almost twice what it was in 1 the farmer, who inevitably asks for credit ai the store, and is thus obliged to accept goods at the mer- chant's prices, and to make payment in his own produce, at the mer- chant's estimate. There may be some chaffering; but in the. end the farmer is forced to accept the best teiuis which he can get from one man for that year. His only remedy, if he thinks himself unfairly treated, is t(j trade with another store the next year. A forehanded farmer, who can do without credit, sells his produce for cash— real cash. He goes home with a thick wad of bank notes or greenbacks in his coat pocket. But even he finds that the universal demand for such money occurring at the same time pi-oduces a stringency, which depresses the price of his produce. He, therefore, would like to see " more money." It is needless to say that the other class of producers, who form a vast majority of the whole, are fully eonvini'ed that they would obtain far better prices for what they sell, and would pay much lower prices for what they buy, if they could be supplied with money, as a medium of exchange^ instead of depending upon store trading. The cry for relief, from the entire agricultural class, is thus practically unanimous; and, in substance, though not in form, it is well founded. Yet what is it that they actualjv want ? Not money, but the best medium of exchange. 218 BANKING AND CURRENCy. Contrast tlie situation of these classes with that of business men i» cities and large towns. " Cash " in the town, meaus souiethmg entirely different from "cash" iu the country. No wholesale dealer thinks of either paying or receiving any large amount in coin or paper money "Cash,'' to his mind meaul a bank check. So thoroughly accustomed is he to tins method that it hardly occurs to 1^™ that tbere is any difi^^^^ ence between the two methods; and yet the diftereuce is really tremen- dous. He gets every conceivable advantage attending .'ash tKinsactio s without inconveniencing anybody or putting any strain upon the hna ces of the country. The wish of the farmer and planter can not be liteialiy compUed with, except at the cost of a general financial convulsion. Indeed! it can' not be complied with at all. If we could Jraw every ounce of gold and silver from every country under heaven, '"^^ d^™^ it only among the farmers and planters of this country at harvest time it would not suffice to carry through their transactions upon a stiictly "cash "basis. • ^ „»> rf ;., /^nUr Shall we, then, issue fiat money for the same Purpose? It is only just to the Farniers' Alliances to say that their brig^^^ J ,™«;^^X^^ fully recognized the fact that a permanent issue ot so ^^]f\^°'^'^f^ money would utterly destroy its value, and therefore t^^at the em- edy would be worse than the disease. It is precisely for this leasou that they advocate the " snbtreasury ' |ystem, under which aW 7,000,000,000 in paper are to be issued in September and rapidly called iA after October. But we need spend no time m demonstratmg that this plan would lead to precisely the same rum winch it is designed to ""Xice more we ask : "What does the farmer really want f ' And once more we answer : " ^ot money, but the best means of exchange. And what are the best means of exchange 'J Clearly, sound, safe banks of deposit brought as close to his door as the country store or wai'ehouse which now furnishes to him an insufflcient and expensive medium ot exchange. AVHAT IS A BANK? What is a bank? The conception which prevailed almost universally throuo-hout the United States until a very recent period was that a bank meant neither more nor less than a note-manufacturing machine. Its great offlce was to turn out as many bank notes as possible tor use as money passing from hand to hand, and all other services which it might render were considered as mere incidents of this. The widespread ruin which was wrought by these note-manufacturing banks in the West and South gave rise to a well-founded dislike of such banks and to an ill-founded prejudice against banks generally. This prepidice was intensified in many sections of our country by the practical worK:- in «• of the n ational-banidng law, which was used for several years chiefly as a note-issuing machine. Although these notes were all punctually redeemed, yet their issue gave to the banks a very large and unjus^ti- fiable profit, and the number of such banks being for years strictly limited, they possessed a monopoly. The monopoly has entirely passed away, and the profits on note circulation have been reduced to an extremely small figure, but the prejudice remains nevertheless. A genuine bank, however, is not a note-issuing machine at all. Its business can be connected with issues of bank notes; but a true bank- ing business consists in receiving deposits, paying checks, and making discounts. Of such banks, provided they are Avell conducted, there BANKING AND CURRENCY. 219' can not be too maii\'. The true nature of such banks was, so far as the writer is aware, iiist fully explained by Prof. Bouaiuy Price, in his lectures on currency and banlcing, published in 1869. The next correct statement of the nature of a bank, and the first which was given by an American author, is contained in an essay written by Mr. Edward Atkinson, and pnbbshed in 1880. Tlie proper oftice of a bank is to fur- nish, without the use of money, facilities by whicli goods of all kinds may be exchanged between the most dis-tant parts of the country. ISfot jrierely is it not true that a bank is a mere institution for dealing in money; it is, on the contrary, t«)ie tliat a banlf conducted upon sound principles has for it object the*ieduction of the nse of money to the lowest possible point. It is no more the proper business of a real bank to supply money or to extend the use of money than it is the business of a steam engine to run its governor, or of a watch to run its balance wheel. The coin held by a genuine bank is Ivept as a balance wheel; or, to adopt another figure, it is the ballast in a ship, indispensable to steady the ship, but the last thing in the world for the sake of which a ship is built or sailed. TO WHAT EXTENT IS MONEY NECESSARY? By the use of bank checks, money can be dispensed with to an enor- mous extent. All wholesale dealers understand this, and carry on their business almost exclusively by means of checks. It is universally admitted that much more than 90 per cent of all wholesale transactioTis are conducted in this manner. From this fact, tlie inference has been drawn that 90 per cent of the entire business of the country is thus conducted without the use of actual money. But this is vehemently denied, not only by the repiesentatives of farmers and planters, but also by some scientific men, of whom Prof. F. A.Walker may betaken as a t:.yi)e. In a paper, recently read by him before the American Economic Association, he asserts that substantially all retail transac- tions are conducted by the use of literal money, and that these consti- tute a more im])ortant share of real trafficthan wliolesale transactions do. It is said that the conduct of business, without the actual use of money, is confined to the cities and laj-ger tow^is, while in the smaller towns and in all villages and rural districts all purchases are and must always be paid for in literal money. In confirmation of this view, it is ctn^rectly pointed out that few villages or small towns have banks of any kind whatever, and that a vast majority of the people have no dealings with banks, other than savings banks. FARMERS' BANKINCf METHODS. What are thefacts ? Speakingwith great deference to the judgment of others, and subject to all correction, but, as the result of much inquiry and impartial investigation, it seems to the writer an almost indispiatable fact that the bulk of transactions in the rural districts, especially iu the South and Southwest, are carried on with even less use of money than is usual in the great cities of the North and East. In the cities and large towns it Is quite true that most retail trans- actions are settled by the use of actual money, but in strictly agricul- tural districts and mining regions, which together cover nine-tenths of the area of the United States, it seems to be universally conceded that very few transactions of any kind, whether wholesale or retail, are settled by immediate cash payments. Everybody keeps an account at 220 BANKING AND CURRENCY. thfi oouiitrv Store, and everytliiiig is done upon credit. Generally spealc- inr^fSei or 'planter opens a credit at tlie nearest store, upon the fa^of wMch heSra.vs, no\ n:oney but ^^^^^::^^S^^l ?heshiJkee?ei or sells it to some traveling agent who pays its price o"th stSepe" "in this manner, it is Relieved nine. te^^^^^^^ «mi,ll firmers conduct tlie r business; and their retail triinsacnons, ^ if iS a^lieir wliolesa^ ones, are -j;^ ^1^^^^^^^? without the use of money. Even farm l^^oreis it is said receive d^ Svi;:eit^te^£«^^whS;wS,=iss|^^ from the storekeeper; or else he g^i^^^'-^te^^^f;^^ f,nntirrbin?ss laborer keeps at the store. In one way or ^uother the entii e busmess nf flip no-ricultural districts, we are assured, centers m tue oouuuy stores, :,^d is cSucted with less literal money than the business of ^^¥Si^lsZ:t be so would seem to follow i-vi^y^om the welL known fact that tlie great bulk of money is ^l^^^f J«, ^^^/^ K^k ^f cities and towns, and from the never-ending complaints of the iacK ot SneyinalTagTicultural districts. Farmers ^o^^^not complain o bitteriv of the absence of money if there was m circulation among Sm in amount at all corresponding with tliat which is - -rcula^on in thp cities The proof seems conclusive that m reality a smaller pio poSoii of busin?ss\s done upon a cash basis in the country than m the ""'Knie facts are as here stated, does it not follow that nine-tenths of all oucSmnercial transactions whether in city or country, are con- ducted thiZgh banking operations "? Are not the small ^irmers of the touth ami West actually more dependent upon bankers tban are even the mefchauts of the East? True, the storekeepers of tbe mal dis^ tripts -ire not called bankers, but names do not change the nature oi SisTheii business is as'truly a banking business ^-i^, ,tsv and national bank on Wall street. But their "^^thods are cUims> a^^^^ inconvenient, and their charges are enormous, ^.^.^^y "^'^,"^f ^^^'^ l^'^e manent suspension of specie payment, and properly enough, because Tev neve receive actual money on deposit, and therefore never ought to be aS for it. Thev unite the business of banking with the busi- ne>l oTmerchancUsing, iul they do not perform either function well or cheaply. THE COST OF FAKMERS' BANKING. Imiuirv among gentlemen familiar with such matters iu the South leaclfto the conelution that the charge of tlie country storekeeper tor the banking accommodation which he thus furnishes is ^^y^r f ^, tj^^" 1.5 per cent, in addition to the ordinary rate otl^rofat^upon his goods Indeed everv resident of southern agricultural districts puts the tiguie much hio-her Let us, however, leave it at this low rate Does it not fXw that the Southern and Western farmers lose at t^ie wy leasj 15 per cent of their whole earnings, simply tor want of Sfl sound banks in their midst, doing a strict bankmg busmess, and t^^^s enabling the farmers to buy and sell for cash, wherever they can do so to the '''ScidlnilT it may be noted that these facts explain the general clamor a.gainst middlemen, which is so common m the West. Uie B-KKING AND CURRENCY. 221 middlemen, with wliom farmers directly deal, make an enormous nomi- nal prolit on eacli transaction, and the fanners naturally supi)o.se that the nmch more wealthy middlemen of the pjastern cities do likewise. As a matter of fact we know that this is not nt all the case, and that Eastern merchants make far larger aggregate XJroflts out of a commis- sion of from 2 to 5 ])er cent than any country storekeeper can ever make out of commissions of 15, 25, or 30 per cent. The small Western middleman has to take such large risks and to conduct business on such an unsafe basis that he is naturally not so Avell off in the end as he would be under a system of small profits, quick returns, and abso- lute security. The whole system is vicious, expensive, and disastrous alike to the farmers and to the storekeepers. THE TRUE REMEDY. Do not these facts at once account for the farmers' complaints and indicate the true remedy '? Is not the only real relief to be found in the extension to every town and village in the land of safe and sound banking agencies, with which farmers can do business on precisely the same terms as New York merchants ! Every farmer should learn to use bank checks instead of bank notes, precisely as the city merchant or the village manufacturer does. These checks should pass through central clearing houses precisely as they do in New York, Boston, and Philadelphia. The use of actual money, whether in coin or paper, should be reduced to as narrow limits in the country as in the cities. The Western and Southern farmers and planters shoidd be made to understand that their prejudices against banks are founded upon an entire misconception of the office and purpose of banks, and that, so far from seeking to reduce the number of banks, they should insist upon an enormous extension of genuine banking facilities as more val- uable to them than all the " mouey " of all the world. Nor is it only farmers who need to learn this lesson. Even city dwellers have not made one-fourth of the use of banks which ought to be made and speedily must be made. All payments of $5 and over ought to be made in checks. Everyman able to keep $50 ahead of the world ought to keep a bank account. If he is married he ought to open an account in his wife's name and let her pay for her purchases in her own checks. The banks do not enjoy such business; many of the best banks refuse it; but they must accept and encourage it as a duty to their country and the best ultimate protection for themselves. These opinions, altliough now first published, Avei'e privately ex- pressed, long ago to some of our leading statesmen. Since that time the irresistible forces of natural law have not only illustrated and con- firmed them, but have driven many banks and business men mto acting upon them. The payment of wages and other debts in small certified checks is precisely what the writer urged upon both statesmen and bankers before the panic of 1893, not as a mere temporary expedient under panic, but as a permanent relief to our overstrained currency. It should not merely be adopted during a period of pressure and strin- gency; it should be made as nearly universal and perpetual as possible. COIN GOING OUT— BANKS COMING IN. Nature is driving us forward to this policy, not merely by the brief stringency of 1893, but by the whole recent course of money. The failure of bimetallism is not produced by artificial causes or combma- 222 BANKING AND CUKKKJNUi. tions. The substitution of gold for a mixed currency is a mighty advance of that oceanic tide ^vhich is compelUng u., whether ^e wdl or no to adopt the modern methods of advanced civilization, of which the use of banks, instead of coin or notes, is one of the most important and beiieflcial. If bimetallism were possible, and if we could keep m circu • lat on side by side, all the gold and silver which America can produce, al ring none of it'to flow abroad, we should be just as tor f-m gmng relief to our farmers and planters as we are now. \\ e are putting upon precious metals two inconsistent tasks-the maintenance of a standard and the furnishing of an adequate medium of exchange. Whether we want to do so or not we shall be absolutely driven to give up this hopeless struggle against an evolutionary force as resist- fels a?the flow^f the ^"--on. Gold will, ma very short ti^^^^^ keiit in bank vaults as a standard and security only. Indeed, that Uas St cally come to pass already. But the oidy com or notes m circu- Fa'on should be of sinall denominations, subsidiary to <^1^««J,^' ^f^jj^^^^^^ used for any payment exceeding, at the utmost, *10. Celt hed checks . must and /ill be made as familiar to all the people as bank notes. Thev must be accepted for railroad and steamboat fares, for store pur- chase and for all purposes, except where the most tiiiiing sums are ?nv.d' ^d Then, w th this system brought home to the door of every fermer at least as near as a telegraph station, the currency problem wiTbe solved forever. The demand for gold will be reduced to a level Tith the supply, and whatever effect that demand may have upon prices of merchandise will be counteracted. NO INFLATION IN BANK CHECKS. Here we turn aside to meet an anticipated objection which may proceed from one holding the soundest general views upon cm-rency It will be said, " What is the difference between the issue of bank checks and bank notes, if checks are to be used on such a ^^^'^^ ^^J^^ !?: small payments ? Will not such a use of checks drive gold out of the country and lead eventually to a suspension ot specie payments as effectually as would a similar issue of bank notes? . ,, . , No, it would not. The vice of tiie note system is that notes are intended to remain in circulation for a long time, and would not be issued if it were believed that they would have to be redeemed the next day, and therefore they are either issued in such small quantities as to be insufficient for all the needs of exchange, or else m such large quanti- ties as to lead to a praoti(;al suspension of specie payments, to mtlate prices, drive out gold, and bring about all the rum which sooner or later invaritiblv follows an irredeemable currency. Bank checks, on the contrary,' are not only theoretically redeemable promptly, but must be, in point of law, and are, in point of fact, presented and i;edeeined witji- out more than twenty -four hours' unnecessary delay. The ^^ol^^er ota bank check is bound to put it in course of collection forthwith, under penalty of losing all claim against the person who gave it to him m case the bank should fail, and of losing all claim against the bank m case the signer of the check should draw his funds out of the bank oi should countermand the check itself. N^inety-nme per centot all checks, tiicrefore, are presented to tlie bank tor redemption withm two days after they axe received by the payee. So long as this continues to be the law and practice any inflation of the currency by means of checks is impossible. Of course this wholesome law must not be relaxed, e-er- tifled checks would remain good against tlie bank, but, it not presented BANKING AND CUKKENCY. 223 for actual payment, the drawer would be released if the bank failed, auch checks would, therefore, keep in circulation just long enough to suit the convenience of people living in solitary hamlets or isolated farms; but experience proves that they would not remain out many i-Q. fir. Tiip resnlts ffive universal satistaction. iueieio 'S:^J:^^SL,^uiSS- four £ s=?.ts,=?a'xsst;^;e=;'^'t;«ts Producer sells his produce for cash, at the highest market price, pay- Se in iwik Seeks, and buys what he needs at the lowest market price payable in the same way. m.itpri States and The same thing is done in many parts ot the ^nited tetates ana wherever this is the case nobody outside of the silver-uiinmg States Tver took much interest in the controversy over "allism until it was forced upon their attention by impending disaster. The ™ ^xt^^ sion of a similar banking system is the one thing indispensable for Zse sections of our country in which the want of e^^rre^^y is a sub lect of complaint. Is not this a sufficient remedy Has any otoer practicable remedy ever been proposed? (Jan any other adequate rem edy be proposed? BANKING AND CURRENCY. 225 The following conversation took place between members of tbe com- mittee and Mr. Shearman: Mr. Hall. Do you believe that the system of taxing out of exist- ence any institutions by the Government is a wise provision of law' Mr. Shearman. I do not. Mr. Hall. Do you think that to destroy a banking system by taxa- tion is a wise provision of law? Mr. Shearman. No, sii; I do not. Mr. Hall. Do you not believe that, if the tax upon State bank cir- culating notes were repealed there would be an increased number of banks in the States '? Mr. Shearman. It would tend to increase the number of note-manu- facturing institutions. Mere banks of deposit are not taxed by the Federal G-overnment. Mr. Hall. We have never had any trouble about what you are pleased to term "note-manufacturing institutions;" but we have had trouble with banks of discount. Mr. Shearman. I have seen great trouble caused by note-issuing banks. I was in business before the war, and I know that the State of niinois, for example, was tilled with such banks. For instance, the Bank of Hamilton, 111., so far from being a bank of deposit and dis- count was nothing more than a blacksmith shop. We used to get such bank notes and send them to the places from which they were issued ; and after a long hunt we would And a place where they issued and redeemed notes, but where there was absolutely no bank, 'in the proper sense. The people of Iowa were robbed, wholesale, by the circulation of notes of the Bank of Florence, in iSTebraska, and similar " wild-cat" notes. I think that note-manufacturing institutions are not legitimate banks. They may be legitimate enough in their way, but that is not real banking business. What I plead for is banks of deposit and dis- count. The more banks of issue you have the worse off you are, because the tendency of banks of issue is to increase the dependence on mere money, which will never answer the purpose of exchange for our enormous modern business. Mr. Hall. Have you in the State of Xew York the same system which we have in the West, with regard to returning the amount of money on hand for taxation? Mr. Shearman. Some people are trying to establish it, but they have always been 'defeated and always will be. Mr. Hall. Is not a man in the State of New York required to pay taxes at present on the money he owns or has on deposit in a bank ? " Mr. Shearman. Theoretically, yes; practically, no. Mr. Hall. When he avoids it he does it by giving an incorrect return ? Mr. Shearman. He is not called upon to make any return. The assessor guesses at it, if he thinks at all about it. Mr. Warner. He swears it off. Mr. Shearman. It is seldom necessary to tell a lie in order to avoid taxation on money in New York, and men generally do not tell a lie about it. In New England and the West it is necessary to lie in order to escape taxation, and most men do it: Mr. Warner. What has been the experience under the national- bank act, which provides in the case of State banks having branches that those branches may be allowed to continue? I ask for informa- tion, as I am interested in the matter. Were there State banks with systems of branches incorporated in the national-bank system? 940 15 226 BANKING AND CURRENCY. Mr Shbabman. If tliere were any they did not keep the system up. The only State that I know to have had such a system was Indiana, and it seems to have been abandoned there. Mr Warner. I was about to ask if the gentleman had any data as to the reason why it had been done before and why it has gone out of ''^Mr Shearman. I have no information as to that. I might mention the ca«e of a large bank in the city of New York, the president of which told me that dm'ng the recent panic the large banks were carrying all the others. One of the worst things about the system wa^ that the small uptown banks had to be carried by the larger- banks downtown These larger ones desired to establish branches uptown, which would have giveii safety to depositors, whereas the smaller ones did not give safet\^ But they found that it was absolutely impossible to do it. Ml Warner. Mv question is as to what had be^n the experience in this country, and whether you could suggest anything which would ^^^ Mi^Sbae'J^n. I am quite sure that they have died out. The late Hugh .AlcCuUoch was president of one. ^-u^-na Mr. Cobb, of Alabama. lu your opinion, is it possible to get the bene- fits of your system under State laws ; or do you confine it to the national- ^'''mV'shII™. I should be glad to have the States establish good banking systems if they will; and there is no reason why they should not, except that nearly all of them, by their absurd tax laws, make it impossible for honest men to conduct State banks with that degree of publicity which is indispensable to safe banking; and t^^e tas^ of p(a- suading the people of thirty or forty States would be so difacult that it would be almist a hopeless undertaking. Therefore Congress must settle the whole question. The States should not be prohibited from doino- it also if they will. You can hardly have too many genuine banks I think that instead of there being 4,000 national banks, or 7,000 or 8,000 banks of all kinds, there ought to be, including branches, 40,000 or 50,000 banks in >this country. _ , Mr. Cobb, of Alabama. Would they all be banks of issued Mr. Shearman. I would not have one bauk of issue. Mr. Cobb, of Alabama. Where would you get currency! Mr. Shearman. You would never be short of currency. Mr. Cobb, of Alabama. I am asking for information: What wouia be vour currency. ,^ . . •<.!„+ Mr. Shearman. Gold and silver; chiefly silver. My opinion is that there can not be any reason why any farmer in this country sho'iia need more than $5 or $10 in actual currency at any one time. When not travehng I do not. I can not see why $5 per capita outside ot the banks is not enough money for all purposes. Certainly it would it people were once educated to the use of checks. Indeed, I think that $10 to each family would sufdce. There being about 13,000,000 fami- lies, that would be $130,000,000. If we can estabUsh the universal use of bank checks there will be no necessity for more, at the outside, than $200,000,000 of currency in actual circulation. Mr. Cobb, of Alabama. Where would that come from? Mr. Shearman. It would be gold and silver. There are oceans ot o-old and silver for that purpose. I think it would be practically ail silver. The banks would hold $250,000,000 of gold in their vaults as securitv. BANKING AND CUERENCY. 227 Mr Cobb, of Alabama. You would have a system of checks that could be used to take the place of paper currency? Mr. Shearman Certainly, and when you travel you would travel with certified checks. The American Express Company already issues certifaed checks, which are accepted by hotels and by railroads- and ATith this system universally adopted every man w(Uild travel with checks instead of notes. They would not be kept out as floating cur- rency as bank notes are. A check must be presented within a short time, and every check would settle itself and pass out of existence promptly. A check can not remain out as notes do. Checks rarelv stay out for more than teu days. Mr. Cobb, of Alabama. Say I have 50 bales of cotton and waut to sell them. Mr. Shearman. How do you sell them now? Mr. Cobb, of Alabama. I am from Alabama, and I waut to sell them in Alabama. I waut to sell them precisely as if I took them to New Orleans. Under your system, in what do I get paid for that cotton? Mr. Shearman. You would get a check on your home bank. Mr. Cobb, of Alabama. Suppose I wanted to sell the cotton in Tuske- gee ? Mr. Shearman. Exactly; you would receive a check on your own bank at Tu'skegee. Mr. Cobb, of Alabama. What would I get from that bank? :Mr. Shearman. You would get credit as a deposit, or the bank would credit you on its books for the amount, which you could draw oat at any moment by check. Mr. Cobb, of Alabama. Suppose I wanted to come to Washington, •would the bank give me a certified check for so many dollars? Mr. Shearman. Yes; you could get a check for $5, |10, $50, or any other moment, and the railway ofiice would take that in payment for your fare. Mr. Cobb, of Alabama. There is a class of persons, as you know, who Would not be willing to receive anything except money, and would not acce])t credit in a bank. They want something which they can handle or |>ut away. Mr. Shearman. I heard of a farmer who had put away $18,000 in gold the other day. You do not waut to legislate so as to encourage such lunacy. The people must be educated iuto sensible habits. I would like to ask you, do not the farmers now have to be content with credit at country stores ? Mr. Cobb, of Alabama. Evidently. .^Ir. Shearman. And how much better it would be for them to have a credit at the agency of a good bank, with $500,000 or $1,000,000 of cai>ital, under the supervision of the Comptroller of the Currency. That is what we have in the cities, and we do not want anything else. We will not be bothered with money in our pockets. Mr. Cobb, of Alabama. Themisfortune with farmers generally is that they have too much credit. They begin the year by getting advances from merchants. In the fall a farmer pays tlie mortgage or obligation upon his advances, and the merchant gets 15 per cent commission or more in many cases. It is more tlian you have stated it. Mr. Shearman. I was trying to keep within the limit. Would it not be better for them to keep an account in bank? Mr. Cobb, of Alabama. Considering the selfishness of the banks, would not they want to make a profit off the farmer? 228 BANKING AND CURRENCY. Mr Shearman. The competition is so tremendous that they would be aiad to get a quarter of 1 per cent on such transactions. Mr Cos. I am interested in what you say, and I would like you to explain this to me. A farmer goes to a country merchant and wants to sell his cotton. We understand the process m the South by whichthat is done, and the only objectionable thing about it is that they really charge more than you mention. They do so m a great many places. If vou establish branches of banks yon would undertake todo busi- ness with checks. Suppose Judge Cobb wants to couie to Washing- ton, you would give him a certitied check, and he would use that as money. That check takes the place of the circulating medium. It cir- '^Sr? SheTrS'. Yes, sir ; but to a very limited extent. But the dif- ference between a check and a note is very great. When a note gets out it floats and floats, and often it never gets back to the bank loi months or years. Such notes inflate the currency. If a check were given out it would return to the bank within a very few days, and it fould not inflate anything. If a check is not certifled it is not binding on the bank, and unless it is promptly presented to the bank upon which it is drawn the maker is released, and, moreover, he may coun- termand the check. So prompt settlement is sure to be made m every case. Mr. OoBB, of Alabama. The value of that check depends upon the solvency of that bank? Mr. Shearman. So does the value of the note. ^, , , ^ Mr Cobb, of Alabama. The only difference between the check and the bill is that the check only floats for a short length o± time, while the bill floats a long time or any length of time ? Mr Shearman. Yes, sir; but that is a tremendous difference. Mr' Cobb, of Alabama. As to the money which is absolutely needed for smaller transactions, such things as are necessary tor the house- hold; would they be supplied by gold and silver m the form of change J Mr Shearman. Yes, sir; so tar as very small transactions go ; but there would practically be no difficulty in supplying that demand, i think silver would fully sufdce for that purpose. Gold would be kept in the banks. That is the case now east of the Rocky Mountains . There is practically no gold in actual circulation there. With regard to household affairs, the women are learning to make payment in checks. My wife lias keiit a bank account for all domestic transactions for many years, and many otlier women do so. Mr Black. What does a man do who has no money .' Mr Shearman. If a man has no wealth he has no credit, except what his reputation for honesty gives him. In Scotland they have a way of providing for such cases. If a man with no property can get several of his neighbors who own property to indorse for him he can get a credit in anv bank. They will be men who are worth, say, ${),00U each. If these inen care to carry him, he gets his cash credit m the bank. . , • n , i • j. The Chairman. Do yon propose any legislation by which this system can be carried into force, or is it a suggestion growing out of custom which could be resorted to? Mr. Shearman. I would suggest two points of legislation which are indispensable. First, permission to national banks to establish agen- cies, within their own States only, to a number not exceeding one branch for every $10,(»00 in capital in excess of the first .i?100,000. Thus, a bank which has a capital of .$500,000 might establish forty branches m •BANKING AND CUKRENGY. 229 the same State— oBe for each •'¥10,000. Second, the capital of all banks used m establishing these smaller branches should be exempted from local taxation to that extent, if not altogether. Mr. Hall. Would not that perpetuate the existence of national banks • they are going out now. ' Mr. Shbaeman. The banks as banks of issue are going out, but not the banks tliemselves. As banks of deposit they should be per]>etu- ated and multiplied indefinitely. Mr. Hall. The matter of issue is the only thing that goes out. As a bank of deposit and discount it goes ahead. Mr. Shearman. Precisely so. Banks in 'New York care little about issuing notes. Of those which do issue notes none keep out large amounts. Mr. Cobb, of Alabama. When the Government bonds become due we will have to find another basis for our national-bank system? j\[r. Shearman. I am not talking about banks of issue. I care noth- ing about them. I see no occasion for any paper money of any kind. Mr. OoBB, of Alabama. Under the law now we can not establish national banks as mere banks of deposit and discount. They are com- pelled to deposit so many bonds iu order to get currency,'and when these bonds become due which they have deposited as a condition pre- cedent to their existence what will be done? Mr. Shearman. I should think that State bonds would be iust as good, if they are above i)ar. Mr. OoBB, of Alabama. Would you want additional legislation"? Mr. Shearman. We have not yet come to that point. It would not be needed now. It may be in a few years. Mr. Black. If this sort of security made national banks good, would it not make State banks good? Mr. Shearman. I think so. But your States would tax good State banks to death. I am not at all interested in the question of issuing notes, whether by national banks or State banks. I am quite indiffer- ent to that matter. I think in increasing the amount of money we are seeking relief in the wrong direction. I think the better plan is to lead all men into the use of deposits and discounts instead of depend- ing upon what we call money. Mr. Cobb, of Alabama. Would yon be willing to prepare a bill embodying your ideas? Mr. Shearman. I should be very glad to if I thought it would receive fair consideration. I never care, however, to use my time on something which is to go into the waste-paper basket. I should like the commit- tee to consider it, but, of course, would not expect any positive assur- ance of my plan being adopted. Mr. Cobb, of Alabama. I am sure it would be considered by us, and if it were introduced into the House it would come to this committee. Mr. Shearman. If you will consider it I certainly will prepare such a measure. Mr. Cobb, of Alabama. It would certainly be considered. Thereupon the committee rose, to meet to-morrow, Tuesday, Octo- ber 17, 1893, at 10 a. m. 230 BANKING AND CUEEENCY. Committee on Banking and Ouerenoy, WasMngton, B. C, Tuesday, October 17, 1893. The committee met at 10 a. m., Hon. wllliam A. Springer in the chair. Hon. Thomas D. English, of New Jersey, addressed the committee in behalf of House bill 3759. He spoke as follows : REPEAL OF TAX ON STATE BANK CIRCULATION. STATEMENT OF HON. THOMAS D. ENGLISH, A REPKESENTATIVE IN CONGRESS EROM THE STATE OF NEW JERSEY. Mr. Chairman and Gentlemen of the Committee : In my iudgmeut the great trouble that we have at the present time m the lack ot coiih- dence comes outside of the mere overspeculating and overtrading trom the contraction of the currency by the national banks. Irom Ibb- to 1892 we lost $185,000,000 of circulation, and though that was partly sup- -Dlied bv the issuance of silver certificates under the Sherman law, still there was a deficit. It was an actual deficit by contraction and shrink- age year by year, which led finally to inquiry and then to alarm. 1 he platform of one party (I forget now what the platform ot the other was) advocated the repeal of the tax on State banks. An absolute uncon- ditional repeal of that tax would, in my judgment, be unwise tor sev- eral reasons. The national banks pay a tax of 1-J per cent on their circulation. There is no reason why State banks should not pay the same tax, as it is a matter of revenue, and for that reason m this bill (H E 3759) I have a rebate of 85 per cent. I do not thmk it is wise to know a large amount of wild cat currency. I think you ought to prohibit it by taxing it in some other mode, charging the banks wliicli mio-ht issue money without any basis whatever. Though I am not a national-bank man, I will say that a good feature of that law was drawn from my State in New Jersey. New York and other States followed the example of New Jersey. We had a State banking system by whujh bonds approved by the financial officers of the State were deposited as a basis for our notes. When I was in the legislature I got a measure through. We gener- ally adhered to the banking system of the State, and occasionally we passed a special charter for a bank. Occasionally a specially chartered bank failed and its notes were not worth the price of the paper on which they were printed; but there never was an instance m which a note was lost on account of the failure of our State banks under the o-eneral law. State banks sometimes failed but the circulation was always safe. This bill, which was hastily drawn (because I was sick and had to dictate it), holds a rod over the national banks and keeps them from shrinking the currency. I treat the national banks fairly. The State banks should pay the same tax, and should also secure the public against worthless currency. I do not know how it may strike the committee, but I think some such bill as that should be passed. The main underlying principles of it are sound, and I commend it to the committee. You can report it in that shape, or substitute other provisions embodying the principles, and let it go before the House. The CiiAiKMAN. Why do you fix 85 per cent of the present tax? Mr. English. Simply because 85 per cent leaves 1 J per cent tax, as it is now on the national banks. The national banks pay 1 per cent and one half of 1 per cent. Deposits have nothing to do with that matter. BANKING AND CURRENCY. 231 ]\rr. Waenee. May I ask wlietlier the 10 i)er cent tax is not payable every time a note is paid out, and wlietlier it might not be necessary ? Mr. English. There is a 10 per cent tax on notes to prevent their being paid out. This bill entirely abolishes the tax on notes in circu- lation. I dictated it after drawing another bill and the phraseology, perhaps, could be improved, but the principle remains. There is another provision in the bill making the Comptroller of the Currency the absolute judge. That power has to be put somewhere, just as in the case of the rebate on whisky. There must be some officer to have jurisdiction of it. It woiild not be well to leave it to the State. Thereupon the committee rose, to meet Friday, October 20, 1893, at 10 a. m. Committee on Banking and Currency, Washington, J). C, Friday, October jilO, 1893. The committee met at 10 a. m., Hon. William M. Springer in the chair. Hon. Henry G . Turner, of Georgia, addressed the committee as follows : REPEAL OF TAX ON STATE BANK CIRCULATION. STATEMENT OF HON. HENRY G. TURNER, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF GEORGIA. Mr. Chairman : I have also an engagement this morning with the Committee on Ways and Means, which will consider a matter of some local interest in my State, and I shall therefore be brief in what I have to say here. I shall assume that the members of this committee are entirely familiar with this question. 1 take it for granted that the gentle- men before me have looked into this matter from the time of the first deci- sion in the case of Bristoe and the Commonwealth of Kentucky, in which the Supreme Court affirmed the power of the State to authorize State banks to issue bills or notes, down to the Veazie case (which came up from the State of Maine) in which it was decided that Congress could tax indefinitely the circulation of such banks. Of course these cases are antipodal in their policy. They mark eras of opinion in this coun- try. In one case the court concedes the power of the States to author- ize State corporations to issue bills, and in the other it in effect declares that Congress can destroy the power by taxation. Now, with the question of public ijolicy which enters into that con- flict of opinion, and the consequences to the country, I will not deal. I will come to the question as to whether the removal of the 10 jjer cent tax will flood the country with worthless currency. On that ques- tion there is a difterence of opinion. I have been for many years in favor of the removal of this tax and of allowing the banks of the States to resume their old functions. It is said that " wildcat " currency grew up under that system of things, and undoubtedly there were banks of inferior character engaged in the business. But the people of the States have learned something by the experience or recent years; and I see no reason to think that we here in Congress have a monopoly of all the wisdom on the subject. The experiments made under the present national banking system, which is an approximation, as I understa,iid it, to the system of the Bank of England, has given so much satisfa(;tion that I think the old 232 BANKING AND CUEEENCY. basis of banking is determin( d and obsolete. 1 do not believe that any State in the Union would undertake to issue bills on the basis of three to one of gold, as was the case in the old days. I do not think the pubho would sanction an arrangement of that sort; and I may state, as a matter of fact, that in the State of Georgia, where we had a healthful banking system on that basis, a recent effort to form a sys- tem in prospect of "this repeal shows that the members of the general assembly of that State having charge of the movement are seeking to authorize the issue of bills by State banks upon State securities, depos- ited for the protection of their circulation. I think municipal bonds, if approved, could also be used as a foundation for bank issues. There can be no cpiestion about the security of the currency issued on such a basis. , -. ■ J- I am giad to sav that since this matter has been undergoing discus- sion in the East, we have found perhaps more encoaragemeut from that section tlian from any other quarter. The men who manage business concerns where monetary congestion occurs, favor a concession to the countr>- districts under which the latter can avail themselves of such means'of credit as they have in their own midst, and enable them to have a circulation of their own. I was, a few years ago, as my friend Mr. Warner remembers (and i believe the chairman ot'this committee was also there), at a meeting of a famous club in the city of New York where there was a good deal of discussion on the silver (luestion, and being called out unexpectedly to myself 1 took occasion to say that where 1 lived it was not so much a question of silver or gold, as it was a question of anything we could get in the shape of money. I suggested to those gentlemen who control the monetary transactions of t!ie country, that they could help us by Hiding in the repeal of this prohil)itory tax. There was a generous response by the gentlemen present. That sentiment has grown in the East. It has extended in the West, I liear. I want to state my firm conviction that, if you will take off this prohibition from the banking systems in the States, the resulting currency would be entirely acceptable and satis- factory. One reason for this opinion is, that we have the benefit of experience and of the lessons we have learned from the national banking system, and of the experiments and experience of the world in this rteidfand another reason is that in order to enable this local cur- rency to circulate, we would have to compete with the very excellent currency now in circulation. In order to float these State-bank bills in business channels, it will be necessary that they shall be as acceptable as the existing currency. Mr. Hall. I would ask you whether there would not be a healthy competition between the States to keep up their currency to par with anv other State currency? Mr. Turner. Undoubtedly; and, as the question of the gentleman from Missouri leads in that direction, I will state furtlier why this com- petition would operate to bring it down to the actual test of experience. When merchants and others undertake to make exchanges they would be c(mipelled to have a currency which will not be at a discount when they go to remit to New York. ' In other words, they will be compelled to have a currency on which the cost of exchange will not be too great. It was said by Senator Vance, in a report made to the Senate, that it would be no objection even if the State currency was a shade off, or a little below the other currency, as such discount would tend to keep these bills at home; but with great respect for him I venture to dis- BANKING AND CURRENCY. 233 sent from that view. I think money ought to be good everywhere in the country. I !)elieve the system ought to have the confidence of the entire American people. I believe the States can devise a banking system as good as that of the United States. The basis of national Ijanking now is narrowing to such au extent as to cause serious fear of contraction. It is doomed by the near approach of the maturity of their bonds. I have nothing further to say unless the committee ctesire to ask me some questions. Mi\ Hall. There is an apprehension on the'question yon last touched, that is, too great a volume of currency. I want to Iciiow if there can be too great a volume of perfectly sound currency which will injure business or trade in any way'? Mr. Turner. I think not. Mr.^ Hall, ifotthat Ibelievein $50, $75, or $100 per capita circulation; but if the currency is good and there is more in circulation than is nec- essary for business purposes, would not the excess be retired and only that part be kept which is necessary to transact the business of the country ? Mr. Turner. I think so. Mv. Warner. What would Ije theeflect of the operations of the plan you propose for State bank currency upon the pressure upon Congress all the time from difierent parts of the country for more money, more currency, or more flat money? ^AJr. Turner. I am firmly persuaded that it is of the highest impor- tance for the country that Congress should take its hands off the mone- tary systems of the people. By restoring to the States their old func- tions iu this field we can take currency questions out of politics, and when relieved of the pressure of tliis burden we caji devote ourselves more fully to matters rightfully within our jurisdiction. Fiatism would no moi'c affright the people when Congress assembles. A good deal of complaint is made against what is called congestion of money in the East, and much of that complaint is aimed against the national banking system. But other causes have contributed to this result. The wealth of the East has accumulated from generation to generation; and it is not only the effect of inheritances, but it has grown because that section has prospered more than other sections. If you could revive prosperity throughout the country, that money would find its way out to the rural regions in some manner; but at the present time these rural districts are greatly depressed. They do not afford profitable employment for money, and it piles up idly where it belongs. This state of things is largely due to other causes thau the national -bank system. The Chairman. There are several bills pending here upon this sub- ject, some of which provide for the naked repeal of the 10 per cent tax, leaving everything thereafter to the States, while others provide that the tax shall be taken oft' circulation of such State banks as will comply with the provisions of the act of Congress. One of those pro- visions is that States shall, in order to secure this exemptioi?, have their banks adopt substantially the national banking system of the United States, and others that bonds shall be deposited for security, while still others limit that issue by the States to $5 per capita. Is it your opinion that Congress, if it takes any action on the subject, should provide a naked repeal or a repeal with certain conditions, and, if with certain conditions, what conditions would you suggest? Mr. Turner. I had not quite finished what I had intended to say on 234 BANKING AND CUBRENCY. the point I was considering, but I will answer that in a moment. If the State banks conld be reinstated with their ancient prerogative, i think this trouble about the accumulation of money at certain centers would in a me.asu.re be remedied, because after the active business sea- sons the bills would return to the banks whicli issued them, and wou d not be stored up in the banks of ^ew York and Boston, i hey would try to find some use for the money. Their efforts to secure au income during the idle period would tend to fructify and fertilize the regions which are now so poor. It would have a tendency to correct present evils and to disseminate the currency of the countr3^ In answer to the question which the chairman has just propounded, I am myself of the opinion that there ought to be a clean, unconditional repeal. I think we can trust this to the States. The Supreme Court having affirmed the right of the States in that resi)ec1., I think Oiu- gress 'might afford to do the same thing. We might safely leave it to our constituents, who send us here to devise a safe and sound system under safeguards which would enable them to float their notes; but i want to say frankly that, rather than lose the bill, if there was no other alternative, I would submit to such supervision as would be con- sistent with the rights of the States. In other words, I prefer uncom ditional repeal; but if that can not be obtained, then I would be glad to have any sort of currency which would not imply too much distrust of the States I am a believer in the entire safety of State institutions. Mr. Cox. i can not call to mind a single State which has any bonds out which are not now at par. Ti4_i i +i Mr Turner. Some States have bonds out which are a little less than par; but it is in cases where the rate of interest is so low that they do not pay in competition with bonds at higher rates. I can iHustrate that by mentioning the bonds of my own State. We have bonds bear- ing 5i iier cent and others bearing 4 per cent. Those which bear 4 per cent i-nterest are higher than those which bear the lower rate, and the market price is fixed according to their income. We have some 3i per cent Georgia bonds which are quoted at 95, and the 4 per cents are quoted at 108 or 109. -,-,,•■, v. Mr. Cox. The State of Tennessee has 4 per cent bonds which are at a premium, and the 3 per cent bonds are not quite at par. If we put on a limitation, would it be wise to go farther and provide that these banks shall be founded and the circulation based upon State bonds i 1 know there is some diffteulty in it. Some States have no bonds. Mis- sissippi has ncme, and some other States have a small proportion. It it is alone confined to the bonds of the States, would not the circula- tion be just as good as the bonds of those States? Mr. Turner" I have no doubt of it. Mr. Cox. Do you think it would be wise for us to undertake to put any restriction, or to go any further than establishing a basis upon the circulation? -,. ■, ^-, -, Mr. TU15NBR. I do not think I would be disposed to bmit the basis to State bonds alone. . think that in the States there are municipal bonds of undoubted integrity. Most States have prohibitions against the excessive issuance of bonds by municipal corporations. It is so in Georgia, as is suggested by my colleague, Mr. Black. Our municipal bonds range n\i with the bonds of the State. Mr. Cox. Take State bonds as a basis of circulation, and municipal bonds which are equally good; but you will see those bonds are subject to legislation in each particular State. Now, if Congress undertook to establish a rule in regard to that, do you not tliink it would bring national authority in conflict at once with the authorities of the States"! BANKING AND CURRENCY. 235 Mr. Turner. It depends entirely in what form we put those provi- sions. I do not favor any governmeut supervision. I want to add one word m regard to the safety and valae of bonds of municipal institu- tions, and that is that brokers and those who deal in them not only estimate the public faith which is pledged for their payment, but they consider also the judicial remedy by mandamus in case of default, if default is made they can go to the courts and enforce payment by taxation. The Chairman. I see from the latest quotations of State bonds that Alabama, for instance, has a bonded debt of $9,200,000, and the bonds bearing 4 per cent were worth par. Louisiana bonds at 4 per cent are worth 95,J at this time. The Georgia bonds running twenty-five years bearing 4 per cent are worth 107 to 109. Mr. Turner. I know that these bonds were quoted the other day at 110. Mr. Cox. You can not buy them at 107. Mr. Turner. Not now. They could have been bought at that rate a month ago. The Chairman. The date of this article is the 14th of this month. Mr. Turner. These quotations have been made, no doubt, but they are only an approximation. I know brokers quoted some the other day in Savannah at 110. The Chairman. What is the selling price in New York? Mr. Turner. It is 109 and a fraction. Mr. Warner. Would it not be a great advantage to local municipali- ties engaged in the most conservative public improvements which are now being made through the South and West if there could be such a home market afforded for their bonds, as the possibility of their use as a basis for currency would promote, and would it not reduce the amount of the interest charge of the people? Mr. Turner. It would undoubtedly, as was the experience with United States bonds, add to the value of these municipal securities, if they could be made a basis for banking. I confess that I want to avoid the possibility of municipal overissues; and wherever necessary undoubtedly those securities would have a better market, especially if they should have to refund. Mr. Warner. Would not there be an advantage in another way? Having bonds held at home as a basis of currency, their interest would be paid at home, and would remain there instead of being sent outside. Mr. Turner. Such would be the case also in the payment of the bonds. The money would be paid at home. Mr. Warner. It would keep both the bonds and the currency at home. Mr. Turner. Yes ; and operate to disseminate money. Mr. Warner. We, in New York, can make more money by dealing with Southerners when they are doing well. Mr. Turner. I think that is an enlightened view of the situation. The Chairman. What is your abservation and knowledge in regard to whether the bonds of the State of Georgia are held inside of tlie State or outside? Mr. Turner. They are distributed. Of course I have no information as to the proportion. Some are held in the State and some outside. A New York gentleman, I think, recently bargained for an entire issue of Atlanta bonds. Thereupon the committee rose, to meet Tuesday, October 24, 1893, at 10 a. m. 236 BANKING AND CURRENCY. Committee on Banking and Cureenot, Tuesday, October 3-1, 1893. The Committee on Banking and Currency met this day at 10 a. m., Hon. William M. Springer in the chair. STATEMENT OF HON. J. L. McIAURIN. Hon. J. L. McLaurin, a Eepresentative from the State of South Caro- lina, again addressed the committee. * Mr. Chairman and gentlemen of the committee : When I was betore you last you requested of me information about clearing-house certifi- cates issued by the association in Columbia, S. C. I have a letter from the president of the Carolina National Bank, and also a dispatch, which are as follows : Tub Cakolina National Bank, ColumUa, S. C, OctoUr 7, 1S93. Dear Sik : Your letter of the 4tli instant, addressed to Mr. .Jolin A. Crawford of this city, in reference to the clearing-Uouse certificates issued by the Colnmbia Clearing House Association, has been referred to this association. . „ . ' In rerdv thereto I would ansAver: First. That the Columbia Clearing House Asso- ciation'has issued to the six bauka of the city of Columbia, meoibers ot the associa- tion clearing-house certificates amounting to $82,000. From the daily reports, how- ever of the tianks to the association, it appears that there is in actual daily circula- tion about $20,000 of these eertiflcates. Second. That these certificates have been issued by the trustees elected bv the association to the several banks upon assets placed ill the hands of the trustees bv these banks, which assets consist of bills receival>le held by the said banks, or bonds or stocks which have been approved by the association, and the certificates issued upon them never exceed 66^ per cent of the face value of such securities. Third. That these certificates are redeemable by the linnks to whom issued on or before the 1st of January next, and so tar as the association is advised they circulate only in and about the city of Columbia. We are informed that in a few instances these certificates have been taken into other terri- tory, but whenever sent back they have been promptly redeemed. I'have read with pli.-asure the arguments referred to by you in the Congressional Record, and trust that I have given you the desired information. Yours, very truly, ■^ W. A. Clark, President Coliimhia Clearing House Association. Hon. .John L. McLAuraN, Member of Congress, Washington,!). C. Columbia, S. G.,Octoler 9, 1893. Hon. .1. L. McLauein, Mouse of Bejpreseniatives, Washington, B. C: Certificates issued, eighty-five thousand dollars, payable .January 1, 1894. Circu- lates wherever taken. J.W. BOWBEN. Now, I desire to say it was not my attention originally to embark in this matter of certificates, and I merely got hold of it as an object lesson and as an illustration of what I conceived to be the needs of the times, anfl I would now say if_it is the intention of the commit- tee to take any action to relieve these certificates of the 10 per cent tax they ought to do it promptly, because I see by the papers, and I have also letters from the presidents of these banks there, that the Eevenue Department has already taken steps to enforce the collection of th(; tax and the banks are going into court to resist it on the grounds of unconstitutionality and illegalitiy and with every legal objection that they can make, and if the committee is to take action at all it should * See proceeaings of Sept. 30, 1893, page 29. BANKING AND CURRENCY. 237 be prompt, in order to spare the Government and the banks an extended litigation on the question. Mr. Warner. May I ask the gentleman from South Carolina whetlier he has examined the bill introduced by Mr. Brawley, No. 3825 '? Mr. McLatjrin. Yes; I have examined it, and I think it would be ample to meet the emergency. I think if that bill was reported at once and we could get it on the calendar and get it through the House it would relieve the situation entirely. But I would say this, gentlemen, whether the tax is enforced or not, the very threat of enforcement of that tax has rendered the certificates almost inoperative; the banks are afraid to put them out and the people are afraid to take them, and it has thrown a cloud of doubt upon them, which is not desirable. If we have to pay the tax we would like to know it, and if Ave are not to pay the tax we would like to know that; and I think for that reason it is imperative upon the committee to act as promptly as it can. Mr. Warner. May I ask the gentleman from South Carolina whether there has been any arrangement made for hearings upon this matter, that is the matter introduced by Mr. Brawley, and I would say at least a half a dozen other members of the House, either before or after the introduction of the biU, have seen myself and other members of the committee, and appreciating what the gentleman has just called to our attention, that any action to be effective should be prompt, and appre- ciating, perhaps more than the gentleman does, the real difficulty, not necessarily the final, but the real difficulty of getting a bill of this kind through this committee, and especially through the House, I would like to ask whether any arrangements have been made for hearings, whether members in favor of this are pushing the bill and whether they are to appear before us? The Chairman. I have received no request, except from Mr. Braw- ley, and he assured me he would be here this morning. Mr. MoLauein. I hope he will, and I would like to do anything in the world I could to help him along. I wrote to Mr. Livingston, of Georgia, a note because the Atlanta people were in the same condition, I understood, and I called to his attention my argument before the committee and also the bill of Mr. Brawley, and he tells me he wishes to cooperate in any way he can. Mr. Cobb, of Missouri. Would this tax be paid by the holder of the certificates or by the clearing house"? Mr. MoLaurin. The clearing house. Mr. Hall. My impression of that section is that tax has got to be paid by somebody every time that clearing-house certificate goes over the counter. Mr. McLaurin. We are ruined in South Carohna if that is so, because that is all the money we have there, and I beg you to act promptly, because it is all the currency we have had there. The Chairman. If it was just one tax it would perhaps be all right, but if it has to be paid every time it goes over the counter that is a different thing. Mr. Hall. I wish to say this, if the gentleman will pardon me, tlie activity with which money circulates, of course a smaller amount cir- culating actively, for circulating purposes is better than a large amount circulating slowly; that is a well settled principle; and these clearing- house certificates were as active as the Irishman's flea was ever charged with being, and they circulated through different hands perhaps about a hundred times. This will affect the very men who were trying to meet the emergency. 238 BANKING AND CURRENCY. Mr. MoLauein. Xow, I called attention to a letter of Governor Till- man, in which he said that that was all the money that they had had for some weeks. , „. ^ ^ ■ j- n The Chairman. Section 3412 of the Revised Statutes is as follows : Every national banking association, State bank, or State banking association shall pky a, tax of ten per centum on the amount of notes Of any person or of any State balnk or State banking association, used for circulation and paid out by them. The words " and paid out by them " is the gist of that. The next section, section 3413, is as follows : Every national banking association, State bank, or banker, or association shall pay a tax of ten per centum on the amount of notes of any town, city, or municipal corporation paid out by tliem. Mr. Warner. Now, on page 59 of the jSTational Banking Laws, you will tind the language as follows :* That every person, firm, association other than national bank associations, aud • every corporation. State bank, or State banking association shall pay a tax of ten ^ per centum on the amount of their own notes used tor circulation and paid out by That every such person, ttrm, association, corporatiou, State bank, or State banking association,' and also every national banking association, shall pay a like tax ot ten per .entum on the amount of notes of any person, firm, association other than a national banking association, or of any corporation, &ti-^te bank, or State banking association, or of any town, city, municipal corporation used for circulation and paid out by them. That is to say by any such person, firm or association, and that is to say anybody on earth. Mr. McLaxtrin. You see, gentlemen, we have got to have reiiet. Mr Brosiits. You do not nnderstand that to mean the man who carries that note, unless he is a banker and does a banking business, hfis to pay that tax? ■, . , i n Mr. Warner. It says any person other than a national banJi shau pay a like tax of ten per cent. Mr. Brosius. That is an unfair construction, I think. Mr. McLaurin. Now, the impression we got in South Carolina was that the clearing house association paid the tax. Mr. BROSiCS.'lt is every person issuing notes and using them as a banker; not as an individual, but as a banker. Mr. Warner. It says every person shall pay a tax of 10 per cent; and in the second section, section 20, it says every person shall pay a tax upon such notes. Mr. Brosius. If he issues them as a banking institution and pays it out. J, , J.T t. Mr. McLaurin. Gentlemen, 1 would like to say the very fact that there is such ambiguity in regard to its construction among the mem- bers of this committee demonstrates the fact that we need some legis- lation, because we had considered only the association was liable for the tax, and I see there are certainly grounds for the construction which has been given by the gentleman from New York. Mr. Black. Have you any suggestion that anybody was contempla- ting that this tax should come out of the private parties* Mr. McLaurin. No, sir ; we thought it was only against the clearing house association; but I know this, if the clearing house association had to pay it, it would have to come out of the people who used the notes. It was bound to do it in some way. * Section 19 and 20 of the Act of Feb. 18, 1875; see Supplement, to Revised Statutes, cliapter 36. page 133. JiAXKINU AND CURRENCY. 239 Mr. Johnson, of Indiana. This subject has been tonchecl upon by the ^Supreme Court decision -svhere it was held 3Ir. McLaurin. The mere fact of this ambiguity makes it necessary tor us to haye some legislation on the subject. We haye used these certificates to carry oyer the panic, and it has done it in a very suc- cesstul way. The banks invented the plan and we do not think they ought to suffer, and we tliink that this Congress ought to come to the rescu(.i of the peoi^le. STATEMENT OF HOW. L. W. TURPIN. Hon. L. W. Turpin, a Eepreseutatiye from the State of Alabama, next appeared before the committee in behalf of the following bill : [H. E. 3-438, Fifty-tliird Congress, first session.] A IjILL to allow national banks to loan money on real estate. Jie U enacted hy the Senate and Rouse of lUpresentatireK of the United States of America ut Congress assembled, That the seventh subdivision of section fifty-one hundred and thivty-six of the Revised Statutes of the United States be amended as foUow.s: "Seventh. To exercise, by its board of directors or duly authorized officers or agents, subject to law, all such incidental povrers as shall be necessary to carry on the business of banking, by discounting and negotiating promissory notes, drafts, lulls of exchange, and other evidences of debt; by receiving deposits; by buyino- and selling exchange, coin, and bullion; by loanin'g money on personal security or upon the security of real estate; and by obtaining, issuing, and circulating notes according to the provisions of this title," Sec. 2. That the second subdivision of section fifty- one hundred and thirty-seven of tin: Revised Statutes of the United States be amended as follows: ■' Second. Such as shall be mortgaged to it in good faith by way of security for debts." ■- .J Mr. Turpin addressed the committee as follows: Mr. Chairman and gentlemen of the committee: I did not expect to make anyappearance before this committee, but inasmuch as the chair- man has invited me Mr. Beosius. What is the number of tliat bill? Mr. Turpin. It is House bill l^o. 3438. This bill simply repeals that clause of the statutes prohibiting the national banks from lending money upon real estate as collateral security. Now, 1 came to Con- gress in 1889. I introduced tliis bill in December of that year, and have constantly introduced it every session since. On the 5th day of June, 1890, I went home by the advice of a majority of the House of Eepresentatives; you will remember that was a Republican Congress. Soon after that, on the 23d day of June, and after I had been unseated, my colleague (Mr. Gates) introduced a similar bill (H. E. Xo. 135, first ses- sion, Fifty- third Congress), and the Montgomery Advertiser, a leading daily published at the capital of our State, has never stopped talking about that bill and the great merits of it. I have consulted with a great many bankers in my State about this bill and I ha-^'C not found a single one with whom I have talked who makes any objection to it. The people want it, and it is but an act of justice to the farmers of the United States that you give it a favorable report, and see that it is en- acted. I live in a very fine agricultural country and it is covered with mortgages of Scottish and British syndicates. This money has, as a rule, been promptly paid, either paid in at different periods on install- ments, or it is paid when due and demanded at once, and I believe that a certain amount of collateral security, first mortgages upon real estate, is as good as any collateral security a bank can have. It is not 240 BANKING AND CURRENCY. an experiment because, as I h ave said, England and Scotland have been for many years lending money all over the United States m this way, and are doing it every day. Mr. Brosius. But their banks have not? Mr Ttjrpin. It amounts to about the same thing ; mortgages on land are taken by these foreign syndicates^and as a rule the interest and principal has been promptly met by our people. Mr. Brosius. Your citizens lend money on real estate security it they haveit toloan, dothey not"? , -, ^ , i Mr TURPIN If our national banks wereallowed to loan money on real estate I expect we would not pay so much tribute to England as we are now paying constantly, and paying a tremendous amount, too. i did not expect when this bill was first introduced to make any talk before this committee about its merits, but now that our party is in possession of all the branches of the Government I am in hopes this committee will do all in its power to bring relief to the people; but I had a paper in which Mr. Marble, who is president of the National Bank ot Cahtor- uia— I had it my hand when I was here a few days ago, but m some way I have mislaid it— takes this position and advocates very strongly m this paper prepared by him to be read before one of the congresses at the World's Fair. I suppose all you gentlemen have received it. 1 do not know whether you have got it or not, but according to my way ot thinkiii g, in fact my business sense tells me, it was easily the best ot the many circulars sent to me on tliis subject. Mr. Marble says it will do away in a great measure with the prejudice which has so long existed among the farming classes against the national banks. Mr JoHxsoN, of Indiana. Have you that circular? Mr TURPIN. No ; as I said before, I have misplaced it, but I will try to find it, and will get it, if possible, and present it to the committee. Mr. Marble says that a mortgage to a certain per cent upon a good farm or a good home is as easily realized upon any day in the year, whether it is due or not, as any other collateral. Now, that is his position and opinion about this bill; and as I have stated he is president of the Na- tional Bank of California, a very pros]5erous and substantial institution. Many such loans have been made in my section of country; I have bor- rowed a good deal of money in this way myself. I have borrowed from the English syndicates and Scotch syndicates, but their names are so long that I have tVirgotten them, and I know that these, papers, first mortgag-es upon reaf estate, are deposited as collateral and loans are negotiated upon them, short loans— many times before they are due— iustlike United States bonds. State bonds, or any other kind of bonds, 'because they are absolutely safe. In my section of country there is little or no woodland; nearly all of the land is cultivated, consequently large loans have been made, large to the area, I mean; and I do not now recall but one single instance Avhere a mortgage was foreclosed and the plantation sold, and the money was realized on that. This bill of Mr. Gates, you will observe, is a very different sort of a bill from mine. I merely repeal and Mr. Gates goes on to say something about the rate of interest. Not to exceed in auy case that allowed by law, a,nd the taking of any greater rate of interest for the loan or nse of the money, as aforesaid, shall mate the mortgage or other obligations for the repayment of such loans null and void. I understand that is the law now and a national bank can not charge over and above the amount of interest that is allowed by the States in which the banlcs arc located, hence there Avas and is no necessity of such a clause in a new bill ; tlie statutes are plain on this point. BANKING AND CURRENCY. 241 Mr. Johnson, of Indiana. The existing law does not make the whole contract null and void, but this proposed act of Mr. ();ites alfects the whole contract. I do not remember tlie exact terms of it. Mr. TuRPiN. I understand that and am opposed to jnittiim' additional penalties in the bill, or doin- anything that would nt all" intimidate the banks ; make them hesitate to make hjans, as tlds bill allows. I do not want it intricate or cumbersome. This bill simply allows the national banks to lend money upon real estate. They are not allowed to do it now; m some instances in my country I have known third ])arties to make a percentage on a man wdio owned land or citv lots by stand- ing between the owner of the property and the bank, by making per- sonal security for it. I have known tliat to be done frequently. The Chairman. Does it occur to you that the banks might be greatly embarrassed if they loaned their dep(jsits on long-time paper, these deposits being always subject to prompt and immediate payment on the demand of the depositors? Mr. TURPIN. Well, I am inclined to think if there is no prohibition placed upon them some reckless banks miglit get themselves into some little trouble; and if the committee thinks best the bill can be reported with an amendment prohibiting the banks loaning over a certain per- cent of their capital stock. I see no good reason to confine tlie banks, to a certain per cent of the value of the property. I take it that few,. very few, banks would loan more than 40 or 50 per cent of the cash value of the property. In further answer to tliat, ^Ir. Chairman, I would simply repeat what Mr. Marble says about it— that these papers. called Southern securities in oar country, can be realized upon any day in the year, whether tliey are due or not, as easily as upon any other collateral. Mr. Waenee. I was about to ask the gentleman whether he thinks the same rule would not apply to these as to State bonds and municipal bonds and other bonds that are now admitted to be good investments to a certain extent for banks and trust companies? Mr. Tuepin. Yes, sir; 1 should think so. I do not know but what there might be some additional safety in limiting, but I do not beheve the banks would lend any more money on real estate than they could collect, and they would not put themselves in a position where they could not realize on these securities any more than upon State bonds or any other bonds. My position is the same as Mr. Marble's. I beheve these securities — first mortgages upon improved real estate — can be as easily realized upon any day in the year, whether due or not, as any other kind, excepting, of course. United States bonds, which are by law made a basis of circulation. I remember asking my colleague. Gen. Forney, when I first came to Congress, why this prohibition was put into the statutes, and he said it was in the interest of the landholders; they had it done. They said they were uneasy about the national banks, and were afraid that if they did not put something of the sort in it would not be long before the banks owned the whole country. I never heard that view expressed before; but, as a farmer and one of the landowners, I may state to my friend that I have no such fears, and I would rather borrow of our own banks than of an English or a Scotch syndicate; and the very fact of our paying so much interest as we have abroad — this constant tribute to foreign countries — has done more, I think, to bring on this panic than anything that has been men- tioned, except, perhaps, two causes that I will not now discuss — the two that have been so generally talked about. 940 16 242 BANKING AND CUKKKINUl. Mr Brosius. Is uot a very considerable body of loauable funds owned brcitizens in your section which are available for those who dis re lon-tiine loans without going to the banks"] People m my countrv go to the banks for teniporary accommodations; they never go S the bank, for long loans; they get these loanable funds m other ^'^Mi'titrpin. We have a good man^^ individuals who have money to loai; but our people do not go to them if they can possibly help it. ^r- ISSn! ■s37^cause they do not want to pay the price-the '^fi;:S^:^S^ SS^do not want to pay 25 per cent '"m^ bLsius Does not your State law limit the rate of interest? m tJeSn Eight per cent is the legal rate for Alabama, but our peopl'e axe charged 1 per cent discount, .vhich is equal to about 14 per ""'mi' hall. I do not believe there is a State in the Union, uoi'tli or south' of Mason and Dixon's line, that does not discount above the '"^Tv^l^^"^^: I would like to ask the committee a question What is the obiection to allowing a bank to negotiate a loan upon real pstn to the best collateral security m the world? Sr JcilisbON, of Indiana. It hasbeen claimed thatit can i.otberead- '^^Jlr'Tir'S.m'.'' These securities, Mr. Marble says, can be realized upon. Mr'. JOHNSON, of Indiana. The ordinary commeixaal paper is for pay- ment to be made within a short time and can be used quicker and bettei , tint is the theory that has been generally advanced. Mr T URP N. If the banks were allowed to make long or short loans unon'laud they could, say occasionally, when they g;ot m a^ tight place, deposit these Securities, >st the same as bonds are deposited, and boi^ row upon them, and when they were flushed redeem them, aud all he while 'their loans on real estate would be drawing interest, whether hypothecated or in their own vaults, and they can tittord to doi*, ^r the legal rate that is allowed by the States is greater than the rate the banks would have to pay. . , ^ . ,' i „ ,,t t „nfif>v Mr Warner. I agree with my friend from Alabama-and I i^\idei- staud he does not propose or contemplate that the bank «lial eithei actually invest all or nearly all of its assets in mortgages^ or it shall be perinitted so to do, or that these investments shall take the place of auv commercial paper which represents short-time loans; but, as 1 understand the suggestion, , it is simply that i}^»rtg.i^ges ui on leal estate be put upon the same foundation as other favored secuiities not *^'^M "*TuRPiN. That is the idea, and I anticipate if you enact this law— that is, repeal it^that there would be hundreds of banks in the large cities wlio would never loan a cent upon real estate. Mr Warner. Your idea is not to lessen the amount loaned on com- mercial paper, but simply to allow mortgages to be substituted tor other favored securities ? , Mr. Turpin. It is simply to allow them to loan upon real estate, there is nothing compulsory about it. Mr Johnson, of Indiana. And you think the consequences wouRt be not to lessen tlie amount of commercial paper; that the tunas invested in that could not of necessity be invested m the other l BANKING AND CURRENCY. 243 _ Mr. Waenbb. There are two classes of ii.vestmeuts iu the bank— SJ'!^!11 'i"' ««°^^ercial paper, discounts, which represent what you might call short-time investments, and other investments on lone-time securities. Now I understand my friend from Alabama states thatTf the oans on mortgiiges upon real estate be permitted the result of that would not be to substitute the mortgages for the short-time pai)er, but It would permit the mortgages U be used instead of a part of their long-time investments which they now have. Mr. Johnson of Indiana. Now, I want to ask what long-time paper have they now? What other kinds of security do you allude to- national bonds ? ^ ^ ", Mr. TuEPiN. Now, we do not claim that any mortgage in Alabama or anywhere else is as good as a United States bond. I hope and want to see the bonds better than any other securities. But there is an additional and other security which is good enough besides bonds Mr. Cobb, of Alabama. My colleague might have added this in his argument. The other security he has spoken of is in daily use amono- our banks m Alabama, and it is for this reason the mortgages are o-eu- erally taken for a small per cent of the value of the land, and therefore in case of a panic and they are compelled to realize upon the security at once It can be more readily done upon security ui)on land than upon anything else, because the banker goes out and he finds a man who has got money Now, there are a miglity few men in our State who have money outside o± the banks. We are poor people, but the men who have money are willing to lend it, not so much upon the prospects of the amount gained as upon Its absolute security. Now, when one of these mortgages is brought to a man who has money, and he sees that the mortgage is but a small per cent of the value of the land, he knows he is secured almost absolutely, and he is willing to risk his money on that, because he knows that if nobody purchases this land he can purchase it under the mortgage and have a plantation for which he has ])aid only one-third ot Its ynlae. So, even in a time of a panic, it is security which is worth as much as any other. Mr. TuEPiN. I have had that experience. Eight now I should like to state, and I feel pretty thankful for it, too, I have got on the other side, i have been on the borrowing side a long time, and it is much more comfortable not to have it to do. This summer everything ■■,, as as tight in Alabama as I have ever seen it, iind I invested some money just exactly that way. An English syndicate had a mortgage on some property. The property was good, but the owner, a clever ^-oung fel- low, was a spendtluift and had nothing to pay with, and I'paid'this mouej^ He has two years to redeem it in under our State laws, but in ' the meanwhile he has to pay 10 per cent on the money, besides the legal rate of interest, which is 8 per cent, so that you see it is a good investment to me, whether the land is redeemed or not: good either way, for if he fails to redeem why I have the land. Mr. Johnson, of Indiana. Have you read the section? Mr. Warnee. What section? Mr. Johnson, of Indiana. It contemplates the direct loan of money on mortgage security as you would on discount paper presented. Mr Ttjepin. I just simply propose to repeal what is in the statute lorbiddmg national banks to lend money on real estate. 1 believe the bill IS all right although I have not compared it with the first print ihe original was introduced in December, 1889. Mr. Beosius. The evil you propose to remedy bv this legislation I understand to be that those who have loanable funds to dispose of on 244 BANKING AND CUKRENCY. lono--time loans charge exorbitant rates of interest, and you want the bTnkltobe authoril'ed by this legislation to loan their nroney on the same time and at their rates for the beneflt of the borrowers ? ^\v TrmpiN \nd for the benefit of the banks, too. ^ Mr Sms. So that the idea, is the banks shall loan their money on morfo-aees iust as individuals do lu your btate I + „ .„, C TuEPi/ That is all. Give them the right to accea)t mortgages on real eTte IS collateral security, they will make no such oans unless thev think it will pav them to do so. Give them the authority, and theCiks will never make any such loans as long as they can use all ^'^Ni^'Si^'^^S^^'S^Sk loans §33,000 of its deposits on mort^ ga^s Si one year, it has si.'5,000 less money to put out on commercial ^' Mf TxiKPm. Certainly, it would have ; no doubt of tbat But at the same'time that is only temporary. ^Vhenever yoa loan * o,000 out of tirb'iukvou leave .^25,000 less, but I claim, as Mr Marble says, this t^>5 000 can be replaced at any time. In other words, it will draw the ntercst br three years, say, and if the bank should need this J525,000 baek wUhh\ or two months, or one month, then they can take these papers and Ijorrow money. If there are any valuable build- take tnese pape always required to be insured by these S^h S^dSS:; S Z bank^ wouM no doubt be equally as cau- *' Mr Wara'EE. I think the gentleman from Indiana has misunder- stood a sif-Sstion made bv myself. Every bank, so far as I know, tai c^iSSr number of long-time un^estments^ sometimes m the shap^ Af TTnited states bonds, sometimes investments m the shape ol long lie cScounts a distinguished from short-time discounts, and f^,;!«; tlipv nre in one shape and sometimes m another. :now, "sTSer Sd% friS f^m Alabama, he simply asks that IJiey be given the right to include among these investments real-es at^ mort. ao^s. As a matter of course favored investments distinguished Som^li^e commercial paper is so much less deducted from com- i^elcia paper; but I think my friend from Pennsylvania is m s- ^to when he assumes that when a^ bank invests m a mortgage it will SSfand. for that purpose necessarily from the part ot the^imds which otherwise it would keep ahve in commercial papei. On tue rontiai?'t would buy fewer of United States bonds which pay less intS and it wouhl invest in long-ti.ne paper, and tie only result would be uot to make bankers change their modes ot doing busiues^s Tas to tie up the capital, but allow them to use, and on more acUam tag^ous termi to themselVes, a part of the capital whicli m any case ^'^Mr'^BRolros.' If mx friend will allow me. My object in putting to Mr Turpin the plaiu ;piestiou was to show clearly that my friend from ITew York misu.iderstijod the position of my friend trimi Alabama, in the first place banks do not use their deposits to buy permanent loans; they do not use their deposits to buy United States bonds or =aiyo her permanent investments. They may use their capital «t'"'l; ^^ f "^"^'J extent for such purposes, but they only buy bonds no^^ to the extent thev are renuired to eitlier by the act of Oougress or for the purpose ot enabling them to issue a circulation. The deposits m a Ijank are avail- able funds fiir the accommodation of the community; they are com- mercial funds and they are used in a, commercial way, secured by coui- mercial paper, and thev are not used in any other way, and the only BANKING AND CURliENCY. 245 legitiuiate manner for any bank, ia my indgment, to invest in real- estate securities is the way that the national-bank law already permits them to do, and that is to take it as additional security for previously contracted debts, and the point I was going to say, though, my friend puts it so smoothly and so nicely "by using these real-estate mort- gages on the same foundation as other loans," the fact is there are no other loans which represent the deposits of a community, there are no other. I do not mean to state for one moment that the banks uni- versally through the country are able to use the total amount of the deposits upon discounts at full rates. That is not the case in our State. The money goes to the bank and then it goes out to various agencies. Sometimes our money goes to New York upon temporary interest, upoii call, and all that sort of thing, but the point I make is,' I do not think my friend, conversant as he is with banks, will dispute it that the cur- rent deposits of a community which go into a national bank are not used for the purpose of investing in any kind of long-time loans. Mr. Waenbr. TIk- gentlemen is mistaken, and "directly and indi- rectly, largely, with tlie exception of a very few months in the year, and to some extent the year around, they are invested in long-time securities. Mr. Brosiits;. Name them. Mr. Waenee. I mean personal notes for long time, secured by pledge, say, for example, Central Eailroad stock, the loan running at 2 per cent and 3 per cent. There are any number of firms in New York who have held accounts in banks for the last fifteen years without ever having them taken up. Mr. Brosius. In the New York banks'? Mr. Warner. I mean the only change being as to the rate of inter- est. Now, it is simply a matter of fact that quite a large proportion of the deposits in the banks in Newi York and everywhere else, so far as I know, during eight or nine months of the year must be so invested or else they can not get any interest upon them at all, and they are so invested. I know in some cases they are whipping the devil around the stump. I know they take paper where the name is worth nothing, but they do it on good collateral, and they do it also in a legal way. Mr. Brosius. I do not dispute that is done to a limited extent. ' Mr. TiiEPiN. I would like to say just one word more. In my country I know that New York banks lend tremendous sums of money on ten and twelve mouths' time; that money is loaned to our banks upon chattel mortgages — that is, mortgages upon growing crops — on crops to be planted, and a few old mules and brood"mares,"which are owned, frequently, by tenants. This is the kind of collateral that is taken in New York, and they lend money upon it for twelve months to our banks. You take the strongest banks in Alabama, and they lend money for a year upon cotton receipts, warehouse receipts. You put your cotton in a warehouse and get a receipt, and you can go to any of the banks and borrow all the money you want, and on as long time as you want it, say twelve or eighteen months. Mr. Cobb, of Missouri. Cotton and grain receipts are considered the very best collateral you can get. Mr. TuRPiN. I know they are so considered. That is because you don't allow your banks to lend upon real estate; if you did, mortgages on improved lands would be considered the best, particularly if the loan was a long time loan. I would like to say there is not a statement of a banking institution published anywhere but what a part of the assets 2AQ BANKING AND CURRENCY. are real estate, that is, tlie office and buildings, sometimes amounting to many thousands of dollars. , Mr Johnson, of Indiana. A casual examination of this bill shows that it is contemplated that the ordinary loanable funds are to be allowed to be loaned on real estate security. That being the case, it would of necessity come from money which would probably be other- wise used by ordinary securities running a short time, generally issued by merchants, and which can be readily realized upon m case ot trouble. All parties hold that State banks, under the old system,^ con- tained a positive prohibition for investment in real estate, and it all proceeded upon the idea that these funds were not desirable for the reason that m case of a run upon the bank the mortgage could not be readily reahzed upon. . Mr Warnek. I . There is nothing compulsory about this. It does not say they shall lend money on real estate, and I do not think there is anything in the history of these banks, or of the gentlemen generally over 'the country who liave charge of them, which would justify the apprehension that they would take all the money they had and loan it BANKING AND CURRENCY. 247 on_ real estate. Now, what is the condition under the law as it now exists? Here we have this system of banking, upon wliich we are so much dependent all over the country everywhere, and all the real estate of the United States is outlawed so far as borrowing money on it is concerned from those banks. A man can not go to one of these banks and borrow money on 1500,000 worth of real estate; he cannot get 11,000 on it for ten days or five days or two days or one hour. Now, is there any justice in that? Is there any reason for it? Our agricultural people have to make loans. They go to the cities and towns and to the factors to borrow money, and those factors will take their real estate as security and then, using it as a collateral with their own paper, they will go to the bank and borrow money themselves, and so the money is dealt out to the people in the coun- try through these middlemen, who, of course, charge for the trouble a rate of interest sometimes more and sometimes less. Now, I would not for a moment favor the idea- that a bank should take all of its funds and lend it on real estate for a long time or a short time. I recognize the fact that perhaps under some circumstances real estate is not so easily realized upon as bonds or stocks or what are generally known as commercial securities, but the point I make is that this law is totally prohibitory upon real estate; it does not allow the bank to loan any proportion of their money on real estate of any kind. Well, now, I repeat the question asked by the gentleman from Alabama, what objection is there to that? You say, it is liable to abuse. Well, I sub- mit that is no answer. You say, suppose a bank would take all the money of its depositors and lend it out on real estate on long time. Well, that is a presumption you are not authorized to make. ' These banks are managed by men of intelligence, men who are, perhaps, just as well acquainted with commercial, financial, and business rules as we are. I repeat the point I make against this law is it is an iron bound prohibition against lending any money at all upon real estate without regard to margin, witliont regard to value, without regard to time, and without regard to anything, and it puts the real estate of this country under our present bank system, as far as these national banks are con- cerned, under a ban and outlaws it. For instance, we have in the city where I live in round numbers $15,000,000 worth of real estate, and a man can not take that and go to a nation;iI bank and borrow a thousand dollars on it. Well, now, I submit that is going too far. Mr. Johnson, of Indiana. Would such a man have trouble borrow- ing that on personal security, a man with that nnu;h real estate? Mr. Black, of Georgia. I said the whole city. Mr. Johnson, of Indiana. Well, take a man with ample real estate; nobody has any trouble in my State in borrowing money on personal security who is known to be worth a great deal of real estate ; he might get,a friend to indorse for him, and in that way the real estate is indi- rectly used. Mr. Black, of Georgia. Perhaps, sometimes that might be the case, but oftentimes it would not be tlie case, and a man does not always care to go to a friend to get him to indorse his notes, and it does not apply at all in the country. Here are millions of dollars' worth of agricultural lands in thit country, and under our present national-bank system we are not allowed to lend a dollar's worth of money upon it. Mr. Johnson, of Indiana. According to the statement of Tom Wat- son, you have not got any land down there that is not mortgaged. What have you to say to that? He says there is nothing left to bor- row on. 248 BANKING AND CUBEENCY. Mr Black, of Georgia. I would not like to be bound by all he said. A^o^d manv'of our lands are mortgaged, I Have no doubt but there rre^many not mortgaged, and if a man who ^^^^^^^Z'^^^ZZ^TZ • of real estate, offers it, it is not to be presumed that these banks a e ■going to lend the full value of it, and are not presumed to take all the ■monev thev have got and leud on real estate so as to leave them m a wsltion wher; they could not respond to the reasonable demands of their depositors. I think, honestly and siucerely, that this law goes '^fUZS:AMo. me to ask this question : Whether or not all the available loanable fauds are not ](.)aned upon business paper I Mr Black, of Georgia. I did uot hear you. ., , , , ,, „ ,^ Mr Speeey? 1 asked whether or not all the available loanable funds an the naSonal banks in your State are not all loaned on eommereial TiTTipr within the terms of the act? ^ Mr BLACK I do not know. There is cpiite a demand down there for money, and thev are lending every dollar, and renewing it and leud- iuo- t ont again. I do not know that there are any long periods when Ihev havetinv large amount of money which is not out; perhaps, some tinii during the summer season, the money accumulates m bank when thev would like to make good loans. MrrSPEUKY. Then they would be liable to loan for a long time on ''*" Mr' Black. Xo. sir; I do not tldnk they would loan it all for a long time on real estate. I have got more confidence in their management. Mr Brosils. You think tliey would only loan their surplus { Mr. Black. The point I make is that this law is totally prohibitory; that you can not loan anything on real estate. Mr HALL. Can not von see a case where a business man would have real estate security and nothing else and want to borrow money on it.- Mr Black. Whv, certainly. n i ^ Mr'. Hall. And 'yet he could not get a d(.)llar, unless he could get a <'Ourtesy extended bv having individuals going on his paper. , Mr Black. I take it that it is not always easy tor a man who is nerfectlv solvent and a man of high linancial standing, it is not always an easy thing, and if it is a practical thing it is not always pleasant for a 'man to go and ask a person to indorse, and I do not think the law ouo-ht to force him to do it. .. , „ mi Sir (JoBB, of Alabama. Would not it have this effect? There is a complaint throughout the country that the uational banks have failed to issue the amount of circulation they ought to issue ^ Mr Black. 1 was iust coming to that phase of the subject. Now, : donotlielievein our legislation we ought to allow ourselves to be carried too far by the complaints of people, the unreasonable com- plaints of i)eople, but when we can meet the complaints without doing any harm to anybody I think it is wise legislatuni to do so. \N e all km)W there is a very deep seated and wides])read, not only discontent, but oiiriosition in the public mind, particularly in some sections of the country, against national banks. Some of it may be unrea- soimble; but now lo.jk what a picture is presented to our rural popula- tion by this system. BeJoie you go into this system you have gx)t to have United' States bonds, and when you have established a bank you can take bonds, stock; but the very and only thing these people iiave is a thing you say shall not be accepted as security, no inatter what the value. BANKING AND CURRENCY. 249 Mr. Cobb, of Alabama. You do not get my idea. The complaint is, tbey will not issue circulation euougli, and tlie Ijaiiks saj' they do not issue the circulation because it does not pay. Isow, would not the teu- deucy be to encourage the national banks 'to put out more circulation upon the security, and they could afford to do it on loug-time loans! Mr. Black. I do not understand they refuse to take out circulation because they could not use the money, but I understand thev refuse to do it because tliey would have to have the bonds to do that, and the bonds have been at such a price they could not purchasi.- the bonds and use the money at anything like a profit. I do not suppose the banks will lend too large an amount of their money on real estate, but I think they (.'an be safely trusted to lend some of their money at some time and to some extent oii it; and then what I was going to suggest is this, that there is a very widespread and deep-seated opposition to these national banks, partly, it may be, from prejudice and unreasonable- ness. I am perfectly frank to admit that; but when you can remedy a difficulty of that kind without doing anybody any harm, without doing the banks any harm and certainly rendering some service to the peo- ple, there appears to be no reasonable objection to removing this iron- bound restriction and leaving the question as to when and how and what amount, and upon what value, and for what time they are to lend the money on real estate to the management of the national banks, which I think have shown themselves in the past altogether capable of taking care of this question. Mr. Hall. 1 want to ask one question, and that is this: I am struck with the^ force of one point you make, and that is the point of the outlawry' of real estate as security. Is there any provision in the national-bank law which you know of which limits the time for making- loans on commercial pai)er or ordinary security? Mr. Black. N'one of which I know'. Mr. Hall. Then it was not necessary in the creation of the national- bank law that national bankers should be told that they should not lend on personal security over and above a certain time, but that was left wide open? Mr. Black. Yes. Mr. Hall. Why should not the same rule apply to this"? Mr. Black. I do not see any reason. Mr. Johnson, of Indiana. Why should not the same rule apply to anj- restriction wliich is now placed upon the national banks ? Why not leave it to their jirdgment and discretion^ Mr. Hall. The gentlemen tries to answer a specific charge by a general sweeping allegation, and that is not the way to meet the point. The point is, that there are millions and billions of dollars' worth of real estate in the country which, are vii'tually outlawed, as he makes the point. Mr. Black. I would suggest, too, which might meet another objec- tion — I understand the time it takes to realize on real estate, and I am not prepared to speak about the law in other States, but they may be like ours — this is the law in our State : You can take real estate as secur- ity for indebtedness, and a deed is a very common form of transferring the title, and you can provide in that deed for the sale of the pro]ierty without the slow process of foreclosure, and you can put it up and sell it at once. Mr. Beosius. But you have to get judgment? Mr. Black. Xo, sir; you do not have to get judgment. 250 BANKING AND CURRENCY. Mr. Sperey. It is like a trustee's sale? Mr. Black. Yes, sir. Mr. Brosiits. Suppose the mortgagee alleges the money has been paid; how do you determine the question! Mr. Black. If he alleges the money is paid ? Suppose you have got United States bonds as collateral and he alleges the money is paid! Mr. Brosius. There must be some means of determining the ques- tion. -, , 1 1, Mr. Black. Then the same objection would apply to the bond as well as to the real estate. CO^IAIITTEE ON BANKIN'} AND CURRENCY, Tuesday, Octoher 3-1, 1S93. The committee met at 10 a. m., Hon. William M. Springer in the chair. The Chairman. Gen. Meyer will address us upon the monetary sys- tem which prevails among the cotton and sugar planters of the South. PLANTING AND MOVING CROPS IN THE SOUTH. STATEMENT OF HON. ADOLPH MEYER. Hon. Adolph Mey^ee, a Eepresentative from the State of Louisiana, addressed the committee. The Chairman. What is your business in Louisiana? Mr. Meyer. I am a planter, engaged in the cultivation of sugar and cotton. The Chairman. You have had considerable experience m commer- cial transactions in regard to those two products, I presume? Mr. Meyer. Yes, sir. The Chairman. Will j-ou please explain to the committee the proc- ess by which the planting and marketing of the sugar crop in the South is carried on at this time, and has been for years past? Mr. :Meyer. The process is changing and has changed in the past two or three years materially. Ten, fifteen, and twenty years ago it was almost the universal practice of the planters to make their loans in the great ports of the Soutli— Xew Orleans, jS"orfolk, Savannah, and Charleston. As Mr. Cobb, of Alabama, has just stated, after tiie war the country was prostrated and agriculturists had to start from the foundation'; they had nothing but land, and consequently they were dependent for capital to cultivate the crops and move them upon the money centers of the country. The capital of the South, as we know, was almost destroyed, and onr merchants at the centers were dependent in a very large degree for money accommodations upon Xew York and the commercial centers of the Xorth and East. In tliose days it was the practice of the planter to go to the capitalists of :Xew Orleans or Charleston or Savannah and make loans from the commission mer- chants, and the men who were cuttou planters, especially the large ones, would Ixtrrow moTiey for the purpose of making a crop. The small planters of the South wlio were not Icnown hi the commer- cial centers made their arrangements in a somewhat similar way, but in lesser degree, with the merchants who did business in the country places, who in turn made their arrangements with the banks and cotton factors and commission nnirchants of the large cities. That system of BANKING AND CURKENCY. 251 business coiitiaued quite a number of years. In recent years, liowever, owing to the accumulations of money in the country districts, there were a great many banks established in the little towns, which began the practice of loaning out their money to planters in the neighborhood and to local merchants, and now this system prevails in a much greater degree than before, and it seems to me to be progressing very well and very largely to the advantage of the producer and planter. Mr. Johnson, of Indiana. What kind of banks, State or national? Mr. Meyer. Mainly national banks; sometimes State banks. Nearly all the banks in my State established have been national banks. I think it seems, even in the country, where a certain idea prevails that the national banks are iniinical to the interest of the small planter, there is a greater degree of confidence in the national banks than in State banks, or banks not under the national system, mostly because the impression seems to be that the l^fational G-overnment affords greater protection than the State banks or a corporation under the laws" of the State. There seems to be a greater sense of security. I think,however, under a system of banks such as we had in my fatate in ante helium days (and the same is true of other States, I presume) the feeling that national banks are safer than others in which to deposit their money .would disappear. Mr. Johnson, of Indiana. You had an unusually good system of banks in Louisiana '? Mr. Meyer. We had an admirable system. The national-bank system has been based, I believe, to a large degree upon the system ^te had in Louisiana. I remember the notes of the Louisina banks commanded a premium over gold in 1860, because they were so secure and much more convenient to carry than gold. IsTow, the system of marketing the crops is changing, especially the cotton crops. In former years the planter Avas obliged to borrow his money from a commission merchant, which was subject, of course, to onerous cliarges. The merchant who would advance'the money to the planter took considerable risk, and to compensate him for that risk, he had to make high charges. For instance, at the very time the merchant advanced the money to the planter the first charge was 21 per cent for advancing that money. He might advance him, say $10,000, for six months, and would then be charging 2 J per cent commission for advanc- ing. That would be $250 for six months, which is practically ."> per cent per annum. Then he charged the regular rate of interest in addi- tion, which in the State of Louisiana is 8 per cent per annum. The , legal rate by contract is 8 i)er cent. Of course he would charge him other commissions and make the con- dition that all his supplies should be bought from him, upon which an additional commission could be charged, and in the end it would amount to a very heavy percentage. The merchant justified himself, and cor- rectly so, in my opinion, for these heavy charges by the fact he took a very heavy risk every year. He incurred a very considerable loss, because while the planter paid a very high rate of interest he at same time took great risk with his labor, tie had to furnish his laborers with everything they consumed, with their clothing, and their food, and their mules and supplies of every kind, and until very recently the planter had to purchase all of the grain, oats, corn, flour, etc., from the West; the rates of insurance were high and the transportation was costly, and in the end almost all the surplus and very often a great portion of the principal was consumed, and the merchant foundhim- self in a condition that the planter could not pay him. I think that 252 BANKING AND CURRENCY. accounts to a very ereat extent for the higli rates of interest tliat have been paid to banl.s in the South, and we might naturally suppose the money lender would have grown rich by receiving such high rates ot interest, and that that which would impoverish the planter would enrich the man who loaned the money, but such has not been tlie fact. The country merchants of the South who advanced to the small planter and the cotton factors of the ports, who in turn advanced to the merchants who advanced to the small planter with rare exceptions have not been prosperous because of the risk of the business and the uncertainty of the crops. Another i^eason isni recent pars the gradu^ decline in the price of the cotton crop. It seems likely, however, that it will be safer in the future for this reason, and the reason I am about toltate will furnish one argument in favor of what has been so much condemned in what is called '-the future system," the dealing in tutures Now, of course, there are a great many objections to certain feutuies of the practice of dealing in futures, not to the principle, but t^o the piac- tice It is utilized by a great many people for the purpose of gambling, . simply to speculate in cotton and other products, just as many will bet on thl horse race or stocks, but recently the future system has been o great benefit to the Southern cotton-planter. And it has been for this ""'^FoTmerly planters were obliged to send all their products to the great norts lor sale, involving heavy charges of commission and brokerage; under the future system there has been inaugurated what is called " free on board sales." For instance, a cotton buyer can go to the little towns and can make contracts for the purchase ot 100 or oOO bales of cotton, as the case maybe, andean arrange to have it shipped throng li. He knows at what price he can buy it, and by selling m Liverpool or in Xew York orXew Orleans, against that purchase he can absolutely ass^ure himself of a commission if not of a profit, ^^ow, there are many men who have no capital. Of course, in the case of a man with capital they might do that kind of business and take some chances, but men without capital can now do that and can afford to do it cheaper and pay better prices for the staple. The less the cost to the man who trans- ports or deals in cotton the higher price can he afford to pay to the producer, and in view of the great competition which exists there are a o-reatmany new men entering the; field every purchaser will naturally buy as mucii as he (.van. The greater the volume of his purchase the better he can afford to take a lesser profit. , i i Mr Brosius. Tliat is to say, if he only has the purchase on hand ana • the market soes one way he may lose, but if he has the purchase on hand and sells, and the market goes that way, he makes ? Mr. :\[EYEE. He deals on what is claimed to be an absolute certainty. He will ])ay. for instance, S cents a pound for cotton m a country town He will see what the markets are in New York, Liverpool, ^ew Orleans, and in Bremen, Havre, etc. He makes his calculation and can conclude with almost mathematical certainty by selling m New Yorli, for a certain delivery in Xew York, how he can make his commission. Mr. Johnson, of Indiana. That is a system involving the actual rei'civing and delivering the goods";' ^ir. Meyer. Certainly. He never delivers that particular cotton; he does not calculate to do that. . Mr. BROSirs. Tliat second contract which saves him on the first is pure gambling? Mr!" Meyer. Ki>. Mr Brosit-s. But he never expects to deliver anything. BANKING ANU CURRENCY. 253 Mr. ^ilEYER. He expects to deliver tlie 500 bales wLicli lie lias pur- cliased iu some form. 3[r. Bkosius. Then lie makes Lis commission? Mr. Meyer. Yes, sir; ami the moment he delivers the .jOO bales of cotton which he has purchased, if he is a legitimate operator, he closes out the contract he may have sold. iSTow, that contract is purchased by someljody else who wants it, but the man who purchases that does not expect to get the identical cotton which this man gets. Mr. Warner. It is the general warehouse theory? Mr. Meyer. A man may not be able to use the grade of cotton which is absolutely furnished by the one who sells it, but he uses some other grade that is delivered to him by the vendor ; therefore he makes a transaction which is legitimate and is based upon the actual need of the article. Mr. Warner. Is not there such a permanent relation between the price of the different grades of cotton that practically the purchase of one grade and the sale of another is capable of being calculated just as closely as though he waited and took the identical cotton in order to All the contract made? Mr. Mey'BR. Yes, sir. There is such a constant demand for the dif- ferent grades of cotton — for middling, low middling, and good ordinary, some mills using one grade and some wanting others — and the prices of the various grades are well established and so wel) fixed by the demand and supply from day to day, that one who buys cotton, although he may uot buy the grade he wants to deliver the mill, can make his calcula- tions Avith almost certainty how he will come out on his transaction. Mr. Brosius. But if he sells one grade of cotton and can not fill that contract it is no contract'? Mr. Meyer. But he sells ditferent grades. Mr. Brosius. Take the first step, he has to purchase the actual cot- ton. In order to cover that he sells not that cotton, but cotton of a certain grade, at a certain price. ISTow you say the purchaser of that cotton may not get that particular cotton, but he may get some other cotton, the kind he wants. ISTow, having such cotton of a certain grade at a certain price, to get a commission on the basis of such a price,, could you fulfill it by the delivery of cotton of another grade"? Mr. Meyer. Not if he stipulated specifically another grade, but usually cotton buyers have numerous constituents who would be best supplied by an average line. He would have some who would want middling, and some who would Avaut low middling, and others who would desire other grades. The Chairman. Permit the chair to suggest that this discussion is wandering a little from its line. Mr. Meyer. I was about to say that I did not intend to go into this question of futures. The Chairman. The chair desires to ask you of another matter in regard to a statement you were making before following the discussion upon these other points — that is to say, about what would the amount of interest or commissions aggregate which the cotton and sugar planters are now compelled to pay under the system wliicli is now in operation in the South on their products before they are mai'keted, including interest on actual advances and percentage on supplies fur- nished? Mr. Meyer. By reason of the increase in the number of banks in the South, especially in my State (I am not so well versed as to other States, but I think it has operated in other States as well), the rate of 264 BANKING AND CUKKENCY. interest lias been materially di'minisLed and the planters and producers who iu former years were obliged to pay an onerous rate of interest and commission charges, to which I referred in my opening remarks, now find no diflflcnlty in getting all the money they require from the local banks at about 8 per cent, and iu some instances at less. Of course I refer to a class of planters who are known to be reliable and trustworthy. . , . . , The Chairman. Can they secure these loans by deposit ot a chattel mortgage on the growing crop ? Mr. Meyer. Yes, sir; in most cases they can. Where they are known to be reliable planters by depositing a lien on crop; in my State the man who advances either money or supplies to the farmers has by virtue of law a lien upon tUat crop. The Chairman. Over the landlord— does it take priority over the rent? Mr. Meyer. Iso; it does not give priority over rent. The landlord has the first lien, and the man who advances the money or supplies lias the next lien. In manv cases where the landlord is anxious to promote the cultivation of his land he will yield his privilege to the fur- nisher of the supplies or money, because land is very plentiful and monev until recently very scarce. It is generally to the interest of the landowners that the tenant should secure what was necessary to cul- tivate the laud. The CiiAiRTiiAN. ^Yhat do yon mean by recently ? Mr. IMbyer. In the past three or four years. The Chairman. Do you mean to say during the past three or four years, not including the times of the recent depression, but throu.gh the past three or four years generally, your local bankers have been able to obtain and furnish advances when good collateral was offered in any amount to handle and mature their crops? Mr. Meyer. To any amount consistent with prudent business and XOTudent banking. The Chairman. There has been no scarcity, then, so far as getting loans is concerned? Mr. Meyer. I think not. The establishing of banks in the smaller towns of the country has drawn also into its vaults and into circula- tion a considerable amount of money which formerly was hidden, and while it is a fact that capital has not accumulated rapidly in the South, still a great many people liave saved. Formerly there was some distrust^ at all events there was not much confidence in banking insti- tutions, but these banks having been established in the smaller towns, the small planters coming to the towns and knowing the president, cashier, and directors and seeing for themselves and being able to iudgc for tliemsehe.s somewhat of tlie chaiacter of the men who have their funds iu hand have been insi)ired with a degree of confidence aud a more ta.^-orable feeling in regard to banks than existed before. The Chairman. I.)o not a considerable number of the colored men use the facilities of banks and make d eposits in them of their earnings ? Mr. Meyer. I do not believe the colored people care much for banks. They generally keep what money they have at home, aud most of them are not very thrifty. They do not save anything and do not put any- thing in bank. They generally leave their surplus at some country store and draw it out as they desire. Yet there are some who deposit in bank, and I think the tendency to do that is increasing. The colored people liave not been a ery saving, aud I regard that as a great disad- vantage. I think the colored labor in the Southern States, and for BANKING AND CURRENCY. 255 their peculiar regions, is probably the best labor we can find. I have tried all kinds, Chinese, Avhite labor, and Italian labor, but I think the colored labor is certainly the best we can find, and if they were only thrifty and took an interest in establishing communities such as the white laborers do, 1 should regard them as almost perfect for that section. The Chairman. Do you employ any considerable number of laborers on your plantation? Mr. Meyer. Yes, sir. The Chairman. How do you pay them— in orders on a store, or cash, or how do you settle with them? Mr. Meyer. On a sugar plantation the practice is to pay them every two Aveeks in money. In order to facilitate matters mostplanters have stores on their plantation, and if they have not any on their plantation there are neighboring stores to which the laborers can go and buy goods and by paying his ticket purchase whatever he wishes. For instance, at the end of each day the laborer receives a ticket for what- ever his day's work demands, that is, the amount agreed to be paid him, and if he holds that ticket two weeks he can go to the planter or the store and get his money. If in the meantime he desires he can go to the planter's store or the neighboring store and purchase what he wants in the same way as though his ticket were money, but in order to get the actual amount stipulated in cash he has to wait until the regular pay day and receive his money. The Chairman. He gets a ticket every niglit ? Mr. Meyer. Yes, sir; that is, on well-regulated plantations. The Chairman. In what kind of shape is that ticket? Mr. Meyer. It is a kittle card of pasteboard with the amount due printed upon it and the signature of the manager or planter. Mr. Hall. You do not think they are liable to the 10 per cent tax? Mr. Meyer. Eo; it does not usually circulate very far, but it gen- erally goes at the nearest place. The Chairman. Are these tickets generally in common use in the South, or only in Louisiana? Mr. Meyer. I think they are generally in use. They afford such facility that I think they would be used on all well-regulated jjlau- tatious. On a cotton plantation the system of labor is somewhat different. In my State a great many planters work with their laborers on shares, and under that system, of course, these tickets are not required. For instance, a planter will contract witli his laborers at the beginning of the season. He will furnish them with mules and stock of all kinds f(.)r half of what the laborer produces, and under that system at the end of the year when the crop is sold they make a settlement, .charging what has been furnished, and if there is a residue the laborer gets it. Mr. Brosius. In that case, who sells the cro]) and gets the money? Mr. Meyer. In some instances the planter sells the ciop and in other instances the crop is divided at the ginhouse bale for bale, and the laborer takes his share, takes it to the nearest point and sells it or ships it, and the ijlanter does as he chooses. Mr. Brosius. Are there any cases where the planters trust to the tenant to sell the product and get the money? Mr. Meyer. Not to my knowledge, but there may be some cases. There is no valid reason Avhy he should, because it is easy to divide the crop at the ginhouse. I think the general practice is to give the laborer the cotton and divide it bale for bale. The negro laborers 256 BANKING AND CURRENCY. heing- rather suspicions, they may think, uo matter how fairly they are treated, some'advautage may betaken, and it produces more sat- isfaction to divide it bale for bale. . j.i i k The Chairman. How does the planter make advances to the laborer for that portion of the supplies necessary to produce the crop ".-_ Mr MiiYBE Tlie i^encral preference on the part of a laborer is to get his supplies in bulk. For instance, he wants a barrel of pork at a stipulated period, say once a month, depending upon the size ot his family, and the planter charges him with the price ot those supplies If it "is a plantation of any magnitude it is usually trom the store, and if it is a small plantation it is usually from a storehouse where they keep those things, but in most cases the laborers prefer and do make arrangement with the storekeepers at the nearest countey town, ihat relieves the planters of the risk generally and they prefer tha,t system. The rdanter would prefer his laborers should go and make their con- tracts with the countrv merchants to get their supplies, and it there was any deficit, instead of the loss falling upon the planter, as it often does, it falls on the country merchant. The Chairman. How much does the planter agree lo furnish per bale or per acre to the laborer in the way of supplies m addition to the use of th e land ? , . , . tj. i „-.-,„ ^ c Mr Meyer That is controlled by many conditions, it depenas upon' the circumstances altogether. As a general rule the merchant in the cities who advances thinks he would be safe to advance on the. basis of about $lt» per bale; that is to say, if a planter who expected to make 100 bales would apply for *1,000, of advances usually the merchant would regard that as rather a, safe undertaking ihat is up to the time the crop is shipped. After the,- crop is ready for ship- ment of course the planter requires additional advances for picking the crop moving it to market, and incidental expenses, which always occur on a plantation; but what the country merchants advance 1 am unable to sav, although they generally measure their advances by what they concei^'e to be the prospects of a crop. Heretofore they have been very liberal, and that accounts for the fact that they have not been very prosperous. They charge high rates of interest and they no doubt charge high protits on the goods they sell, but they meet with a good many loss^es bv reason of failure of crops. Tlie Chairman. Do we understand vou to say the planters will tur- nish the land and the stock— that is, the machinery and animals neces- sary to produce the crop, and board of the hands— for one-half of the crop "! Mr. Meyer. He fnmishes the board, but The Chairman. He cliarges them with that ? Mr. ?ilEYER. He charges them with the board. lu the neighborhood, where I have been planting it has been the general custom that the planter would furnish the land and the team and feed the stock at his own cost, and pay all taxes, all general improvements on the planta- tion, and he would charge the laborer only with those supplies which he furnished for his use. Mr. Brosius. And the laborer boards himself? Mr. Mb^'ER. Yes, sir; it is really at the risk of the idauter. Mr! liROSius. lUit the planter supplies the laborer with the food? ;Mr. jMbyer. Yes, and he charges it back to the laborer and takes it out of the proceeds cif the crop. The Chairman. The planter furnishes feed for his own animals'? Mr. Meyer. Y^es, sir. BANKING AND CUBl.'ENCY. 2F)7 Mr. OOBB, of Alabama. The planter furnishes tlie laud, the mules, and feeds the mules, aud the laborer furnishes the labor and feeds the laborer 1 Mr. Meyer. In most cases, on all well-regulated cotton plantations they raise corn and stipulate usually, although I have known many exceptions, the corn produced should go to the planter for the purpose of feeding Ins stock the succeeding year. In many cases the laborers claim they should have balf of the cmn, and it is sometimes conceded. In localities where labor is very scarce and is badly wanted the planter may concede that, but as a geueral rule tliey require the corn to remain on the plantation. Mr. Beosius. What does the laborer get theu 1 Mr. Meyer. He gets feed for this stock which he uses. Thereupon the committee rose, to meet at lo a. m. Wednesdav, Octo- ber 25, 189;j. ' Committee on Ban-king and Currency, Washington, JJ. 6'., Wednesday, October 25, 1893. The committee met to-day at 10 a. m., Hon. William M. Springer in the chair. Hon. Wilham H. Brawley, of Soutli Caroliua, addressed the committee. STATEMENTS OF HON. WILLIAM H. BRAWLEY AND HON. JOHN L. McLAURIN, REPRESENTATIVES IN CONGRESS FROM THE STATE OF SOUTH CAROLINA. Mr. BRAWLEY^ Mr. Chairman and gentlemen of the committee, I am here simply to ask you to make a fa^'orable report upon tlie bill which I introduced, and which is before your committee, to remit the 10 per cent tax uxaou those clearing-house certificates, notes, etc., issued dur- ing the late temporary iinancial stringeniiy. The Chairman. I will state that the number of Mr. Brawley's bill is H. R. 3825, .and is as follows: A BILL to suapcnd the operation of the laws iuiposing a tax of 10 per rentum upon notes issued daring the period therein mentioned. Whereas certain bauking associations, individnals and corporations, for the pur- pose of relieving the financial stringency which has prevailed in all parts of the country during the last few months, have issued what have \nv.m ilcuomiuated clear- ing-house certificates and other notes and forms of indebtedness which were designed and intended to provide temporary relief for evils caused by a dearth oi^ currency and which in many ca.ses have been eifectn.al to prevent greater calamities; and Whereas it has been claimed that such certilicates and notes are subject to the tax imposed by law upon all notes other than national-bank notes: Therefore, tie it enacted by tlie Senate and Houaeof liepreseiiiaiices of the United States of America in Congress assembled, That the operation of sections thirty-four hundred and twelve and thirty-four hundred and thirteen of the Revised Statutes of the United States, and sections nineteen, twenty, and twenty-one of the act approved February eighth, eighteen hundred and seventy-five, and of all other sections of said Revised Stat- utes, and all acts and parts of acts imposing a penalty of ten per centum on the amount of notes of any person or of any bank or banking association used for cir- culation be, and the same hereby is, suspended, and nothing therein contained shall be so constrned as to impose any tax upon any certificates or notes which may have been issued during the period between August first, eighteen hundred and ninety- three, and October fifteenth, eighteen hundred and nine-three, and no such tax shall he collected. 940 17 258 BANKING AND CURRENCY. Mr Brawley (contiiniiugl. My colleague, Mr. McLavrrin, has already presented to the committee on previous occasions certain tacts conuected with the issue of those notes in our section ot the country; and it seems that there arose tliere a condition which made it neces- sary for 1 he banks to do something to relieve the stringency. I imagine that those certificates will be retired probably at au early day— at least that is the information which I have. I think that the Government ot the United States ought either to provide laws of its own for such elas- ticity in our cnrreucv system as would meet exigencies like these, or else it ought to take its hands off and let the people take care of them- selves The people in several town s in my State did devise some means for relieving the stress to which they were subjected by the locking up of the currency in all parts of the country, and their attempt did give great relief to' our people. So far as I know and believe, nobody has suffered from the issue of those notes which are called clearing-horise certificates. Those certificates, so far as I have seen them, were really in the shape of bank notes. -, o,. ^ « <-• i Mr. Hall. Have you examined sections 19 and 20 of the national- bank law, found on page 59 The Chairman, (interposing). It is mentioned m his bill. Mr Hall, (continuina-). With regard to the amount of tax that would be levied by the Government? As to these two sections, some members hold one position, that these clearing-house certificates would have to be used; while other members maintain that the law has refer- ence to the banks which issued them originally. Have you examined that? , , ^ J , , xMr. Brawley. I ha\e not. I^Ir. McLaurin asked me to do so, but I was engaged in other matters and did not have an opportunity. I have not" read the law so as to come to any conclusion on that sub- iect. Mr. Johnson, of Indiana. Who drew this bill'? Mr. Brawlby. I did, but rather hurriedly. Mr. Johnson, of Indiana, It is intended to have operation only as to such cei'tificates issued between certain dates'? Mr. Brawley. Yes, sir; that was the intent. I understood that there' were several bills which related to the general subject of repeal- ing the act imposing that tax. I did not know what would be the fate of^this bill, and it seems to me that a bill remitting the tax on those certificates which were issued during the last three months wouhl be unobjectionable, even if you should not conclude that it would be wise to repeal the law altogether. Mr. BrosiuS. Have you any information at hand which will enable you to advise the committee as to the approximate amount of certifi- cates of that character issued during the interval mentioned, and about how many banks issued them? Mr. McLaltrin. There were about -'i!«8l.',.500 of those certificates in South Carolina, \\ hich were to be remitted on or before the 1st of Jan- uary next. Mr. Beosiu«. How many banks issued them? ivir. MoLatjrin. I think there were five. ilr. Brosius. Were they State banks? Mr. iloLAURiN. The banks formed an association called the Colnm- bia Clearing- House. Mr. Hall. Were those State or national banks'? Mr. MoLaurin. They were national banks and State banks. All the BANKING AND CURRENCY. 259 Columbia banks were iu it. They formed h clearing-hoiise association and appointed trustees with whom deposits were juade. Mr. Beositjs. You are not asking relief for jiational banks? Mr. McLaxjkin. They were all in the association. Mr. Brosixjs. Is there any objection to a national bank issuing cer- tiiioates of that kind? Mr. McLauein. They were issued by the Ooluml)ia Clearing-House Association under a charter from the State of South Carolina. The Chairman. A national bank would be responsible if it paid out any of those certificates'? Mr. Beawley. There are two national banks in Columbia and I thiuk three State banks which are interested. They united to form this clearing-house association and issued these notes to relieve the people there. Mr. Black. Were such certificates issued in Charleston or anywhere else in South Carolina, except Columbia? Mr. McLauein. Only iu Columbia. They were circulated to a cer- tain extent over most of the State. I know there were some used in my own section, and 1 am over 100 miles from Columbia. Mr. Hall. Is there anything to prevent the provisions of your bill being put into a bill to repeal the tax on State banks? Mr. Beawley. I think not. I think any general bill that might be passed could with propriety include the section remitting the tax which has already been incurred, Mr. Johnson of Indiana. Would it not be better to prescribe that the tax should be remitted upon such issue? Mr. Beosius. Has any effort been made to enforce the provisions of the national banking act against the issuers of those certiiicates '? Mr. Beawley. 1 understand that the collector of internal revenue, under directions from the Department here, has requested these banks to report the amount of these issues. Mr. BEOSiiTfS. But no assessment has been made upon these banks? Mr. BEAWLEY^ Not yet, so far as I know. Mi. Beosiu.s. There has been no judicial construction on the act relating to this particular matter? JMr. IjEAWLEY. Not yet. I apprehend, though, that it is something that will hang over them. Mr. Johnson of Indiana. It will be resisted, of course, if the act is not passed? Mr. Beawley'. Yes, sir; unless something is done to relieve them of the penalty. TheCHAiEMAN. Repeat what you said as to whether the Treasury Department had taken measures to collect this tax. Mr. Beawley^. I understand that the collector of internal revenue has been instructed to obtain information which would be necessary in order to enforce the collection of the tax. I have not heard that there is any desire on the ijart of the Treasury Department to enforce the tax; but I know that the collector of internal revenue has made inquiries as to tlie amount of these certificates which have been issued, and the impression prevails tliat the tax, or penalty, will be enforced. The Ohaieman. What is your information as to whether any certifi- cates of this kind have been issued by clearing-house associations in other States, or in other parts of South Carolina? Mr. Beawley. I have no information ou that subject. My impres- sion is that clearing-house certificates were issued, by the New York 260 BANKING AND CURRENCY. Clearing House Association, but they were somewhat dilterent in form. The Ohaieman. Did those New York clearinghouse certificates pass outside of the members of the association in payment of debts ? ill BRAWLEY. I have heard that they did ,vot; but do not kiiow My only knowledge on the subject arises from this: That one of the banks in Charleston, which is a United States depository was called upon to pay at the end of each month to the Assistant Treasurer m New YOTk as was the habit, the balances which were found ag^unst Sie^^aiLk, and the bank sent to the Assista^nt Treasurer in New York, in payment of that balance, a check upon the National Park Bai k The Assistant Treasurer refused to receive that check on the ground ?hat The National Park Bank would pay that ^.^JftawntaSr certificates, while the Assistant Treasurer had ^'itli^^^f;^;^,f^«™ *'^^,f,^^' ino'-house in New York; thereby subjecting our local bank m Chaiies- ton o some inconvenience and delay, and necessitatn.g currency m order to liquidate its balances. That is the only personal knowledge I ^^Mr. Brosius. Did those certificates pass as currency among the ^^'mJbeawlby. I understood they passed iu Columbia. None of them have passed in my part of the State. Mr. Brosius. You never have seen any in circulation ': Mr. Beav^^ley. I never have. Mr. McLauein. I have. . . Mr. Brosius (to Mr. McLaurin). Can you say, from any mtoimation you have, whether their circulation was general or to only a limited ex- ^Mr. McLauein. The circulation is general. If yon g-et the copy of the remarks I made before this committee, you will see all the ^^fv^^- tion I have a letter from Governor Tillman which shows it 1 have noticed in the Columbia Kegister that the collector of internal revenue had made inquiries as to the amount of the^se notes in circulation and had o-iven the banks notice that they would be required to pay the 10 per creut tax. I also notice in the Post that there is an association of grain-elevator men in the West who had received a similar notice, and that they were making efforts to test the legality of the claim exactly as our association is doing iu South Carobna. Mr. Haugen. On what grounds'? Mr McLauein. That it was not in the purview of sections 19 and 20 of 'the national-bank act.* The C CURRENCY, Friday, yor ember 3, l.V)3. The Gommittee on Banking and Cnrrciicy met this day at 10 a. m., Hon. William M. Springev in the chair. The Chairman. Mr. Gresham, of Texas, is now present, and -will address the committee. STATEMENT OF HON. WALTER GRESHAM. A FLEXIBLE CURRENCY POUNDED ON BULLION. Mr. Gresham. Mr. Chairman and gentlemen of the committee: I have no bill to analyze nor have I a prepared speech to deliver before you; therefore I will be glad for any gentleman who does not agree with any statement I may malie, or the conclusions to which I arrive, to question me in regard thereto. Mr. Brosius. What is your bill"? Mr. Gresham. As I have stated, I have no bill. I recognize the fact that in a sparsely settled agricultural section, like the State I have the honor in part to represent, more money is required to transact a given amount of business than is required for alike amount in a smaller and more densely populated country. The reason for this is that where j^ou have a large population, with adequate banking facilities, your people become accustomed to using checks, and 95 per cent of your business passes through, the clearing houses, or is transacted by the use of checks upon banks; hence, the actual volume of money required for the purposes of your trade is not a measure by which you should measure our wants. In our State, which is four or five times as large as any other State iu the Union, we have but about $28,000,000 invested in banking institutions, and our banks are, in some instances, from 10 to 100 miles ii])art. The character of laborers we have are not accus- tomed to handling checks, and, if they were, the facilities for cashing them are so insulficieut that we are compelled to transact a large per cent of our business withcasli; hence it is tliat our people are so claiuor- ous for more money, but they want a dollar that is worth a dollar the world over. Mr. Chairman, 1 believe the duty incumbent upon this coiumittee of ■formulating a system under whicli an adequate supply of currency can be had to transact, as economically as possible, the business of the whole country is of more importance to our people and will be watched by them with more interest than any measure that will come before this Congress. I am in favor, first, of tlic repeal of tlie tax upon the circulation ot State bank notes, and, second, of the remodeling of the national-banking system. Our State constitution prohibits the incor- poration of any company with banking or discounting privileges, but even if this inhibition should be removed, our State and municipal securities could not be utilized as a basis for State banking, as pro- posed by some gentlemen who have introduced measures that are now pending before you. Our vState has a bonded debt of a little less than $4,000,000, over $3,000,000 of which is to-day held in the vaults of our treasury to the credit of our school fund, aud the last purchase of State bonds made by 'our State was at the price of 140. This school fund, which now has in the treasury over $25,000,000 in interest-bearing Stecurities, and is increasing at the rate of about $2,000,000 per annum, absorbs all of the best municipal securities in our State as fast as they 264 BANKING AND CURRENCY. are issued. From this you will see tliat in Texas there is very little probability of our being able to create a banking system based upon the class of securities which are mentioned in the bills now before you. Mr. Hall. How about the municipal bonds? Have you municipal Mr Geesham. We have, but our constitution limits the amount of municipal bonds that can be issued, and nearly all are taken up by the State as trustee, with her common-school, university, and asylum funds. Mr. Hall. Tou have the largest school fund ot any State m the mTgeesham. Yes; yet we tax 20 cents on the $100 on 1800,000,000 of values to carry on the public schools in addition to the amount that we receive annually in interest on this $25,000,000. The Chairman. 'This results from the fact that by the terms ot the admission of Texas into the Uniou public lauds belonged to the btate and not the United States '? Mr Geesham. Yes; Texas in the articles of annexation reserved her public lands. I am in favor of the uiiconditional repeal of the tax upon State banks. I see it stated, and I have heard it asserted before this committee, that if we repeal that tax the country will be Hooded with wildcat institutions, and some gentlemen have stated that they were afraid to trust the State legislatures. I do not thmk we need have apprehensions upon that score, because whenever we throw the respon- sibilitv of suppiying, partially even, the currency for the wants of commerce upon any" State its legislature will make as conservative laws, audi dare sav as intelligent ones, as Congress will make. But there is another reason: Thefacihties for getting information as to the business standing of corporations are so perfect that it any State wa^ to pass a law under which " wildcat banks " could beincorporated, and such an institution was so incorporated, the business interests of the whole country would know it iu twenty-four hours, and its " shmplas- ters" could not circulate in its own county ; so I flunk there is no basis for that objection. Tlie business interests of the country will regulate and take care of such matters ii' yon will take off the tax. A NATIONAL-BANK SYSTEM. 1 am also in favor, Mr. Chairman, of a national-bank system. I rec- ognize the fact that we must inaugurate a policy in this country by ■ which its couinierce must extend b<'yoiid our own borders. For reasons Qot necessary to mention licre the surplus capital and the energies of the Americfin people liave for the last thirty years been turned into two channels. One is the building of mannfa(;tories aiid the other in the construction of railroads. The productive capacity of the manu- facturing establishments in tliis country now far exceeds the home demand for consumption, and the building of about 70,000 miles of railroad west of the Mississippi EiA'er over the richest and most pro- ductive section of tliis continent has aliout exhausted the territory for profitable railroad building except as feeders to the great trunk lines. Tliis country, wliich has lieen opened by railroads within a genera- tion, is inhabited l)y 10,000,000 of the most eneri;etic, selfreliant, and industrious people' the world ever saw, and though not more than 10 per cent of its natural rcsouices are de\-eloped, yet it to day produces all your suqilus cereals, your surplus hog products, and your surplus beef products. My own' State, which produces to-day one-third of the cotton raised iu this countiy, can easily produce as much cotton as is RANKING AND CURRENCY. 265 now produced in the whole United States. We have a large area of as fine whejit lauds as there are on this continent, which are just begin- ning to be cultivated. Five years ago we imported about 12,000,000 bushels of wheat in manufactured products. To-day we make more than 50 per cent of the wheat we consume. ISTow sir, what is to be done with these surplus manufactured and agricultural products. We must flud a market abroad; we are com- pelled to do it. We expect to accomijlish this result by reducing the tariff and removing restrictions from American shippiii'g, but then in order to facilitate and control our commerce we should have a national- banking system that will provide a currency that will be recognized the world over, and its' exchange accepted wherever offered. Let me give an illustration of how our business is now done. There is a com- pany organized in my city, Galveston, that has invested a large amount of money in JSTicarauga in the raising of baiuxnas, cocoanuts, and other tropical fruits, yet the money used in raising and shipping these fruits is paid in Loudon exchange and the products brought to our port under a foreign flag and in a foreign ship. The coffee we import from Eiiois paid for and liandled in the same way. Our national-banking system was created for two ]nirposes : First, to create a market lor the bonds of this country when it was in the throes of a revolutioii, and, second, to establish a, cuiTency tbat was stable atid would circulate in all sections of the country at its par value. Both of those purposes Avere accomplished, and, just so long as the price of the Government bonds, bearing a high rate of interest, was such as to enable the banks to make money by issuing cirrreucy they issued it, and there was no trouble in this country for the lack of a circulating medium, but when the Government reduced the interest upon its bonds and the premium on tliem went up so high that the bank, after paying the Government tax u]ion its currency, would have to lose, to the extent it invested, its ca] lital in Federal bonds as the basis for issuing cirrreucy, many of them refused to take outtheamount of currency allowed under the law, thus coutractingthevolumeofthemoney medium of the country. Mr. Hall. They are not required to take out this money, Mr. Gresham. No; and the result is, that not being able to make a profit on the currency in the great money centers, they are not taking it out. The only reason the banks in the South and West take out a larger proportion of currency. is because the high rate of interest they receive enables them to make a profit upon it, not\A'ithstanding the high price tliey pay therefor. Mr. Hall. For fear you will not get back to that particular i)oint, I would like to ask you one question. Do you believe if this State cur- rency of which you speak is circulated in the States, and jjerform the offlice of interstate (.'ommerce, that that currency ought to be gotten up in sitch a way as would make it perfectly safe and reliable in every other State of the Union '? Mr. Geesham. I do not think that can be done. My own view about that matter is that the Constitution of the United States never contem- plated that with the internal relations of the States the Federal Gov- ernment shoitld have anything to do; but, conceding yott have the con- stitutional right, I do not think it is policy for the General Government to in any way attempt to regulate State banks. I believe if you will leave the States independent to act as they may think best that the business sense and the commercial interests of the country will regulate their acts better than Congress can. 266 BANKING AND CURRENCY. Mr. Hall. You did not catch my idea about it. If you want tliis currency you want a currency that would circuhite in all the States of the Union? ]Mr. Geesiiam. I would have no objection to its so cn'culatmg; but i do not believe in any State system hampered by FederaMegislatiou. Let us have a national-banking system supplemented by State banks. 1 do not believe that the State currency would circulate much beyond the confines of the State where it was issued, and that whenever it was forced, through the channels of trade, to the great commercial centers of New York, (3hicago, St. Louis, Boston, Baltimore, Phdadelphia, and other places it would as soon as possible go back to the State from which it came. Mr. Warner. You regard that as a good thing and not as a bad thing? Mr. Geeshaji. Yes, sir. Mr. Cox. Along on that line, if it will not interrupt you, in regard to these State bank bills, when they go out and return to the home banks what will be done with them? " Will they be returned for redemption ? And if they come back for redemption they have to be redeemed in coin or legal-tender money. Now, how is that going to work as far as the State banks are concerned '? Mr. Gresham. I would leave the question as to whether they should be redeemed, and the terms of redemption, entirely with the State legislatures. I do not believe that Congress or a State legislature should put it in the power of a corporation to contract, or expand its curi'ency without limits. Mr. Cox. I agree with you entirely; but the difficulty m my mind lies in this point. / If these State bank bills are returned back to the home bank, as vou suggest, and in all probability they will, and they go back to the home bank, now what is going to become of them when they get back to the home bank; are they to be redeemed? Mr!^ Geesiham. If they are presented for redemption they can be. Mr. Cox. Then necessarily they must be redeemed in coin or legal- tender money. ;\[r. Gresham. Yes, sir. Mr. Cox. So then, when you redeem, which is part of the process we are suggesting now, it would be to substitute legal tender money in place of these and retire them? Mr. Gresham. ."^[y idea is, that the State banks should always be able to redeem its notes in legal-tender money and to reissue its notes whenever its financial status and the conditions of trade rerpiire it, and that these banks, under proper State regulations will not flood the country with a redundant currency. Mr. Cox. One more word and then I am through. I understand your idea is that these bauk bills must be as good as legal-tender money or any other money in order to float them ; ^^ou can not get them out unless they are that Avay. I agree with you entirely that they will be sup- pressed unless they are as good as other money; then there can be no motive Mr. Geesham. In what? Sir. Cox. Being returned to the bank for redemption ? Mr. Gresham. No sir; but I think the tendency would be for State bank notes to return to the State from which they were issued. They would not be redeemed, or if they were, would be reissued and kept in circulation as long as tlie bank could make a profit on them and they BANKING AND CURRENCY. 267 were needed in the channels of trade. They wouki be as national- bank notes are to-day. As long as they are needed by the business of the country and the people know they can and will be redeemed on demand, they continue to circulate and are not presented for redemption. Mr. Warner. May I ask the gentleman from Texas whether, if there be comparative freedom to issue money which can be taken out by the banks in localities, the result would not be the banks in each locality in order to keep the land free about them for the circulation of their own notes which they could themselves put out at a proflt, would not return the notes of other banks as fast as possible for redemption'? Mr. Greshaji. Certainly. Mr. Warner. And that without reference to the worth of the money but in order to issue for themselves "? Mr. Grbsham. That is exactly wliat they do in Canada to-day. Gentlemen, I now come to my idea of a national-banking system. I did not intend to dwell so long on State banks, but I am glad you have questioned me in relation thereto. As 1 said I have no bill pre- pared, but I want Congress to devise some plan that will furnish relief to the people of my section of the country. As I stated a little while ago the national-banking system accomplished two puri^oses. It made a market for the bonds and it supplied the country with a safe and uniform currency tliat circulated at par over the entire country. The national character of this currency has become interwoven into our system of business, and I do not believe that we can or ought to eliminate it. The people of this country to-day would not, in my opin- ion, be willing to part with it. It has shown its value and utility as a circulating medium worth par the world over that no other currency that we have ever tried in this country has possessed, and I do not believe that the people will part with the idea. Now, I know I am touching upon a point here which has divided the political jiarties of this country and in the older countries has caused tlie business men to shrink from it, and that is the right of the Government to interfere with banking in any shape whatever. I believe that the United States and liussia, and possibly one other country, are tlie only governments in the civilized Avorld that issue the currency direct to the banks. In Germany, France, Sweden, Austria-Hungary, and England the government creates a banking corporation with prescribed powers for issuing notes to circulate as money under certain restrictions and limitations. K'ow, if this country is to adopt a similar system, that is, create a Federal bank, with power to issue currency upon securities held by it, under terms to be' prescribed by law, then our present law would not even form a basis for such a system. I do not believe such a change can or should be made, or that it would meet the wants of a large and rapidly develoijing country like ours, however -well it may work in England, Germany, and other, small but thickly settled countries. Believing it best to amend and perfect our present banking system so as to meet the wants of this country, the question is. How can this be accomplished"? I think it can be done by amending the present law in the folhjwing particulais : ■First. By broadening and extending the class of securities to be deposited with the Government as a basis for it to issue currency to the banks; and, second, by prescribing an elastic provision under which the banks can obtain more currency whenever the wants of trade demand it. 268 BANKING AND CURRENCY. BROADENING- AND EXTENDING THE CLASS OF SECURITIES. Whenever a coiporatioii is organized with the requisite amount of cap- ital, it should invest, say, one-half of its capital in one or more of the following securities: (1) United States bonds at their par value; (2 United States legal- tender coin; (3 Gold and silver bullion at its market value; and deposit the same in the United States Treasury and receive therefor an equal amount m United States legal-tender Treasury notes, which should not be allowed to be retired except upon the surrender of the bank's charter. _ As to the exact percentage of the bank's capital that should be requn-ed to be thus invested and deposited I am not now prepared to state, but am inclined to think 50 per cent larger than necessary, but for the argument will take that percentage. . A company organized with a cash capital of $100,000 invests >b50,000 of it in United States bonds, in United States legal-tender com, and in o-old and silver bullion, or either of them, and deposits the same m the United States Treasury and receives therefor Treasury notes m amount equal to the face of the bonds and com and to the market valueof the bullion, the Government to be protected agamst the faU in value of the bullion in the same way it is now protected against the fall in the market value of bonds. Similar securities to those here mentioned as the basis for a banking system are used for that purpose in Sweden, and bullion is used as security to the Government in Canada for notes issued by it to the banks. Wldle the issue of Treasury notes upon legal-tender com would not increase the volume of currency, yet their substitution for coin would save the al^rasion and a large per cent of the expense incident to handling and transporting such money from one section of the country to another. They would also be much more convenient for and popular with the people than gold or silver coin. AN ELASTIC CURRENCY. The greatest defect in our national system of banking is its want of elasticity, the eftect of which is, at certain seasons of the year when a large amount of currency is required to move tlie crops, to cause a money stringency in all sections of the country, but particularly in the West and South. If for any cause the banks in the money centers of the country are unable or uuwilliug to supply the demand, then the banks in the agri- cultural sections, in order to get money to move the crops, are com- pelled to call in their loans, to pay which the debtor classes have to sacrifice their property or pay a much higher rate of interest, and are frequently unable to meet their obhgations at any price. In order that the country might at all times have a sufficient amount of currency to meet the demands of commerce each bank should have the right to receive from the Treasury an additional amount of legal-tender Treasury notes, not to exceed the 'amount issued to it when it was incorporated, the amount of notes received by it in no instance to exceed the amount of its unimpaired cash capital. For the use of this " additional cur- rency" the bank receiving it should pay into the Treasury interest at the rate of from 4 to 10 per cent per annum for the time it is kept in circulation. BANKI^iG AND CURKENCY. 269 The Goveruuient, to secure itself agaiust loss that it might sustain by reason of the issue of this "additional currency," should create a redemption fund to consist of the interest collected' on the "additional currency" and the money recfeived from an annual tax upon the Treasury notes in circulation— as the banks are now taxed— until such redemp- tion fund shall equal, say 8 per cent of the Treasury notes outstanding; then the tax to cease. TLe Government should also have a first lien, in case of failure, upon all the assets of the bank. To illustrate as before: The bank with a cash capital of $100,000 could, in addition to the 150,000 issued to it on its securities deposited in the Treasury, receive an additional amount in currency not to exceed $50,000, for which it must pay interest at the rate of from 4 per cent to 10 per cent per annum for the time it keeps such "additional currency" out. The result would be that as soon as the demand for this "additional currency" ceased and the bank could not make a profit by keeping it in circulation, it would surrender it to the Treasury for cancellation and stop its interest. These suggestions for an elastic currency are almost identical with the provisions of the Canadian banking system, while the tax upon the "additional currency" was suggested by a similar provision in the German law. Mr. Johnson, of Indiana. How about the interest that the banks would charge their customers? - Of course they would have to lend it at rates over the amount you tax them extra. Would not that make the people pay a higher rate of interest? Mr. Geesham. I do not think it would. Assuming the amount of capital invested in national banks to be $700,000,000, this system would compel the banks to take out $360,000,000 of currency, which would be over $150,000,000 more than they now have outstanding. Again, whenever the business of the couutry required more money than the banks had in circulation, the banks could, by paying interest, takeout "additional currency" to the extent of $;350,000,000 more. This would, I think, have a tendency to lower rather than raise the rate of interest. Mr. Cox. Just there, right on that line Mr. Johnson, of Indiana. I was simply speaking of the interest which the customers pay the banks. Mr. Geesham. I will come to that in a minute. Mr. Cox. I understand your theory there. Suppose the Government issues these notes ; your ideals that the Government should issue them? Mr. Geesham. Yes, sir ; I think it would be better ; you would have to change the whole system if you did not do it. Mr. Cos. I understand that. Do you mean to convey the idea that the Government is to be liable for these extra notes issued, which you caU additional currency"? Mr. Geesham. I would make the Government absolutely liable. Now, I want to answer Mr. Johnson's objection that the tendency would be to make the interest too high. Mr. Johnson, of Indiana. I did not put it as an objection; it was simply a query. Mr. Geesham. Well, I want to answer that question. In certain seasons of the year the banks in the great commercial centers of this country — even now — become full of money and thej' find it difiicult to lend at a good rate of interest. When such conditions arise under the proposed system, these banks would rediscount the paper held by the banks in the South and West at a less rate than those banks could obtain additional currency from the Treasury. The effect of this would 270 BANKING AND CURRENCY. be to lower the rate of interest oirr banks would have to pay and thereby enable them to let our people have money at a cheaper rate. Mr. Johnson, of Indiana. That might make the interest low in a section of the country where money was congested, but how would it out in the sparsely settled communities'? -, , ^ . , . Mr Gresham. Those banks could go to the Treasury and obtain ad- ditional currency " to the extent of 50 per cent of their capital upon the terms I have stated. When money becomes cheap in the East and other money centers of the world they will goto our country and, if we have the right kind of security, possibly let us have money a little cheaper than our banks could get it under the provisions of the pro- posed bill. . „ . „ Mr. Johnson, of Indiana. Is that relying upon foreign money > ^ Mr. Grbsham. It is relying upon money from all quarters of the globe. , _, • •- i 1 Mr Warner. May I not ask the gentleman from Texas, is it not also a fact, no matter what the condition might be, upon the issue of an additional currency to meet a financial stringency, so long as these con- ditions are possible to be complied with, that the result will be m any case to make the interest of money less than if that supply, no matter how inadequate, were not there? Mr. Gresham. That is true. Mr Johnson, of Indiana. Would not the consciousness, on the part of those wliom you think would take out this extira amount of money of which you speak, that the congested money centers would do precisely as you say, underbid them in regard to interest, prevent first-class bankers from taking that money out? ^, , , Mr. Gresham. Even then the country would be benefited by getting a lower rate of interest. . ,, , , . Mr. Johnson, of Indiana. It might prevent the application for this additional money ? • ^ ^ Mr. Grbsham. Suppose it did ; the additional money is to meet an emergency. If the wants of trade do not demand it, it will not be taken Mr. BROSitiS. You i)ropose to meet an elastic demand by an elastic supply? Mr. Gresham. That is the idea. Mr. Brosius. Well, now, I infer at all times the demand for money has been of that character, elastic; that there is more demand in some seasons than m others. Mr. Gresham. And in some countries more than others. Mr. Brosihs. And under our national-banking system there has been some degreeof elasticity— that is to say, the banks could take out more or less? . Mr. Gresham. Tliey had to buy Government bonds and pay for them, and then receive only 90 per cent of their face value in currency. Mr. Brosius. Well, having the Government bonds, they have not in the past exhausted their right to take out currency. I want to direct your attention to this condition of things which has struck me as being a little singular. Banks will not always meet an elastic demand when they have m their own hand the control of elastic appliances to do so. A short time ago, when we were very much in need of currency, it was supposed that the national banks of this country were short of their legal issue under the bonds already deposited, $7,000,000, right in the midst of a season when the demand really reached the very summit, yet that elastic appliance already provided for by our national-bank BANKING AND CURRENCY. 271 law was not applied by the national banks. Now, will it be under vour system? ■^ Mr. Geesham. As a general rule the banks, as long as they could make a proEt on the currency, they took it out; particularly was that the case in tlie West and South, where the rates of interest are higher than in the money centers. If you adopt the plan suggested the banks will have the power to get the " additional currency,"" whenever it is needed, direct from the Treasury, and to that extent wdl be independ- ent of the banks in the great money centers. We can pass no law that will make the banks of the South and West absolutely independ- ent, for we have not accumulated capital sufficient to transact the business or supply the wants of our country, and must look to the accumulated wealth of the East for our money supply. Mr. Brosius. I wish to direct your attention to another point. Is there any measure or any scheme which is proposed— and I recognize a great deal of merit in what you state— to enable the banks to take advantage of their right to increase that circulation in certain seasons of the year, and not to make that increase in seasons when that tends to unduly increase the circulation. Mr. Geesham. I think the best answer I can make to that proposi- tion, in addition to what I have already stated, is that in Canada where a similar provision has existed for some time the banks have never issued a surplus of currency or experienced a money stringency like those we so frequently have in this country. Under the limitatic'ius and restric- tions proposed I think we can safely leave this matter to the business sagacity and conservatism of the banks. Mr. Beosius. The Canadian system seems to work very well in some respects. The English system is absolutely restricted, and they have had to suspend the operation of the act three times since 1844 to get currency, l^ow, some of the money philosophers of this country, have been trying to deduce a scheme byVhich a system will be flexible and elastic in a way such as you propose, and to have this elasticity avail- able at the time when it is needed without making it available at a time when it is not needed. Mr. Geesham. That is the wliole problem and is attempted to be solved in the manner proposed. Now, England recognizes the fact that sometimes Mr. Beosius. I beg your pardon. Mr. Geesham. She wants an elastic currency. Mr. Beosius. Oh, yes; she recognizes she needs it. Mr. Geesham. She recognizes she needs it and on three different occasions she has had to give assistance to her bank, but the condi- tions in a small country like England, where there is so much capital, are very different from what they are in a. new country like ours. In the West where our people have built up the country by their energy and on borrowed capital the English banking system would not meet-our wants. Mr. Johnson, of Indiana. Speaking about the matter of which I spoke to you a minute ago, I want to see if I have your idea of it. Mr. Geesham. Certainly. Mr. Johnson, of Indiana. Taking an agricultural country, where they raise cereals in order to market crops at certain seasons, you say there is an unusual demand for money at that time. Now, is it your proposition that the banks may increase their circulation in the way you have stated, and that while this increased circulation is taken out they pay a tax which goes to the Government 272 BANKING AND CURRENCY. Mr. G-EESHAM. To a redemption fund. Mr. Johnson, of Indiana. It does not make any difference; they pay the tax and they do not get it. Now, bankers will not lend money iinless they can make a profit. Of course, they have to charge enough to reim- bm^se them for this tax imposed besides charging for loaning that money Mr. Geesham. Yes, sir. Mr. Johnson, of Indiana. Do I understand you think the congested or surplus cai»ital at that time in the great money centers, which does not seek to enlarge itself by taking out an additional circulation, that such banks would enter in competition with the money taken out and cut down the rate of interest! Mr. Geesham. Yes, sir; I think they would. Mr. Johnson, of Indiana. And not keep it beyond a pomt at which a profit will be made after paying the tax? Mr. Geesham. Yes, sir. Mr. Johnson, of Indiana. You think that would decrease the interest from what is now paid? Mr. Geesha^i. I think so. Mr. Waenee. As the gentleman has referred to the Canadiau system, as well as the German system, may I not ask, further, is it not a fact, in the preparation of the question I am about to ask, that the Canadian system permits an issue of from 75 to 100 per cent of the capital, but, as a matter of fact, the issue rarely rises above 50 per cent, and that, as an actual fact, the elastic currency runs about 16 to. 20 per cent. IsTow, what I was about to ask you is this : the Oanadian system having demonstrated that far below tlie margin of safety suggested by the gentleman there is still a field for two or three tunes the amount of elasticity that is found by experience to be needed. Now, I want to ask, further, whether there would be any objection, instead of imposing this 4 or 5 per cent tax, to simjjly put on a graduated excess tax, you might so call it, so that there should be no tightening without a supply for any length of time, but a gradual increase of tightness as that sup- ply was increased? Mr. Geesham. I see tlie point you make, and I would have no objec- tion to it. I failed to state in 'regard to the redemption fund that while Canada limits this to 5 per cent of the bank's capital, I would limit it here to S per cent of the currency issued by the Government to the banks, because the experience of the national banks in the last twenty- five years has demonstrated, I believe, that one-tenth of 1 per cent tax upon all the circulating notes issued by the national banks would pay the notes of the failing banks. Therefore, I think, a redemption fund equal to 8 per cent of the currency would be ample to protect the Government. Mr. Waenee. You would regard it a,s a gain and not a detriment to make the tax a graduated one? Mr. Geesham^ Yes; Ithinkso. Mr. Chairman, there is one other feat- ure I would suggest, which has worked in Sweden, it seems admirably, and for forty-two years they have had no bank failures there, aud that is whenever a bank examiner ascertains that the capital of any bank has been impaired to the extent of 10 per cent it shall be required, within thirty days, to make its capital good or the Government will take charge of it. Mr. Beosixts. Have not we something of that kind under our pres- ent banking law ? Mr. Geesham. I do not think it is 10 per cent. BANKING AXD CUREENCY. 273 Mr. Brosixjs. I do uot know about the pev cent. I do not recollect it specifically, only in a general way. Mr. Johnson, of Indiana. You were speaking of your State as being a sparsely settled community and there being a great deal of demand for money at a certain time, and spoke about the impossibility of using checks, but that everything was done on a cash basis ? Mr. Grbsham. In some sections of my State a large per cent of the business has to be transacted with cash. Mr. Johnson, of Indiana. How would you remedy that defect and get money out in those sparsely settled sections ? Of course there must be something to give for that money so that you can get it there. Mr. Gbesham. In our State, as it is generally in the South and West, the people are in debt. We have a new country and have not had time, in the nature of things, however great our natural resources are, to accumulate much capital. The minute you furnish facilities for the transaction of business, capitalists seeing the great possibilities in our country for profit will invest their money with ns. In my State in 1889 I think we only had but .$15,000,000 of banking capital and nearly all invested in the national banks. In eighteen months thereafter it had increased 50 per cent. Where did that money come from? Who were the owners of that national-bank stock? Uf course the bulk of it is owned by our people, but a large per cent is owned by the people of the Bast who have confidence in the integrity of the managers of these banks and in the ability and integrity of our people to meet their obligations. Mr. Johnson, of Indiana. They would hardly establish them in a community unless there was some demand, unless there was money to be loaned, unless there "were discounts'? Mr. Gbesham. In my State I know that money has been so tight that frequently the people have had to pay 2 per cent a month for its use. Give us a good banking system and this would never occur. Mr. Johnson, of Indiana. To what do you attribute it? Mr. Gresham. In the first place because the field is so great for speculation they can sometimes aftbrd to pay it for a short time. Mr. Johnson, of Indiana. Was it uot because you did not have the things on hand to give for the money! Mr. Gresham. Of course in a new country we have not the kind of collaterals that banks usually take. But with a good banking system money would come into our State and the rates of interest would fall. The legal rate of interest in our State for the last two years has been reduced to 6 per cent. Mr. Johnson, of Indiana. Is it not a fact that there has always been a scarcity of money in a sparsely settled country? Mr. Gresham. Of course. Mr. Johnson, of Indiana. And can any system be devised that wQl obviate it? Mr. Gresham. I think if you will give us a good banking system, capital will seek through the banks investments in our Stare. Of course, you can not by legislation give us plenty of money, but if you will give us the facilities for handling our business, we can find capital that will help us until we can accumulate it. Mr. Brosius. Does it not strike you it would be natural for the business people of Texas to provide themselves with the facilities to transact their business? Suppose the Government of the (Juited States ■would rain down a shower of greenbacks on your soil to-day Mr. Gresham. We do not want that. 940 18 274 BANKING AND CURRENCY. Mr. Beosius. What would become of that? Would it stay there? Mr. Gresham. Ko, sir; it would gravitate back to the money cen- ters of tlie world. ■ . r. ^^ + Mr. Brosius. Just the same as the water which falls goes to a river or the ocean? ■, ^t i + „i Mr. Gresham. It would go just where we owe it. We do not ast, gentlemen, the people of Texas do not want, anything but a sound dollar, but they .^^ ant facilities to handle their business so they can save a part of ihi\t dollar. Mr. Bro«ius. Did I understand you to say that your constitution X)rohibited you from banking? Mr. CtResham. Tes, sir. Mr Brosius. You said awhile ago, I do not -know whether you meant to say it or not, that it prohibited any corporation from doing a discount or banking business ? , . ^ Mr. Gresham. It does. It prohibits the creation of any corpora- tion with banking or discounting privileges. Mr. Brosius. Do you not have banks there? Mr. G-RESHAM. Yes; they are nearly all national banks. Mr Brosius. Do you not have any State banks ? Mr. Gresham. We have a few State banks incorporated betweeu 1869 and 1874. This inhibition was put in our constitution m 1845, and it has been there ever since except during the interval between 1869 and 1874. Mr. Brosius. And you have no State banks? Mr. Gresham. IsTone, except as I have stated. Mr. Brosius. But you had no private banking institutions? Mr. Gresham. No, sir. • Mr Johnson, of Indiana. I want to get at one matter ^ye were talk- ing about. Suppose money was flooded in this country, how would it obviate the difficulty which you now have in these thmly settled agricultural districts? Mr. Gresham. To get banks? Mr. Johnson, of Indiana. No, to get money. ' Mr. Gresham. I think if you would give us a good banking system moneyed men would establish banks in every section of the country where the wants of commerce required it, and in that way we would get relief. . , , j_ . -, Mr. Johnson, of Indiana. What I am trying to get at is a remedy for this scarcity of money in certain seasons of the year in your agricul- tural sections. „ ^i i Mr. Gresham. Whenever you make, it to the interest of the people in the East who have money to invest it with us they will do it. Mr. .Johnson, of Indiana. How will money become more plentiful by thatf;wt? . . ^ ^, Mr. Gresham. You give the people the lacilities to liaudJe wnat they h;ive, the riches they have already accumulated, and they with the aid of capital from abroad will make money. Mr. Johnson, of Indiana. They put their money, of course, wherever they can get the best returns. If they can get it in my section they will go there and put their money, and if they can get it in your section they will go there and put their money, of course. Mr. Gresham. Of course they will, and in that Western country, where the facilities are so great for money making on account of its natural resources, we pay more for the use of money than they do or can afford to do in older and less productive sections of our country. BANKfNU AND CURRENCY. 275 If I had the time I would like to discuss the uatioual-bauk system ^?lth branch bauks, not only as it would attect the needs of this country but also its utility in developing and buildin"- up our foreio-n com- merce. ^ The Chairman. You can add that to your remarks if you desire. Mr. Brositjs. I would be glad if you would say what you have to' say now, and let the reporter take it down. Mr. G-EBSHAM. It is a question iuvolving too much to be discussed within the time the committee could now give me. The Ohairiian. The gentleman has the privilege of extending his remarks if he wishes. * , STATEMENT OF HON. GEORGE W. COOPER. Hon. Georg-e W. Ooopee, a Eepresentative from the State of Indi- ana, next addressed the committee in behalf of the following bill: A BILL to subject to State taxation national-bank notes and United States Treasury notes. Be it enacted by the Senate and House of Representatives of the United Slates of America in Congress assembled, That all oirciilatiiig notes of national-banking associations and all United States legal- tender notes and all other notes and certiJioates of the United States payable on demand and circulating as currency shall not be exempt from tax- ation under the authority of any State or Territory : Provided, That any such taxa- tion shall be exercised in tiie same manner and at the same rate that any such State or Territory shall tax other money within its jurisdiction. Sec. 2. That the provisions of this act shall not be deemed or held to change existing laws in respect of the taxation of nationals-banking associations. Mr. Cooper said : Mr. Chairman and gentlemen of the committee, I beg leave to call your attention to a bill which I have introduced, the provisions of which authorize the States and Territories to tax the cir- culating notes of national banks, the legal tender Treasury notes, com- monly called greenbacks, and all other notes and certitLcates payable on demand and circulating as money. The Chairman. This is House bill 4326. ^ Mr. CooPEE. Yes, sir; Mr. Cliairman, we are in this singular situa- tion: The Government of the United States has in circulation very many different kinds of money, in fact our financial system, if it may be called a system, is a piece of patchwork, the result of experiment, necessity, and compromise. We have gold, silver, nickel, and copper, greenbacks, national bank notes, gold certificates, silver certificates, Treasury notes, currency certificates, and perhaps other kinds which I can not now name. In most of the States and Territories efforts are made to tax money as other personal property is taxed, but owing to existing laws great difficulty is experienced in subjecting this class of property to its fair share of the burdens of taxation. All obligations of the Government, including those T^'hich circulate as money, are by law exempt from local taxation. Tliere is, therefore, a temptation offered to all such as are in search of methods to avoid taxation to convert other proi^erty and money into these forms about the time when property is to be listed for taxation. And I am sorry to say there is also not only the temptation, but a disposition to report property and money as being held in forms exempt by law, when in fact it is not so held. So much is this done and so widespread is the'evil that it has furnished the subject for litigation in the courts of many of the States, and in the Supreme Court here. It has been repeatedly denounced in political platforms and so far as 1 276 BANKING AND CURRENCY. know defended no where. In fact this condition seems to ^e the result more of oversight than of any purpose, and why it has continued so lone it is impossible to tell. f„^;„„ Mr BrosiuS. Yon advance the argument as oue reason toi taxing one thing is that you tax another; then why should you not tax the '^m%f£TJ!ZX that is an entirely different proposition. I do not say that I should not favor the taxation of bonds, but there is some reason^hy that might be inexpedient, while I can see none whatever agli^st taxing the W^rency. Bonds ^^t-^VtT'r^VTltartaxa ion whatever burdens they may bear; it we subject them to local taxation The Government would be obliged to pay a higher rate of interest and in the end the result would be the same. .ni^nf^ a^irl The Chairman. What is the average rate of btate, county, ana municipal tax in the county in which you live? Mr Cooper. Well, that varies somewhat in the counties and town- ships' bnt I should say $1.50 for State and county and $1 for the city. The Chairman. That is $2.50. Mr Cooper. Two and a half per cent. The Chairman. You believe that greenbacks circulating as money should be subject to this tax of two and a half per cent; is it your opinion that greenbacks would circulate among your people if they were subiect to a tax of two and a half per cent? + ■ „„ Mr Cooper. Gold and silver circulate. I do not mean to impose any special burden upon this class of currency, but simply put it on an equal footing with all the other. „+,,„,.? The Chairman. Silver certificates are not taxable, are they « _■ Mr. Cooper. Yes, sir, 1 presume so. There might be a question m reo-ard to Treasury notes issued for the purchase of bullion under the law of 1800; there might be some question as to that, bnt silver cer- tificates eirJulating are as taxable as silverwould be. They arenothmg but certificates of deposit. , j ^ ■ ii n The Chairman. Is there no danger of the States taxing the Gov- ernment issues out of existence, if permitted"? , ^ i +i Mr. Cooper. The proposition I make is that they be taxed as otiier money and to no greater extent. , , ■ , +i Mr. Sperry. Would you refer to the statutes m which they aie exempt from taxation'? . , .-,, ^ ^ , Mr. Cooper. Yes, sir— section 3701 of the Revised Statutes reads as follows : Section 3701 All stocks, bonds, Treasury notes, and other obligations of the United States, shall be exempt from taxation by or iiudcr State or municipal or local authority. The Chairman. Thev are Government securities? Mr Cooper. Yes, sir; they are obligations of the United States. The Chairman. Then they are not taxable by the decision of the SupremeCourtof the United States? Mr Cooper. No, sir; I think this question was first decided m a case brought by the bank of New York and reported in 7 Wallace United States Supreme Court Reports. If you will look at that case you will find that while the court held that under the law these obli- gations were exempt, the court was also clearly of the opinion that there was no good reason for the exemption and that it was withm the power of Congress to render them subject to local taxation. Gentle- men, if you will look at some of these decisions you will see to what extremes men have gone in their efforts to avoid taxation by means ol BANKING AND CURRENCY. 277 this couditiou of our laws. Take for instauce the ease of Mitcliell vs. Board of Commissioners of Leavenworth County, Kans., reported in 91 United States Supreme Court Keports. The facts in that case were as follows (p. 206) : . This case presents the following facts: Mitchell, plaiutiff', kept his account with a banking firm in Leavenworth. On the 2>!th of February, 1870, he had a balance to his credit of .$19,3.50 in current funds, for which he that day gave his check, pay- able to himself in United States notes. They were paid to him. He immediately inclosed them in a sealed package and placed them for safe-keeping in the vault of the bank. On the 3d of March he withdrew his package and deposited the notes to his credit. This was done for the sole purpose of est.aping taxation upon his money on deposit. It is true that this particular tax dodger did not succeed, but it was because he had mistaken his remedy and gone into a court of equity instead of resorting to his legal remedy. While he failed, thousands every year succeed. There is a case reported in the 59th Indiana; the case of Ogden, treasurer, vs. Walker (page 460), in which the following state of facts is presented : It appears by the comjjlaint that the plaiutiif owned aud had in his possession on the 1st day of April, 1873, $5,681 in greenbacks. When the assessor called upon him he furnished a full and true list of his personal yiroperty, which was duly appraised by the assessor at $943. The assessor then called upon him for the amount of money on hand on April 1, to which he replied that he had ijo money on that day except greenbacks, which he was not, in his oj)inion, retiuired to list This gentlemen was more fortunate and succeeded in avoiding the tax. I need not multiply these cases because this practice is so com- mon that it has not escaped the observation of any whose attention has been directed to the subject. Perhaps the most common and uniform use of this advantage is taken by the banks. Their opportunities for doing so are superior to all others, they handle all of the currency and it is very easy to cull out and lay aside that class of money which will enable them to avoid taxation. Let me also call your attention to the fact that the banks are using these notes more and more to make up the sum of their law- ful reserves. In the last annual report of the Comptroller of the Cur- rency on pages 164, 165, you will find a statement showing a classifica- tion of the reserve held hj all the banks of the States and Territories and also of the reserve cities. This statement shows that these banks are carrying in their vaults as a part of the reserve required of them by law about $100,000,000 in legal tender. At the date of the last call, which was September 30, I8O1', the sum held by all the banks was $104,267,045. It will also be seen if glanc- ing down the column by years how this kind of money has grown in favor as a reserve fund. For instance in 1886, the first year given here, the sum was $62,812,322, from which amount it has gradually increased to over one hundred millions. Here then you see is $100,- 000,000 exempt from local taxation in the hands of the banks alone, but I have no doubt whatever that this amount, by one and another device, is greatly increased about the time at which property must be listed for taxation. I have been told that this money is shifted from State to State, for the dates at which property is listed for taxation differ in the States. In Ohio the date is the second Monday in April ; in Indiana the first day in April ; in Illinois the first day of May. Here you can see how it is possible for this money to be used in three States. You may suppose it will not be done; you may think it even incredible that it is done, but I show you that it is possible, aud I assure you that I have heard of its being done. It ought not to be possible. 278 BANKING AND CURRENCY. But, t;eutlemeii, it is even worse than this; you will see by the language of the bill that natioual-bank notes are also included And rio-ht here I ought to say that this bill is not original with me. it was introduced precisely in this form by Senator George, of Mississippi, both in the Fifty-first and Fifty-second Congresses. However, ex- Senator McDonald, of Indiana, I believe, was the first to introdace the bill; this was iu the Forty-sixth Congress. But I was going to say that the supreme court of Mississippi has decided that national- bauR notes are also exempt from taxation. This decision is based upon the language of the statutes defining "Obligations of the United btates," which reads as follows : Sfo 5413 Tlie wonls " obligations or otliter' security of tlie United States" sliall beheldto mean all bonds, cCTtiticates of indebtedness, national bank, currency, coupons, United states notes, Treasury notes, fractional notes, etc. The language of this decision on this point will be found on page 454 of the 52d Mississippi Eeports, and is as follows : ''. The national bank notes issued by the national banking associations, under the' authority of Cougress, are also obligations of the National bovernnient, the on?v d fte?ence between them and the legal tender notes being that the Government is primarily liable for the latter, and secondarily liable tor the former, upon the failure or default of the national bank issui ng the notes. Acts of 1 ebruary Zo, 18bd, March, .>, 1863, June 3, 1864, and .Jniie 30, 18H4. I do not think this case is followed by any of the courts^ elsewhexe, but it serves to show how uncertain and iU-dcflned the law is upon this important subject. Then, too, as luis been suggested, here now come the new Treasury notes issued under the Sherman law, and tlie gold and silver certificates ; these all raise the question and offer the tempta- tion. Now, gentlemen, ought we not in justice to all the people either make all of this money subject to taxation or relieve it all. AS TO THE POAVEE. I have been asked whether we have the power to render this property taxable. I liave already said that the Supreme Court, 7th Wallace, clearly indicated that we had the power; in fact, I flunk the ('ourt . strongly intimates that we ought to do so. I quote from that decision on page 30 : But it was insisted that fchev [speaking of the greenbacks] were issued as money; that their controlling (inality was that of money, and that, therefore, they were subicct to taxation in the same manner, and to the same extent, as com issued under like authority'. And there is certainly much force in the argument. It is clear that these notes were intended to circulate as money, and, with the national bank notes, to constitute the credit currency of tUo country. Nor is it easy to see that the taxa- tion of these notes, used as money, and held by individual owners, can lamtrol or embarrass the iwwcr of tlie Government in issuing them for circulation, more than like taxation embarrasses its power in coining and issning gold and silver money for circulation. ■' * " , ^ .■ i ii " And we think it clearlv within the discretion of Congress to deteriinne wbether, in'view of all the circumstances attending the issue of tlie notes, their usefulness, as a means of carr\ing on the tJoverumcnfc, would be enhanced by exemption from taxation. In discussing this question, in Ids work on taxation. Judge Cooley, on page 84, says : But the sovereignty, in wli'oso interest the exemption exists, is fully protected if it controls in res'pc't to taxation; and it may, in its discretion, permit its own ao-encies or its own property to be taxed by tlie other, under limitations prescribed by itself, as the Federal (Government lias permitted the States to tax the national banks as they tax otlun- moneyed corporations within their jurisdiction. BANKING AND CURRENCY. 279 WILL IT CONTRACT THE CURRENCY ? Your chairman asks lue whether subjecting these notes to taxation will not drive them out of circulation? I think, ou the contrary, it will drive them into circulation. There are $346,000,000 in greenbacks. Where are they* Who sees one? It can hardly be said that they are in circulation at all; instead of being the money of the people, as it once was, it is hoarded by the banks and hidden by the miser, and clearly, it seems to me, because of its exemption from taxation. You can not get silver to circulate; the banks Avon't take it; they prefer greenbacks and other Government obligations, plainly because they are exempt from taxation while silver is not. Bo we not all know that, when any special value attaches to one kind of money, it immediately disappears? It is so in this case. If we pass this bill, we will drive this money from its hiding and put it in motion. Now, gentlemen, in conclusion let me say that in each of our State constitutions we have some provision which requires taxation to be uniform and equal. Why, in Indiana our legislature at one time passed a law exempting to widows a certain sum from taxation, and the supreme court decided it unconstitutiomil. If she were a banker and had it in greenbacks she might be exempt; if she were poor and her iiroperty only a home to shelter the orphans, it could not escape taxation. There is no more reason why one kind of money should be exemjit from taxation where it all passes at par than there is for exempting any other species of property. You might as well exempt a white horse or a red cow. While you gentlemen are now investigating these subjects with a view to reforming our currency sys- tem, I hope you will not overlook this much-needed reform. We ought either to make all the money taxable or relieve it all, for I do not exaggerate when I say that the present condition is a most fruitful source ot fraud, injustice, and crime. This is all I desire to say, gentlemen, and I thank you for your kind attention. The committee thereupon rose to meet on Tuesday next, if Congress is in session; and if not, to meet on the first Tuesday in December. STATEMENT OF HON. JOSEPH H. WALKER, REPRESENTATIVE IN CONGRESS FROM THE STATE OF MASSACHUSETTS. On December 8, 1893, on motion of Mr. Warner, Mr. Walker was given the privilege of submitting to the Committee any remarks upon his currency bill, and of liaving them printed with the liearings of the Committee. Mr. Walker submitted the following : Mr. Chairman and Gj/ntlbmenop the Committee: The inipor- tance of the work which devolves primarily upon us and upon the present Congress, in composing the finances of the country after thirty years of empirical practice, is impossible of realization to anyone who has not made a careful and exhaustive study of present conditions in order to comprehend the chaotic condition of our finances as comi^ared with the symmetry and strength of the financial systems of other first- class i)Owers. A strong and well-knit financial system, one that can safely stand the shock of war or civil commotion, is of the very first importance. 280 BANKING AND CURRENCY. lu fact, it ranks before an army or a navy, in international importance, as it does to domestic prosperity. To-day, as always, the sinews of war is money. S"ot gold or silver. Tlieir day as munitions of war, has departed, never to return. A financial system that enables a nation to avail itself of its utmost resources in time of war witliout oppression to a sino-le city or town, or even a single citizen, but distributes its burden with^he gentle ])ressure of the air over every man of its millions of people even over many years of its generations, makes a nation invin- cible, not only in creating an army and a navy, but in sustaining and handling them. From military considerations are we bidden to do our work diligently and well. ,, - , 4. ^ We have recently entered most brilliantly upon the development ot a navy commensurate with our greatness in speed, power, and evolution. For a republic whose geographical position is almost unassauable aud which has an imin^egnable fortress in the heart of each one of sixtv-ttve millions of people, our army is ideal. Upon us is devolved the dutv of fashioning a financial system that will allow every nerve and sinew of this people to be made effective, without loss or hindrance to industrial progress in time of peace, and also to converge them at one time and place and without loss or shock to the people in their daily avocations, in time of wi^r. For Avant of such a financial system, wlien the late civil war broke out our debt was piled up to half as much again to double its normal size. Should we enter to-day upon a foreign war of large dimensions, our financial experience would be scarcely less disastrous. Our ex])efience with a most abundant but not flexible currency has been most bitter in time of peace. A hundredfold more bitter would it be in time of war, even if it did not utterly break down But I am not alone in this opinion when I say to you if a great war should be entered upon, it would break down utterly and irreparably. It would be a repetition upon a more gigantic scale of our financial expe- rience of ISGl. INADEQUACY OF THE PRESENT BANKING SYSTEM. A banking system that wdl not run smootlily and successfully under the most adverse circumstances is a, banking system not worth talking about. A banking system that does not provide for spece payments and for the suspensioi'i (if specde payments, a banking system that will not run smoothly during the most gigantic foreign war or intense civil commotion and civil strife, is not worthy of our attention. Our present system not only will break down in the conditions named, but it has not run eccuioinically and safely in luirmal conditions. It never has, maintained specie payments, in and of itself, by its own working, for a day, since it was inaugurated. AVhile seeming to do so, its safety has really been secured by the voluntary action of our banks outside the law and at great ])eril and at unreasonable expense and risk to the peoi)le, caused wholly by the position in which the Government is placed with reference to our currency. This was abundantly proved in the financial crisis just ended, as it has been in every preceding monetary disturbance. Our abounding national strength and vigor has made us blind to defects which would have given pause to a less^ virile peo]ile. I can not fully descriljc the perils of the situation in the time allotted me; neither can I fully present the advantages of a banking system BANKING AND CURRENCY. 281 such as is developed iu the bill H. E. 171, which I had the honor of draftiug and iu advocacy of whicli I now address you. TEXT OF BILL H. B. 171. AiJILL to secure to tljo people the advautagen accruing I'rom the issue of circuhiling promissory notes by banks, to increase the volume of such notes, and to supervise and control banks liy othi-ers of the United States. Be it enacted by theSenatnand House of Repreaevtatires of the.TJnited Slates of America in CoiKjress assemiled, That national bunking associatiou.s organized for the trans- action of bn sin ess under tliis act shall be subject to existing law excepting as is hereinafter provided. Sec. li. Th.at any bank incorporated by sjjecial law, or any banking institution organized under a general law of any State, may become a national banking associ- ation under this act by the name prescribed in its organization certilicate; and in such case the articles of association and the organization certihcate may be ciectited by a majority of the directors of the bank or banking association ; and the certificate shall declare that the owneio of two-thirds of the capital stock have authorized the directors to make such certificate and to change and convert the bank or banking institution into a national banking a,ssoeiation. A majority of the directors, after executing the articles of association and organization certificate, shall have power to execttte all other papers, and to do whatever may be recjuired to make the organ- ization perfect and complete under this act. A majority of the board of directors of each association organized under this act, and not less than three in number, shall be of persons who perform no other regular service for the association. Any bank- ing association organized and doing business under existing law of the United States by giving notice to the Comptroller of the Currency of its desire so to do, may org.an- ze under this act, with the approval ot the Comptroller of the Currency. Sec. 3. That every association organized under this aet, before it shall be author- ized to commence a banking business, shall rovided the association applying for such additional notes shall deposit with the Secretary of the Treasury, bonds' in kind and amount acceptable to the Secretary of the Treasury, as security for such notes, and .shall pay such rate of interest per annum on such notes so issued as is required by law to be paid on loans when no rate of interest is fixed in the obligation by the State in which the bank is located. Such interest on such notes to be' paid at'such time and in such manner as the Secretary of the Treasury may determine. Any association depositing bonds and receiving currency notes secured thereby as herein provided may withdraw such bonds so deposited after ninety days from the date of such deposit upon paying the accumulated interest on the notes issued upon the deposits of such bonds up to the date of their withdrawal, and in addition to such interest shall deposit with the Comptroller lawful money or circulating prom- issory notes issued to associations under section four of this act, ot mixed, to an. amount equal to the circulating notes issued to the association for which the bonds were deposited for security, but iu> more than ninety per centum on the par value of any bond sliall be issued in currency notes of section four and no more than five per centum of the notes issued to any other a.ssociation under section four of this act shall be accepted as a deposit for the redem])tion of such bonds and the cancellation of such notes. The circulating notes so deposited shall be immediately put in redemption and the lawful money received for them shall lie kiqit as a special fund with which to redeem and destroy the amount of such notes as are descrilied in sec- tion four and issued to tlie association under this section of this act, and such notes shall be destroyeil equal in amount to the notes issued to the association in excess of those issued to it undei' section four oi this act. Sec, 9, That in order to furnish suitable jiromissory currency notes for circulation as money, under si'ctions four and fi\-e, the Comptroller of the Currency, u]nler the direction of tlie Secrctar\- of the Treasury, shall furnish such notes, in blank, to banking associations entitled to receive them, and every yivnvision of this act shall apply equally to the promissory currency notes issued under sections four and five: Provided, howcrcr, That notes issued under section five shall not he counted in any reserve fund; and the notes issued under secthm live shall lie finally redeemed and BANKING AND CUKEENCY. 283 paid as provided iu .section seventeen; and notes issued under section four shall be hnally retleomed and paid as provided in section thirteen. Sec. 10. That the ^cashier of any association, with the ujiproval of the board of directors in writin- properly certified to the Comptroller, and ^vith the approval of the Comptroller, may appoint a deputy- to affix the cashier's siRnature to the circu- lating notes issued to the association, but such deputy shall nnt be a re"ular employee of the bank. ' ° Sec. 11. That any association, upon giving to the Comptroller of the Currency SIX months' notice of its intention so to do, may, at tlie expiration of that period surrender its promissory currency notes, or any part of them, issued under section lour, in excess of the aiuonut it is required to take, and receive coin, or coin or bullion certilie.'ites, or mixed, therefor. Any association, upon i;ivinn' to the Comp- troller of the Currency one year's notice of its intention so to'do, may close up its business, and, dissolving its organization, may surrender such promissory currency notes and receive coin or coin or bnllioii certificates or mixed tliere'br from the Treasurer of the United States upon surrendering the same to the Comptroller, and upon like notice in like manner any associ.ntion which reduces its capital stock may deposit a like proportion of such promissory currency notes iu excess of the amount it is required to have in section three of this act, ami receive coin or coin or bullion certificates or mixed therefor, and the Treasurer of the United States is hereby authorized and directed to pay the currency promissory notes herein described as they are presented, out of any moneys in the Treasury not otherwise ayipi-opriated, and the Treasurer shall forthwith destroy the same in the manner prescribed by law ; and any association may reduce its promissory currency notes issued to it under sectiim five of this act by surrendering them for destruction to the Treasurer of the United States, and the Treasurer shall destroy the notes so surrendered in the manner prescribed by law. The liability of imy association for notes issued under section five shall neither be canceled nor reduced iu any other manner: ['rocided, Iwu'ercr, That the doing by an association or others of any one of the things pro- vided for iu this section must be with the approval and permission of the Comp- troller of the Currency. Sec. 12. That any a,ssociatiou, at any time within two years next previous to the date of the expiration of its original or extended corporate existence under this act, and with the approval of the Comptroller of the Currency, may, by amending its articles of association, extend its period of succession ibr a term fixed by" the Comptroller of not more than thirty years from the expiration of I he period of suc- cession named in the articles of association, and shall have succession for such extended period. But such amended articles of association shall not be valid until the Comptroller shall have given to tlie associatiou a'certificate of approval thereof. Every association organized under this act shall have the right to extend its cor- porate existence for a further period or periods, so that its whole life under this act shall not be less than thirty years, and all certificates of authority shall be so issued by the Comptroller of the Currency as to expire as nearly equal iu number and amount of capital as is practicable in each year of a period of thirty years. Sec. 13. That upon the expiration of the corporate terra of any association organ- ized under this act and its corporate existence not extended by the Comptroller of the Currency, or upon the voluutiiry surrender of its currency notes, or upon the insolvency of an association, or by the order or witli the consent of the Comptroller, approved by the Secretary of the Treasury, the Treasurer shall redeem the promis- sory currency notes issued to the association under t]io provisions of section four of this act. In redeeming the promissory enrrency notes issued under section four of this act he shall do so in coin of the same intrinsic value as the nominal value of the money deijosited by the association for the issue of the notes in blank upon the date of such deposit. Sec. 11. That the Treasurer shall at all times keep and have on deposijt in the Treasury of the United States iu coin, or coin and bullion oertificati/s, fortlie redemp- tion fund of each association, the ten jier centum provideil in section six, to be held and used for the current redemption of both kinds of its promissory currency notes; and when the enrrency notes of any association organized under this act, assorted or unassorted, shall be presented for such redemption to the Treasurer of the United States, in sums of five hundred dollars, or any multiple thereof, the same shall be forthwith redeemed. The right to confer the duties and responsibilities of executing the ]U-ovisions of this section, and of other sections or parts of sections of this act relating to the redemption fund provided for in section six, upon reserve banks, under such regulations as he may deem safe and proper, and to deposit the redemption fund or funds provided for in section six in such fianks, taking ample security therefor, is hereby couferred upon the Treasurer of the United States, with the approval of the Secretary of the Treasury; but .any such deposit .shall not be counted as a part of the reserve of such bank. The Secretary of the Treasury shall i>ublish in one of the three papers having the largest circulation in business circles in New York City a list of 284 BANKING AND CURRENCY. the securities and the amount of each kind accepted hy him to secure any and all '^''sec ''l5™ThVt'\.o'!liabTe tjie Treasurer of the Ui'ited States to fund the circulating promissory notes issued under section four, the redemption of which by him is pro- Tided for in this act, and to enable hin, to execute the provisions of section seven- teen, the Secretary of the Treasury is hereby authorized to issue on the credit of the United States coupon bonds or registered bonds, redeemable at the pleasure ot the United States after two years, and payable ten years from date, and bearing inter- est at the rate of four per centum per annum, payable semiannually, and the boiids herein authorized shall be of such denomiuatious, not less than one hundred dollars as may be determined upon by the Secretary ot the Treasury, and the Secretary of the Treasury may dispose of such bonds at any time, at the market value thereof, for coin, or coin or liullion certificates or mixed. n x, r,. SEC. 16. That any association designated by the Secretary of the treasury as a depositarv of pulilic money may be required by the Secretary to keep on hand on account of sucJi deposits such reserve fund as he may deem expedient, but such. deposulbytheSecletarysliallnotbe counted in computmg the reserve required ""fEC-T?' S^'whenever, in the opinion of the Comptroller of the Currency, the complete redemption and 'retirement of all promissory ''^'^I'^^'^y ^Zlf^TZVfJ^ by any association is then necessary for the protection of the holders of such notes, the Comptroller mav take possession of all the assets ot such association and pro- ceed to Create a fund ample' for the redemption of such notes by l^>-ft setting aside for such fund all the currency notes issued to associations under section four and all the coin or coin and bullion certilicates held by the association. The Comp- troller shall set aside and cover into such fund all or so much ot all the asset^ of the association as shall be necessary to make up sucl, fund to redeem ^if^^f^' l^f the Comptroller, after completing a fund sufficient for the complete redemption and retirement of such notes, and not before, shall deliver the remaining assets to the association; and the Treasurer of the United States .shall use the fund created as above for the final redemption and the retirement of the promissory currency imtes issued to the association under section five of this act; and the balance of said fund so created over and above tlie amount required for the final redemption and destruc- tion of such notes, if there be any, shall be paid to the assocuat.on from which it was taken In doing the things provided in this section the Comptroller is hereby authorized to sell any part of the property of the association or to pledge the whole or any part of the property or assets of the association at any time as security for any loan he may elect to make in order to create the fund herein mentioned. It, after complying with the preaeding requirements of this section, there is not a sufficient sum to redeem all the currency notes issued to the association under sec- tion five of this act, the Secretary of the Treasury is hereby authorized and directed to at any time make up the deficiency in the fund necessary to finally redeem and cancel such notes out of any moneys in the Treasury not otherwise appropriated, and from the proceeds of the sale of bonds in like manner as provided m the case of currency notes issued under section four and surrendered to the Treasurer nuder section eleVen of this act: Froeided, Iwwerer, That the accounts kept by the Ireas- urer of the United States, of the moneys received by him under section nineteen ot this act, sho\^\ at the time of making up such deficiency that the money so received exceeds the money before paid out by him in the redemption of such notes by a sum equal to or larger than the sum necessary to make up the sum needed m the case, and not otherwise. * ^ x. -^ • f Sec 18 That each association shall increase its reserve on account ot its issue ol circulatin" notes issued to and by it under section five of this act the same percent- age it would be re(|uired by law to increase its reserve were its deposits increased by a sum equal to the sum of such notes in circulation, all ot which increase of its reserve! may be in balances due the association from approved reserve agents. Tlie casli reserve required by law to be kept may be in coin, or in coin certificates, or m promissory currency notes issued under section four of this act, or mixed; but when the daily total reserve of an association averages less for any month than the amount required to be kept by it at all times by existing law it shall pay luto the Treasury of the United States a duty for that month e(iuivaleut to interest, at the rate fixed by law in the State where the association is located, on the amount of avera'^e delicieucy in such reserve for that month ; and every association organized mider~^this act shall pay into the Treasury of the United States a duty on that part of its average daily casli rescr^'e required by law that is averaged to be kept, in any month, in notes issued to banking associations under section four of this act, at the rate of two per centum per annum ; and whenever any association fails to pay m coin or coin certiticates on demand the promissory currency notes signed and issued by it sucli association shall pay an additional duty at the rate of four per centum per annum on the whole auKumt of tlic sum of the lawful reserve it is required at BANKING AND CURRENCY. 285 all times to have on hand until such payment is resumed. Not less than fifty per centum of the coin and coin or bullion certificate reserve provided ior in this act shall be in gold coin or gold certificates, and fifty per centum may be in silver coin or silver certificates, and any excess of silver coin and silver certificates over gold coin and gold certificates shall be counted as though they were promissory currency notes issued under section four of this act. Nothing in this section and no action taken by any association under this act shall bar any action taken or proposed to be taken by the Comptroller under section seventeen of this act. Sbc. 19. That m addition to all other taxes or duties provided for in this act each association organized under this act shall pay into the Treasury of the United States a tax equivalent to one-tenth of one per centum per annum on the average amount of currency notes issued to and retained by it under section five of this act, for the purpose of anticipating the redemption and destruction in certain cases of the currency promissory notes issued to associations under section five of this act. The Treasurer of the United States shall keep an account of all moneys paid into the Treasury under this section and all moneys paid out of -the Treasury on account of the redemption of such notes. In order to create an obligation to guarantee at certain times certain individual deposits in associations organized under this act and to provide against loss to the United States Treasury in making such guarantee, each association organized under this act shall pay into the Treasury of the United States as a miscellaneous receipt a tax equivalent to one one-hundredth of one per centum per annum on its average individual deposits until such time as the aggregate of such taxes paid into the United States Treasury by such association exceeds in amount the sum of one million of dollars, and such taxes shall cease at such time as the Secretary of the Treasury shall determine and before such aggregate amount of taxes paid reaches the sum of oiie million five hundred thousand dollars. The taxes imposed in this section shall in any case be paid by each bank organized under this act %Yhen directed so to do by the Comptroller of the Currency until such time as the aggre- gate of all the taxes paid by it a;pproxiniatcs its fair proportion of the aggregate of all such taxes paid by all the associations organized under this act. The approximate to be measured and determined by the Comptroller by the average individual deposits of the association as com]iared to the average aggregate indi- vidual deposits of all the associations organized under this act. Whenever the aggregate of all the taxes collected under this section of this act does not exceed the aggregate of all sums paid out by the Treasurer on account of tlic guarantee of certain individual deposits herein provided for by the sum of one million dollars, the Comptroller of the Currency is hereby authorized and directed to reimpose such taxes upon each association to make good the guarantee fund herein created, and each association shall pay such taxes for such time as the Comptroller shall direct and for such time as will make the aggregate of all the taxes paid by each associa- tion under this section, -as compared to the aggregate of the taxes paid by all the associations under this section, approximate pro]iortionately to its average indi- vidual deposits as compared -with the average aggregate individual deposits of all the associations organized under this act : Froridecl, howevci-. That no association shall be liable to pay any tax, and no tax shall be levied upon it uniler this section when the proportion of the sum of all taxes then in the Treasury that it has paid in equals the sum of one-tenth of one per centum on its average individual deposits for the last preceding five years. Each association shall Ije entitled to receive, and the Treasurer of tlie United States is hereby authorized and directed to pay to each association, out of any moneys in the Treasury not otherwise appropriated, and at such timi- and in such manner as the Secretary of the Treasury shall determine, interest on the remainder of the aggregate sum of all the moneys it lias paid into the Treasury of the United States under this section and th en therein at the rate of four per centum per annum : Provided, however, That in ascertaining the remainder of the sum paid into the Treas- urv by any association that is then therein there shall bo deducted from the aggre- gate each association has paid in under this section its equitable and proportionate part of all sums paid out of the Treasury under this section. "When, in the opinion of the Comptroller of the Currency, an exceptional financial condition exists or is impending that threatens the paralysis of business and the stopping of industries to the great injury of the people, by crippling or temporarily destroying the usefulness of all banking associations in the country by threatening the withdrawal of deposits from conservatively-managed and clearly solvent bank- ing associations because of abnormal conditions of unreasonable fear which is man- ifesting itself, the Comptroller of the Currency is hereby anthorized and directed, with the approval of the Secretary of the Treasury, to issue an order of guaranty by the United States, and to guarantee for ninety days certain individual deposits m all or any one of the hanking associations organized under this act, which order may be twice extended for the same or a shorter period, but in no case shall such 286 BANKING AND CUERENCY. ordei- 1)e extended to cover more than eiglit consecutive months: Provided, however, That such order of uU'iran+ee BhuU include only individual deposits in associations organized under this act, but in no cas^ shall such order of guarantee be held to include sums due irom insolvent institutions to public or private banking associa- tions or banldni;' firms of any kind or the deposits of any oflicer, director, or emiiloyee . of any bauking'institution whatever, or to any stockholder holding stock at the par value of two thousand dollars or more in any corporate or private banking institu- tion whatever, nor to individual deposits made for a definite time. The Treasurer of the United States, upon the order of the Comptroller, approved by the Secretary of the Treasury, is hereby authorized and directed to pay to any depositor in such manner as he 'shall determine any sums due such depositor because ot the making and issuing of any order of guarantee described in this section, in the same manner as is provided in sections thirteen and fifteen in the case of the redemption of notes issued under section four. No 6rder of guarantee herein mentioned shall operate to change or abolish in anv innnner any liability or obligation imposed by law on any banking association or "upon any ofticer, director, stockholder, or employee of any banking association whatcA'er, or of auy other person. The liability of the Treas- urer of the United States on account of any order of guaranty that may issue under this section concerning any deposits in auy association that may be affected by any act done under this se'ction shall not be increased because of any losses to any indi- vidual or any association caused by any fraudulent act committed by any person employed by 'or connected with any association that fails to promptly pay its depos- itors because of insolvency during any period covered by any order of guaranty issued under this section. Sec. 20. That the Comptroller may at all times know the condition of each bank, and what duty is due and collectible from it, each bank shall make such record at the close of each day as the Comptroller shall request, in a book kept for that pur- pose, which record shall show the total amount of its outstanding promissory cur- rency notes issued to it under section five of this act, and its total deposit account, and its total reserve account, as shown by its books at the close of each business day, and of what the reserve consisted, which daily record of deposits, reserve, and currency uotes, and other matter requested by the Comptroller, sliall be made up for each month, and a copy or report thereof transmitted to the Comptroller of the Currency on or before the tenth day of the following month ; and the duty upon the a^'erages of the kinds of money which made up the reserve during that month, and all taxes and duties imposed'by this act, shall be collected semiannually on the first day of April and the first day of October in each year. The records and reports provided for in this section, aud any other iacts and data lie may request, shall he in such form as the Comptroller shall direct. Sec. '21. That before making the record for the day, as provided in section twenty or required by the Comptroller, every transaction of that day pertaining thereto shall be duly entered in the books of the bank. All moneys hereafter received from the duty or taxes collected from banking associations over aud above the cost to the Government of maintaining tlie bureau of the currency shall be covered into the Treasury as a miscellaueons receipt. Sec. 22. That there is liereby created the office of national-bank examiner in chief, who shall be, appointed by and' be under the direction of the Comptroller of the Cur- rency, and shall lie paid the sum of three thousand dollars per annum, in addition to the ne'-essiiry expenses incurred by him iu traveling. The examiner in chief shall, under such direction, supervise and dire<'t all other bank examiners, and be paid out of the approiu'iations I'or the bureau of tlie currency. The uational-bauk exam- iners shall lie lield to be em])loyes iu the oifice of the Comptroller of the Currency when examining associatiiDis organized under this act, and their fees shall be paid out of the ajipriiprintion for the liureau of the currency. .Sec. 23. Tliat dividends to shareholders sliall be payable by any association organ- ized under this act seuiianiiually on such da.y as tin; Comptroller shall a-pprove. Sec. 24. That all currency promissory notes received by any association shall be carefully assorted, aud of those issued under sections four and five of this act that are paid out by it, those issued under section ibiir shall be iirst yiaid ont, excepting as provided in section eighteen, and then those issued to other associatious under section iive, and, lastly, those issued under section five to the association lidding them. Sec. 2."i. That there is hereby constituted aud ax^pointed a board of advisors, of experts, to the Comptroller of the Currency upon changes desirable in and methods of executing existin.i; law concerning bankiug, over v hich board the Comi>troller of the Currency shall preside. The president of the chief redemption bank in the five chief redeiuption cities in the country', or such substitute for any one of the officers named as he shall from time to time appoint, shall constitute the board, which board of advisors shall meet once a year, or oftener if the Comptroller of the Currency or a majority of the board so determines, and at such a time and place as BANKING AND CURKENCY. 287 the Comptroller shall appoint. The recommendations of sudi board, or a synopsis thereol, sliall be extended iu the records of tke board, and the decision of the .Sec- retary ot the ireasury from time to time as to what person or persons are entitled to act nnder this section shall bo hnal. ^ .Sec. 26.^ Tbat every president, director, cashier, teller, clerk, or a<.ent of any bank- ing assocnition organized under any law of the United States, or 'any other' person who embezzles, abstracts, or willfully misap])lies any of the moneys, funds, cred- its, or other assets of any such bankiii,^' association, or who, without 'authority from the directors, issues or puts in circulation any of the notes of the association, or who, without such authority, issues or puts forth any certificate of deposit, draws any order or bill of exchange, makes auy acceptance.'assigns any note, bond, draft bill of exchange, mortgage, judgment, or decree, or, without authority so to do, issues or transfers any paper which, were it authorized by the association, would make the association liable for anything of value, or who 'willfully omits from auy book, record, or account or any other paper any item or entry that is material to the accuracy of them, or any one of them, or customary or required to be entered or made m such book, record, account, or paper, in order to make them or any one of them a reasonably accurate showing of the facts the book, rei-ord, account, or paper was made or kept to show, or that it was customary to include in them or auy one of them in order to show the facts which the book^ re('ord, account, or paper was nonimally or really made or kept to exhibit, with or without intent, in either case, to injure, defraud, or deceive the association or any other company, body politic or corporate, or any individual person, or to deceive any olBcer of the association, or any agent appointed to examine the affairs of any such association, or any other per- son, or who abstracts or willfully destroys any book, paper, record, or statement of original entry of the association, or any book, record, statement, or account, or any part of any one of them, and made up directly orlndirectly from any book, paper, or record, or who willfully conceals or fails to immediately report any'violations of the provisions of this section that he has knowledge of to 'the officers of the bank and to the board of directors, and also to the examiner when offlcially examining the books, accounts, securities, or papers of the association, or when requested by any officer, director, or examiner to do so, or fails to report any omission by any person from or any incorrect entry of any item in any book, record, or account of the association which belonged therein by custom or by direction of the proper officer, or who willfully conceals or fails to call the attention of the person offlcially exam- ining the bank to any violation of the provisions of this act or order of the Comp- troller of the Currency by any director, officer, or employee of the association or other person, when requested to do so by the person officially examining the bank, ancl every person who willfully aids or aiiets in any way in any violation of the pro- visions of this section, shall be deemed guilty of a misdemeanor and shall be imjOTS- oned not more than ten years or pay a hue of not more than ten thousand dollars, or both; the condition of the account with the bank of the maker of a certified check shall be presumed to have been known to the officer at the time he certifl(td the same, in the absence of proof to the contrary, and that it was not the official duty of any officer, director, employee, examiner, or any other person to do or not to do any one of the acts or things herein specihed shall not be pleaded iu auy action coni- menced or prosecuted against any oue of them. A copy of so much of the provisions of this act as the Comptroller shall deem applicable or pertinent in the case may, at his discretion, lie seri-ed by the bank examiner who is making, or is about to make, an official examination of the associa- tion upon such officers, tlirectors, and employees of the association as the Comptrol- ler shall designate at the time of or just previous to each examination. And if any bank examiner willfully misrepresents the true condition of any asso- ciation examined by him, or makes any error resulting from gross negligence on his part, or if the examiner fails to exercise due care in his examination of the condition of a bank, or willfully fails to observe the methods or rules prescribed Ijy the Comp- troller of the Currency, and loss does or does not result therefrom, he shall be deemed guilty of willfully misrepresenting the condition of the association for the purposes of this act. . The first business transacted at the first meeting c.f the board of directors of each association in each month shall be to hear and to enter upon the records of the board of directors a statement from the cashier or other proper officer of the association of the liabilities of each officer and director of the association to the association in the following order, that is to say : First, as maker of any paper, sole, or as an officer or director of any corporation, or of a corporation of which he is a director or officer. Second, as indorser of any paper. Third, as surety for any loan or other obligation to the association. Fourth, as to the amount and market value of any collateral the association holds to secure any liability to the a.ssociation by any one of them. 288 BANKING AND CURRENCY. If at any time the board of rtirectors of any association fails to meet for a period of li'rty^oLsecntive days the record provided for in this section ^^^^ll "{^^^^^ the cashier, or snch employee as he may designate m tl^« ^^^^^^'^^^ * "^,^^,\%^^^^^ of directors, and a transcript thereof shall he sent to each member of snch hoard of directors and to the Comptroller of the Currency. Sfc 27. That all existing laws affecting national banking associations and prom- issory currency notes issuel by them shall apply to those organized under this act ami to promissory currency notes issued nuder it which are not inconsistent with th^pro^ds'ns thireof ; bu^ this act shall not be held to f ««* an? fi^*^"-^ ^^fj^-f association not organ zed under it, excepting as to section twenty-six ot this act andastoamitionatbank examiner in chief, as provided m section twenty-two of this act. In addition to the reraarlis I now submit, I respectfully refer the committee to an address delivered by me before the Boston As.socia- tion of Banli Presidents, on November 14, 1892, and also to one deliv- ered before the Department of Commerce and Finance of the Worlds Oone-ress, in Chicago, on June 21, 1893, and which I make a part of this argument for the bill H. E. 171. That bill is drawn to accomphsh the following things : SCHEME DEVELOPED IN BILL H. E. 171. (1) To completely relieve the United States Government from any responsibiUty for the "current redemption" of any circulating Govern- ment or bank currency notes whatever, and thereby relieve it ot all expense and risk of maintainiug any coin redemption fund or com measure of value, the risk and expense of both to be devolved upon banks by the operation of the bill. (See sections 1 and 6 of H. K. 171.) (2) The bill is so drawn as to cause each and every bank to assume nroiDortionatelv the current redemption of a new greenback and prac- tical destruction of the "fiat money" legal tender note m its present form, the banks to accept a new good money greenback m place ot tlie present one and be responsible only for its "current redemption, 'the United States Government to be responsible for its final redemption. ^ (S^It provides that the United States Government shall, in the interest of the safety of banks, in order to protect the people from loss, exercise, as now, and extend its thorough supervision over all banks and make public their condition, etc. (Sees. 20, 21, 22.) (4) It is so drawn as to cause each and every bank to assume pro- portionately the "current redemption" and practical destruction of all Treasury notes. (Sec. 7.) . -, ^ (5) It is so drawn ;is to cause each and every bank to assume pro- portionately the "current redemption" and practical destruction of the excess of 'silver certificates and causes silver dollars to an equal amount to be covered into the Treasury as bulHon, but leaves m circu- lation, as now, every coined silver dollar we now have or that the peo- ple can be induced to use. (Sec. 7.) . -, ^. 4. (0) It provides for the absolute safety of every circulating note. (Sees. 10,14,15,17,18,19,25,26.) (7) Circulating notes to be free of cost except for printing, etc. (Sec. 9.) (8) The volume of circulating notes to be sufficiently elastic to ex- pand to meet the extremest demands of the people and contract auto- matically so as never to exced in volume the amount needed. (Sees. 3, 4, 5, 8.) . ,, ■ (9) Circulating currency notes to be so issued as not to increase the BANKING AND CURRENCY. 289 luterest paid ou loans of capital, as is tLe case under existing law. (10) Tliey shall be uniform. (Sees. 4, 5, 6.) ^J^V They sliallbe so issued and reissued as to be forced back to the bank issuing them and where most needed. (Sec. 24.) (12) The United States Government shall act simply as custodian ol com and issue certiacates of deposit thereon, as now. (13) The bill provides that the United States Government on special occasions may provide temporary safeguards to certain depositors to dispel tear, in order to prevent the paralysis of business by the with- drawal ot individual deposits from clearly sohent banks because of unreasonable fear. (Sec. 19.) (14) All existing banks may reorganize immediately, or at the expi- ration of theii- charters, under the act. Not one of these things essential to a banking system of the highest safety and efficacy and lowest cost of money is as fully secured to banks under the existing law as is accomplished by law in Scotland, France, Germany, or England, or as is provided in bill H. R. 171, and several of them not at all, excepting the final payment of circulating notes. This bill in no way affects the greenback of the war or the Treasury notes issued under the silver law of July 14, 1890, excepting by saving to the people miUions of dollars of taxes by putting upon the banks the expense of current redemption. Under it not a dollar need be kept in the United States Treasury ou account of them. Pass this bill aud the $100,000,000 of gold held in the Treasury to redeem them is made "free gold," and the Secretary of the Treasury has no immediate defi- ciency to provide for. As it affects the people, it only requires a new greenback to be printed and issued in the place of the old and soiled one. In place of $90 of the old greenback exchanged, as required in the bill, $200 in new money must be issued. THE GOVERNMENT NOT A BANKER. The certainty of "instant redemption" in coin-current redemption is what makes any money good money. The "current redemption" provided for in the bill is the redemption in coin of every currency note it issues, ten times or ten thousand times, or the equivalent of doing so, and every time it is paid back to the bank. " Pinal redemp- tion " is the redeeming in coin and destroying every one of its currrency notes when the bank goes out of business. While to make the final pay- ment secure is very desirable, and makes a good security, it really has a small part in making any written obligation "good money." No government of any country can, by any possibility, accomplish the "current redemption" of paper money. A government must, in the nature of the case, issue paper money against a ", vacuum." No gov- ernment has or can have, as a "government," any "funds" or coin for redemption. If a government adds to its functions that of " banking," then, as a "banker," not as a government, it can do anything any other bank can do of like capital and managed with the same skill, but on more. A bank never loans a dollar of capital or issues "circulating cur- rency notes" without receiving in exchange and at the same moment a title to consumable wealth, which it may dispose of to recoup itself for capital or currency it parts with. Even when it takes its greatest risk of recoupment, it takes a time note signed by some man, making it a 940 19 290 BANKING AND CURRENCY. title to that individual's property liaviug from double to one hundred times the wealth the bank gave obligations for. In addition, the note is indorsed by some other man pledging an additional volume ot wealth equal to that pledged ia the signature. Each issue of currency by a bank is accompanied by a title to a specific and certainly available sum of wealth necessary to liquidate and destroy that specifac issue of currency when it is presented for redemption, and each time paper money is returned to a bank it is thereby "destroyed" in essence. When again it is paid out it is for a new equivalent, ihat the bank, upon the doctrine of chances, exchanges one of the "matched" equiva- lents for another equivalent does not go to disputing or even tend to dispute the fact stated. Furthermore, the bank not only does not alienate, but, in the nature of the case, it can not alienate, any fraction of the wealth, equivalent to coin, practically set aside to meet each issue of currency or any other of its many obligations. On the other hand, when any government issues "paper money' ot any sort it must represent wealth consumed, as there is no con- ceivable way it can get its paper money in circulation, and therefore -' current redemption " is impossible to a government excepting so tar as it goes into the "banking business." Were every dollar ot the mot- ley aggregate of $1,200,000,000 of paper money in circulation m this country issued by national banks organized under H. E. 171, there would be pledged for its final redemption in the form of obligations held by such banks more than the aggregate of $12,000,000,000 of wealth pledged to their current redemption, including $800,000,000 in com, that is to say, $335,000,000 of visible gold coin and more than $465,000,000 of silver coin, if so much was needed. THE government's REDEMPTION FUND. On the other hand, the United States Government has now a redemp- tion fund of only $100,000,000 in gold and not a dollar more of any kind of assets. The Government could not resist a run ou its gold by a malignant syndicate of gold speculators for a day, while it would be impossible for it to break the banks operating under bill H. E. 171. They would have $335,000,000 of gold coin, $465,000,000 of silver com, and titles to property worth $2,200,000,000 in additional assets (loans and discounts) guaranteed by $12,000,000,000 of wealth pledged in the obligations of their customers (time notes), with which to fight it. Of course, this wealth is not equally distributed behind every dollar of loan made or currency issued by bauks. There is not one dollar, how- ever, that does not have behind it at least two dollars for one, unless the banker has been cheated or is a swindler, and very few that do not have as much as four or five, and so on up to a hundred for one. The attempt of our government to issue "good" paper money is now costing our people from $32,000,000 to $40,000,000 annually, while under the bill H. E. 171 the banks could issue the $1,200,000,000 of currency as "good" as any paper money in any country in the world, and do it without its costing them or the people one farthing, except for printing. It is absolutely true that no government can issue "good" money. Every principle and practice of government as it touches finance is antagonistic to the money function. Under the bill reported, the banks of this country can protect the coin reserve of the country from being shipped abroad or from being drawn out for speculative purposes precisely as France, Germany, and Eng- land protect their coin from being taken from them. It is impossible BANKING AND CURRENCY. 291 DOW for either the Government or the banks to protect it from ship- ment, whatever the conditions of trade or normal exchange, because of' the government paper money. THE BANK A CONSEEVBR OP WEALTH. A bank is a conserver of wealth. A government is a consumer of wealth as opposed to a conserver of wealth. Any part of the wealth of the people that comes into the possession of the United States Gov- ernment, that is not instanily consumed, is solidified into investments that irrevocably destroy every element of currency or money in everv fraction of it. The exact opposite is true of a bank. A bank is never a consumer. Its sole function is to conserve wealth. Not a dollar of wealth that comes into the custody of a bank can by any device be permanently, or only for more than a very brief time, alienated from its full money function. Every dollar of the deposits of a bank has the full money function for every minute, as much as its currency notes. This is not true of the assets of the Government. There is now outstanding — Legal-tender notes (old issue) $347 qoO 000 New Treasury notes (.July 14, 1 890 ) ISo' OOo' 000 Gold certificates (paper) I43' qoo! 000 Silver certificates 327 qqq qqq National-bank notes VT2 OOo' 000 Currency certificates XI OOo' 000 Total paper outstanding- 1,130,000,000 Under bill H. E. 171 the amount would be as follows: One-half issued under section 5, " reserve notes " $565, 000, 000 One half issued under section 4, "greenbacks " 565,' 000,' 000 Total 1,130,000,000 BANK EEgERVES LIE IDLE, UNDER PRESENT LAW. Under the present law the banks hold their reserve absolutely idle or drawing scarcely more than nominal interest. Under the equally sound systems of France, Germany, and every other first-class nation, the "bank reserves" are earning as much as any other part of the assets of a bank. It is represented by circulating notes of an equal amount. Do not forget that the plain people ultimately bear all losses and wastes. Under the present law there is idle — Bank reserves $571,000,000 at 5 per cent $28,550,000 Gold iu United States Treasury 100, 000, 000 at 5 per cent 5, 000, 000 Total loss to the people 33 550 000 I have figured the losses under our banking .system on many differ- ent bases, in this paper and the two addresses published herewith, to make them apparent to all, if possible. Every advocate of fiat money as well as of sound paper money ought to support bill H. E. 171, for surely he will not object to having provision made bylaw for making every dollar of his money "good money" by providing for its "current redemption" as is done in this bill, if it is done free of cost. As it stands to-day — We now have $347, 000, 000 greenbacks. Gold in Treasury 100, 000, 000 to cover them. Uncovered 247, 000, 000 at 5 per cent equals $12, 350, 000 . 292 BANKING AND CURRENCY. Under H E. 171 there would now be $565,(»00,000, with not a dollar of gold needed in the Treasury, as the banks would be F*^f ^red to "currently redeem" them. This, at 5 per cent, equals fJb,JoO,UUU, showing a gain to the people of $15,i)00,000, upon the greenbackers' own platform. This result is reached by putting the duty ot the cur- rent redemption" of the legal-tender notes upon banks m order to make them " good money," but first exchanging them for new ones, so as to be able to identify those which each bank must currently redeem. Their final redemption is left upon the United States Treasury when- ever the bank goes out of business," as now, the banks finding their compeusation in" being allowed to issue circulating currency notes to an amount equal to the sum of their reserve held by them. LOSS TO THE PEOPLE IN INTEREST ON THE GOLD REDEMPTION FUND. Under the present law, $100,000,000 in gold coin is ijow held in the Treasury for their redemption, costing the people at least $4,000,000 annually in loss of interest on it. Furthermore, it is liable to cost the neople millions, in some monetary crisis, in maintaining them on a specie basis. Under this bill $90 of the old legal-tender notes are to be redeemed and canceled for each $200 ot currency issued; and $100 of this currency issued under section 4— issued without cost to the people-which the banks must currently redeem, is put m the place of every $90 of the greenbacks redeemed and canceled, j-fi^^s $J of " o-ood money" will be put in circulation in place of every $1 ot hat money withdrawn. Two dollars of money that it will not cost the people one farthing to use will be put in place of every dollar the existence of which is now increasing the cost of every '• loan and dis- count" made to the people, from 1 per centum to 2 per centum per annum. [See Appendix D.] , ^ , ii , ^ + 4- It is said the Secretary of the Treasury ought to sell bonds to get more gold into the Treasury to make Government notes more secure, and he has been sharply criticised for not doing so. Will sonie of this committee explain to us how it is possible to do so, while the legal- tender notes, or the Treasury notes, are in circulation 1 I confess 1 do not know enough of finance to see how it is possible to do so. it this bill (H. E. 171) is enacted into law itnd the Government notes are absorbed. in to abetter and cheaper paper money, the banks will do without compensation what it is now costing the people milhons ot dol- lars for the Government to pretend to do, what it does not and can notdo of itself, viz, currently redeem $1,200,000,000 of currency notes. While the legal-tender notes or Treasury notes are in circulation the Govern- ment can not accumulate a redemption fund in gold by selling bonds, and when such notes are absorbed into the better currency provided for in thisbill, the banks wdl do this work, and the Government will not need a dollar of gold. When Secretary Sherman accumulated a stock of gold in the tl uited States Treasury to resume specie payments, it was impossible to get $1 of gold out of the Treasury. At that time neither individuals, banks, nor the Government was paying out specie. While there are any legal-tender notes or Treasury notes in circula- tion, there is no human device that can keep a dollar of gold in the United States Treasury that is now there; nor by selling bonds or any other device, can an additional dollar be put there, provided any person in any country desires to have it. Each ten millions or hundred millions of dollars bought on any day, or any number of consecutive days, would BANKING AND CURRENCY. 293 on the followiug day be taken out of the Treasury with Treasury notes or legal-tender notes to jiay for these bonds. Is it conceivable that gold to buy bonds will be sent to this country from any other country when it can be had in this country for the asking? Selling bonds by the Treasurer of the United States for gold, to increase his stock of gold, while the buyers of his bonds have a legal right to get the gold out of his own coffers to pay for every bond he sells for gold (and there is $500,000,000 of currency [afloat] any dollar of which will take the gold he now has, or any dollar he buys with bonds), seems to me about as rational as to attempt to fill a sieve with water by catching the water in a bucket under the sieve and returning it to the sieve. Surely no government can issue good money unless it also is a bank. Any gold whatever has been kept in the United States Treasury the last thirty years only by the active and passive support of banks. GOVERNMENT SUPERVISION. 3. The United States Governmeut, in the interest of the safety of banks, in order to protect the people from loss, to exercise, as now, and extend," its thoronc-h super- vision over all banks and make public their condition, etc. The warrant for the very existence of government is found in the necessity of preventing fraud upon tlie ignorant by the wise, imposition upon the weak by tlie strong, and protecting the poor from oppression by the rich. The examination and supervision of banks by the Gov- ernment is found in the principles upon which rest all laws accomplish- ing these ends. 4. The hanking idll to be so drawn as to cause each and every hank to assume proportionatclj' the current redemption and practical destruction of all Treasury notes. The same objection rests against the Treasury note as against those known as greenbacks in that it has no " current redemption." The new greenback, with an assured current redemption by banks, will take the place of both. 5. The banking bill to be so drawn as to cause each and every bank to assume proportionately the current redemption and practical destruction of the excess of silver certiticates and to cause silver dollars to an equal amount to be covered into the Treasury as bullion but to leave in circulation, as now, every coined silver dol- lar we now have that the people can be induced to use. The silver certificate has no standing in finance, any more than the gold certificate. They are coin in the Treasury. Have all the gold dol- lars and gold certificates the people can use. Have the same of silver dollars and silver certificates the people anywhere in the country can use. If it is found that more of either gold dollars or silver dollars than we now have can be economically used, let the Government make them, but it is evident that one dollar in gold, or in silver, more than there is an economic demand for, or that is used where a paper dollar is equally acceptable to the user, is so much waste to the country and this waste must be made up by taxation, either direct or indirect. A sufficiency is enough. For a man to habitually give a i^iece of gold or silver (dol- lar)for a thing he can get l)y simply giving a printed paper, is a certain loss of interest on its commercial value. In every other country every dollar of " visible" coin is earning as much interest as any other wealth. We have $800,000,000 visible coin, not a dollar of which is earning a cent. At 5 per cent, this shows $40,000,000, annual loss to the people. As a son of Irish x)arents said to me, with the quick wit of his race: " I 294 BANKI>fG AND CURRENCY. like your bill. It gives the people every dollar of good paper money they can use and makes every dollar in coin earn its own living." This bill, H. R. 171, and this provision of it, leaves the coinage question untouched. As civilization advances, new devices for the exchange of products without the use of coin increase in geometrical ratio as com- pared with the increase of business. PROVISIONS FOR SAFETY OF CURRENCY NOTES. 6. To provide for the absolute safety of every circulating currency note. The ex]>erience of the country during the last thirty years and the condition of existing national banks furnish a reliable basis for esti- mating the working of the system proposed in H. E. 171 as to the adequacy of the safety fund proposed under section 19. The affairs of the banks failing in the years 1890, 1891, and 189i! have not yet been closed up, and of course the apparent deticieucy in their dividends is much greater than the real deticieucy. Leaving out those years, the records of the Comptroller show that the dividends paid by all the failed banks in the remaining years, 33 in number, wliose. total divi- dends were less than their total circulation on the day of failure, from 1866 to 1SS9, inclusive, were §1,851,038, and tke aggregate circulation of those banks at the date of failure was $2,793,370. This shows that the combined circulating notes of all such banks exceeded their'total dividends by .§912,332, or an annual average of $39,261, for the twenty-four years, in the twenty-two years ending with 1889 the average 'reserves held by the national banks, as given by the Comptroller's annual report, has been .'J301,605,932, while the actual circulation of the national banks has averaged $308,839,861. So that, liad the bill (H. E. 171) been the law during the period men- tioned, the average possible circulation for which the safety fund would have been liable, would have averaged for each of the twenty- two years $7,233,829 less tljan the sum actually in circulation, and upon which these figures are made to show the probable efliciency of the safety-fund provision in the bill to secure the holders of bank bills from possible loss. That is to say, the safety fund resulting from the one-tenth of 1 per cent tax would have produced $301,605 annually, or 7 A.i times as much money as would have been needed, or an annual surplus of $262,341 in excess of the demands upon the fund, or a total excess of $5,771,502 in the twenty-two years. It is true tliat the circulation would be much larger tlian under the present system, more than t^vice as much, but only one-half of it would be liable to final payment by the bank. Still, that one-half ^vould ulti- mately be considerably larger under the bill, one-third larger, probably. But there is no probability that even this larger sum would make any draft on the safety fund greater than the annual average for the last thirty-two years, viz, $39,261, and for two reasons: First. Tlie supervision of banks and the reports required from banks themselves, provided in the bill, keeping the Comptroller so much bet- ter informed as to the doings and the conditions of banks, would tend to reduce the losses by creditors of banks at least one-half. Secondly. The losses to creditors by the failures of national banks have been constantly decreasing since 1866 because of the increased knowledge and experience of examiners and of tlie officers in the Comp- troller's office in Washington. The provisions of section 26 of the bill are very inqiortaut in preventing loss, as is the greater skill of bank officers themselves. They are additional elements of safety. In fact, BANKING AND CURRENCY. 295 the absolute certainty of the holders of every dollar in bank notes issued uuder the bill, sliould it become a law, being immediately paid in full in coin, is as apparent as the existence of the Grovernment, or of any other thing in human aftairs not yet acconiphshed. 7. Circulating notes shall be free of cost, except for printing, etc. The bill retains the provisions of the present law as to printing currency notes, and makes the issue of currency as free and as cheap as it is possible to make it, consistent with having it constantly and immediately convertible into coin, which only makes any paper money "good money." ELASTICITY OP CIRCULATION SECURED. 8. The volirme of circulating notes to be sufficiently elastic to expand to meet the extremest demands of the people, and contract automatically so as never to exceed in Tolume the amount needed. To have a currency variable in quantity to meet the varying demands of trade is impossible under existing laws. Furthermore, it is impossi- ble under any law providing for an issue of currency conflned to the value of coin held. The banking system of no country allows its cur- rency a wider range above and below the normal amount needed or has as flexible a currency or one so amply secured as is provided in bill H. E. 171. Under section 5 there would be a range of $100,000,000 to even $200,000,000 between the minimum and maximum. Banks always have the highest reserve when the least currency is in circula- tion among the people and in those seasons of the year when least is needed to move farm products, and least when currency stays out of the banks longest and there is less need of a fund to redeem currency. Under the working of the system developed in the bill, all banks would keep their reserve highest in the six months when they needed the least currency and run it down to the lowest point in the six months when they needed most currency. Between the two points there would be a range of many, many millions. Again, uuder sectiou 8 of the bill, a " currency famine" such as developed in the last hnan- cial crisis would be imxiossible. Of course the currency any bank would take out under section 8, which provides that such currency shall be secured by bonds, and that the interest rates of the State in which the bank is located shall be paid on it, would only be out during a time when currency was beinu' "locked up." It would cost the banks so much in interest that it would be returned to the Government as soon as possible, and therefore could not unduly inflate the currency. INTEREST ON LOANS WILL BE LESSENED. 9. Circulating currency notes to he so issued as not to increase the interest paid on loans of capital, as is the case under existing law. It is susceptible of absolute proof that the chaotic condition of the finances of the country causes the people to suffer a loss of more than one per centum per annum on all the loans and discounts of banks. The rate of interest paid on bank loans and discounts exerts a very con- siderable influence upon, if it does not fix, the rates paid on farm mortgages. If all tlie banking done in this country were done under bdl H. R. 171, and all currency now in use was issued by such banks, all loans and discounts could average to be made at more than one per cent less than they are now made, and the banks make a larger per- 206 BANKING AND CURRE^CY. centag'e on their capital than now. This would not be true in cities and money centers to fully one per cent, but it would certainly be true of the country districts, and thtre it would be more than one per cent. This is because the country districts could float a much larger per- centage of currency, to the volume of their business, than city banks. The reason why I state the losses to the people in many ways, in the various papers I herewith present, is in order to make it clear to all classes of nduds how vast is the aggregate sum annually lost to the people. Utter waste; no one getting any advantage from these losses. The following statements and illustrations show only a few aspects of it. The report of the CompfcroJler of the Currency for 1893 is not yet in print, but it appears from the Comptroller's report for 1892, page 45, that the— [Espresseil m raillinns.] Ciipital stock of national banks is $686. 6 Surplus fund 238. 9 Undivided profits - 101- 6 Due to depositors - - - 1; '^™- ^ Total 2,796.4 Loans : 2, 171. 625.4 There is no inducement, under tlie present banking laws, to add any part of this enormous fund of 2,109.8 millions of dollars to the perma- nent banking capital of the country. Had we a proper banking sys- tem there would be a strong inducement, not only to establish new banks, but to put a very large part of the $340,000,000 of surplus and undivided protits permanently at the service of the public in the form of additional bank stock, as well as much of the sum due cler)o«i*-nrs. It is for the interest of the country that as small a part, as is practi- cable, of the capital used to handle the products of the farm, mill, fac- tory, and all other consumable wealth, should be subject to immediate call by check. Of this $2,796,000,000 all but 22.4 per cent, or $625,000,- 000, is loaned, and 03.6 per cent, or $1,779,000,000, is subject to check, A very considerable per centage of this $1,779,000,000 would surely be permanently invested in bank stock under the inducements offered in the bill, as is shown further on in this report, probably soon carrying the permanent loanable funds represented by bank stock up to $1,000,- 000,000 to $12,000,000,000, instead of $686,000,000 as now, and reducing the proportion of funds subject to check very materially, which would be a very great relief to the people in all monetary crises. NET EAKNINGS TO A BANK ON CtTRRBNCT ISSUED BY IT. By careful estimates made by the Actuary of the United States aud printed by the Comptroller, on page 8 of his report for 1892, reckoning interest at 6 per cent, its average rate, the country over, the net earn- ings per annum to a bank in the currency it gets on its bonds and issues to-day would be, on a 2 per cent bond at par (see Aj)pendix) — On $100,000 in bonds 00.032 or $31. 52 On $100,000 fours at 1.16J 00.330 or 330.16 On $100,000 sixes at 1.11 012.18 or. 1, 218. 58 On $100,000 bill 10615 it would be .... 04.84 or 4, 844. 52 Under the present law no bank is allowed to issue an.y bills on its coin, even as is allowed in all other sound banking systems, and to the great loss of the people. Banks are now compelled ti:> allow every BANKING AxND CURRENCY. LMJ 7 dollar of their teseive in coin or other " lawful money " to lie dead, not earning a dollar. Under this bill, banks are allowed to issne currency upon the same principle us paper monej^ is issued by all soimd banks the world over, excepting in the United States. Under the bill re- ported, the coin reserve fund of a bank is, or may be, performing three functions: First. That of a " measure of value" in every business transaction in the cduntry. Second. That of a reserve against all the liabilities of the bank. Third. Every dollar of it is earning as much income as any other capital in the bank, precisely as is the coin in the Bank of Germany, the Bank of France, the Bank of England, etc., lessening the cost to the people of every dollar they borrow by just so much. The currency issued under section 4 of the bill in exchange for law- ful money does not affect the earnings of a bank, as it is simply the exchange of .one kind of money for another kind of money equally good to the bank. The currency to be issued under section 5 is as follows: $100,000 ciu-iency issued under section 5, at 6 per-cent $6,000. 00 Loss on $15,000 increase of reserve, at 6 per cent _ $900. 00 No tax on circulation No charge for examinations Annual cost of redemption ..'. 137. 48 Express charges .3. 00 Cost of plates for circulation 7. 50 Agents' fees 7. 50 Tax of one-tenth of 1 per cent for safety funil 100. 00 1, 155. 48 Net earnings on $100,000, at 4.84 per cent i 4, 844. 52 In the above figures I have assumed that the present reserves of the bank would have to be increased by the 15 per cent required in section 18 on the notes issued under section 5, but the banks now average to keep in excess of that required by law more than the sum of 15 per cent that is required by the bill on their section 5 notes. The bill requires an additional reserve of 2}j per cent, as 15 per cent of 15 per cent is only 2^ per cent of the whole. Deduc'ting the $900, shows the proiit on this circulation would be |5, 744.513 on $100,000 circulation under bill 11. E. 171. That is to say, the additional profit made on circulating notes would be 5.74 per cent instead of 4.84 per cent on such circulation. This simple example of the practical work- ings of the present bond method of issuing paper money, as compared with that proposed in the bill, exhibits in a clear light the wasteful- ness of our present financial system, or rather want of system. The system proposed in the bill, as compared with buying bonds to form a bank receiving $100,000 in currency under the present law, on June 30, 1892, as shown by the last Comptroller's report (1892) on page 8, is as follows : To OUT 6 per centhonds at 1.14 is as.. -.$1,218.00 is to.. , $5,744.52 To buy 4 per cent bonds at l.lOf is as.. 330.00 is to 5,744.52 To buy 2 per cent bonds a t par is as 32, 00 is to 5,744,52 To buy one- third in each bond is ^s .526.67 is to 5,744.52 THE SYSTEM PEOPOSED COMPARED WITH THE BOND SYSTEM. That is to say, the banks would make four and seven-tenths times as much on the" circulation they would get under section 5 of the bill 298 BANKING AND CURRENCY. as on the same amount of currency gotten under the present law by pledging 6 per cent United States bonds; seventeen and four- tenths times as much as to buy and pledge for currency a 4 per cent United States bond; ten and nine-tenths times as much as to buy one-third iu each denomination of bonds and pledge them for currency; one hundred and eighty times as much as to buy and pledge for currency a 2 per cent United States bond. ' And yet men are found to advocate the pohcy of continuing the national debt in order to have a 2 per cent bond to pledge for currency to perpetuate oirr present chaotic and extrav- agant financial system, or rather waut of system. Not only so, but they advise allowing banks to first issue currency on such bonds, and, secondly, to surrender such bonds to the United States at any time they do not wish the currency issued on them, and thirdly, to have the right to buy them again at par and again pledge them for currency; and so on ad Infinitum. This scheme would make the cost of the cur- rency to the people many times more than even now, and in addition to this it would practically be to tax the people to itay the bank two per cent per annum at all times on such balances as they could not for a time profitably use. Is it any wonder, in view of the facts I have thus far given, that the people are anxious and sensitive as to their money ? Is not their cause just when they demand currency reform? President Cleveland rec- ommended the repeal of the purchasing clause of the silver act of July 14, 1890. Is it any wonder the people demand to know what Congress proposes to put in its place? Better bow to the storm than contend against it. It is notorious that the monetary and coinage agitation which has vexed tliis country for the last few j^ears has been intensified, if it did not have its origin, in the cost to the people ot the currency which their business made it necessary for them to use, and which they saw was being reduced year by year because of the fatilty arrangements for issuing the currency they needed, which were being aggravated day by day, and -the national-bank currency fast disappearing. And this notwithstanding the fact that the banks get interest on their Gov- ernment bonds and also get a second interest on the currency delivered to the bauks when they deposited tlieir bonds with the Government. The people did not see that the banking law did not allow the coin reserve in the bank to earn anything for the bank and thus made the people pay more for the use of every dollar they borrowed than its legitimate price. It is shown by the actuary of the United States Treasury, in Appen- dix B, that banks can make on circulating currency notes under the present law — Per cent, Where interest is i per cent per anniiui 0. 942 Wliere interest is 6 per cent per annum 0. 526 Wliere interest is 8 per cent per annnm 0. 3175 At 10 per cent per annum banks will actually lose 0. 4633 ADVANTAGE OF THE BILL TO NEW C0M3IUNITIES. As I have before said and all of us under.stand, in old communities capital is loaned much cheaper than iu new and pushing towns, because loans have greater security there, are made in larger amounts, and on longer time. There is no sentiment about it. This is done in obedi- ence to natural law, but we maist regard it in framing laws and so BANKING AND CUKRENCY. 299 frame them as to help the newer and less developed locality as much as is consistent with equity. Under the present law, in New York and Boston, where many loans are made at 4 per cent, the banks can make $9.42 on each $1,000 of cir- culation loaned at 4 per cent, while where the rate of interest is 10 per cent a bank would actually lose $4.63 on such a loan. Under existing law the cost attending current redemption, etc., is the same to each bank wherever located, viz, 0.265 per cent, the circulating currency notes got under the bill at different percentages would be worth — J'er cent. At 4 per cent, 0.265 equals gain _ 3. 735 At 6 per cent, 0. 265 equals gain 5. 735 At 8 per cent, 0.265 equals gain 7. 735 At 10 per cent, 0.265 equals gain 9. 735 This is an advantage to the Southern and newer Western farm- ing communities of nearly three times as much as to New York, in profit on circulation under the Walker banking bill, over the present •law. The present law puts a Western or Southern 10 per cent, com- munity to tlie disadvantage of New York by more than 1.4 per cent, in the cost of the currency it gets of the coaaptroller. But New York and Boston would get many fold more advantages out of the added pros- perity of the country as a whole than this apparent disadvantage. It is really no disadvantage; it only saves to poorer communities the wastes in banking made under the present law. It is the country that builds up the cit3'". When the country prospers the city prospers; when the country languishes the city stagnates and decays. New York, as other cities, with all its wealth of buildings, boulevards, and parks, would not be worth as much per acre as virgin ])rairie but for the country. Separated from the rest of the country her area would com- mand no more per square foot than the mountain fastnesses of the Bedouin Arabs. The exhibits, statements of fact, and legitimate inferences already given show the wastefulness of our present system of banking and the advantages to the people of adopting one that has the sanction of ■years of successful experience and imitates the economies of safe and cheap banking of other countries, approved by a hundred years of experience. There is no solid reason why i)aper money should not be issued at as small an expense to the people as it can safely be done. Under the bill banks acceptable to all the people will be established in every considerable town, taking out circulating currency notes and making money as plenty and cheap as is compatible witli its being good money. The people are not opposed to banks, but they are bitterly opposed to such banks as they think they now have. They know that the pay for products could not be sent from one part of the country to the other without banks any more than the products them- selves could be transported without railroads, or than food could be produced without the farmer, or shoes without the shoemaker, or than farms could be exchanged without deeds. ENCOURAGEMENT TO ESTABLISH NEW BANKS. One of the great advantages of this bill is that it will encourage this establishing of new banks to compete for business. Again, where $50,000 is in the possession of fifty different men to loan, those borrow- ing it will average to pay from 1 to 3 per cent more in interest on it 300 BANKING AND CURRENCY. than where each of the fifty men has his $1,000 aggregated in the capital of a banli of $50,000 capital or more. "When- a bauli is organized in a neighborhood the people are always surprised by seeing thonsauds of dollars immediately deposited in it by persons in the vicinity who were not supposed to have any ready money, adding by just so much to the loanable capital of the place. Their neighbors are thus enabled to borrow this money, to the very great advantage of all concerned. Money is loaned at a high or low rate of interest in proportion, first, to safety; second, to length of time; third, to quantity, interest being lowest when the return of the principal is most certain and the loan is for a long time and in large amounts. This rule always holds in loaning capital. A man with $10,000 to loan can get double the interest on the small amounts he has the time to divide it into, than a man has the time to get on $20,000. Fortunes of millions earn 2 per cent and 3 per cent, where one of $10,000 earns 6 per cent or more. Banks always loan money much cheaper than any ten men in their neighborhood loan money, equal in amount to the sum of its capital or than it is loaned by any private person in the town. The' plain people are fully justified in their opposition to the present banliing system and in their demands for one of greater economy; one which will utilize the gold and silver coin and the capital of the country so as to give them clieaper rates of interest than they are now paying on the money tbey borrow. To illustrate the practical working of banks under the bill as com- pared with the present law, I have shown in Appendixes C and D the result in thebanks located in each of nineteen towns, thehomesof twenty- five members of the Fifty-second Congress: Tlie loans and discounts of these — 19 banks are - - - - - - •* 10, 437, 000. 00 19 banks, circulation $737,450 now outstanding, averaue profit, .00.5267 - - 3, 384. 15 lObanlcs, ciroulation$l,584,000, under section 5, bill, iirofit .057445. 90, 992. 88 19 banks, circulation $1,. 584, 000, under section 4, no profit or loss. Of course these banks could not take circulation in excess of the amount of their capital. In each case, when the total circulation, including the notes issued under section 4 and section 5, exceeds the capital of the banks, the cir- culation they might receive under section 5 on their "reserve held" would not Bvail them beyond the limit of their capital. In other words, each bank would be obliged to increase its capital to double its "reserve held" in order to receive the full amount of the circnlation to which its "reserve held" entitled it. If each bank held in the Treasury its United States bonds to secure its circulation, one-third in each of the three kinds of bonds named, the percentage of profit ou its circulation would be 0.52C7, as figured on page 8 of the report of the Comptroller of the Currency. On the total circulation of $7-37,150, at 0.5207 profit, these banks would make a, total of $3,381.15. On the $1,584,000 circulation they could take (by increasing their capital in the case of some of them), at the profllS of 5.7145 per cent, the profit would be $90,982.88, a difference of $87,598.73 in favor of the bill reported. This is 0.838 per cent on $10,457,000, the wliole sum loaned by the nineteen banks. These banks, if they were doing business under the bill (H. R. 10615), conld. therefore, make all their loans to the people at a rate of interest nearly 1 per cent, or at a rate one seventh lower tban they are now doing under the existing national banking law, and make as much money as now. BANKIISIG AND CURRENCY. 301 It is 110 auswer to say that because this sum would go first to the banks that the people would get no lower rates of interest, for the reason that new banks would be immediately constituted to compete for the business of the locality with banks already established there, thus reducing interest. The banking business is as open to any man who wislies to go into it as farming, shoeinakiug, or keeping a ccmntry store. Competition in loaning money brings down the price of money loaned precisely as it does the price of goods. It is no more unreasonable to say that con- sumers will get no advantage from lower wholesale prices than to say loans of money will not be made at a lower interest because of com- petition, when the money he loans costs the banker less. UNIFORMITY OP THE CUEEENCY SECUEED. 10. They shall be uuiform. The uniformity of the currency will come as banks organize under the bill and issue all currency. All our present paper money will be replaced by that provided for in the bill, excepting coin certificates. 11. They shall be so issued and reissued as to be forced back to the bank issuing them and where most needed. No bank can make any money on its circulating notes while they are lying in its vaults. As a bank can not get at its own bank notes to pay out while it has those of other banks on hand, the order of paying out bills, provided for in section 24, will cause the currency of each bank to be sent to the Comptroller for redemption, and from the Comptroller's office back to the bank issuing it, to be again loaned to the people in the neighborhood of the bank. When I was 17 years old my father turned over to me the management of the finances of his. business, and it is still mirrored on my mind how easily I could get loans at the bank if I would agree to take the bills of the bank and pay them to our employes for miles around, and not ask for drafts on New York. 12. The United States Government shall act simply as custodian of coin and issue certificates of deposit thereon, as now. 13. The United States Government on special occasions to provide temporary safeguards to deposits to dispel fear in order to prevent the jjaralysis of business by the withdrawal of individual deposits from clearly solvent banks because of unreasonable fear. This matter is fully explained in section 19 of the bill. Action under it would not be taken by the Comptroller once in twenty years, and probably never. But its moral value, and that of section 8 in the bill, can hardly be estimated. Under the two sections such a currency famine and such withdrawal of deposits as recently occurred, could never happen. Coveriug the twenty-nine years ending in 1892, individual deposits averaged $877,978,576, and the annual losses from insolvent banks averaged $313,503, or 0.035 per cent of the total deposits. The first year in which the present form of reporting the totals of losses in insolvent banks was made was 1888. I am therefore compelled to use only the last four years to show i:)resent conditions. In these four years the individual deposits averaged $1,598,513,450, and the losses from insolvent banks averaged $290,839.26, or 0.018 per cent of the total deposits. It is safe to assume that the aggregate deposits in national banks will not fall below $1,500,000,000 for any number of months, and one one huudreth of one per ceut will yield $150,000 per year. This iuflu- 302 BANKING AND CURRENCY. itesimal tax would amount to more in two years than would be needed in any ten years of our past experience, as it covers only a frac- tion of deposits. For the Government to guarantee deposits in national banks would be little short of a calamity. It would work very serious injury to con- servatively managed and sound banks, and increase the business and chances of failure in badly managed banks, as it would take away the incentive to examine carefully and discriminate wisely in making deposits in banks. The well managed bank would not overshadow and drive out the badly managed bank, as is now the tendency, when each depositor takes hfs own risks in putting his capital into a bank for safe-keeping. The provisions of the bill do not at all look to the guaranteeing of individual deposits in banks. They only look to the quelling of unrea- soning fear, which springs up in exceptional conditions from unrecog- nizable causes, or without cause. The bill is drawn in this regard with the utmost care, and only the deposits of that class of peoplewho are timid and who have no means of assuring themselves of the safety of banks in whicli their deposits are, would be protected by any guarantee of deposits issued by the Comptroller. It could cover only a comparatively small percentage of the deposits, but they are just large enough, when simultaneously removed all over the countr y, to bring the working of our whole financial system to a standstill. By excepting from the guarantee the deposits of all officers, directors, and employes of banks of any kind, public or private, and of all stockholders in banks of any kind, who own stocks of the par value of more than $2,000, the risk is minimized and the advantage which could be got from restoring confidence in time of panic would be a thousand fold more than any loss that could come to the people because of the guar- antee. , SPEEDY ACTION DEMANDED. Every member of the Committee on Banking and Currency owes it to himself, as well as to his colleagues, to accept and act upon the facts presented or to successfully controvert them. The industrial and financial condition of the country, as well as the temper of the peo- ple, bids us act. It bids us "do something" more than talk, l^ot idle talk and speculation is demanded, but results. There is a universal feeling among the people that the time has come for some affirmative action to be taken looking to the adoption of a substitute for the sys- tem requiring United States bonds, as used by the existing national banks, which shall furnish a better, moi-e abundant, and cheaper cur- rency than this country ever has had. The bill H. E. 171 will surely do it, and do it more safely and acceptably, in quality, quantity, and cheapness, than it is possible for State banks to do it. It is a physical impossibility for State-bank currency to safely circulate until the mil- lions of legal tenders and Treasury notes are disposed of. The people will no longer submit to the millions upon millions of expense entailed upon them in keeping these notes afloat. Every one of them is now cost- ing in indirect taxation more than legal interest on its face value. Put into the bill a provision to repeal the tax on State-bank circulation when the legal tender and Treasury notes are disposed of, if you will; or that all banks shall be chartered and regulated by the State under the re- quirements of this bill, if you must; but do not make chaos worse con- founded by putting another patch or rather forty-four patches in forty- four additional kinds of money, on our miscalled system of finance, BANKING AND CURRENCY. 303 already patched beyoud recogiiitioii, and tlius addiug- new burdens to those the people already bear. It is impossible, under existing conditions, to so supply paper money by State banks as to make it as safe as paper money issued under bill H. R. 171, however secure as to final redemption, or to secure bylaw- national current redemption. Xeither is it possible to issue State bank paper money in New York and N"ew England as cheap by one-half of one per cent as by this bill and in the South and Northwest by from one per cent to one and one-half per cent, and needlessly pay as much more in exchange to brokers on this State money. Why live longer under the existing law or continue to harden the people by millions on mil- lions of Avaste by repealing the 10 per cent tax on State 'jank notes. I say to you what I know, when I tell you that before the war at least two brokers got rich, with the ofiQcers ol' the bank dividing profits with them, for every bank in the country. Kepeal the tax on State banks before you dispose of the legal tender and Treasury notes, and brokers will again take out of the people, and compel to be added to the price of goods a sum as large as the aggregate which manufacturers now take in profit. The people are in no mood to be trifled with. Results are what they demand. Better money, more abundant, cheaper. They will smite us most grievously if we follow their wishes as to methods and then they do not get it. They will reward us most generously if we thwart their wishes as to means and attain the result they seek. Resxilts are what they demand. Enact this bill into law and before the end of Mr. Cleveland's admin- istration every legal-tender note of the war will be absorbed into the notes issued under section 4 of tbe bill, without a cent of cost to the people, and the $ 100,000,000 gold kept for their redemption will be " free gold" in the Treasury, to meet the cirrrent exjjenses of the Govern- ment. The Treasury notes issued under the silver law of July 14, 1890, will also be absorbed into the same notes and the $150,000,000 of silver bullion will be "free silver" in the Treasury. This statement of the condition of the finances in the country is sufficiently startling to attract the attention of every member of this committee and of (Jongress. if they are not true, it is the duty of this committee to refute them, and I have earned your fiercest condemna- tion. If they are true, it is your duty to promptly report the Walker banking bill with a favorable recommendation, or devise a better one. In closing, I desire to submit for your thoughtful consideration seven propositions which each of you can answer for himself. AN EPITOME OF THE SUBJECT. (1) Is it not true that only " visible " coin and paper money can be regarded in financial estimates? That carried in the pockets of the people being a dead deposit, varying in amount but little from year to year. The visible coin of commerce in 1891 was as follows and is now about the same: England : Gold coin $125, 000, 000 Germany : Gold coin 206, 000, 000 Silver coin 56, 000, 000 262, 000, 000 304 BANKING AND CURRENCY. 'Gold coin *264,000,00(> Silver coin - 251,000,000 515, 000, 000 United States : Gold coin - 337,000,000 Silver coin - 468,000,000 805, 000, 000 (2) Is it, or is it uot, a fact tliat tlie law and commercial customs of every one of these countries, excepting the United States, compels a use of this coin by the banks of the countries, to cheapen their paper money f (3) How is that England maintains a sound banking system and a sound financial system, with more than double the commerce of this country, on less than three-eighths of the visible gold coin we have, and on only loi per cent of the total visible coin we have? The same with Germany and France? (4) Is it, or is it not, because the banking systems of these countries inexorably demand the use of coin by their banks, putting upon the banks the risk and cost of holding the coin, while in this country the people are taxed millions in the cost of the Government holding it? (5) The national-bank reserves required are $408,000,000, their circu- lating bank notes $147,241,063. By the estimates of the Comptroller (on p. 8), the average profit on this national-bank circulation is 0.5267, showing the profit to banks on their present circulation to be only $775,578.68. The circulation allowed these banks under section 5 of the bill is as much as their lawful reserve, and the profit being 5.7445, they would make $23,426,560 under the bill. The advantage seems to be $22,651,041 saving to the people in favor of the bill reported. Is not this a positive and useless loss to the people— an utter waste? Even if this $408,000,000 was put to its legitimate use, by issuing currency notes, would the people be (or are they not) still losing an additional $20,000,000 on the other $400,000,000 of visible coin, none of which is earning an income, as does visible coin in Europe ? If not, is any loss whatever sufiered in our economic methods in coining money and -in its use after being coined, as compared with the European method? (6) Would it, or would it not, be a hardship on these banks, with $805,000,000 of visible coin in the country that can be had for the ask- ing, in exchange for paper money, to require by law, as is proposed in bill H. R. 171, that these banks keep $204,000,000 of this reserve in gold coin and $204,000,000 in silver coin, every dollar of which would be earning the banks as much as any other part of their assets in the currency notes to that amount the biU would allow the banks to issue on it, while now it earns nothing to anyone? (7) Does not every economic and moral consideration involved urge the immediate enacting into law of this bill, IT. E. 171? /S'ee Appendix E. Page 319. Address before Boston Association of Bank Presidents. See Appendix F. Page 334. Address before the World's Congress Auxiliary, Department of Commerce and Finance. BANKING AND CURRENCY. 305 APPENDICES Appendix A. As 110 bank would have had issued to it any more circulating "reserve notes" under section 5 than the reserve it "held," it will be seen by the following table that only six of these 33 banks would have been entitled to any of such notes in excess of the sum of their "dividends paid," showing an annual loss of $8,742: List of insolvent national banks, dividends paid, andcirculation issued of associations whose dividends were less in amount than the circulation outstanding, and also tlie reserve ''held" by each,. as shon-n by the Comptroller's report issued last pre- vious to insolvency. Title. Date failed Dividends paid . Circulation issued. Reserve "held." •Merchants' National Bank, Washington, D. C ._ 1866 $165,769 $180, 000 $86, 785. 03 *First National Bank, Med ina, N. Y 1867 ' 32 .'iiis 40,000 90,000 100,000 180, 000 7, 337. 65 1.53,746.40 *Tennes.see National Bank, Memphis, Tenn i *NatIoual Unadilla Bank, Unadilla, N. Y 1867 1867 1867 65, 335 .58, 661 143, 307 *Croton National Bank, New York, N. Y. 3r^ 667 18 Total 399, 608 410,000 373,651.33 "National Bank, Vicksburg. Miss 1868 1 16.6.54 25, 500 4.5, 000 45,000 *Mrst National Bank, Eockf ord, ni 1869 1872 29, 277 15, 143 *Flr.5t National Bank, Fort Smith, Ark 5, 294. 15 ♦First National Bank, Petersburg, Va 1873 1673 1873 125, 667 259, 487 31,668 179, 200 360, 000 90, 000 28,188.00 117,816.92 30, 102. 68 ♦Merchants' National Bank, Petersburg. Va *First National Bank, Topeka, Kans Total 416 822 6^9 9/in 176, 107. 60 "^First National Bank ot Utah, Salt Lake City, Utah... 1874 1875. 19 002 11R 1Q1 38 6'^7 40 *Cook County National Bank, Chicago, 111 228, 412 j 285^ ioO 240, 000. 00 ♦Fourth National Bank, Chicago, 111 1876 1 18. 258 85,700 +27, 000 45, 000 67, 500 29, 662 8, 470. 00 *Flrat National Bank, Bedford, Iowa 1876 1876 1876 1876 13,624 34, 536 60,647 9,456 "First National Bank, Osceola, Iowa *Watkins National Bank, Watkins, N. Y. ♦First National Bank, Greenfield, Ohio. 6, 6.56. 00 7, 574. 00 9 189 00 Total 135, 521 254, 862 34, 989. 00 ♦First National Bank, Ashland, Pa 1878 1878 1878 1878 1878 1878 33, 105 21,710 29, 377 66,810 16, 670 11,803 75, .554 69, 345 29, 800 89, 300 35, 328 27,000 7, 697 00 ♦First National Bank, Waynesburg, Pa 16,000.00 13,459.00 24,774.18 11,501.78 2, 000. 00 ♦First National Bank, Dallas, Tex . ♦Peoples' National Bank, Helena, Mont ♦Merchants' National Bank, Fort Scott, Kans ♦Farmers' National Bank, Platte City, Mo Total 179, 476 326,327 j 75,431.96 ♦National Bank, Poultney, Vt 1879 1879 88, 176 20, 998 90,000 37, 000 7. 693. 15 ♦First National Bank, Montlcello, Ind . 2, 078. 98 Total 109, 174 117,000 9, 773. 13 ♦City National Bank, Lawrenceburg, Ind 1884 1884 1884 1884 26, 809 72, 967 39,812 8,807 77, 000 89, 980 40, 850 18, 650 27 739 00 First National Bank, St. Albans, Vt . 30, 382. 00 ♦Hot Springs National Bank, Hot Springs, Ark... ♦First National Bank, Jamestown, N. Dak 37, 795. 00 11 212 50 148, 395 226, 480 107 028 50 ♦First National Bank, Angelica, N. Y , . . , ♦Palatka National Bank, Palatka.Pla... 1886 1887 1889 66, 394 9,492 11,901 89, 000 19,210 22,e;oo 6,004.00 1, 978. 60 First National Bank, Sheffield, Ala 10,015.00 Total tor 33 banks . 1,851,038 2,793,370 2, 566, 370 t Deducted because no reserve is reported. 1,178,431.00 940- -20 "Finally closed. 306 BANKING AND CURRENCY'. List of insolvent naiionol bankf!, etc — Continued. Title. Date failed. 1890 1890 Dividends j paid. Circulation Lssued. [Besides tne 32 banks alluded to are the following:] $16, 875 First National Bank, Alma, Kanb . $5, 553 ■ 10, 750 5, 553 ! 27, 625 Second National Bank, MePherson.Kans.:..- 1891 1891 7,338 : 11,250 8,7.53 ! 20,700 1891 14,147 1 46,000 1891 5, I3U7 , 10,3ZO 1891 1" Central Nebraska National Banlt, hiroKen ±io\v. i^eui. 1891 1891 1891 1891 1891 1891 12,900 33,760 33,500 25, 269 Elo Grande National Bank, I^aredo, lex 72, 518 85, 340 8,483 11,200 Total -- - - 143,114 294, 865 1892 1892 1892 1892 1892 189S 1892 18,000 8,745 80. 636 7, 592 10,750 National Bank, Guthrie, Okla Cherry vale National Bank, Cherry vale, Kans - 11.250 , 26, 730 96,973 194, 669 3,09.5,678 3,310,539 ' ' * Finally closed. ;Paia In lull t>y resuming. None m the years 1870. 1871. 1877, 1880, 1881, 1882, 1883, 1885, and 1888. ™.otal number bank.s tailed, 53. Appendix B. FIGURES OP THE ACTUARY OP THE UNITED STATES TREASURY. PEOFITS ON CIRCULATION AT 4 PER CENT. Profits or losses on circulation taken by banking associations in localities where the interest is 4 per cent under existing laiv. JUNE 30, 1893—2 PER CENTS. $100,000 twos at par, interest ... iqn"ooo"oo ^^'^'^'^^ Circulation, 90 per cent on par value ,' ^aa nn Deduct 5 per cent redemption fund '*' °""- "'-' Loanable circulation at 4 per cent : 85, 500. 00 3,42 0.00 • . 5,420.00 Gross receipts '' ' Deduct — ^. , „^ 1 per cent tax on circulation i q-, Vo Annual cost of redemption 137. 48 Express cliarg-es 'J- ^'** Cost of plates for circulation '• w Agents'fees "J- ;^0 .„ Examinations 'tS. 00 1, 09 8^ Net receipts t'nnnnn $100, 000 loaned at 4 per cent 4^iAW Profit on circulation 321. 52 Total profit on $21,837,000 bonds, $70,210.32. Percentage on maximum circulation obtainable, 0.322 per cent. BANKING AND CURRENCY. 307 JUNE 30, 1892—4 PER CENTS. $100,000 fours at 116t premium, interest. __ $4,000 00 Circulation, 90 per cent on par value $90,000.00 Deduct 5 per cent redemption fund 4, 500.' 00 Loanable circulation at 4 per cent 85, 500. 00 3 420. 00 Gross receipts 7,420.00 Deduct— 1 per cent tax on circulation 900. 00 Annual cost of redemption 137. 48 Express charges 3'. 00 Cost of plates for circulation 7' 50 Agents' fees 7 ' 50 Examinations 43. 00 Sinking- fund reinvested quarterly to liquidate pre- mium :.__ 820.38 1,918.86 Net receipts 5 5q]^^ j^ $116, 750 loaned at 4 per cent ^ ' 4' q-]q] qq Profit on circulation 831. 14 Total profit on $129,759,000 bonds, $1,078,478.95. Percentage on maximum circulation obtainable, 0.831 per cent. JUNE 30, 1892—0 PER CENTS. $100,000 sixes at 114 premium, interest $6 000.00 Circulation, 90 per cent on par value $90,000.00 Deduct 5 per cent redemption fund 4, 500, 00 Loanable circulation at 4 per cent 85, 500. 00 3, 420. 00 Gross receipts 9^ 420. 00 Deduct— 1 per cent tax on circulation 900. 00 Annual cost of redemption 137.48' Express charges 3. 00 Cost of plates for circulation 7.50 Agents' fees .__ 7. 50 Examinations 43. 00 Sinking fund reinvested semiannually to liquidate pre- mium 2, 087. 67 . 3,186.15 Net receipts 6, 233. 85 $114,000 loaned at 4 per cent 4,560.00 Profit on circulation 1, 673. 85 Total profit on $11,600,000 bonds, $194,166.60. Percentage on maximum circulation obtainable, 1.674 per cent. RECAPITULATION AT INTEREST AT 4 PER CENT. Profit on circulation had by deposit of 2 per cent bonds at par 0. 322 Profit on circulation had by deposit of 4 per cent bonds at 116i 0.831 Profit on circulation had by deposit of 6 per cent bonds at 114 1. 674 Profit on circulation had by deposit of i of each kind of bond 0. 942 308 BANKING AND CURRENCY. PROFITS ON CIRCULATION AT 6 PER CENT. Profits or losses oh rirmlation taken hy banhing associations in localities where the interest is 6 per cent under existing law. [Profits on circulation, Comptroller's Report, 1892, p. 8.] JUNE 30, 1892-2 PER CENTS. $100,000 twos at par interest.--- ton'onn'oo *^' °*^°' '^'^ Circulation, 90 per cent on par value a-a^J. "uu. uu Deduct 5 per cent redemption fund - *' ° "'^' "" Loanable circulation at 6 per cent 85,500.00 5,130.00 , , 7,130. 00 Gross receipts ' Deduct — nnn ciCl 1 per cent tax on circulation i '(7 ds Annual cost o£ redemption 3 00 Express charges _ • „ Cost of plates for circulation ,^- ™ Agents' fees 4s' 00 Examinations ^ , „„„ / g Net receipts «' nnnnn $100,000 loaned at 6 per cent "' """' "" Profit on circulation ^1.52 Total profit on $21,837,000 bonds, $6,194.72. Percentage on maximum circulation obtainable, 0.03Z per cent. JUNE so. 1892--t PER CENTS. $100,000 fours at 1164 premium, interest inn'nnn'rin *^' *^'^°- *''' Circulation, 90 per cent on par value *yiJ. WU. uu Deduct 5 per cent redemption fund 4, O UU. UU Loanable circulation at 6 per cent 85, 500. 00 5,130.00 Gross receipts 9,130.00 Deduct— 1 per cent tax on circulation iqV'Va Annual cost of redemption I' nr Express cbarg-es t'k^ Cost of plates for circulation 7.50 Agents' fees i. ni Examinations 4.1 00 Sinking fund reinvested quarterly to liquidate pre- mimn oyb . ou mium 1,794.84 Net receipts 2'ont'm $116,750 loaned at 6 percent- ' . ^^^- "" Profit on circulation 330.16 Total profit on $129,759,000 bonds, $385,571.09. Percentage on maximum circulation obtainable, 0.330 per cent. JUNE 30, 1892—6 PER CENTS. $100,000 sixes at 114 premium, interest $6,000.00 Circulation, 90 per cent on par value $90,000.00 Deduct 5 per cent redemption fund 4, 500. 00 Loanable circulation at 6 per cent 85,500.00 5, 130.00 Gross receipts - 11 , 130. 00 BANKING AND CURRENCY. 309 Deduct— 1 per cent tax on circulation $900.00 Annual cost of redemption 137. 43 Express charges 3] 00 Cost ot plates for circulation 7. 50 Agents' fees 7' 50 Examinations 43. 00 Sinking fund reinvested semiannually to liquidate pre- mium 1,972.94 $3,071.42 Netreceipts g 058 58 $114,000 loaned at 6 per cent [l\["[[V. s' 840.' 00 Profit on circulation i 218 58 Total profit on $11,600,000 bonds, $127,219.75. Percentagfe on maximum circulation obtainable, 1.218 per cent. RECAPITULATION AT INTEEEST AT 6 PEE CENT. Profit on circulation had by deposit of 2 per cent bonds at par 0.032 Profit on circulation had by deposit of 4 per cent bonds at llOf 0. 330 Profit on circulation had by deposit of 6 per cent bonds at 114 _ 1. 218 Profit on circulation had by deposit of i of each kind of bond 0.526 PROFITS ON CIECULATION AT 8 PER CENT. Profits or losses on circulation taken by hanking associations in localities where the interest is 8 per cent under existing laic. ON JUNE .-so, 18a3— 3 PER CENTS (BONDS). $100,000 twos at par, interest $2,000.00 Circulation 90 per cent on par value $90, 000. 00 Deduct 5 per cent redemption fund 4, 500. 00 Loanable circulation at 8 per cent Gross receipts Deduct — 1 per cent tax on circulation, Annual cost of redemption.-. Express charges Cost of plates for circulation - Agents' fees -_ Examinations Net receipts $100,000 loaned at 8 per cent. . 85,500.00 6, 840. 00 900. 00 137. 48 3 00 8, 840. 00 7 50 7.50 43. 00 1, 098. 48 7,741.52 8, 000. 00 Loss on circulation 258. 48 Total loss on $21,837,000 bonds, $50,799.85. Percentage loss on maximum circulation obtainable, 0.258 per cent. JUNE 30, 1892— UPEE CENTS (BONDS). $100,000 fours, at 116f premium, interest $4, OOO. 0*. Circulation 90 per cent par value $90, 000. 00 Deduct 5 per cent redemption fund 4, 500. 00 Loanable circulation at 8 percent 85, 500.00 6, 840. 00 Gross receipts 1 10, 840. 00 310 BANKING AND CURRENCY. Deduct — «Qnn nn 1 per cent tax on cii-culation 1^7 48 Annual cost of redemption 3 00 Express charges _V,, Cost of plates for circulation ^- ^'^ Agents' fees 4300 Examinations -. — .- - - Sinking fund reinvested quarterly to liquidate pre- ^^^ ^^ mium ■_^_ $1^794.34 9,045.16 Net receipts q ohq qo $116,750 loaned at 8 per cent ' . , ^. -.- 294.84 Loss on circulation Total loss on $129,759,000 bonds, $344,323.30. Percentage on maximum circalation obtainable, 0.29o per cent,. JUNE 30, 1898-6 PER CENT. $100,000 Sixes at 114 premium, interest 4,Qn nnn nn **'' °°*^' ^^ Circulation fiO per cent on par value *»". u'^^ . uu Deduct 5 per cent redemption fund ^"^ • "^ Loanable circulation at 8 per cent 85,500.00 6,840.00 . , 12,840.00 Gross receipts ' Deduct — ci„^ i-,r, 1 per cent tax on circulation loi is Annual cost of redemption -^ 00 Express charges •^•^!^ Cost of plates for circulation ^- o^' Agents' fees '-^^ Examinations ",""j";" ^'^^ >^'J Sinking fund reinvested semiannually to liquidate ^^^ premium ^ ^'^ 3,071.42 Net receipts q ion no $114,000 loaned at 8 per cent "' -^^"- "" Profit on circulation ^^^- ^^ Total profit on $11,600,000 bonds, $67,711.75. Percentage on maximum circulation obtainable, 0.649 per cent. RECAPITULATION AT INTEREST AT 8 PER CENT. Loss on circulation had by deposit of 2 per cent bonds at par 0. 2.5848 Loss on circulation had by deposit of 4 per cent bonds at 1 16i 0. 29484 Profit on circulation had by deposit of 6 per cent bonds at 114 0.64858 Profit on circulation had by deposit of 4 of each kind of bond 0. 03175 PROFITS ON CIRCULATION AT 10 PER CENT. Profits or losses on circulation taJien by hanking associations in localities where the interest is 10 per cent under existing law. JUNE 30, 1892-2 PER CENTS. $100,000 two's at par, interest $2,000.00 Circulation, 90 per cent on par value $90, 000. 00 Deduct 5 per cent redemption fund 4, 500. 00 Loanable circulation at 10 per cent 85,.500.00 8,550.00 Gross receipts 10,550.00 BANKING AND CURRENCY. 311 Deduct — 1 per cent tax on circulation $900. 00 Annual cost of redemption 137. 48 Express charges 3. 00 Cost of plates for circulation 7.50 Agents' fees _•__ 7. 50 Examinations 4.3.00 $1,098.48 Net receipts 9,451.52 $100,000 loaned at 10 per cent .- 10,000.00 Loss on circulation 548. 48 Total loss on $21,387,000, $107,794.42. Percentage on maximum circulation obtainable, 0.548 per cent. JUNE 30, 1892—4 PEE CENTS. $100,000 fours at 116i premium, interest _ 4,000.00 Circulation, 90 per cent par value ___ 90, 000. 00 Deduct 5 per cent redemption fund 4, 500. 00 Loanable circulation at 10 per cent 85, 500. 00 8, 550. 00 Gross receipts 12, 550. 00 Deduct — 1 per cent tax on circulation 900. 00 Annual cost of redemption 137. 48 Express charges 3. 00 Cost of plates for circulation 7. 50 Agents' fees 7. 50 Examinations 43. 00 Sinking fund reinvested quarterly to liquidate pre- mium 696. 36 1,794.84 NetreceiDts 10,755.16 $116,750 loaned at 10 per cent . 11,675.00 Loss on circulation 919. 84 Total loss on $129,759,000 bonds, $1,074,217.67. Percentage on maximum circulation obtainable, 0.920 per cent. JUNE 30, 1892—6 PEE CENTS. $100,000 sixes at 114 premium, interest $6,000.00 Circulation, 90 per cent on par value $90, 000. 00 Deduct 5 per cent redemption fund 4, 500.00 Loanable circulation at 10 per cent 85, 500. 00 8. 550. 00 Gross receipts 14, 550 . 00 Deduct— 1 per cent tax on circulation 900. 00 Annual cost of redemption 137. 48 Express charges 3. 00 Cost of plates for circulation 7.50 Agents' fees '^■50 Examinations 43. 00 Sinking fund reinvested semiannually to liquidate pre- mium 1,972.94 3,071.42 Net receipts 11,478.58 $114,000 loaned at iO per cent 11,400.00 Profit on circulation 78. 58 Total profit on $11,600,000 bonds, $8,20.3.75. Percentage on maximum circulation obtainable, 0. 079 per cent. 312 BAIfKING AND CURRENCY. RECAPITULATION AT INTEREST AT 10 PER CENT. Loss on circulation had by deposit of 2 per cent bonds at par 0. 54848 Loss on circulation had by deposit of 4 per cent bonds at 11(54 u^9iy84 Profit on circulation had by deposit of 6 per cent bonds at 114 0. 07900 Loss on circulation had by deposit of J of each kind of bonds 0. 46325 Appendix C. BILL H. K. 171 IN PRACTICE. The flff ures given below show what the effect of adopting bill H . R. 171 would be on each of the banks mentioned. Their possible profits under the present system are compared with their possible profits should bill H. R. 171 become a law. [Home of Hon. Warreu F. .Daniell.] No. 1.— FRANKLIN NATIONAL BANK. FRANKLIN, N. H. Per cent. This bank has national-bank notes outstanding, $43, (00 : If It had 2 per cent U. S. bonds, its possible profit would be If it had 4 per cent U. S. bonds, its possible profit would be If it had 6 per cent U. S. bonds, its possible profit would be If It had one-third of each bond, its possible profit would be. .. It would be entitled to S15,000 of section 5, reserve notes, on which its possible profit would be Difference in profit to the bank. Od the $16,000 of section 4, notes which It would be compelled to take, there would be no gain or loss. Total circulation 0. 0316 0. 3301 1.3185 0. .5267 5. 744.=) Possible profit. US. 76 144.25 632. 48 230.09 861. 67 [Home of Hon. Charles F. Crisp.] No. 3. -PEOPLE'S NATIONAL BANK, AMERICUS, GA. Per cent. This bank has national-banknotes outstanding, $11,350; . If It had 2per cent bonds. Its possible profit would be. II If had 4 per cent bonds, its possible profit would be. If It had 6 per cent bonds, its possible profit would be. If it had one-third of each bond, its possible profit would be It would be entitled to $36,000 of section 5, reserve notes, on which its possible profit would be — Difference in profit to the bank. On the $36,000 of section 4, notes which it would be compelled to take, there would be no gain or loss. Total circulation.... Possible profit. 0.0315 0.3301 1.2185 $3.54 37.14 137.08 0.5267 59.25 6.7445 ' 2,068.03 72, 000. 00 [Home of Hon. Joseph D. Sayers.] No. 3.— FIRST NATIONAL BANK. BASTROP, TEX. Per cent. Possible profit. This bank has national-bank notes outstanding, $11, 350: [Same as No. 2 example.] If it had one-third of each bond, its possible profit would be. 0.526' It would be entitled to $52,000 of section B, reserve notes, on which its 5 7445 possible profit would be . Difference in profit to the bank. On the $53, 000 of section 4. notes which it would be compelled to take, there would be no gain or loss. Total circulation 3, 987. 14 3,92?.! 104,000.02 BANKING AND CURRENCY. 313 [Home ot Hon. John Sherman], No. 4.— CITIZENS' NATIOJ-TAL B.^XK. MANSFIELD, OHIO, This bank has national-bank notes outstanding. $^2,500: If it hadSper cent bonds, its possible protlt would be. If it had 4 percent bonds, its possible profit would be.. If it hade per cent bonds, its possible proiit would be. If ithad one-third of each bond, its possible profit would be It would be entitled to $52,003 of section 5, reserve notes, on whicli its possible profit would be Difference in profit to the bank . On the $.5J,oao of ssotlon-t, notes which it would be compelled to take, there would be no g.xln or loss. Total circulation , 0,0315 0. 3301 1.8185 0. 5267 5, 7445 Possible profit. $7,08 74.28 274.16 118.50 2, 987. 14 104, 000, 00 LHome ot Hon. David B. Culberson.] No. .5.— NATIONAL BANK, JEFFERSON, TEX. This boat has national-bank notes outstanding, $22.-500: [Same as in No. 4 example.] If ithad one-third of each bond its possible profit would be It would be entitled to ."831,000 of section 5, reserve notes, on which its possible profit would be Difference in profit to the bank. On the $31,000 of section 4, notes which it would be compelled to take. there would be no gain or loss. Total circulation __.. Per cent. 0. 5267 5. 7445 Pos.slble profit. $118.50 1 , 780. 79 63, 000. 00 [Home of Hon. William H. Hatch,] No, 6.— FIRST NATIONAL BANK, HANNIBAL, MO. This bank has uational-bank notes outstanding, $32,500: [Same as in No. 4 example.] Per cent ' Possible i-erceni. pro^t If It had one-third ot each bond, its possible profit would be , It would be entitled to $47, GOO of section 5, reserve notes, on which its possible profit would be _ Difference in profit to the bank . On the $47, 000 of section 4, notes which it would be compelled to take, there would be no gain or loss. Total circulation [Home of Hon. Nicholas N. Cox.] No. 7,— NATIONAL BANK, FRANKLIN, TENN, 0..5267 I $118.50 5,7445 ! 2,699.91 2,581,41 94, 000. OO Per cent. This bank has national-bank notes outstanding, $22,000: If ithad 2 percent bonds its possible profit would be ; 0.0315 If it had 4 per cent bonds its possible profit would be 0.3301 If ithad 6 par cent bonds Its possible profit would be 1.2185 If it had one-third of each bond its possible profit would be < 0.5367 It would be entitled to $17,000 of section 5, reserve notes, on which its pos.sible profit would be.. --. ---' 5.7445 Difference in profit to bank -. -.' On the $17,000 of section 4, notes which it be compelled to take, there j would be no gain or loss. Total circulation Possible profit. $6.93 73.62 368.07 U5. 87 976. 56 314 BANKING AND CURRENCY. [Home ot Hon. William B. Allison and Hon. Da-nd B. Henderson.] No. S.^FIRST NATIONAL BANK, DUBUQUE, IOWA. Per cent. Possible prolit. This bank has national-bank notes oui standing. »-46,000: II it had 2 per cent bonds, its possible prolit would be "■"«» II it had 4 per cent bonds, its possible profit wonldbe-- "■ ;«ui It it had 6 per cent bonds, its possible profit would be i.-iBo II it had one-third ol each bond, its possible profit would be -- --,- v- : °- °^''" It would be entitled to 8150,000 of section a, reserve notes, on which ; its possible profitwonld be - Difference in profit to the bank =^=^ On the $150,000 of section 4 notes, which it would be compelled to take, there would be no gain or loss. Total circulation [Home of Hon. John G. Carlisle.! ^T,;,. 9._FIHST NATIONAL BANK, COVINGTON, KY. *14. 17 148.54 548.32 237.01 1,616.75 8, 379. 74 300,000.00 Per cent. This bank has national-bank notes outstanding, iSO-po**- If it had 2 per cent bonds, its possible profit -(\-ould be- lt it had 4 per cent bonds, its possible profit would be. II it had 6 per cent bonds, its possible profit would be. If it had one-third of each bond, its possible profit would be.. --..---. It would be entitled to *95,000, of section 5, reserve notes, on which its possible profit would be - - -■ Difference In profit to the bank On the $85,000 ol section 4. notes which it would be compelled to take, there would be no gain or loss. Total circulation 0.0315 0. 3301 1.2185 0.6267 5. 7446 Possible profit. $28. 35 297.09 1,096.66 474. 03 5, 457. 27 4,983.24 190,000.00 [Home of Hon. Isham G. Harris and Hon. Josiah Patterson.] No. lO.-PIEST NATIONAL BANK, MEMPHI.S, TENN. Percent. This bank has national-bank notes outstanding, $4.5,000. [Same as No. 8 example.] If it had one-third ol each bond, its possible profit would be Would be entitled to $109,000, section 5, reserve notes, on which its pos- sible profit would be 0. 5267 5.7445 Difference in profit to the bank. On the $109,000 of section 4, notes which it would be compelled to take, there would be no gain or loss. Total circulation Possible profit. $237. 01 6,261.60 6, 024. 49 218,000.00 [Home of Hon. Daniel W. Voorhees.] No. 11.— FIRST NATIONAL B.ANK, TERRE HAUTE, IND. This bank has national-bank notes outstanding, $45,000. [Same as No, 8 example.] If it had one-third of each bond, its possible profit would be It would be entitled to $163,000 of section 5, reserve notes, on which its possible profit would be ■ Difference in profit to the bank . On the $163,000 ol section 4. notes which it would be compelled to take, there would be no gain or loss. Total circulation 0. 5267 5.7445 Possible profit. $237. 01 9, 363. 63 9, 126. 52 326, 000. 00 BANKING AND CURRENCY. 315 [Home of Hon. Zebulon B. Vance and Hon. S. B. Alexander.] No. 12.— FIKST NATIONAL BANK, CHARLOTTE, N. C. This bank has national-bank notes outstanding, $45,000. [Same as No. 8 example.] If it had one-tbird of each bond, its possible profit would be It would be entitled to $144,000 of section 5, reserve notes, on which Its possible profit would be _. Difference in profit to the bank. On the $144,000 of section 4, notes which it would be compelled to take, there would be no gain or loss. Total circulation 0. 5267 5. 7445 Possible profit. $237. 01 8. 272. 08 [Home of Hon. Shelby M. CuUom, Hon. John M. Palmer, and Hon. William. M. Springer.; No. 13.— FIRST NATIONAL BANK, SPRINGFIELD, ILL. Percent. Possible profit. This bank has national-bank notes outstanding. $46,000: [Same as In No. 8 example.] 0. 5267 5. 7445 $237. 01 It would be entitled to $103,000 of section 5, reserve notes, on which its 5, 916. 83 Difference in profit to the bank 6, 679. 82 On the $103,000 of section 4, notes which It would be compelled to take, there would be no gain or loss. Total circulation 206, 000. 00 [Home of Hon. David Turpie and Hon. William D. Bynum.] NO. 14.— CAPITAL NATIONAL BANK. INDIANAPOLIS, IND. This bank has national-bank notes outstanding, $45,000 : [Same as in No. 8 example.] If it had one-third of each bond, its possible profit would be- lt would be entitled to $167,000 of section 5. reserve notes, on which its possible profit would be Difference in profit to the bank . On the $167,000 of section 4, notes which it would be compelled to take, there would be no gain or loss. Total circulation ! Possible I profit. 0.5267 ; $237.01 5.7445 ! 9, .593. 31 [Home of Hon. Thomas J. Geary.] No. 15.— SANTA ROSA NATIONAL BANK, SANTA ROSA, CAL. This bank has national-bank notes outstanding, $33,750 : If it had 2 per cent bonds, its possible profit would be . It it had 4 per cent bonds, its possible profit would be . If it had 6 per cent bonds, its possible profit would be . If it had one-third of each bond, its possible profit would be It would be entitled to $35,000 of section .5, reserve notes, on which Its possible profit would be - - Difference in profit to the bank . On the $35,000 of section 4, notes which it would be compelled to take, there would be no gain or loss. Total circulation Per cent. 0.0315 0. 33S; 1.2185 0. 5267 5. 7445 Possible profit. $10. 6a 122. 41 411. 51 181.62 2, 010. 67 1 829. 05 70 000. OO 316 BANKING AND CURRENCY. [Home of Hon. Albert J. Hopkins.] No. 16.— FIRST NATIONAL BANK, AURORA, ILL. Per cent Possible profit. This bank has national-bank notes ontstandlng, $21,600: If It had 8 per cent bonds. Its possible profit ■would be -.. It it had 4 per cent bonds, its possible profit would be II it had 6per cent bonds. Its possible profit would be if It had one-third of each bond, its possible profit would be It would be entitled to $59,000 of section 5, reserve notes, on which its possible profit would be Diflerence in profit to the bank ^ On the $69,000 of section 4, notes which it would be compelled to take, there would be no gain or loss. Total circulation 0.0315 0. 3301 1.2185 0. 6267 5. 7445 71.30 263.20 113.76 3, 389. 25 3, 276. 49 118,000.00 £Home of Hon. Newton C. Blanchard.l No. 17.— FIRST NATIONAL BANK, SHREVEPORT, LA. This bank has national-bank notes outstanding, $89,000: If it had r^per cent bonds, its possible profit would be If it had 4-per cent bonds, its possible profit would be — If It had 6-per cent bonds, its possible profit would be If it had one-third of each bond, its possible profit would be It would be entitled to $121,000 of section 5, reserve notes, on which its possible profit would be Difference in profit to the bank. On the $121,000 of section 4, notes which it would be compelled to take, there would be uo gain or loss. Total circulation 0.0315 0. 3301 1.2185 0. 5267 6. 7445 Possible profit. $28. 04 293.79 1,084.46 468.76 6, 950. 84 6,482.0 242, 000. 00 [Home of Hon, Thomas C. Catchings.] NO. 18.— FIRST NATIONAL BANK, VICKSBURG, MISS. Per cent. This bank has national-bank notes outstanding, $33,750: [Same as No. 15 example.] If It had one-third of each bond its possible profit would be i 0.5267 It would be entitled to $50,000 of section 5, reserve notes, on which its possible profit would be. 5.7446 Difference in profit to the bank. On the $50,000 of section 4, notes which it would be compelled to take, there would be no gain or loss. Total circulation Possible profit. $181.53 2, 872. 25 $100,000.00 [Home of Hon. William Mutchler.] No. 19.— EASTON NATIONAL BANK, EASTON, PA. This bank has national-bank notes outstanding, $43,650: If it had 2 per cent bonds, its possible profit would be . If it had i per cent bonds, its possible profit would be . If it had 6 per cent bonds, its possible profit would be '. Per cent. If it had one-third of each bond. Its possible profit would be It would be entitled to $190, 000 of section 5, reserve notes, on which Its' possible x^rofit would be Difference in profit to the bank. On the $190,000 of section 4, notes which It would be compelled to take, there would be no gain or loss. Total circulation 0. 0315 0. 3301 1.2186 0. 5367 Possible profit. $13.74 144.69 531. 87 230. 10 10, 914. 55 10,684.45 380,000.00 KANKING AND CURRENCY. 317 Appendix D. In order to still further show the advantages to a bank and therefore to the people in the cheaper money provided in the bill, I g-ive examples of thi'ee of these actual banks figured out more fully. One that has every dollar of its paid- in capital invested in bonds to secure circulating notes and two that have no cir- culating notes at all. The profit on circulation to a bank now doing business on a 6 per cent basis is shown by the first example. What it would be in normal banking, as ascer- tained by the actuary of the United States Treasury, and printed on paga 8 of the report of the Comptroller of the Currency, is also shown in each of the three examples. These examples show what e.ich of these banks would gain by doing their busi- ness under the Walker banking bill, H. R. 171, were it now a law. Where rates of interest are 6 per cent, the gain on circulation is only 0.5267; at 8 per cent, only 0.03175; and it is an actual loss of 0.46325 per cent for a b:ink to take out circulating notes under our present national banking laws, where the rate of in- terest is 10 per cent, as is shown by these examples. The figures are from the Comptroller's report of December 5, 181)2, page 8, and from the figures of the actuary of the United States Treasury, herewith published. FIRST NATIONAL BANK, LANCASTER, PA. United States bonds to secure circulation $210, 000. GO- Capital stock (all invested in bonds) 210, 000. 00 Individual deposits, only 251,000. Ofr National-bank notes outstanding 183, 800. 00 Loans and discounts 345, 000. 00- Profit on 2 per cent bonds at par 0.0315 57.89 Profit on 4 per cent bonds at 1.16f premium 0.3301 606.72 Profit on 6 per cent bonds at 1 .14 premium _ _ . . 1 . 2185 2, 239 . 60 Profit if i is now held in each kind of bonds 0.5267 968.07 Profit, 6 per cent basis, on $41,000, section 5 reserve notes.. 5.7445 2,355.24 Difference to the bank 1, 387. 17 Profit on $41 ,000, section 4, notes none, and no loss Total circulation had under bill H. R. 171 82,000.00^ Profit on $183,800 circulation, under oresent law, on basis of 8 percent I 0.03175 58.36. Profit on $41,000 circulation, section 5 reserve notes, un- der billH.R. 171 7.7445 3,175.24 Difference to the bank on $345,000 loans and discounts un- der bill H. R. 171 0.902 3,116.88 Loss on $183,800 circulation under present law, on basis of 10 per cent .' 0.46325 851. 4& Profit on $41,000 circulation, section 5 reserve notes, un- der billH.R. 171 - 9.7445 3,995.24 "Difference to the bank" on $345,000 loans and discounts is .014 plus per cent 4,846.69 RECAPITULATION. "Difference to the bank" is 0.4 per cent on $345,000 loans and discounts, at 6 per cent rate of interest. " Difference to the bank" is 0.902 per cent on $345,000 loans and discounts, at 8 per cent rate of interest. " Difference to the bank" is 1.4 per cent on $345,000 loans and discounts, at 10 per cent rate of interest. That is to say, this bank could make as much money on its $345,000 loans and discounts at 5.6 per cent under bill H. R. 171 as at 6 per cent under existing banking laws, or at 7.1 per cent under bill H. R. 171 as at 8 per cent under existing banking laws, or at 8.6 per cent under bill H. R. 171 as at 10 per cent under existing banking laws. 318 BANKING AND CURRENCY. CHESTERTOWN NATIONAL BANK, CHESTERTOWN, MD, United States bonds to seoare circulation ^15, 000.00 Capital stock : .vy'^Zt^ Individual deposits .312,OUO.O0 National bank notes outstanding ^^ i a'^aA Loans and discounts ^^-^ 000.00 Profit, fi per cent basis on $-t-t,5'i8, section 5 reserve notes 5.7445 2, 560. 20 Profit on $14,568, section 4 notes, none, and no loss Total circulation 89,136.00 Profit 8 psr cent basis on $44,568, section 5 reserve notes, 7.7445 3,451.57 Profit 10 per cent basis on $44,568, section 5 reserve notes, 9.7445 4, 342. 93 RECAPITULATION. " Difference to the bank " is 1.16 per cent on $222,000 loans and discounts, at 6 per cent. . , o ' " Diiference to the bank '' is 1.56 per cent on $222,000 loans and discounts, at 8 per cent. "Difference to the bank" is 1.96 per cent on $222,000 loans and discounts, at 10 per cent. That is to say, this bank could make as much money on its $222,000 loans and discounts at 4.84 per cent under bill H. R. 171 as at 6 per cent under existing banking laws, or at li.44 per cent under bill H. R. 171 as at 8 per cent under existing banking laws, or at 8.04 per cent under bill H. R. 171 as at 10 per cent under existing banking laws. FIRST NATIONAL BANfK, HOU.STON, TEX. United States bonds to secure circulation $25, 000. 00 Capital stock 100,000.00 Individual deposits 1,0.38,341.00 National-bank notes outstanding None. Loans and discounts 906,000.00 Profit on $210,810, section 5 reserve notes, 5.7445 12,109.98 Profit on $210,810, s2Ction 4 none, and no loss Total circulating notes 421, 620. 00 Profit, 8 per cent basis on $210,810, sections reserve notes, 7.7445. _- 16, 326. 18 Profit, 10 per cent basis, on $210,810, section 5 reserve notes, 9.7445- - - 20. 542. 38 RECAPITULATION. " Difilerence to the bank" is 1.336 per cent on $906,000 loans and discounts at 6 per cent rate. " Difference to the bank " is 1.801 per cent on $906,000 loans and discounts at 8 per cent rate. " DifTerence to the bank " is 2.267 per cent on $906,000 loans and discounts at 10 per cent rate. That is to say, this bank could make as much money on its $906,000 loans and discounts at 4.664 per cent under bill H. R. 171 as at 6 per cent under existing banking laws: or at 6.19i) per cent under bill H. R. 171 as at 8 per cent under existing banking laws, or at 7.733 per cent under bill H. R. 171 as at 10 per cent under existing banking laws. These examples of three existing banks and the examples given in H. R. Re- port 2584, show how existing banking laws work very great hardship to the peo- ple in every city and town in the whole country, by increasing the cost to the people of the money they borrow, over what it would cost them if the banks were working under a proper banking law. The present law hurts most in the country, where money is loaned at 8 per cent and 10 per cent interest. It hurts least in cities and places where money is loaned at 3 per cent to 5 per cent inter- est. Money now averages to be loaned at fully 1 per cent more the country over than it would cost the faorrower under the Walker banking bill. That is to say. BANKING AND CURRENCY. 319 if the banks were now working- under the Walker bill as law, they could loan as much money tor $^7 as they now charge $100 for the use of, and make the same profit as now, provided the average interest is 6 per cent per annum. This is beoiuse $-100,000,000, o' thj possible loanable f.mds of banks under the present 1 iw is held out of any possible constant dlroct use, out of the total of $2,79(5,400, 000 banking funds. Every dollar of this $2,7'.ll),400,O00 could be earn- ing an income to the b inks under the Walker bill. Tai^ would inevitably soon cause all lo ms to be m ide at a lower rate of interest. Not only is this vast sum of money held out of loanable funds, but, Secondly, by the I iw compelling all b inks whose capital is less than $l.'>i),000 to lock up one-fourth of its c ipital in buying United States bonds : and by compelling every bank that has a capital of over $150,000 to buy $.iO,000 worth of United States bonds, it prevents millions more dollars from being lo.ined to the people. The people feel the hurt, bat make a mistake as to what causes the injury. It is the law, not the bmks. The' scheme worked out in bill H. R. 171 is as old in its every element as modern civilization, is safer th m the present system, and allows every dollar of the assets of a b ink to be earning an incom?, thus miking the price of every loan much lower. When bill H. R. 171 is enacted into law. the forehanded farmers in every town will unite and form banks, thus cheap 3ning the rtlte of interest by competition, and help out their neighbors who still find it necessary to borrow money. Appendix E. BANKING. [An address delivered (by invitation) before the B iston Association ot Banlc Presidents, at the Pack T House, Boston, Norember U, 1892,] President Lincoln once remarked that statesmanship in an executive office consisted in so balancing the meannesses of m mkind as to make them serve the state. In legislation, statesmanship consists in minimizing the evil that a leg- islative body is determined to do in some act th it it passes, or in securing all the possible good that, under existing cii'cumstances, can be secured in an act. I do not believe that any one of the men who framed the silver act of .July 14, 1890— and there were very few of them ; there were practically but three —would have recommended that act as a purely financial measure. We must remember that our Government is a government of the people, by the people, and for the peo- ple, for evil as Will as for good, and while the great balance of their legislative acts, and the results thit they accomplish, are for good, as compared with any other form of government, yet evil the people will have and do. Neither do I believe that there is anyone who was instrumental in forming the silver act of July 14, 1890, or in securing its passage, but believes, and believes from the very widest investigatiim and knowledge, and standing in the very eye of the free-coinage excitement, that we should have had free coinage or come far nearer that had not that bill passed than we now are by the passage of it. For you must remember that that bill absolutely stopped the coinage of silver. It put an end to the buzzard dollar forever. It left us practically with ware- house receipts for the silver bullion at its market value, which are just as val- uable, and no more so, than warehouse receipts for the commercial value of any other merchantable commodity that will fluctuate no more nor less. Again, there is not one of the men on the conference committee, who was op- posed to the free coinage of silver, who did not siy to those on the committee favorino- free coinage, that the bill would not accomplish what the advocates of free coinage said it would accomplish, namely, the bringing of the commercial price of silver up to 1:29[, which is on a parity with gold ot 16 to 1— our coin- age ratio ; that it would not accomplish that, and that the law must surely be repealed when the conditions of the country and the further education of the them an injustice that is thoroughly unworthy of the papers that so state. lam not apt to "get "rattled" except on small things, not by large ones. I do not 320 BANKING AND CURRENCY. know but Senators Sherman and Jones and Congressman Conger are men to ' ' get rattled," but I have not so found them, to say the least. _ Now, you speak of a banking system, to which, I suppose, the club desires that I should devote what few minutes I have. A banking system that will not run smoothly under the most adverse circumstances, is a banking system that is not worth talking about. A banking system that does not provide for specie payments, for the suspension of specie payments, a banking system_ that will not run smoothly under the most intense civil commotion and civil strife, is not worthy of your attention. SUCCESS IN LEGISLATION IS A DUTY. In any other government but our=i, it is the minister of finance and men skilled in finance who guide the monetary aiiairs of th? country ; in our country they are guided and directed by the whole body of legislators, each one of whom, whatever may be his previous training, is very sure that he knows all there is to know on all questions of finance— and his confidence is always proportionate to his ignorance. [Laughter.] No man has a right to present a bill to Congress when he has not a fair chance of success in passing it ; and in presenting a bill which shall provide for a national banking system, as in all other legislation, he must present the best bill, whose adoption he his a re isonable chance of secur- ing. 'If the banking svstem of the counti-y and the banks of the country can legitimately and economically work under it and preserve the banking system, whatever things there are in it that you may object to, you still must take it beciuse of the good there is in the system, even if the thing itself is in some points objectionable. Success is a duty in legislation for the single legislator or the legislative body, as much as it is our duty as bankers or as merchants. Now, the bill which 1 hive to p.esent to you is not such a bill hs I would draw, had I authority to draw it such as is conferred upon men who manage the finances of Great Britain or France or Germany. There is considerable blarney in the title ; there can be enough blarney put into the advocacy of it to secure support from all classes in Congress; but I can assure you, gentlemen, there is no blarney in the text of the bill. There is not enough financial wisdom that can be availed of and focussed, in the Congress of the United States, to devise a banking system such as this country ought to have— I mean to say, in the every-day Congress. It is only an exceptional Congress that will give you that. You have got to wait for yoar''national system till that Congress comes, gentle- men, and it will come, when it comes at all, from the men in a Congress who are sufficiently adroit and conciliatory and popular to have men of both parties as- sist them in passing the measure. I believe— I can't quite say I believe, but I have very strong hopes — that the leading Democrats of the House in the present or the Fifty-third Congress can be persuaded that It is for their political ad- vantage to' take up the system which I shall present to you and adopt it, and if they so think you will have it, and it they are not persuaded of that you will ' not have it. It will not come purely as a matter of statesmanship, free from all party advantage and political considerations, by either the Democrats or the- Republicans. Whenever you get a proper banking system in this country, it will be through some man in the minority of sufficient skill and popularity on his own side to have it support him; who has sufficient ability to draw the bill and persuasive power to convince the majority that it is for its political ad- vantage to have it adopted. I have come down here to talk sense to you, not nonsense. [Applause.] Now, there is not a man sitting at this board who does not know that the mechanism ot banking, as an occupation, is a great deal easier to learn than keeping a grocery store or running a farm, and also that banking, in its admin- istration, in the great concerns with which it has to deal, in the great func- tions which it performs in being a part ot the commercial system of the country, the great courage you have to exercise and the great risks you have to take many times, demands the highest type of ability and of courage and of genius. [Applause.] FOLLY OF THE STATE BANK PROPOSITION. I have said this that you might not think that because this scheme is simple it is of little consequence. Therefore the folly, the utter folly, the foolishness — folly isn't strong enough — ot talking about forty-four independent States devel- oping and maintaining in each successive legislature enough financial genius to BANKING AND CUREENCy. 321 devise and maintain a banking system ; because you know a bank can not exist in every other country, and " ttie bank " of this country is just as much the bank of the counti-y as though we had a Central United States Bunk and every other bank was a branch of this United St.ites Bank— precisely the same. A Ijank cannot exist as a unit, as a shoe factory, or a cotton factory, or a woollen factory exists as a unit, complete in itself. A bank is as much a part of the curr nit cir- culation of the country as the bills it issues, as much as the blood in my body is a part of and necessary to my existence— an inseparable part of the commercial transactions of the country, and no one of them can be isolated. Each is a part of the whole. It is a physical impossibility to have State banking systems. It can't be done. It is also a physical impossibility for a na.tlonal government to issue the paper money of the country and to maintain the specie payments of such issues in a country. It cnn not be done. It never has been done. It nevOT has been done for a day in this country. It is only l;ecause the banks hive stood at the elbow of the Secretary of the Treasury of the United States and have run the finances of the country through him. The Secretary of the Treasury is po\\'erl6ss with- out the cofiperation of the banks. The little hoard of gold that now exists or has existed in the United States Treasury has been sheltered and protected and kept there by the banks, not by any power of the United States Government, from the beginning. If the banks, or any ten of the strongest banks in this And the very existence of the subtreasury is an excrescence — abnormal, and a threat, as every bank man here knows, to the existence of every bank and the whole banking system of the country, each moment it exists. You have got to trench upon it and wring the money out of it and practically destroy it at every crisis. It is a struggle lor existence between the subtreasury and the business of the country. Its very existence is in viobition of the very law of the United States that forbids j'ou to do what the United States Government is constantly doing, viz, locking up the money of the people, looking up the gold and lock- ing up the currency. We have the most ridiculous and extravagant financial system of any country in the world , in many phases of it, while in many other phases it is the best and the grandest — of which I have not time now to speak further. The banking institution of a country must be an " institution " — a thing " in- stituted," a thing whole and complete in itself, with powers of self-defense, in order to have powers of existence. And the banks of this country nreabs^olutely defenseless to-day and have been during the whole existence of our monetary system. Why? Because you have no means of keeping the measure of value (the gold) yourselves, or in this country. We are absolutely helpless to keep the gold in this country. If we had a proper banking system, we onuld charge a little higher interest so as to cause bonds to be shipped, or securities, as they do in England, rather than to ship gold, simply by raising the rate of discount or lowering, as the case may be, which is the only conceivable defense that any country has in maintaining its coin supply, which is necessary to its banking sys- tem, against being trenched upon by anj' nation that chooses to take it. It is the only defense that the skill of man has yet devised. And yet we stand here absolutely helpless with reference to that thing, because shippers of gold can and always do draw their gold, not from the banks, but from the United States Treasury. And, by the way, I did not come down here to address you. It was rather to talk with you, and I hope you will put in a question and interrupt me anywhere you wish. I .am used to it, as you have seen. Now, If I make any error here^ I don't pretend to knowall there is to be known about banking; I know but very little as compared with what you know— I want you to "go for me " at any corner. A Bank Peesident. We think you are going on very well. Mr. Walker. Well, that is right. Now. gentlemen, don't you see that what I have said up to the present time is true'? And I shall assume that all my views are correct unless you contradict them here. A Bank Peesident. We all agree with you. Mr. Walker. Very well. We must have a banking system that is whole and complete in itself, absolutely dissevered from the Government, so that the Gov- 940 21 322 BANKING AND CUREENCY. prnment has no oonti-ol over it and can put no hand upon it, excepting in police supOTV^sion You can't -et it by le4>-islation, unless it nestles m it so obscurely and so Qutetly and yet so powerfully, that it can " grow," as Topsy did, with the approval o the people; and I think I have got it in the bill I submit to you A BANK PRESIDENT^ Well, I hope we may agree with you there. That is what we want. COIN IS THE LIFE-BLOOD OF BANKING. Mr Walkee Now, coin is the very lifeblood ol banking, and if you can't protect vtufooik vour banking systemis at peril every moment. The only pos- si^hlewav of protecting it is through the banks ; you all agree with nie m what !hfvesiyibCt" Letmesaythftiflhadknownth^^^^^^ of the banking bill, I should not have come down here. I wiLi have it leteirea back to the House, and by the House back to the committee in a new draft and win soon send°you copies of it, and I hope you will not forget in the mean time ""This bin provides for the issue of two classes of currency notes. It provides foJtheir certain payment in case of the failure of any bank. Let me say that hereTs'no difflcu^tjat all in making tl^o circulating note^o a bank secure a. tr, tbeiT final redemption, in a thousand diflerent ways, that is inciaenpai xo and no part of banking? It has nothing whatever to do.with banking m itself The thin- that makes" bank bUls valuable is the securing and mamtammg o themat their nominal coin value in their current redemption their constant re?"iflcation, tte constant touching of this paper money wi h the com dollar so that U may ever be the equivalent of coin in the commercial transactions of the oountiT That is the difficulty, and it is the only d Ihculty. And when men come to VO^u with various schemes for issuing bank bills (currency notes), it is thp merest chaff and nonsense that anybody ever talked. .... * My scheme provides that the reser/es of a ba.nk sha 1 be in coin o>. in notes bought of the Government, which latter bJls are not to be less than half the cfrcuUitino notes that the bank issues. That is to say, the bank is to have its reserve in coin or coin certificates. The point of counting the coin certiLioate Is coin simply is that the Government has the vaults in which to keep the coin and c'm kelp it more cheaply than the banks can store it, and ought to keep i and be at the expense of hiving the necessary vaults, so that the cer ihc^te ough to count in the banks precisely the same as though it was the com itself ; and of oouiTthe Government should simply issue coin certificates as custodian of the "°Now!The wty you have been banking for thirty years is this: You have had notes issued to you on bonds. The interest on those bonds has for the last fif- teen years, iust about equaled what you have lost by not^bemg ab e to avail yoar- selves of earnings on your reserves that the European banks make. It has just Tbout equXd what ought to have been the earnings on your roserves^ Many bankers have failed to see the waste on the reserve. You have lost sight of the fact that your reserve would not earn anything; in the fact that you have had an equiva^eVt in the interest on the bonds you have deposited with the Govei-nment and had bills issued upon. Now, my scheme provides that you shul have the right, the Government printing them as now, to issue as many doUai-sin cur- rency as you hold dollars in reserve, and tha.t you shall hold an additional re- serve for the currency that you issue, precisely to the s me percentage as though the bills that you issue were an additional deposit. Do I make that ciearr Voices. Yes. Mr. Walkek. As an additional deposit. ISSUING CURRENCY ON BANK RESERVES. First That you shall issue those bills. Then . as your reserve operates, it does two things. You hold it as a reserve, as all the banks in Europe hold as a re- serve their coin, and, secondly, you issne your bills to the amount of your re- serve as European banks do, and your bUls are C'lrning youmoaey, so that your reserve every dollar of it, is as safe and eifective as a reserve and still is earn- ino- vou iust as much as any pirt of your K'pltal, while it is still held as re- serve Coin is no more likely to be dem mded upon the currency bills you issue thnn it is upon the check th;it is jiresent d, or any other form of your liabiiitie^, and is just as effective as though the bills were not i-sued. The only point in requiring'- that the bills sh ill not evcoed tho i-eserve is tohave a check upontne issue of bills so that they shall never exceed their proper limit. BANKING AND CURRENCY. 323 Second. The notes you are by the bill required to buy of the Government, pay- ing for them in legal tender, either gold or silver, or silver certificates, or in the present greenback, a sum equal to what you issue on your reserve, really costs the b ink n thing. It simply exchangos legal-tender money for money that IS not "leg.il tender," though commercially it is its equal and is just as useful to the community and does its work just as effectually. Now, the 'point of that is this: the Bank of England issues ono-third of its currency notes or bills in pre- cisely the same manner. They arenot issued on a reserve. The bill simply pro- vides that half instead of one-third shall be issued by the United States Govern- ment, and each of these bills shall be precisely the same to the bank as the other bills the bank issues on its reserve and must have the same ' ' current redemption " But if the 'lank desires to go out of business, or surrender any of these bills, or fails, then the Government is to redeem them in coin of equal intiinsio value of the nominal value of the money which was deposited or p lid by the bank for these bills, and the bank itself is to redeem the bills that are issued by the Comp- troller to the bank and by the bank on its reserve, taking possession of all the assets of the hank and either pledging them for a sufficient sum or selliuo- them for a sufficient sum to redeem the bills issued by it under section 5, and then turning over the balance of the funds incumbered by the loan, to the bank, for it to distribute among its creditors. I hope I have made this thoroughly clear that is, the final redemption, though it is a matter of comparatively little im- portance. No man living can tell the slightest thing about how many dollars there ought to be per capit i. We ought to have just that number of dollars per capita in paper money that the people insist upon carrying in their pockets, and that is a dead investment. It is a dead deposit. It lies there, about the same, year in and year out, but there is a profit in issuing it. If I were drawing a bankino- scheme simply as I would draw it by myself, I would allow the banks to issue two dollars for one ; but you can never get the people to adopt that. Another thing, the existing greenback is a menace to the banking system of this country just so long as it exists, and the bill that I have drawn provides that of the money paid to the Government 90 per cent shall be used to cancel, redeem, and destroy the greenback of 1865, that 10 per cent of it shall be held as a i-edemption fund which the Government will hold, at its expense, and not at the expense of the bank, for the current redemption of the bills of the bank. I hope I make clear the provision for issuing currency. The bank first issues itself just as many paper dollars as it keeps in its reserve. Then it buys of the Government an equal sum. and 90 per cent of what it pays to the Government is used for redeem- ing and canceling the old 1865 greenbacks until they are gone, and 10 per cent of it is set aside by the Government for a redemption fund, which fund you now have to keep, with the Government to redeem your bills, at your expense. By the way, I am not getting forward at all satisfactorily. I can't get through to-night at this rate. Voices. Go on. WHAT BANKING IS. Mr. Walker. Now, a banking business is the buying, selling, borrowing, and loaning of property, not paper. It is titles to property that you actually deal in, and of course you own the property for the time being. When a mail comes in and you discount his note, you hold his property in exchange, a part of it, and to the amount of the note of his that you hold. That is what you own. It is not fundamentally dealing- with paper, that is to say, when you reduce it to its last analysis; but you are the owners of the property in the hands of the merchants all through the country. That is the fundamental fact of it, and it is necessary that the people know it. The people ought to be educated in the real facts. Then you get them out of their idea that you can make just as much paper as you are pleased to issue, which of course is the purest nonsense ever talked, while this property neither incre ises nor diminishes in value to you. You are doing these things for a fixed compensation called interest or discount, that is to say, you own the property in the hands of the merchants in Boston ; you don't suffer any loss on it and you don't get any gain on it. You do it for a certain sum agreed upon, while they are taking all the risks of the losses and making all the gains. Third. It is the duty of banks to be at all the expense, trouble, and risk of maintaining an unvarying measure or standard of value by which all the wealth or property of the country is measured for exchange, and the United States Government ought to be immediately released from that great tax upon the people. That is to say, you ought to be— the bankers ought to be — at the expense 324 BANKING AND CURRENCY. and trouble and risk of holding the gold or silver thatis i,he measure of value and not the United States Government. As a compensation for ™a,\?f/^Y°® '^^ oup-ht to be Kirnino- you an income all the time. You issue aform of title to the ?hev are wrloiielv the same as drafts or checks to those who use them. There p ^^ofp.^^.^ or ar ft is the tiUe to what a.v m.m h.o^^ KweenVbank' n'ottanH cCck, S or Ly thing else, either in custom, in ^'"Fourth The^doing of the things named constitutes the bank as the medium louith. J-'^®/°^"f"/ '"?',, theDroperty exchanged, except that of direct 15 tSrf Ji 3k6 Mv HempMll me th.t Ms scheme was iimplr impreotionble. Massachusetts as the sum of all wisdom m banking. VOLUME OF COIN NEEDED. The volume Of currency or the vol of c^^^^^^^ L^ry'at'^ll^J^S^OOofrid'we t'vfS - --^1« ^oW ^-^^^ all our silver coin. A Bank President. No. Mr Walker. How much have we got .-' A Bank President. We have got $104,000,000. Mr Walker. Of visible coin in the Treasury.'' -,,...,, „„va+= nf A Bank PRESIDENT. It is a very uncertain factor what is m the pockets of *^mI-.'' Walker. You are talking about one thing and I about another. A Bank President. In the banks. . . , i -ntT„ \,„,,c Mr Walker. No, I say we have visible gold com m the country. _ We have .Mliecot. England ha^ determined-isn^t that correct-that the visible com she needs in the banks of England is about $100,000,000 .'' Mr^WA^^LKfif 'weU^'it^runs from $100,000,000 to $125,000,000. ^r^^^rL^rXhavetZ-ed'o have $600,000,000 of gold coin in the coun- try, and we know we have about $500,000,000 of silver com and silver buUio°, a little more than that now. Now, then, I don't believe that we have got $25,000,- motToln in^he pockets of the peopi;^$25,000,000 to $50,000,000, 1 Bgure it. A Bank President. Do you mean gold— m gold? t +i,- i «q-!1 nnii nno- " Mr Walker. We have got in visible gold $300,000,000, 1 thmk, $334,000,000- or we did have two years ago. By the way, these figures areahttle musty, and that is another reason I disliked to come down here. We did have $324,000,0UU. Mv point is this: The coin we need is what the people insist upon carrying in their dockets and what we need for the reserve in our banks. Now, with refer- ence to the issue of money on the reserve. Why, they say, that isnt as safe as vour bond makes it as to its sure final redemption, if the bank fails. Weu, my dearmeu, you conduct all your business upon the doctrme of chances, we BANKING AND CURRENCY. 325 run all our railroad trains on the doctrine of chances. And my bill is drawn on human hues and provides for a tax on the currency notes issued by the banks on their reserves of one-twentieth of 1 per cent, to be held by the United States Treasury as a guaranty fund for the redemption of these bills issued by the banks on their reserve, provided the Comptrolier should lind that the property that could be availed of, of any failed bank, was not sufHicent to redeem the bills It haa outstanding-, and that tax will make a fund twice as large as the people could have averaged to lose in all the losses on bank bills in the last thirty years, had there been no bonds held to secure them. ABank President. I thought one of the functions of the reserve was a pro- tection of the depositors. If we issue money against our reserve, isn't that function quashed? Mr. Walker. Not in the slightest, because such issue of bills only increases the general liability of the bank and your reserve is proportionately increased. That is to say, the liability of a bank on a b mk bill th^it it issues is no more than on a credit on a customer's bank book, not a particle, either as to the thino- in which it sh ill be redeemed or in any other respect. We must get out of°oar heads that a bank bill varies a particle from any other obligation that a bank owes, because it does not. A Bank President. Our " bank bill " is affected by the deposit of bonds. Mr. Walker. Oh, I am talking about my system, not the present. A Bank President. As I understand, you would have us issue bills against the gold which we now keep in our vaults as reserve. Mr. Walker. Yes -to the amount of, not against it ; I do not say as against it, but I said to an amount equal to it. A Bank President. Well, you have no quarrel with the present system, Mr. Walker ? Mr. Walker. Of issuing on bonds ? A Bank President. Of a national system at all. Mr. Walker. Well, I am trying to devise a national system that is entirely free from bonds. A Bank President. You are devising a system that shall take the place Mr. Walker. The place of the present national system which is about disap- pearing. A Bank President. That is it. THE PRESENT BANKING SYSTEM DISAPPEARING. Mr. Walker. And necessarily disappearing, and some other scheme must be devised or we can have no national currency. But did not the present sys- tem exist, I should still say that my system is 100 per cent, fully that, better than the present, because bonds with reference to money are an excrescence. They have nothing to do with it. They are entirely extraneous to it, as much as the color of the hair of the president of the bank. It necessarily has nothing to do with it and never should have, because it confuses both bankers and peo- ple, and the people have very naturally and justifiably gotten it into their heads that the banks are getting interest on their bonds and then returning the bonds to the Government, and then getting interest on the bills issued on them, the bank thus getting double interest on its bonds. You never can get Congress to continue that scheme. A Bank President. Can not beat that notion out of them? Mr. Walker. Can not beat it out of them. That can not be done. It is of no use to talk about that, because the people are right. They do not see you lose an equal amount on your "dead reserve." A Bank President. That is true. The Western and Southern man thinks that we get 12 per cent tor our currency money. Mr. Walker. Why, certainly, and you can not beat it out of them that the banker gets double interest, because you do get it. Why should you get it? I will tell you why. Because the Government compels you to lose, in the idleness of your reserve, a sum equal to what they pay you on the bonds. Don't you see that this figures a clear loss to the people? A Bank President. And the premium on the bonds? Mr. Walker, j^nd the premium on the bonds. It now more than equals it ; your currency is a^loss to the banks, in fact. A Bank PresiiTEnt. Yes, it is a loss, added to the tax. Mr. Walker. Therefore the doctrine of risks that we go upon in all the other affairs of life, upon which we have life insurance, upon which we own our 326 BANKING AND CUEEENCY. property and do everything else, must be applied to this ^■'l^^.\°[.f^J^'ll^l monev that is issued hy the banlts, under the supervision which I have provided In hfs biil In my iudgment. this tax o£ one-twenti.th of 1 per cent on the bills sued by iie IxXk up Co the amount of its reserve will more than doubly pay all the lossis which the funds ot the failed b uik are not salhcient to meet. I in- tended to figure that out, but I have not had time to do so. A R1.NK Pl-IESIDBNT. It must be a large Bum. ,, . ^ Mr WALKEE Well, it is not a very large sum, not for the thirty years, aver- no-ed over the whole number of banks. . , , „ A bInk PRESIDENT. Yes, but the assessment must be a large sum. Mr Walker. It would be one-twentieth of 1 per cent. A Rank President. That is, on the reserve only.'' Ml WALKER. That is, simply on the bills that you issue, up to the amount of your l.esetv^o^ie-twentikh of 1 per cent. You will see it worked out as soon as ^ ?oV™w^^ay it'£ not true that your coin is earning nothing It is earning ab- sohited"nffig. It has not earn'ed a farthing under t^e action of tlje United States At i per cent on $1,000,000,000 silver and gold coin, it is 3,40 000,000 aD solute watte annually. We might continue issuing notes on United States bonds, didwehwe hem which might be the equivalent of earning on this com to a certThi extent bit that is ntt banking, much more inJependent, and therefore si bLkin- ' But we have got now, fthink, only $170,0^0,000 issued on Urn ed Stat s bondl; of coarse we are losing interest on the balance. Every dollar of oir vLible coin ought to be earning just as much as any other part of the prop- erty of a ban . powERS GIVEN THE COMPTROLLER. Section 2 of the bill provides for the incorporation of the bank practically under the present systlm. The powers given the Comptroller n my bill are consider- aWvTnoreased Ho,dwe not the experience of having the tremendous powers that tSe Comptroller now has, conferred upon him for thirty years, I might have hesitated But here has never been a lisp of criticism of the Comproller's exer- cfsln^his grea powers when he ought not to do so, though he has ^en severely criticised time and again for not exercising the enormous powers that he has S'd It has teen prov^en by experience that it is entirely safe to trust the Comp- troller with the powers which are aaven him m this bill. The first is and it is one to which you will object when you see it, every man of vou-to issue to and compel banks under certain circumstances to take notes of the Government and pay for them. That is a provision that never would be availed of, except in the' cfise of a great exigency. For instance, in our rebe 1- ion-in the late unpleasantness, I might better say-banks m certain sections in order to embarrass the Government, might have surrendered or attempted to surrender or refused to take its currency notes, and this provision is simp y to be availed of in great exigencies. That is the only point of leaving that in the bill The next is that the Comptroller's consent must be obtained to the banks surrendering its notes or surrendering its charter or lessening its capi- tal and all of those powers he now has. The third gives him power t.o close up baAks if he has reason to believe that the bank's currency bills, issued up to its reserve, may be defaulted. Those are the powers given to the ComptroUer. Now, the bill provides for a board of experts-and I think I will read the bill on that, if it is here. That is section 25. That provision, if you could get it-simply to provide for the bo ird of experts contemplated in the bill and pio- vidc nothing else, would strongly tend to a solution of your banking difficulties even under our present system: _ -, . , ■ « „^ " That there is hereby constituted and appointed aboard of advisars of ex- perts to the Comptroller of the Currency upon changes desirable in and methoas of executing existing law concerning banking, consisting of the Comptroller oi the Currency, who shall be a member ex-olMcioand president, and the president of the chief redemption bank in each of the five chief redemption cities in tfie country, or such substitute for any one of the officers named as tie shall trom time to time appoint, which board of advisers shall meet once a year, or ottener if the Comptroller of the Currency or a majority of the board so determines, at such a time and place as the Comptroller shall appoint. The recommenda- tions of such board, or a synopsis thereof, shall be published m the annual re- port of the Comptroller of the Currency; and the decision of the Secretary ol the Treasury, from time to time, as to what person is entitled to act under this section, shall be final." BANKING ANt) CUREENCY. 327 In that simple section is provided a board of directors ot the whole national banking system ot men who from their position naturally should constitute that board, and their decisions, only as recommendations, being published, it would not be ten years before our whole b.mking system would have all the ad- vantages of the existence ot a great central national bank without the disad- vantages ot such a bank, with every other bank a branch, without the slightest disadvantage inherent in any other suggested system. And, furthermore, the bill provides in section 14 — if you will turn to it — for the gradual and natural and complete separation of the banking system of the country from the Govenrment, in the provision in the bill in the section I have named, giving the Secretary of the Treasury the right to so do, as Manning par- tially did. MANNING AS SECBBTAHY OF THE TEBASDRY. And, by the way, I think Manning was one ot the best Secretaries of the Treas- ury that this country ever saw. Cleveland's administration is to be commended for that one thing, at least, that he had the courage to put that money into banks where the people could vise it [applause] when they needed it. It is lamentable that we have a b.uiking system that compels the Government to go into a cornered bond market to buy iu order to get money into the hands of the people to use. I defend Manning on that. What little 1 know about finance justifies him. This bill provides that whenever the Secretary of the Treasury chooses to do 80, he may deposit the money and devolve the duties on a redemption bank, or on the redemption banks. And just as sure as this bill becomes a law, within ten years, without the people knowing that the slightest change has been made, and to their great advantage and approval, our Government would be entirely separated from having anything to do with holding coin or redeeming currency, or having any responsibility for banks or anything to do with banks other than as a business establishment. Let me say to you, gentlemen, you never can have the Government of the United States touoli the coin in the country or the bank- ing in the country except it is essentially a tjauk itself and subject to all the conditions ot banks. Banking is something that you either have to do and be altogether or let alone altogether. You can not fool with it. That you know without my telling you. A Bank Pbesjdent. There is no red dog. Mr. Walker. There is no red dog. You have got to have fish, flesh, fowl, or good red herring in banking. You can not have it outside of some one of thetn. Now, the substances of the bank reserves are to be gold, silver, and the Gov- ernment notes bought under section 4. No less than half must be in gold, no more than hail must be in silver. If the silver or silver certifica.tes exceed the gold or gold certificates, they are counted as Government notes issued under section 4, which are the Government notes bought ot the Government and for which the Government is already finally responsible. If they have the reserve in the Government notes issued under section 4, they are to be taxed 2 per cent on that part of their reserve held in such notes while they hold them. That is so that in case of susoension of specie payments, or a bank getting into a tight place and wanting to' bridge it over, then, if they will pay 2 per cent, they can use this further kind ot reserve ; otherwise they can not. This is a very con- servative provision and a very necessary measure, furthermore. Again, a bank is allowed to issue currency to the amount hold in any consecu- tiv.i six months. I w^mt you to get this point cle irly in your minds. This bill permits the bank to issue notes to the amount of the reserve "held." The re- serve "held " is now about $;JOO,UO0,U0U, we will say for round numbers, and the re- serve required in cash, cash reserve, is now about$300,000,000. The Comptroller of the Currency can allow a bank to issue notes to the amount that it " held " in any six months in the previous year, and he can reduce it any time he chooses to the amount held in any other six months in the previous year. What does that accomplish? With this board of directors for which I have provided, watching and recommending, it goes to the securing ot and the elasticity of the currency, which can be availed of at any moment, varying from $12.3,OOU,OUO to $200,000,000, us the people desire to move their crops. If this bill wa,s law, banks would run their reserves up when the people needed funds least, when the people did not need so much currency, and would run their reserves down when the people most needed to use funds, and you would get an elasticity of $200,000,000 without the intervention of any securities whatever. You remember that Mr. 328 BANKING AND CURRENCY. Windom's scheme was to have a United States 2 per cent bond, which anybody could buy at any time and which the Government would buy at any time and which could bedeoosited with the Government at any time to again receive cur- rency upon. You'no more could get that scheme through Congress, I don t care how good a scheme it is, than yon could fly, and, as I said when I began, wo have no rio-ht to spend our time in talking about something that is thoroughly im- practicable as a matter of legislation. I don't know whether I make that clear or not. I intend to. WHAT THE PEOPLE OBJECT TO. A B\NK President. Well, you mean to say, Mr. Walker, that the people of this country are determined not to have a public debt. They won't caiTy a bond for the purpose of banks. r, • -u Mr Walker. Well, it comes to more than that. Mr. Windom s schema amounted to the Government taking the surplus that the banks wanted to get rid of at any time and paying to the banks 2 per cent interest for it. Now, the peo- ple will never submit to it, ;i.nd ought not to do so. A Bank President. It will be taxing the people to pay this 2 per cent. Mr. Walker. It will be taxing them for this 2 per cent; however gcod it might make the currency system, it will never be adopted. Bonds in banking must go. „ r i-u /-. Now, when I say that you must buy 50 per cent of your cv.rroncy ot the Gov- ernment, what does that amount to practically 'i It amounts to this, that the banks will make that much less money than they would if they issued these notes, or that they will have to charge that much higher interest than they wovdd if they could issue that much more currency and the people could get the advan- tage of it in less interest on the money they borrowed and in the price of the goods they bought. But you can't make them see that, and therefore, while it is not ideal banting, while as a financial man might say, if you will allow me to say so, I should produce a diffei-ent bill tha.n this, for a bill to get through Con- gress and be approved of by plain people, I think this is the best thing that I can devise. If anyb:)dy else can do a better thing, I will get out of the way im- mediately I am going" to get out, you know, at the end of the next Congress. I am one of those who work intensely in work that I happen to be in, and I am not going to do this kind of work more than six years. Now, as to the destruction of the existing legal tender. Why, they say you cm not do that -nobody will vote for the bill. Ah. but if this bill goes into operation, we shall finally have $GO!J,000,000 Government notes instead of the $324,000,000, as we now have, but they will not be legal tender; they will be bank bills, so far as the lianks are concerned. They will have every advantage of greenbacks, so far as the greenbacker and the people are concerned, in what they want t-j reach. You see the point of the thing. That is to say, the Govern- ment issues them to the banks and the banks are responsible for their "current redemption," No one is responsible for the " current redemption " of the pres- ent legal tender. The present legal tender is a menace to our whole banking system. The new Government note would be a legitimate part of it. The bill further provides that the reserve of a bank must average to be what the law calls for, t;iking any month as a whole, in any thirty days, but you can run it just as low as you choose on one day and just as high as you choose on any other day. A reserve that you can never touch is no reserve at all. You might just as well have it anchored in the sea. A reserve is for use : sometime, in some occasion of stress, it is to be used. Now, a bank ought to be permitted to use its reserve in certain contingencies. When I was in business my rule was to have fourteen days' money ahead on each Monday. Every Monday morning I pro- vided for fourteen days' money. But if I could not have used the surplus under any circumstances whatever, only sevendays' money, what good would the extra seven days' money work to me '.■' This bill provides th it a certain record shall be kept, made uji every night, of the crucial items of the bnsinesa of the bank, and that those records shall be transcribed; that they shall bo sent to the Comptroller before the tenth of the next month, so that the condition of any bank with which you are dealing, and of which you want to know, can be known by writing to the Comptroller. Any- one, in the matter of bookkeiping of the bank or in doing business with the bank, will never know the difference in work because of these provisions. You all want to get the information tor yourselves and \, ou can transfer it to a printed blank for the purpose of sending it to the Comptroller. The daily reserves are averaged at the end of the month, and if your reserves have for the month been BANKING AND CURRENCY. 329 less than the law requires, you must pay the legal rate that the State law re- quires for wha,t your reserve has averaged to fall below the legal requirement in that month. But however low it may bo, or however high on any given dav if It averages for the month the legal amount, that satisfies the law, and that is the way it ought to be. Am I right or wrong? A Bank Pkesident. Yes; that is the way it is now Mr. Walkek. Is it ? A Bank President. Yes. Mr Walker. Have you a legal right to average it for a month ? A Bank President. We do it. PROVISION FOR A BANK EXAMINEE-IN-CHIEF. Mr. Walker. Ah, but you had better have the law for It. Better have the law to justify It. This provides, furthermore, for a bank examiner-in-chief who is to supervise a-nd, if necessary, instruct examiners, and who is to be responsi- ble. The others are to work under his direction, A bank examiner-in-ohief m addition to the present bank examiner. ' It provides, furthermore, that all expenses for bank examination should be paid by the Government and not by the banks, and that of course ouo-ht to be the rule. What an anomaly it is for a man to examine a bank and have the bank p;iy him for its examination. That is contrary to all business principles This bill provides for an order of paying outnotes. When bank notes are de- posited, your customers will sort them if you ask them to do so and you verify them before you pay them over the counter. It provid.'S that the notes issued under section 4 shall be first paid out by you, that the notes issied to other banks under section 5 shall be next paid out, and that the last paid out shall be those issued to and by the bank itself, under section 5, and for this reason- It is so provided in order to have the banks keep the total currency of the country down to the proper point. There must be some provision to secure that end, else some banks will want a good deal more cun-ency thim they ought to have and there is no other practicable way of gettiug them to relinquish such circu- lating notes. Under this banking system the regulation of the volume of cur- rency is automatic. When the bank pays out currency it pays the Government issues in the first place and the issues of other hanks in the next place. You send it to the Comptroller for redemption if you wmt to get at your own bank notes. You may as well pay out your own as the currency of othsj- banks to sat- isfy the pay rolls for which customers demand your b mk bills. It is simply a device for keeping the paper money of the country down to the legitimate re- quirements of the )ieople. If any of you can devise any better way of accom- plishing it, I should be pleaded to put it in the bill. I am not especially proud of this bill. It is only the best I can do, and if any of you can do any better, why, I will throw up anything I have, and I think I am bright enough to see it if you have anything better. It provides th it the $340,000,000 of existing legal-tender notes first issued during the civil war— the standing menace to sound money— shall be funded and destroyed, without taxa- tion to the people, and the new notes furnished to the banks under section 4 of the bill will be issued by the banks without cost to the banks ; the United Statss Government being at no charge for interest on them until they are pre- sented to the Treasurer of the United States and an interest-bearing bond in exchange for them is demanded. It provides, furthermore, for taxes on the banks. As I have said, it provides for a tax of 2 per cent on the reserve that is kept in the bills issued under sec-. tion 4. It provides that, if you suspend specie payments, you shnll p ly a tax of 4 per cent on the whole vohime of the reserve that you are required by law to keep, so that it shall be lor the interest of the banks to get back to specie pay- ments as soon as possible, and that there shall be a penalty for suspending specie payments. It provides a tax of one-twentieth of 1 pei- cent as a safety fund, which I have previously explained. Furthermore, there are penal provisions, which I will not stop to read, which I wrote as we were examining witnesses on the Keystone and the othe r banks in Philadelphia, and which need perfecting. As the points came up I have writ- ten penal sections, I am not a lawyer and I have not had an opportunity to submit them to a lawyer. A Bank President. Perhaps you can read it better. Mr. Walker. Well, do you want it stated to you ? A Bank President. Oh, yes, go on. Let's have the whole story. 330 BANKING AND CURRENCY. Mr. Walkee. There are one or two things here that I shall have to rewrite. The Pkesidbnt. Mr. Walker will send us a copy of this bill. Mr. Walkek. Yes; just as soon as I get it printed. THE BANK OF ENGLAND. I want to say to you, gentlemen, that there is absolutely nothing in this bill that is not as old as the Bank of England. There is no new thing- in it, except- ing new arrangements to bring it into a simple and practical working system The Bank of England's charter has its double-headed goyernment, but it is worked as one system, and there is everything in this bank bill that there is iji ^lat that is of any value, in my judgment. I am here enjoying a dinner, not under pay, but "working my passage." A Bank Peesident. Doing a public duty. Mr. Walker. Yes, I am trying to do a public duty. FThe penal provisions ot the bill (section 26) were read.J_ Furthermore, gentlemen, with reference to these provisions, you niust remem- ber that honest men have to submit to ten thousand provisions of law that are irksome and uncomfortable, in order that they may be protected froni men who are not honest. That vou must remember as you read these provisions. iHe honest man never knows what the law is, nor cares much about it, because, being honest, he is unconscious of law. It doesn't trouble him. It is only the rascal who is troubled by law. , , .. ^ i, „<■ u o The second provision you may object to considerably, but, it you looK at it a moment, it only requires a record to be entered with the board of directors and to be read as the first business at a directors' meeting and to be sent to the di- rectors on certain occasions, as follows : , , , 1 .T + „„f " The first business transacted at the first meeting of the board of directors ot each association in each month shall be to hear and to enter upon the records of the board of directors a statement from the cashier or other proper omcer ot the association, ot the liabilities of each olticer and director of the association, in the following order"— and of course this would be entered on the records and " First.'As maker of any paper, sole, or as an officer or director of any corpo- ration, or of a corporation of which he is a director or officer; "Second. As indorser of any paper ; , " Third. As «urety for any loan or other obligation to the association ; _ _ " Fourth. As to the amount and market value of any collateral the association holds to secure any liability to the association by any one of them. "If at any time the board of directors of any association fails to meet for a pe- riod of thirty consecutive days, the record provided for in this section shall be made by the cashier or such employe as he may designate in the record hook of the board ot directors on or before the 5th day of the following month, and a transw-ipt thereof shall be served upon each and every member of the board of directors." ^ , .. -o i- I have not submitted these penal sections to a lawyer, for want ot time, mt they are what I have to olfer as my contribution to what we must have, gentle- men—a national system of banking. Furthermore, you must submit to and assist in securing some measure that can pass Congress and trust to the future to have it amended where it m-ay be irksome or not what it should be. I would be pleased to answer any questions that anyone would like to ask me on this subject. I have omitted some things, I see, as I have passed over. [Ap- plause.] The Peesident. Does any gentleman wish to ask any questions ? Mr. Walker would be very happy to answer them. It anybody has any remarks or criticisms to make, we would be very glad to hear them. Mr. Walkee. Let me say again, with reference to the two kinds of currency bills, that the b.ink will simply lose what, in my judgment, th^y ought to make on what they take of the Government, and the Government will get it. I don't think that is the way it ought to be, but it is the way you will have to take it if the bill ever gets through. If you have a banking system that is national, the people must feel that the money they carry in their pockets from day to day (or just about that amount, which is halt the total volume, and generally more— it generally amounts to five-eighths or three-fourths) the Government gets the profit on, and not the banks. That is the only point in that. A Bank President. In your system, Mr. Walker, the Government gets the profits on the circulation'? BANKING AND CURRENCY. 331 Mr. Walker. Oq one-half the total circulation, instead of the bank. A Bank President. We get the profits on half and take the whole loss, just as we do now. Mr. Walkbk. Yes; that is to say, any loss or profit you take. And, further- more, it compels all the banks, in this one-twentieth of 1 per cent tax, to guar- antee the circulating notes of every bank. A Bank President. Yes. Mr. Walker. That is the point of it. It is a very light tax to any one bank. It is the price you are called upon to pay for maintaining the national banking system. A Bank President. And having uniform currency? UNIFORM currency. Mr. Walker. And having uniform currency everywhere and having sound banks as a whole. Under the system proposed, you will find, when you come to read the bill, that no man can fail to know a sound bank, or fail to have it re- ported if unsound, or fail to get a seat in jail if he doesn't maintaina sound bank. A Bank President. That is Just what every honest man wants. Mr. Walker. Well, sir, this bill will do it, as far as laws can do it, because with the penal provisions and with the daily records which they must keep, and keep accurately, and with the monthly reports required and the sending to the Comptroller transcripts of the daily records so that each banking institution may know the condition of every other, you would not have, I think, one fail- ure under the law proposed where you have ten now. A Bank President. Would those monthly reports be printed and circulated among the other banks? Mr. Walker. Oh, not at all. They are matters that the several banks can not have, unless there is some reason why they should have them. The reports sent to the Comptroller are all private, unless there is some special reason for asking for their contents. These reports being in existence, the clearing houses would regulate that. A Bank President. Just as it is to-day. Mr. Walker. Just as itisnow with the examinations. But, of course, if any- thing should appear that was not right concerning any bank and any bank doing business with it made application to the Comptroller, as it is now, the privilege of .seeing it would be granted upon its honor, whether the bank was one with which it wanted to do business or not. It would be conducted the same as busi- ness is now, between you and the Comptroller. I should really like gentlemdn to give me their impressions upon the matter of the provisions of this bill. Of course, when you come to read the bill, you may say, " It isn't at all what I thought it was." A Bank President. This provision about voting, if it passed every time you have a directors' meeting, is for the indebtedness of the Mr. Walker. No; it doesn't provide anything of the kind. It simply pro- vides that there shall be a record made of the indebtedness of the directors, and it shall be read to the directors once a month. There is no vote passed, nothing of that sort. It is a provision which compels the directors to always know what is being done in the bank, so that no two or three directors can take the funds of the bank, as they did in the Maverick Bank, and the rest of the directors not know what is going on. A Bank President. Suppose they did not have a meeting only every six months? Mr. Walker. It provides that there shall be a transcript of that record sent to each director who is not present, for thirty days. A Bank President. That is a good idea. I don't see anything wrong with it. Mr. Walker. Now, let me say one thing more. There is a tremendous dis- position in Congress to put penal provisions on to various things that bank di- rectors do, which I have quietly been the means of preventing ; while right in certain respects, they were faulty in others. All you want for safe banking, as a rule, is to have every director know what is going on. A Bank President. That is it. Mr. Walker. That is all you want, and that is all this bill requires. A Bank President. No business to be a director unless he knows. Mr. Walker. And if you have a provision that compels the giving you in- formation of what the directors themselves are doing with the funds of the bank I will risk the outsiders. 332 BANKING AND GUEEENCY. Mr Peiece. Mr. President, it seems to me it would be very ungracious in- deed for us to liave invited our friend Mr. Walker, wtio has made such a very interesting- address as he has, without expressing to him our great gratitude and resiiect lor his scheme. But besides that, personally I am very much grcitihed when 1 find, in view of the clamor which has been gomg on here for the last mouth or six weeks respecting the tendency of a large number of our fellow-cxt- izens who belong to the Democratic party, who have been charged with insisting upon the destruction ol' the national-bank system and the introduction o awild- o it and red-doo- system in currency that should debauch and destroy all of the industries of the country, our respected friend from the he.irt of the common- wealth, who is one of the leaders of the party which has been the origin of these charcres against us, comes hero and admits that the national-bank system of which we are a part is about to disappear, and he finds m his bill, it seems to me, a remedy which we may well consider. It seems to me there are features in that which are superior to those which our friend Mr. Harter presented to us and to which we listened with great respect, Certain y, all of the contribu- tions which are made by Mr. Harter on one side, Mr. Walker, representing an- other section of the country as well as another section of the political division of the country, on the other, will bring us together, irrespective of our political predilections, and hit upon a bill which shall give us a currency which sh'ill par- take of all the benefits of a national currency, flexibi ity and certainty in re- demption, which he undertakes to give in his bill, which Mr. Harter hopes to ^'m't'^ Walker Well, now, it is due to the Democrats and to the Republicans, if we are going to talk politics here, to say that the charge against the Demo- cratic party was invited by a clause in its own platform. _ A Bank' Peesident. Mr. Harter says he did not put it in. REPEAL OF THE STATE BANK TAX. Mr Walkee. Well, if he did not put it in, it was put in from the South, down in Alabama. But I think Congress will not repeal the 10 per cent tax— the Democratic Congress now to assemble— because a motion was made to repeal it in the session just closed and all the People's party voted against it, and a good manv Democrats voted against it, and all the Republicans voted against it, which made quite a heavy majority against it. The theory upon which the country is now beino- atritated, that money shall be national and that, the National Govern- ment shall make greenb icks and issue it on rag, tag, and bobtail and red-dog, that they may issue it on their farms, is so thoroughly exploded that they will not o-o back to the St i.te system. I really don't think there is any danger of it. Now, I think I had a little hand in beating Mr. Harter on Mr. Barter's proposi- tion to repeal that tax in the last Congress. _ A Bank President. Well, I suppose the great danger is that, in the midst of all this reshuftling of the currency by the disappearance ol the bonds and confinementof the national-bank cii'Culatlon, we shall be brought into a caldron ol uncertainty, we are very likely to be, that we shall neither have a national sysiem nor a State system, but that the Populists and the lunatics will insist upon having the Government issue all the currency, which Senator Sherman of Ohio was rather inclined to favor in one of the last speeches he made. That, we and you, you certainly, are opposed to. You are cert linly opposed to the issue by"the Government. Mr. Walkee. I am opposed to the Government doing anything more than printing lor the bank, as the bank's agent, the bills which it issues. Mr. Peirge. Yes, so I understood. But you see that there is a great danger that in this rearrangement of the circulating medium which must ensue by the disappearance of the bank currency, the national currency Mr. Walker. Let me say to the gentleman simply one thing, that the solu- tion of the silver question and all of the other schemes that we now have is in securing a national banking system. Unless some law is enacted that shall give you a national banking system you will have red-dog money, as you already have hinted. You have got to have a banking system that the people are satis- fied with, and one that they think will not cheat them ; not only will not cheat them, but one that they will see with their own eyes it is impossible to cheat them in. You have got to have a national banking system or you will have a red-dog system. Mr. Peiroe. Don't you think it will stop the clamor of free coinage? BANKING AND CURRENCY. 333 Mr. Walker. If you can get this banking system or some banking systena through Congress that will end the clamor, and nothing else will stop it. Mr. Peirce. That is it. That is the testimony of all good men. Mr. Her- bert (?) explained that very theory last summer. A Bank President. What is the reason you do not repeal the tax on circu- lation and let us all issue bills to the face of tho btmds ? Mr. Walker. Well, what is the reafon you can not have everybody obey the golden rule? The reason you can not is because you can not get in Congress one vote in four for it. A Bank President. That is all. They want more currency, and we will give hem all they want if you give that. Mr. Walker. Very true. But you are going to have it from where? Not yourselves? Now, I have not put the blarney in the advocacy of this bill that can be put in, on the floor of Congress. I think I can make Congress see that it has the real greenback in it because it has a good greenback and has everything in it that they really want, that is safe, and the text of the bill is just as sound as the charter of the Bank of England. I have corresponded with currency reformers and talked with them and been kept up nights by them till morning, many times, for three years. My office is the headquarters of every man who is wild on the money question, and I want to get at something sound, that they will agree is sound and be satisfied to take. I want to put a little sugar on the medicine, instead of vinegar, so they will take it. A Bank President. Well, that is about what Mr. Herbert (?) says must be done. He did not put it in just those words. Mr. Walker. Well, I am not going to tell you here what my scheme is, but if it works out you may have a banking system before you are aware of it, and if it doesn't work out, you will not. Unless the leaders of the Democratic piirty, of whom you are one, can be made to see that there is good politics in this bill as well as good legislation, we shall not have it, and if they can so see it, and I think I can make them see it, we shall. For I think the Democrats in that House are not prejudiced against me, if I am a Republicau. A Bank President. That is true. They always liked you at the State house. That is so. A settlement of the coinage question. Mr. Walker. In closing, I wish to again repeat the statement that, should this bill become a law, it would furnish a normal and inexorable demand for gold and silver coin in this country, precisely as a normal and inexorable de- mand for it exists in England, Fi'anoe, and Germany, and would thus settle the exasperating coinage question. There is now no normal and inexorable demand for a dollar of gold and silver coin in this country. Furthermore, under this bill this country could protect and keep its gold and defy Europe to bring us to a " silver measure of value,'' by preventing its shipment when the interests of the country demanded a stay in the shipment of gold, as England protects her store of gold. Again, under our present her- maphrodite banking system, with the Government responsible for maintaining gold payments and the banks at the mercy of the Government, and the United States Ti-easury dependent on the banks lor succ( ssful administration, it is im- possible for the country to have any " measure of value metal " in legitimate touch with any one of our multitudinous forms of paper money. It is a physical impossibility for the Government to ' ' maintain specie payments " tor a day with- out the assistance of the banks. Furthermore, it costs the people— the Government— a vast sum of money to maintain specie payments, even with the assistance of the banks as it is now doing, and the soundness of both the United States Treasury and the banks is also at daily peril. Under tlje bill proposed, the maintaining of specie payments or keeping the "measure of value metal " in touch with our piper money would not cost the Government or the banks one cent, and it would put in our hands precisely the same means of defending our gold supply from shipment that England has suc- cessfully used for eighty years without a single failure. Only by enacting this bill or some similar bill c m the vexatious silver-coinage question be se I tied satisfactorily to all parties, and all our paper money be alike. We must enact some banking law satisfactory to the majority of the people, or we never shall have cur finances in a satisfactory condition. This bill gives, in as high a degree as is possible in any law, the four thmgs essential in "paper money;" first, safety; second, convertibility— current redemp- 334 BANKING AND CURRENCY. tion; third, elasticity; fourth, uniformity, as the present bank charters expire. The President. Well, gentlemen, here are a couple of copies if anybody would like to look at them. Perhaps you do not care to to-nig-ht. We will have one each. Just as soon as he gets the bill perfected and referred to the proper committee he will send us each a copy. ^ , j ^ .. Mr VlALLE. I move that the thanks of the association be extended to the Hon. Joseph H. Walker for his very able address this afternoon. The motion prevailed. ,.,.,<. *i, /.ti. The Pre';ident. Gentlemen, before we adjourn! would like to say thati tiave been exceedingly interested in the address of our friend, Mr. Walker. I think this bill has very many merits in it. I think, however, that in orderto com- orehend it thoroughly it needs to be studied, and therefore, I don t think that anv of us can thoroughly comprehend the bill as he has presented it to us to-night until we have seen and taken in some of its salient features. I am exceedingly o-ratified that he has been with us and that you have been willing to thank him so unanimously for his address, and I trust that we will all have copies of the bill and then we will look it over. If we have any suggestions to make, he will be very glad to receive them, I know. Gentlemen, what la your pleasure i Adjourned. Appendix F. BA.NKING AND CUBRENCX. THE NEED OF A SOUND SYSTEM OF BOTH. TAdaress Detore the Department of Commerce and Finance, World's Congress Auxiliary of tie LAQuresb ""^^^j^.,, columtian Exposition, at Chicago, Wednesday, June 21, 1893.] Mr President, Ladies, and Gentlemen : Never did a body of men meet, in peaceful times, under more anomalous financial conditions. It is conceded that the prosperity of a country depends upon steady employment, high wages, and prompt payments for the masses of the people. It is stated by those who have most carefully investigated the subject that wages are very much higher, employment is more steady, and payments are more prompt in this country than in any other. ., It is also stated that the people of the United States are taxed less per capita than the people of any other civilized country. We have also had the inestimable advantage of vast quantities of as fertile land as any on the face of the earth, free to the taker, or at a price scarcely more than nominal. , 4. i. We have received a body of immigrants, many of them of the very best brawn and mind, who have made, and furnish, with our own people, the best market in the world. . , . , i j Every condition, in quality of soil, in climate, m character of our people ana institutions, has conspired to make for this country a prosperity such as no seer ever prophesied or poet ever sang. Our consumption of commodities has been three times per capita tbat of Jiu- rope, making our market the equivalent of 200,000,000 of European people. We consume one-third of all the goods manufactured in the world, which equals a market for manufactured goods of over 600,000,000 of average people. In fact, our prosperity and development can scarcely be realized. So favorable has been our condition that a bad fin molal system and a most ex- pensive curienoy has not seriously injured the country until now, when its evils have culminated. Faulty finances have been to us like a mole on the arm of a miin reveling in his strength, until it has developed into an ugly ulcer, poisoning his blood. We are now fully conscious of our condition and all are agreed that some rem- edy must be had. 'To hold Secretary Carlisle responsible, and abuse him. for our culminating financial ills, is as just and rational as the abuse heaped upon an at- tendant in the delirium of fever. The simple fact is that the disease has ripened, and our trouble is in proportion to our previous good health, like fever in lusty youth, which is all the hotter and more dangerous bepause of the vigorous body. My contention is and will be, throughout this paper, not that we have less paper money, but cheaper and bet- ter money. BANKING AND CURRENCY. 335 The affirmative of the question assigned me, viz, "The commercial need of a sound system of money and banking," is so obvious, and admitted by all, that I shall devote the time allotted me to an exposition of the subjects embraced in the question, viz, Money and banking, and to the anomalous financial condition of the country. In order to an intelligent discussion of the question, it becomes necessary that I should first clearly state the nature and function of "money," in its relation to all other forms of wealth, and, Secondly, to state clearly the nature and function of " banks " in their relation to all other owners and dealers in property — wealth. WEALTH DIVIDED INTO THEEE CLASSES. Wealth is roughly divided into three classes : (1) Productive wealth. (2) Consumable wealth. (3) Coin. Coin is neither productive nor consumable. It has but two uses, viz, that of a measure of the value of commodities, at the point of their exchange, and there only, and that of currency. Coin being absolutely dead capital, producing nothing, and nonconsumable, the having or keeping a. dollar cif coin more than is necessary is an utter waste to the country of all the capital invested in coin in excess of what is necessary. A sufficiency is enough, in coin or paper money, as in all other things. Productive wealth is, roughly, real estate. The handling of titles to this form of wealth is the business of savings banks, trust companies, insurance com- panies, and all other companies or individuals dealing in titles to wealth that are known as solid securities. This business is wholly distinct from that of banks of issue, or banks handling titles to "consumable wealth," which banks only are contemplated in the question before us. Banks of discount, which this discussion concerns, are formed to deal in titles to "consumable wealth." They buy and sell wealth that is "in transit" be- tween the producer and the consumer. In economics, any consumcible thing, in whole or in its parts, is said to be "in transit" from the time it is begun until it reaches the possession of the man who does not propose to sell it again. A stove is "in transit" from the time the ore that enters into its construction is mined, -until it is purchased by the man who sets it up in his house. A pair of boots or shoes is "in transit" from the time the skin on the animal begins to grow until the boots or shoes go into the possession of the wearer. The bank, in making what is called a "loan " to its customer, thereby transfers a specific amount of its property to the possession of the so-called " borrower," and the borrower gives to the bank, in exchange for that title to the property of the bank, a title to his (note) undivided property or that of some other man (the property represented in the note). This property is deliverable to the bank on a specified day in the future and to a sufficient amount in excess of the property the bank transferred (called interest or discount), to compensate the bank for the use of the funds the bank loaned, between the date when the bank delivered its property to the borrower and the date upon which it is to be returned. In order to get clearly in our minds what is the real, rather than the seem- ing, function of a bank, we must get at the fundamental thing a bank does, and what I have stated is exactly what a bank really does. In making all loans each particular paper given is identical in essence with every other, whether a check, draft, bill of exchange, or paper money, or a credit to the borrower on the books of the bank. The real thing the borrower gets is capital. The paper money he gets is not " the loan." It only represents the loan and passes out of his pos- session in a day. It is only a token, a symbol of the capital, the wealth which the bank transferred to the borrower. While the specific piece of paper, of whatever name, which the borrower secured, passes out of his hands in a day, the " capital" borrowed of the bank by him remains in hi« possession for the seven, thirty, or sixty days, or four months, as the case may be, as well as the property he is subsequently to deliver and for the length of time the obligation runs. . In other words, men do not borrow or lend "money," but capital— wealthy property. We talk of borrowing and loaning "money," as we talk of the sun s rising and setting, and the form of speech concerning the one is no more accur- ate than concerning the other. We know the fact to be that the earth revolves, while we say "the sua rises." We know we borrow and lend " capital,' while 336 BANKING AND OURRENCT. we say we borrow "money," which is only a title to wealth, as a deed is a title to Innd It is as irrational to attempt to increase wealth by increasing money as it would be to talk of increasing land by increasing deeds. Money is no more wealth than deeds ai e land. Money is only a title to property— wealth- as deeds are titles to land, and neither is useful beyond its power to give possession of the ^^As^the'^werage daily transactions of banks are ^l^o^* *^OP'000'000; "'"l^ri that the banks buy and sell, of business men, each year about $12(1,000,000,(100 of nropertv. I out this statement in this simple and popular form to divert atten- tion from the'false notion that money is substance in business transactions in- stead of a token. It is as untrue that money is wealth because it conveys the ownership of wealth as it is untrue that freight cars are merchimdise because they carry merchandise, and as foolish to think of adding to the wealth of the country by increasing money as to think of increasing merchandise by increas- ino- freio-ht cars. It is a very serious thing to any country to be short oi the number of cars that can be profitably used to carry every passenger who bays his ticket to ride or to carrv every pound of merchandise that otters for trans- portation, but to have any more of money, coin or paper, or of cars, than is nec- essary is not only a positive loss to the country, but is an excrescence upon and demoralizing to all legitimate business. THE LOANABLE FUNDS OP THE COUNTRY. The loanable funds held by national banks in this country is shown by there- port of the Comptroller of the Currency, to be m round numbers $2,81)0,0 0,000. Of this sum $l,wiiO,000,(iOII are deposits of customers and the balance belongs ex- clusively to the banks. The loans and discounts are $2,2(:O,(:O0,O(!0 and the other $600 000 000 is held as a reserve. This means that the banks hold titles to $2 '>(]o 000 000 of the consumable wealth of the country that is now m the hands of the farmers, manufacturers, merchants, etc., and that farmers, manufacturers, merchants, etc., hold titles to $1,800,000,000 of the funds no_w in banks. As the deposits are $1,800,000,000 and the daily transactions are $, (JO, 000,000, it is evident that the average time each deposit remains m bank is four and a half days. This $1,800,000,000 of capital is and can only be made available to all the community by banking. Its constant use would be impossible without bank- ing- or its equivalent. Upon the principle of chances, as railroad trains are run, and all other things done, the banks know that their deposits will average to equal the amount drawn from them each day, and therefore they make loans on thirty sixty, or ninety days, or even four months. They do this knowing that the capital they are the agents in loaning, once, will chmgeroalownershipfrom 7+ to ;iO limes before the capital loaned will bo returned. Without banks or their equivalent, each man would be obliged to keep all the time as much quick capital as he needed, at those times whenneeding the most, and this $1,800,000,000 would lie dead capital. , , , . • n Furthermore, it is impossible for any other agency than banks to economically issue Tiaper money that is sure of immediate redem])tion in coin, on demand. This issue of paper money is not necessary to, or even an essential part of the function of, banks. Some banks whose customers do all or nearly all their business with checks and drafts now refuse to issue currenry, and there is no device by which such banks could keep it in circulation, in sound banking. There are hundreds of private bankers in the country whose connection with national banks, as officers, etc., enables them to put all the onerous duties of banking upon such national banks and take only the more profitable business to themselves, who have no desire to issue currency. Banks are public markets for the exchange of their own bona fide capital and that of others, which capital can not hi diminished. All the currency or other paper they issue is only to facilitate the exchange of capital. Government, on the other hand, has and can have no capital. In economics it is only an agent to collect and expend taxes. Government, State or national, has no machinery, and can construct none— none can exist excepting such as inheres in the bank— that will enable it toissue paper or coin money, excepting at an enormous cost to the people, unless it be- comes a fuU-lledged bank. The annual direct cost of the experiment of doing BO, which the United States Government is now trying, is $40,000,000 or more, in direct and indirect taxation of the people. Had we a rational national bank- ing system; had we a banking system conformed to what the experience of the centuries approves; had we a banking system modeled after the solid, safe, and BANKING AND CURRENCY. 337 economical system ol England; had we a banking system modeled after that of Germany, every loan and discount made by banks could be made at a rate of in- terest about 1 per cent lower than they aro now made and the banks pay as large dividends M now. A saving of 1 per cent on the $2,200,000,000 loans and dis- counts would be $22,000,000 annual saving to the people. EXCESS OP COIN THAT IS EARNING NOTHING. If we had had a rational banking system, wholly dissevered from the Govern- ment, excepting in police supervision, for the last thirty years, we never should have heard of a political "coinage question," either of gold or silver. Had we now such a banking system, we should not be carrying more than $400,000,000 of coin in excess of what we can possibly find economic use for. This excess en- tails an annual loss at 5 per cent of $20,000,000, which, added to the $22,000,000 which the people are made to pay in excessive interest, make an annual loss to the people of over $40,000,000. Not a dollar of coin in this country is earning, or can be made to earn, income. That can be done only on coin in bank reserves, where the visible coin in Europe is, and is there earning an income. That my words are the words of truth and soberness is susceptible of very easy demonstration. The fundamjntal principles of the banking syslem of England have stood every shock of and been justified by eighty years' experience. Hers is one of the most successful financial systems ever devised as to safety, cheap- ness, flexibility, and abundance. Compared with that of the United Sfcites, it shows our system to be expensive, rigid, and uncertain. Our system of finance, as compared with that of England, ought to bring the blush of shame to every statesman who is responsible for its existence. Every dollar of coin money habitually carried in the pockets of the people must be deducted from the aggregate coin in a country, to ascertain the -amount of commercial coin. Coin in the pocket performs only the function of currency. As much goes back into the pockets of the people, each day, in payment, as comes out of them, in the purchase of commodities. Therefore, the coin in the pockets of the people is a perpetual or dead deposit, so far as commerce is con- cerned. This is equally true of all paper money. Economists can take cogni- zance only of " visible coin " as the coin of commerce. According to the report of the Director of the Mint, we have $1,200,000,000 of coin in this country. We have of visible gold coin $337,000,000 We have of visible silver coin 468,000,000 Total visible coin of commerce 805, 000, 000 Prance has of visible gold coin 264,000,000 Prance has of visible silver coin _ 251, 000, 000 Total visible coin of commerce 515, 000, 000 Germany has of visible gold coin - 206,000,000 Germany has of visible silver coin -- 56, 000, 000 Total visible coin of commerce - 262, 000,000 England has of visible gold coin 125,000,000 England has of visible silver coin 0, 000,000 Total visible coin of commerce 125, 000,000 The mere reading of these figures ought to bring the blush of shame to every American who knov>'S the feeling of financial security and power, the unbounded confidence, that reposes in the breast of every inhabitant of Great Britain, and the well-grounded sense of insecurity, weakness, and fear that prevails here, which is paralyzing every enterprise in this country. Whose fault is it that this condition of things exists? Who are the statesmen or uonstatesmen who should be held responsible? One party has been relegated to the rear. Has the other party the courage to remedy an evil so palpable, so gigantic, and yet sq easily corrected? 940 ^22 338 BANKING AND C URGENCY. ADMIRABLE FEATUBES OF OUB BANKING LAWS. Our banking laws have three admirable features: ,,. ., . ^i ■ j- (1) Their supervision by expert examiners and the publicity of their condi- tion which ought to be made even more thorough and controlling; than now (2) The requirements for bank reserves, and especially their being allowed to keepapartof the reserves at the great banking centers. (3) The certainty that the "currency notes" of the banks will ultimately be ■''^While'each one of these things is eminently desirable, not one of them, or all of them combined, compensate W the fatal defects of the system Every one of them can be secured as well, or better, in a better system. Furthermore, they are no part of banking proper. Every man in this country at a 1 informed on the theory or i)ractice of sound banking and the best methods of furnishing the people with a sound and cheap currency, knows that the currency furnishod our people under existing banking laws is the most expens^ive and the poorest in every respect save one, of any currency that is furnished to the people in any first-class nation. . x, • • • ; i All persons whose investigations and experience give their opinion any special value know that the money of a people should be (1) safe, (2) abundant (.3) elastic, (i) cheap, (5) uniform, (6) it should be in the locality of its issue, whers it is most needed, as far as it is practicable to have it. In every one of these elements of a sound currency or '■ good money, the United States stands at the foot of the list. ^ -, ^ , u j Not a man pres-nt will dispute the proposition that what makes a sound currency" or '-good money '' is its certain and inst.mt current redemption, con- vertible into coin, when a d.-mand for coin is made. This demand is made and answered ten times, or ten thousand times, as the case may be, with every dollar, durinc' its life, and as often as it is returned to the bank issuing it. Where two coins of dilTerent commercial bullion value are legal tender, sure redemption means that it be instantly done in the coin of the highest commercial bullion value. '-To doubt money is to discredit it." There is not a man present who does not know that all-pervading doubt exists, as to the continued current redemption of our ourrenov. This fear is manifest everywhere and is injuring every business and occupation, and p iralyzing some. This injury to industries is more or less appar>-ntin propoi'tion to their magnitudeand fundamental char- acter It is not done to ourselves alone, but its effect is world-wide. How thoroughly inexcusable, and even disgraceful, to the country, our financial con- dition is, will be made apparent by seeing how impregn;ible and superior to all others our position would be had we a proper national banking act. All economists know that coin is now used almost exclusively as a ' measure of value," certainly so in this country, and also that foreign commerce alone really tries the " coin strength " of a n'ltion's commercial system. We have men of commanding intellect and g-mius, the equal of those in any country or of any time. Have they been pla.ying the demagogue, for party advantage, on questions of finance? The genius of her statesmen maintains a commercial sys- tem in Great Britain, the absolute impregnability of which is nowhere ques- tioned on $125,0110,000 of visible gold, while she has a foreign commerce alone of $25 to every dollar of her visible gold. We have $337,000,000 of visible gold and a foreign commerce of only $2.20 to each dollar of visible gold; and yet every ac- knowledged financier in the country iscompelled to distrust the soundness of our money and our financial integrity. Is it not perfectly clear that with three times as much of the gold of commerce as Great Britain, a,nd with only one- twelfth the demand upon each dollar of this gold that is made upon each dollar of the gold of Great Britain, all our financial troubles and anxieties are caused by a discreditable financial system, and are not caused by our lack of financial strength or our need of more gold or more coin of any kind. COMPAKISON OP FINANCIAL SYSTEMS. The facts I have given show that in gold , proportionate to England's, or to any legitimate commercial demand that could be made for it, had we a sound finan- cial system no fear would exist. Our stock of visible gold coin is proportion- ately 3.S2'.i times as hirge as that of England. Did Engla.nd insist on hoarding as much gold, in proportion to her commerce, as we now have, she would insist on having $1,424,00(1,000 in gold instead of $125,000,000. Her statesmen abso- lutely refuse to be at the trouble and expense of keeping more than $125,000,000, BANKING AND CURRENCY. 339 or one-twelfth of the vast proportional sum we now have, and for two reasons- First, because it would tax her people $H,500,000, or an annual tax of 20 cents on every man, woman, and child, and secondlv, because it would embarrass every other nation and ruin her commerce. Compare the wisdom of her statesmen with that of ours. Here we unblushingly put an annual tax on our people of t)7 cents a head, a financial system infinitely inferior to that furnished free of chara-e to the people of Great Britain by her statesmen. Again, the actual daily need of coin is not a matter of speculation. As I have before said, our daily bank exchanges are about $400,000,000, and we know that only IJ per cent of them are made in coin. This proves beyond peradventure that our actual daily use is only $6 000 000 of all kmds of coin. Six millions against a stock of $:i.'i7, 000,000 of visible gold alone, and about $800,000,000 in all kinds of coin! and yet, like Oliver Twist while shivering with fear, we call for luore, and refuse to conform our financial system to approved methods. Again, the efficiency of each $1,000 in coin, in making the exchanges of the world, has increased a thousand fold faster than have the excharioes of any country or of the world. This efficiency has increased faster in the last ten years, and is now increasing faster than ever before, by the better use of rail- ways, steamships, telegraphs, telephones, and, aboveall,in improved commercial methods and economies. In trade between Boston and Canton the efficiency of each $1,000 in coin has increased thirteen thousand times since 1830, $1,000 now being the equivalent of $13,001), 000 under the methods of 1830. Then, a ship load- ing for a six months' voyage to Canton, took its supercargo to trade for a return cargo and what coin it needed to pay the difference. Now the coin is trans- ferred by telegraph, and an answer received in five minutes. Thirty days was consumed in going to and from Boston and St. Louis. Now coin is transferred in one minute. Coin is now ten thousand times more efficient in that trade, $1,000 now being equivalent to $10,000,000 in 1830, and so on to the end of the chapter. The most enterprising, progressive, and courageous nation in the world allows ignorance, prejudice, and supposed class interest to cast it down to the foot of the nations in use of its real and comparative financial strength, in- tegrity, and economies. In the second and third qualities of sound money, abundance, and elasticity, we are at the same disadvantage. No currency can possibly be "abundant" that is not elastic. Have as much as you please, and it still will be cribbed and confined. This we know from experience. At a fixed and invariable amount, whatever the amount may be, normal business adjusts itself to that amount. At the moving of the crops, or at any other periodical expansion of trade, there must inevitably be a stringency. Instead of all uniting to conform our financial system to approved methods, we have two bodies of citizens fighting a tierce battle over this foolish question of ''quantity." One is contending that we have not enough money, and the other that we have too much. Both are right and both are wrong. This country must have an elasticity of from $100,000,000 to $200,000,000 in its currency, between the maximum and minimum amounts. Our currency never will be abundant or elastic until we adopt a system that will allow an adjustment as wide as I have indicated. WHAT ODK MONEY COSTS. Fourth, as to "cheapness," our money averages to cost our people, in interest on loans, fully $100 where it ought to cost no more than $86, or one-sixth too much. There is not another first-class country in which the reserves of its banks are not kept in coin. There is no such country, excepting the United States, where every dollar of its funds — the wealth— of the people in its banks, is not available to the banks to loan. In every country, excepting the United States, the banks are allowed to issue currency (circulating notes) to an amount equal to their reserves. In other countries all the visible coin is in the reserve of banks where the people can surely get what they need of it at any moment, by presenting the paper issued by the bank, to the amount of the coin they desire. Notes being issued by the banks to the amount of their reserve, every dollar of banking funds is earning an income. Here, not a dollar of the bank coin re- serves is earning any income. In England, Germany, France, etc., the coin reserves of banks are performing three functions : (1) They are used to measure values in every transaction in the country, as all transactions are ultimately and equivalently settled in the banks. The pay- 340 BANKING AND CURRENCY. ing- of the ' ' final balance " in coin is the equivalent of each bank paying each sin- e'le oblia'ation in coin. , -, , !.• c j (21 Thev act as our bank reserves act. They are at hand to satisfy any and every oblii?ation against the bank, which obligations practically mature only in balances shown, of debts and credits between banks _ (31 Currency notes are issued to an amount equal to these coin reserves,_ and they are thus made a source of as much income to the bank as any of its quick ^""fsi have before said of the $2,800,000,000 of banking funds in our banks, $600,- 000 000 or more than one-fifth, is absolutely, needlessly, and foolishly-I had almost 'said wickedly -and by compulsion of law. held out of earning an income^ This is an enormous sum. While we glibly pronounce the words, we fail to realize the significance of this enormous loss. The law only compels about $400 000 000 to be kept in reserve. Had we a financial system that justified the samp confidence that is felt in other countries, the usual reserve would be no more than $400,000,000. I therefore use $400,000,000 in my calculations, proving by them that the average bank " loan and discount" is forced by the law to a price to the borrower one-sixth higher th..n its normal price would be, had we a rational system und that of other countries. Assuming an average interest of 6 percent on the lo.ms and discounts of H'^tional b mks, viz, $2, 00 000 00 the interest amounts to $132,000,000. One-sixth of this sum^, or about $22,000,ai0, is absolutely wasted to the people in unnecessary cost. One-seventh of the funds in banks, viz, $400,000,000, being compelled to be held from earning an income, the interest charges on the remaining six-sevenths must be one-sixth higher. (5) As to " unif'^rmity." Our currency'is admitted to be about as uniform as was the color of Jacob's cattle. . j j„- (61 Having currenov " in the locality of its issue and wtiere most Heeded is of very great importance. No one would claim that existing law is so framed as to let'itimately press currency back to the locality of its issue. The requiring of a proper system of current redemption for, and paym-outof currency, ^y banks, bv not allowing them to payout their own currency when they have that of other banks in their vaults, would induce them to return the currency of other banks to the United Stites Treasury for redemption, and thence to the banks issuing it Banks can earn no money on their own currency, unless out of its vaults in circulation This would influence banks to give local men and local business the preference in all loans, in order to keep the currency out as long as possible, which would be an advantage to the section of country where a bank is located, not realized by those who have not seen the experiment tried. GOVERNMENT TO EXERCISE ONLY POLICE SUPERVISION OVER BANKING. The definitions and illustrations introduced in this paper show that the nature of money is such that it is physically impossible for governments to do more concerning it than to exercise a police supervision over it, and that banks taKe the place of "money." In fact, banks are mon-y, in the check, draft, bill of ex- chann-e etc., issued on them. Every sound business maxim, every correct busi- ness method, presupposes a bank as a part of each business concern. Banks are interwoven with and are a part of all business enterprises. It is a physical im- possibility for a government to be an agent in any part of banking without be- ing a " bank " and a copartner with every one of its patrons. Banks have come to be an inseparable part of every business, as they are an inseparable part ol currency, whether they issue any currency or not. It is shown by the returns made to the Comptroller by national banks, on a given day, on two or more oc- casions, that theperceut'jge of coin used in each day's transactions is about l.j per cent ; of currency bank notes, about 4.i per cent ; and of checks, drafts, bills of exchange, etc., wliich do the work of money, about 94 per cent. Issuing paper monev by banks is essentially and actually no more in kind than writing a credit on the book of the customer of the bank. If to day the use of every check, draft, bill of exchange, etc., were prohibited and should cease, and " bank currency notes " take their place, and thus the issuing of bank bills be increased more than twenty-fold, it would not in. Tease the liability of a bank or affect it in any way, working no advantage or injury to it. It would simply inconvenience and increase the risk to every person in the community doing any business and almost beyond calculation, A moment's investigation will show that, striking as this statement may be, it is absolutely true. The business man would tben keep that money in his safe or vault, instead of keeping his blank checks or drafts. He would then be obliged to have his currency money in his safe to the same amount that he now has BANKING AND CURRENCY. 341 credit on the books of the bank. Again, the deposits which every prudent busi- ness concern carries in a bank bear a certain percentage to the business of the concern, as reterves do to banks, and are to each one carrying them his reserve to meet contingencies known or unknown, precisely as tlie bank keeps the re- serve required by law, of 15 per cent or 20 per cent, as the case may be, to meet contingencies. Some business concerns secure from the b ink, or otherwise, on each Monday morning, enough money to pay every obligation maturing in four- teen days. The concern then has one-twenty-sixth as much money on hand as its annual business. This is its reserve ca]iiti,l— capital not in active use. When the sun rises on the following Monday, it still has a reserve amounting to one liltj'-sec- ond of its annual business. This is exactly what banks do. They are simply business concerns, and do their business as oLher business is conducted. Simply coining metals into m.)ney for private persons is no part of issuing coin money, even by the Government, iu the sense in which the term is now used. Never did any government try the experimeut of issuing money any more faithfully, or under any more favorable conditions, than has the Government of the United States. The utter want of confidence in the money of the country, betrayed in every financial quarter, pronounces the experiment a failure. Look at the existing conditions. We have of — Legal-tender notes (oldissue) $347, 000, 000 New Treasury notes (July 14, 1890) 130,000,000 Gold certificates (paper) 143, 000, 000 Silver certificates ._ 327,000,000 National-bank notes 172,000,000 Currency certificates 11, OOO, 000 Total paper outstanding 1,130,000,000 wholly dependent on less that $100,000,000 for redemption. " CXJKEENT REDEMPTION." While theoretically the Government is responsible for the current redemption of the $347,000,(100 legal- tender notes only, whoever is to finally redeem it, the Government, in fact, must " currently redeem" iu coin, every dollar of the $1,100,000,000 as Ions' as there is a legal-tender note in circulation. Were every dollar of this $l,100,000,000currency issued by the banks they would now have in their vaults, to redeem it, every dollar of the visible gold in the country, viz, $337,000,000. All visible gold in England, Germany, and Prance is in the banks of those countries. The inexorable laws of trade and finance compel it. These laws are such that gold can not be taken from any bank and not be quickly returned to some bank, and ultimately to the bank from which it was drawn. Proper banking laws, establishing a proper banking and financial system, make it strongly for the pecaniary interest of every bank to conserve thegold itneeds. Still more stronglj' is it for the pecuniary interest of every man in the country to help the banks to get and keep the gold they need. On the other hand, every law of finance and trade militates against the getting or keeping, by a bank or by any person, gold it does not need. In finance, the Govei'nment counts only as an individual. Bankers have a thousand legitimate and beneficent ways of keeping the gold they need and for the use of any person who demands it of them. The Government has none. Banks are obliged by their regular customers to keep gold and wholly aiad nece8s.irily at the expense of the bank and to the good of every citizen of the country, rich or poor. No bank will keep one dollar in gold more than sound finance compels it to keep, as witness the Bank of England, which keeps an av- erage of only $125,000,000 of gt)ld and refuses to have any more. The United States Government, and every other government, has, and can have, no legiti- mate and normal need of coin under a rational financial system. Under our hybrid system, it is utterly helpless to get and keep ons dollar of gold, sorely as foolish legislation is now compelling it to get it, unless it is freely and benev- olently given it by friends. It is inevitably in the attitude of a mendicant, nat- urally and inevitably, by the laws of the universe, which fix alike the condition of individuals, governments, and banks. Its attitude as to money is the exact opposite of that of banks. While there is a single million of legal-tender notes in circulation, that cur- rent money can be exchanged, for the Government is inexorably bound to re- deem every dollar of the whole $l,iOO,C03,000 of currency afloat. Every one of us knows that no power could overcome the natural defenses of banks so as to divert $337,000,000 of gold from them, while everyone knows that the $100,000,- 342 BANKING AND CURRENCY. 000 in the United States Treasury is as utterly defenseless as it would be in the possession of an individual doing as much business and owning a floating debt of $1,100,000,000 in demand notes, as does the United States. Everyone is now demanding that the issue of legal- tender Treasury notes to the amount of $4,- 500 000 a month for the purchases of silver for the sole purpose of increasing the Government currency shall cease. But if our financial and banking system is a proper one, why repeal the law '? Let the purchases go on. No matter if the business of the country is being paralyzed by fear of the inevitable consequences of o-overnmental money. If the Govei-nment can safely furnish currency of any kind, or to any amount, no better kind, or one that is more secure, can be found. Let the purchases go on, for "right is right," and "truth is truth.' Tue final result must justify all right action. Let the country suffer and wail m its strength : the final result must be beneficial. Politicians of one party are put- ting the politicians of the other party " in a hole," and demagogues and money cranks are in a delirium of joy. Or else let the Government boldly go into the bankino- business. There is no middle ground. As I have said, banking is issu- ing titles to banking funds in exchange for titles to tlie property " m transit " of its patrons, which titles are being made and maturing m equal volume every hour If wisely managed, they can not be drained of coin. Governments are simply great corporations, subject to every financial law and condition of every other business concern, great or small. They can do a banking business as well as any farmer, manufacturer, or merchant. THE SURE AND EFFECTIVE EEMEDY. There is, then, only one sure and effective remedy for the financial ills that every candid man admits are now afflicting our country. There is no help for us while the Government continues its purchases of silver to increase currency, or while the United States Government is responsible for the "current redemption," in either gold or silver coin, of a single million of Treasury notes or legal- tender notes. We know the people will not justify Con- gress in levying taxes to pay them ; therefore some other practical method of disposing of them, of which the people will approve, must be devised. Neither can the tax on State-bank circulation be safely repealed until every Government legal-tender note is disposed of. The Committee on Banking and Currency of the lastCongress reported to the House a bill (H. R. 10615) which will be before the next Congress, which fully meets and remedies every defect and difficulty of our financial situation. Re- peal the purchase clause of the silver act of July 14, 1890, and pass the ba,nking bill mentioned, and we shall be immediately in a stronger financial situation, as well as in every other, than any country on the face of the earth. For security (1) the bill provides that every bank shall keep its cash reserve in coin, at least half in gold coin, and may keep the other half in silver coin. For quantity and elasticity (2) that banks may issue currency notes at any time to an amount equal to their average reserve during any six consecutive months in the previous year, and the Comptroller may reduce the sum to their average reserve during any other six consecutive months, thus earning income on the reserve, and giving elasticity of $100,000,000 to $200,000,000. (3) That banks must proportionately take upon themselves the "current re- demption" of existing legal- tender notes, by each bank taking a part of them equal to the currency it issues because of its reserves, the Government to "finally redeem " them when the bank goes out of business. (4) For more perfect examination and reports by the examiners. (5) For an expert board of advisers (directors) associated with the Comptrol- ler. (6) That banks may be used by the Secretary of the Treasury to do the work of current redemption of b.mk notes, etc. (7) Bonds are eliminated, but every other beneficent feature of our present na- tional banking system is kept~and perfected, and a tax imposed upon banks of one mill per annum on each dollar they issue of currency. This tax, small as it is, will yield many times more money than the losses to holders of bills could possibly be, as shown by thirty years of experience. This tax to remain in the United States Treasury in place of bond security. The scheme contains not a single new feature in banking. It would simply apply to banking in this country those maxims and regulations concerning all things affecting banks that are approved by the experience of the ages and are now in operation in the strongest European banks. BANKING AND CURRENCY. 343 Committee on Banking and Gueeenot, Tuesday, January 16, 1894. .The Committee on Banking and Currency this day met, Hon. Wil- liam M. Springer in the chair. Hon. Joseph H. Walker, a Eepresentative from the State of Mas- sachusetts, appeared before the committee in behalf of H. E. 171. STATEMENT OF HON. JOSEPH H. WALKER. Mr. Walker then addressed the committee. He said : Mr. Chairman and gentlemen of the committee: After the yery great courtesy extended me by the committee in allowing me to print my argument in favor of the bill, and inviting me furthermore to incorpo- rate in that argument the argument made by me before the Boston bankers and the World's Pair Financial and Banking Congress, I do not feel it would be fair to the committee, or necessary, to occupy any time except in answering questions that may be asked in reference to sections of the bill as we take them up, unless the committee should desire to have me go on further with general remarks. Mr. Haugen. 1 would like to have Mr. Walker state in a few words the difference in the two kinds of issue he provides for in his bill. Mr. Walker. There is no difference in the world to the public, but when a bank goes out of existence the U. S. Government must redeem in coin the bills issued under section 4, and the bank itself, from the assets of the bank, must redeem the bills issued under section 5. Secondly, so far as the bills themselves are concerned, to the pub- lic there is no difference, excepting this, that the bills issued under section 4 have the same legal-tender qualities as in the existing green- backs, excejiting they are not legal tender between banking associa- tions. They are not legal tender between banking associations, because the whole theory of the bill is that the people of the United States ought to be relieved from taxation, to maintain a coin measure of value, and to redeem paper moTiey, and that all of that expense shall be put upon the banks, and in order to put it upon the banks they must not be allowed to tender to each other the bills issued under section 4. If the banks are compelled by law to pay coin for the balances between the banks, that maintains specie payments, and I have not the slightest objection under the Supreme Court decision to allowing bills to be made legal tender from private persons to banks or as between private persons, sole or corporate. I think it is unconstitutional, but the reason I write that in the bill is because that is the existing law, and I have determined in this banking bill to raise no issue as to exist- ing laws either as to coinage or legal tender, or anything that can be used of that nature to defeat the bill. Furthermore, the bills which are issued under section 4 — I wish to especially call the gentleman's attention to it — are all of them an exchange of the existing greenbacks. Treasury notes, and silver certificates, so that there will be no expense to the people in changing the old greenbacks for the new greenbacks but the banks shall relieve the people of all expense and take it upon themselves, and that kind of money shall always equal the money that the banks themselves issue equal in amounttothe "reserve held." This may be properly entitled "A bill to relieve the people of taxation." 344 BANKING AND CUREENCT. The Ghaibman. Will you please, assuming that this bill becomes a law and that we were now ready to operate upon it, explain how you would proceed to organize a bank under this bill to carry it into efi'ect, and what would be the general effect upon the currency of the country as to its volume, elasticity, etc. 1 Mr. Walker. A bank would be organized exactly as now, excepting a certain percentage of its capital must be invested in buying the " new greenback " instead of buying bonds. Mr. Hatjgen. Section two provides for that. Mr. Walker. This bill contemplates a retirement of the existing legal-tender Treasury notes and a part of the silver certificates. For each one of those retired a new ''legal tender " would be issued which the banks would be obliged to " currently redeem, " and for each one of those new legal tenders that would be issued there would be a bill issued by the bank, so that for every dollar retired or exchanged there would be two dollars issued; so much as to the volume of the currency. Mr. Hall. WiU you allow me to ask you how we can issue two dol- lars for one? Mr. Walker. Because it is not primarily for the interest of the bank to buy of the Government that new legal tender. It is for the interest of the bank to issue currency notes up to the amount of its "reserve held," and they can not get those currency notes except by buying of the Government the new greenbacks equal in amount to those currency notes that it issues. If it issue $50,000 of currency notes up to the amount of the reserve held, say $50,000, assuming that they do, they are obliged to exchange lawful money, gold, gold certificates, or silver, or silver certificates, or Treasury notes or greenbacks for the new " section four notes," so that for every note it issues directly up to the amount of its "reserve held" it is obliged to get a note of the Govern- ment, which makes two for one. Is that clear ? The Chairman. Tou retire the Government notes 1 Mr. Walker. I retire $90 of the old Government legal-tender notes for every $100 of new Government legal-tender notes. The bill requires the Treasury of the United States to keep the other $10 out of each $100 for a " current redemption fund," and to apply to the notes issued to the banks under sections 4 and 5, so that all of the circulating notes of the United States will find current redemption, which will make them good money; and that is the only possible way of making paper money " good money," viz, by current redemption in coin. Mr. Haug-en. I would like to know what the bank pays for these gTcenbacks which it buys of the Government"? Mr. Walker. Dollar for dollar, in gold, gold certificates, silver, or silver certificates, Treasury notes, or greenbacks. Mr. Haitgen. What does the Government do with the gold and silver ; put it in a vault ? Mr. Walker. It is put in the Treasury as miscellaneous receipts, or rather it buys with it $100 in new greenbacks in the first place until they are all exhausted and then $100 worth of Treasury notes until they are exhausted, and $100 worth of silver certificates down to a cej^tain point. That will leave all the silver dollars and silver certifi- caifes anyone desires. I do not want you to be frightened by that proposition concerning silver, for I have made provision for all the silver the people can possibly use or desire to use. It destroys $90 of the old greenbacks and keeps $10 for current redemption of all the notes of the bank, which would make 5 per cent on all the bank notes, pre- cisely as it is to-day, being 10 per cent of half. This is the only prac- BANKING AND CURRENCY. 345 tical way to fairly apportion to tlie banks and securely pnt npou the banks the expense of maintaining the measure of value, coin by the current redemption of all paper money. Mr. Johnson, of Indiana. You do not provide for the future extin- guishment of the present currency! Mr. Walker. There will be $100,000,000 more currency in circula- tion at the end of Mr. Cleveland's administration than there is to-day, but every dollar will be taken out of the list of "fiat money" and made "good money" by current coin redemption if this bill passes. Mr. Johnson, of Indiana. The matter I suggest is this: In the provisions of the bill it does not contemplate absolute extinguishment of existing currency, only down to the point of reserve, $100,000,000. It does not contemplate by the very terms a complete extinguishment of existing currency? Mr. Walker. The bill provides that when the greenbacks have been extinguished down to the volume of the reserve held for their redemp- tion then that reserve shall be immediately used for cancellation of that amount of greenbacks, and that releases all gold for use ; and now let me say that the reserve of coin held by the Treasury is not by legal requirement; that is to say, it is not a reserve that is required by any existing law; therefore, if this bill should pass, as every operation in finance is anticipated, every condition is anticipated, tlie Treasury would naturally and immediately call upon that to expend in the cur- rent expenses of the Government. As long as the law does not posi- tively require it to be kept, the practical working of this bill would be that it would never be used for that i)urx)ose, but would be used for the current exijenses of the Government, being immediately free gold in the Treasury, and relieve the present Treasury situation immediately, thus leaving $86,000,000 of free gold to be used for current exx)enses by the practical operations of the bill, so we would neeer cent. Mr. Walker. What do you mean by the Government borrowing money ? . Mr. SPB.INGBR. On bonds. Mr. Walker. What money? Mr. Spbingee. The 20 per cent reserve. Mr. OoBB. Do you not think 20 per cent is larger than is necessary 1 Mr. Springer. It may be. Mr. Johnson, of Indiana. In what section do you provide for this reserve? Mr. Springer. In section 14. The Government can not make its currency redeemable in coin, unless it is actually prepared to pay coin on demand. Nothing but actual payment will meet the requirements of business when trouble arises. Therefore you must have money, and I have provided that the Government shall borrow. I was about to say it would be economy for the Government to do so. If $100,000, for instance, were issued at 1 per cent, the Government would get a thou- sand dollars a year; so that the Goverument would not be subject to any loss on the transaction, as this amount would amjjly pay the expenses of printing bills and keeping up the system. The system contemplates the Government keeping 20 per cent in reserve all the time. If this is not provided for by the Government borrowing, the banks should be required to furnish the 20 per cent in coin, and then the Government would not have to borrow anything, unless the coin reserve should fall below 20 per cent, and then the Government would be responsible. Mr. Johnson, of Indiana. Would you not make the responsibility rest on the bank ? Mr. Springer. I think not. I provide for coin reserve in the Treas- ury for redemption. That is not tying money up to pay a demand that may never be made. Mr. Johnson, of Indiana. You tie it up by keeping it in the Treas- ury? Mr. Springer. We tie up coin and not paper. Mr. Oox. If the Government holds 20 per cent of com for redemp- tion of these outstanding notes, you have reduced the circulation to the extent of that 20 per cent which is in the Treasury. Now, if you take out the full extent of the capital stock of any bank, say $100,000, in what manner do you get back your $100,000? That is not quite clear to me. . Mr. Springer. The bank comes forward with its securities, and it puts up $100,000 in bonds, upon which may be issued at least $90,000. Of course $20,000 of coin would be withdrawn from circulation. Mr. Cox. You -would have $80,000 when you take off 20 per cent. You have retired from circulation $20,000. Mr. Springer. Yes, sir. 366 BANKING AND CUERENCT. Mr. Walker. The reserve is to be held ty the Government. It is not provided for in the reserve of the bank! Mr. Speingee. I am of the opinion that this is ample. Mr. Walkee. It is not, for this purpose. Mr. Speingee. It is ample for the redemption of the notes. Mr. Walkee. It is held as a reserve now. Mr. Johnson, of Indiana. The law provides for inspection and exam- ination; and do you provide for that in your law! Mr. Speingee. Yes, sir ; by examination. Mr. Haugen. There is a certain amount of money required to be held by banks now. Do you make that requirement ? Mr. Beosius. That is to secure deposits ; and his bill does not refer to that. Mr. Speingee. It does not. I simply provide that the issuance of currency be kept separate and apart from the matter of discounts and deposits. Banking, as such, is not a matter which concerns the whole people, but the currency does. In this respect my bill is not without the best precedent. In fact it has been accomplished in the Bank of England. The issuing of cur- rency has been divorced from the loaning of money, the receiving of deposits, and the doing of ordinary banking. Mr. Johnson, of Indiana. Is there not a Government regulation in England? Mr. Speingee. Yes, sir. Mr. Walkee. The currency is to be kept entirely separate from the discounts and loans; the bank under your bill is relieved from redemp- tion in coin currency, and the Government is to redeem in coin all these notes, instead of the bank redeeming them. That is all. Mr. Speingee. That is my position exactly. If you will pardon me, I will call your attention to the "Theory and History of Banking," by Dunbar, p. 163; where you will find this statement is made. So completely is the banking department (of the Bank of Euglaud) depriTed of all special facilities or privileges in dealing with the issue department, that it has often been said that, for all practical purposes, the notes might as well be issued by a public office at Westminster as by a department of the bank itself. There is a note in the text explaining further: In Ricardo's pamphlet, a Plan for a National Bank (Works, p. 499), it is proposed that notes shonld be issued to the bank by public commissioners, holding securities and gold substantially as at present. Mr. Walkee. But are not these bills issued by the issue department to the discount department in the Bank of England? Mr. Speingee. Yes, sir. Mr. WALiiEE. Then that does not amorint to anything more than precisely what we have here. The Government issues the bills on the bank by printing them. It is precisely the same? Mr. Speingee. Yes, sir. Mr. Walkee. Then explain to the committee how that in any sense divorces the currency of England from the loans and discounts, as the only possible way that public or x>rivate persons can get this money is through the discount department. Mr. Speingee. That is right. Mr. Walkee. Then how is it divorced? Mr. Speingee. The issuing of the currency is divorced, but not the distribution; and that is the difference provided for in this bill. The issuance of notes is divorced entirely from the banks, and the Govern- BANKING AND CURRENCY. 3G7 ment provides the issues but uses the banks, just as in England, for the distribution of the currency. Mr. Walker. Does the issue department, or the loan and discount department of the Bank of England redeem these notes? Mr. Speinger. The Bank of England redeems its own notes. The circulating notes of the bank of England are issued first, to the amount of £14,000,000, which is the amount of tlie Government liabilities or bonds due the bank; and secondly, to the amount of gold actually deposited in the bank by private individuals; and this amount is actually in reserve for redemi)tion of all outstanding notes. Mr. Walkee. Is it not a fact that one set of men control or pass upon the issue of bills, and another set of men pass upon the loans and dis- counts, when the coin is at the call of the loan and discount depart- ment always, which makes it in no respect different from what it would be if the same set of men authorized both? Mr. Springer. It differs in this, that the loan and discount depart- ment can reach this gold for the j)urpose of redeeming the bills, but not for the purpose of loaning it to customers. Mr. Walker. That is a distinction without a difference. Mr. Springer. There is a difference. The bank can have access to the coin deposited to redeem its notes, but not for loaning it to its cus- tomers. Mr. Johnson, of Indiana. You do not seem to rely upon the sound- ness of a bank as a protection for its bonds, but you rely upon its securities. Mr. Springer. A provision for determining solvency is provided for, but the bonds are chiefly relied upon to protect the Government. Mr. Johnson, of Indiana. A bank which goes to pieces necessarily involves the stoppage of the issue of currency. Mr. Springer. That is the case if a national bank goes into bank- ruptcy now. Nobody looks to a bank for the payment of its notes. Mr. Johnson, of Indiana. It is an interruption of the flow of cur- rency. Your bill ignores the bank as a bank. Mr. Springer. It does not ignore them entirely, because I have providedfor ascertaining their solvency. The commission is authorized to make investigation of the banks. A bank must be solvent, and must remain solvent, in order to procure currency. Mr. HauGEN. If an inspector reports against the solvency of a bank it would be required to put up securities. Mr. Springer. It must be solvent in order to obtain currency, and it must also put up securities. Mr. Johnson, of Indiana. Where is that provided for in your bill? Mr. Springer. It is provided for in section 18. There are also pro- visions in the bill extending to the notes to be issued the sections of the national-bank act relating to the selection of bonds, to their cus- tody, to the printing of the notes, to the plates and dies, and to a multitude of other things. This bill provides that the sections of the Eevised Statutes, which are given, relating to the misconduct of bauk ofacials and others shaU be made applicable to notes issued under this Mr. Johnson, of Indiana. Then you do look to inspection and exami- nation of a bank as a bank ? . . • ^ i- Mr. Springer. Certainly; for the purpose of obtaining mtormation as to whether the bank is solvent; that is all. It ought to be solvent, as it guarantees the bonds deposited by it. Mr. Spekry. Does that apply to State bonds? 368 BANKING AND CURRENCY. Mr. Springer. Certainly. If bonds sliould be declared void by the court and the G-overnment has to pay the notes of a bank, its only security is the guarantee which the bank has made for its bonds. Mr. Hall. We have now four kinds of paper currency, tmd this makes a fifth kind. There is no way provided for taking up those now existing; but yon make one more kind. Mr. Springer. It is true that I have. I have not sought to bring about the millennium by this bill, but I hope to start in a right direc- tion—in the direction of securing a uniform currency for the United States. Mr. Walker. How do you do that, by authorizing another kind of currency? Mr. Springer. By having a currency department m the govern- ment and looking to a uniform currency, so that all these others will be brought within its provisions. I hope, if this is successful, that we will keep on untU we shall have but one kind of currency iu the United States. Mr. Walker. Then you do not depend on this bill, but upon tutnre legislation ? Mr. Springer. I depend upon this for laying a foundation for a sys- tem upon which we can erect a superstructure by future legislation that will bring about a complete system of national currency. Mr. Johnson, of Indiana. Is it not simply a provision for adding to the present bonds to secure circulation upon deposits of State and municipal bonds? Is not that all there is in it? Mr. Springer. It provides a broader foundation for the currency than we now have. The currency may be issued to other than national banks; in fact, to all solvent banks, State and national. It does not do away with the organization of national banks as such. The banks are already in existence and have their organizations. Mr. Johnson, of Indiana. Do you regard a system of securing notes by bonds as calculated to give us an elastic currency? Mr. Springer. I think so, with the provision in regard to taxing them. There is an impression that there is a vast amount of available cap- ital in the country upon which bills of this kind can be issued. I was surprised when I looked over the report of the census to find that there were so few bonds upon which currency can be issued. Mr. Johnson, of Indiana. How much currency could you put out on such bonds? Mr. Springer. The whole amountof the national bonded debt in 1890 was $891,000,000. It has since been reduced to about $600,000,000. The State indebtedness iu 1890 was $228,000,000, and the county indebtedness was $145,000,000; the municipal indebtedness was $724,000,000. The total amount of national bonds outstanding on June 30, 1893, w-as $585,037,100, and about $200,000,000 of these are held now by national banks ; so that we have only $385,000,000 of national bonds which are available for the purpose of additional security. The total of such bonds of all kinds, national. State, county, and municipal, in exist- ence now available as security for carreucy is only about $ 1 ,500,000,000. Mr. Walker. Do you think it is a sound system of banking to bank on debts? Mr. Springer. That is done all over the world. There is no better security than a Government bond of the United States. It is much better than the assets of a bank. Thereupon the committee adjourned to meet Friday, January 26, 1894, at 10 a. m. BANKING AND CURRENCY. 369 Committee on Banking and Currency, Friday, January 56', 1894. The Committee on Banking and Currency this day met, Hon. Lewis Speiry in the chair. Hon. William M. Springer, a Eepresentative from the State of Illinois, appeared before the committee and continued his remarks in the advocacy of H. E. 4900. STATEMENT OF MR. SPRINGER— Continued. Mr. Springer then addressed the committee. He said: Mr. Chairman and gentlemen of the committee: When we adjourned at the last meeting of the committee I was calling attention to tlie fact that there was a misapprehension in the public mind as to tiie aggregate amount of State, county, and municipal bonds in existence in the United States. I desire briefly to recur to that subject for the purpose of concluding what I then desired to say in reference to it. I have taken the volume of the census on debt recently published, the volume of the census of 1890, and in that it will be seen that there were in existence on the 1st day of January, 1890, bonds of the States to the amount of $228,000,000; of counties and parishes to the amount of $145,000,000; and municipal bonds to the amount of •'e<724,000,000. The bonds of the United States outstanding on the 1st day of Jan- uary, 1894, amounted to $585,000,000. To these should be added $04,000,000 of bonds issued in aid of the Pacific railroads. This makes about $050,000,000 of GoveruTnent bonds outstandhig on the 1st of January. Of these bonds about $200,000,000 have been already deposited by national banks to secure circulation on national-bank notes, leaving still in existence about $450,000,000 of such national bonds as are available for securing the circulation of national-bank notes. Mr. Cox. I do not remember, but can you bank on those Pacific bonds'? Mr. Springer. I cannot say whether they are available under the present national-bank law or not, but they are under the bill which 1 have introduced. Mr. Cox. I meant under the national bank law. I do not tliink you can bank on them. Mr. Springer. They are available under my bill because I use the term " bonds, the payment of which the United States has guaranteed." Mr. Haugbn. They would necessarily have to be renewed within a few years. Mr. Springer. I was going to speak about that. These Government bonds will soon become due ai^d payable. All of the Government bonds will soon become due. A great many of these bonds are held in Europe, a great many of them are held in this country under decrees of courts, in trust relations and under wills of deceased-persons, who have required portions of their estate to be invested in Government bonds and interest paid to dependent relatives. Therefore, taking in view the fact that a great many of these Gov- ernment bonds outstanding are held in Europe, a great many of their] are held in trust capacities, and by savings banks, and by individuals of fixed incomes who want something certain to rely upon, very few jnore of these bonds are available as iSecurity for circrdatiqn of any 940 24 ' ' ' 370 BANKING AND CURRENCY. kind 111 view, therefore, of the early time when those bonds will be ml by the Government or become due, and from the fact that very few are available or can be reached to secure bank circulation this (ioverinnent must provide a broader basis tor seciinng the national currency than Government bonds, or depart entirely from the priuciple of securing- circulation by the deposit of bonds or securities of any kind We must take one or the other of those alternatives, either abandon the use of bonds for securing circulation or broaden the basis. I hold we should broaden the basis, and m doing this I see nothing m existence so available for safe security as the bonds of our States, our counties, and our municipalities. , ■ c-^. <- i Mr hIll. Let me ask a question right there; our entire State and municipal bonds would not exc^eed $1,000,000,000? Mr. SPRINGER. Just about $1,000,000,000; nearly $1,100 000,000 Mr. HALL. You could not get on those bauds deposited more than 90 per cent of the amount '? Mr. Springer. Yes ; that is what my bill provides. Mr HALL And a great many of those bonds in themselves would be excluded by the terms of your bill, being bonds that did not come up to the requirements of the law. There are a great many others which are not available at all and cannot be secured at any P"f , as for fnstance, the municipal bonds of the State of Tf^as or of the schoo fund, which can not be used in that way. In other Stutes the bonds are held by States and in trust, so that the amount of bonds that you could use that would be good bonds and would be available would no exceed $500,000,000 likely. Upon that y«.^\«0'ild secure 90 per ce^t of circulation by the terms of your bill, which would be $450 000,000. Have you any other way of getting more circulation than that . Mr Springer. I was just coming to that part, I was just about to reach that branch of the argument. I estimated the m^'^^ipal bonds which are held in trust capacities, as m the case of Texas by legislative enactment, tied up, as it were, a hirge portion of these, and '^gf at many of these municipal bonds, are not available by reason of the fact that they are excluded under- the terms of the bill; the whole volume, as has been said, only amounts to about $ 1,000,000,000. A great many of those aa-e issued by school districts and in municipalities f localities havn.g less than 5,000 inhabitants, but it is my opinion that from »()00,000,OUU to $800,000,000 of those bonds could be made available. It is also ray opinion that if this system should be pnt into working operation the national banks would retire their circulation and take oiit a circula- tion in these notes, which would make at least $200,000,000 moreavail- ble ; but that would retire, of course, the national-bank currency to that amount. . i i, «, Mr Hall. There would be nothing gained there? Mr Springer. Nothing in the amount, except the 10 per cent more which could be issued under my bill than is now issued to national banks, but it would provide a basis of $200,000,000 more for the cur- rency issued under my bill. These bonds and other governments addea to the $000,000,000 to $800,000,000 of State, county, and inunicipai bonds available would give us at least a basis of a bilhon dollars oi bonds to secure a national currency. Mr. Haiigen. How much would that be in excess of the present, national currency? .^ ,.„ „,„„ Mr. Springer. Assuming that the greenbacks, silver certihcateh, and national-bank notes will remain, it would make it possible to acta $600,000,000 to $700,000,000, probably not exceeding the amount msi, BANKING AND CURRENCY. 371 named, to the present volume of the currency, and I think that that is as much as woukl be added in the nest lifteen or twenty-flve years probably, a safe margin to enter upon and trust to future Congresses to take care of us during a more remote peiind. It is possible that State, county, and municipal indebtedness would increase as rapidly as ■would the demand for increased currency; if so the volnme wonid always be adequate to the wants of trade. Now, I want to make this suggestion, that there is no danger of adopting the principle of recognizing State, county, and munici]»al bonds to a limited extent. There is no danger of an unlimited or depreciated currency being issued as provided in this bill. Another point to which 1 wish to call your attention is, these issues are limited to the amount of the capital stock of tlie banks. I have compiled from the report of the Comptroller of the Currency for 1893 a statement showing the capital stock of all the banks in the United States. Mr. Sperey. You mean all of the banks or simply all the national banks? Mr. Springer. All of the banks in existence on October last. The capital stock of all the national banks was $678,000,000; of the State banks, $250,000,000; of the loan and trust companies, $1)4,000,000; of the savings banks, .$.'33,000,000; and of the private banks, $2«),000,000 ; making a total of $1,082,000,000, showing a remarkable coincidence of an almost exact amount of banking capital with the amount of State, county, and municipal bonds in existence in the United States. Mr. Haugbn. You mean all banking capital? Mr. Springer. All the capital of existing banks. Mr. Hall. It is simply a coincidence? Mr. Springer. Yes, it is simply a coincidence; the facts have no relation to each other otherwise. Under the provisions of this bill currency subject to 1 per cent taxation could be issued in amount equal to only 50 per cent of the capital stock of these banks if every one sh ould avail itself of the privilege of this measure, which it is prepos- terous to assume. Hence, they could only take out $500,000,000 of cur- rency at a tax of 1 per cent, and Avhen they went above that the tax would be increased as provided In the bill. There are in the United States, as I have compiled from this rei)ort, national banks to the number of 3,700, State banks to the number of 3,600, loan and trust companies to the number of 228, savings banks to the number of 1,030, and private banks to the number of 848, making a total of banks In the United States of 9,960. The resources of all the banks of the United States Is a matter to be considered in connection with a safe currency, because under the pro- visions of the bill which I have Introduced the resources of banks are liable to make good and to guarantee the bonds which are deposited, and the aggregate of tliose resources is $6,777,000,000, according to the report of the Comptroller of the Currency of the last October. Now I come to the question raised by the gentleman from Indiana at the close of our last session. He asked very pertinently what was the diiference betAveen the bill that I have introduced and the national banking system which now exists. I wish to explain that and answer the question. In the lirst place, the bill which I propose does not con- template the organization of banks under it. It entirely separates the matter of issuing currency from the business of banking proper. It is purely a currency measure. Second. The national banking system has proven utterly inadequate toforulsb currency for the people of this country, and it has proven 372 BANKING AND CURKENCY. meffectual to furaisli an elastic currency. We Lave now only about $185,000,000 of bank notes in circulation, and it bas been as high as $350 000 000, and is continually getting- smaller, and the elasticity whicb S "tended to be accomplished by the bill dul not prove effectual at ItimeVhen elasticity was needed. In the third pla,ce, the basis upon wSdi national-bank currency is secured is, as I have just explained, To iiiefleetual as to make it impossible for the banks to exist mucli longer under that system, or for tbe circulation to be increased much more th^n Ve ow have. So that tbe present system of national banks, so far as providing a currency for the people of this country adequate m vohuneand sufficiently elastic to meet tlie demands of the trade has Sled and we must provide something else; we must go a step inrther. iowasto tbe difference between tbis bill and wb at would be the practice under a system of State banks. Under a system of bta e banks our currency would be subject to the various requirements of 44 States ot the Union. Some of the States have adopted constitutional Sovisions prohibiting the incorporation of banks autbonzed to issue ^hciiating n.rtes, and among tbose States are some of the largest of the Unicm" Uliuo s, Missouri, and Texas being three of them. Many ot tbe new Sateswbicb have adopted constitutions since the warhave proSns prohibiting State banks to issue circulating notes. Hence a State bank system "vonld be local in its appbcation, and could not L iiaSonll in Ly sense. The issues of tbese State banks wonld be conS ed^^^^^ the various laws under which they were estabbshed; some wi:nild be good, some bad, and some indifferent, always creating an appiebensiou as to which was good and which was bad. mT Cox. Let me interrupt yon for one moment to answer tins prop- 08 tion. Under the present system of banking, bow could a bta e hank issue circulating notes if they were not as good as the greeu- banks or the national-bank notes? Mr Speinger. That of course depends upon tbe conditions which surround them. Banks would start up under favorable conditions peoplewould take the currency and go on flourishing ^^'hell eveiTthmg was flourishing, but when the evil day came and the banks weie pmssed there would be a rush upon those banks lor redemption of the notes, and some would not be able to meet tbe run upon them ad, arpast history ba,s demonstrated, would have to go down under the Mr HALL. Eight there for a moment, with your kind permission; there has been a very erroneous idea as to the relation existing between the State banks and wildcat currency'? Mr. Springer. I will come tf) that. , , . , ^.^,„■^ Mr Hall. But you know that under the State banking system that allows a State to charter a State bank of issue, a banking association chartered by tbe State for tbe purpose of issuing money, wUdtat currency will be an utter impossibility within the meaning ot that term which we understand it, and which brought around a disgraceful cui- rency before tbe war. Those were in existence not chartered by a State, which were not authorized to issue money by any State charter, and that gave the origin to the term. „f„Mic,T, Mr. Springer. I will explain that. Where a State should establsti strictlv a State bank and become, in some way, a partner ot the bai k- ing business by taking a portion of tbe stock, as was done in inany cases, being iutercsted^in the prolits of the bank, as m the case ot ti e State Bank of Indiana, those issues were generally niain I auied ana made good by reason of the fact that people regarded the State &h BANKING AND CURRENCY. 373 responsible. But a large portion of the State bank notes were issued in pursuance of general bankiug laws by corporations organized under the laws of the State. Such were the banks which we had in Illinois before the war and all of them went by the board. But 1 did not intend to dwell upon that subject. I will assume for the sake of argument that State banks start off all right, and, iu ordinary conditions, would be good. But a State bank system would make a nuiltiplicity of circulating notes and create au uncertainty iu the public mind as to whether they would be good in cases of emergency. The very fact of 44 diiierent kinds of currency m existence, assum- ing that all the States would adopt the system, would probably produce as many as 10,000 different kinds of bank bills in circulation, would cause the greatest difficulty in the transaction of business. It would be a serious impediment to the transaction of business iu the stores, in the banks, aud everywhere else. The State bank notes would be liable to taxation in the States where they were held. Bonds put up for security would be liable to taxation, and the bank would be obliged to keep a reserve for redemption, which would tie up 15, 20, 25, or 30 per cent of the amount of notes they would otherwise have, which they would be compelled to keep as a. reserve. The notes would be subject to taxation and the b-]ast, leaving only $G.'),0()0,000 outstanding. There was in the Treasury on tliat date 301.000,000 of silver dollars and only .$.57,800,000 in circulation, so thai the silver dollars and silver subsidiary coin in actuaJ circulation amounted to only about $123,000,000 or $124,000,000. Not quite $2 per capita of silver is in circulation, notwithstanding the Government has coined nearly !^500,000,000 in dollars and subsidiary coins. Mr. Johnson, of Indiana. Kepresented largely by paper ? Mr. Springer. Yes, sir; I am cnning to that. Mr. Hall. Does that include silver bullion for which silver certifi- cates were issued ? Mr. Springer. No, sir; I have not touched upon that at all. Mr. Walker. That is, silver outstanding in the hands of people- doing business? Is thnt all of the silver money in circulation ? Mr. Springer. That is all ; only .$«.5,OOO.o6o of halves, quarters, dimes, and nickels, and .57,800,000 silver dollars. Mr. Henderson, of Illinois. Are not silver certilicates Mr. Springer. I am coming to that. What I desire now to call attention to, is, notwithstanding the vast volume of silver coined o,nly this mucli has escaped from the Treasury and is out annmg the ])eople doing business. In lieu of the 361,000,000 silver dollars in the Treasury there is outstanding an e(iual amount of silver certificates whicli per- forms all the functions of money, dollar for dollar. Mr. Gox. What is the amount of that"? Mr. SpRiNGERt^Three hundred and sixty-one million dollars. That is paper is out in circulation doing the business, performing the func- f;ions of money, actively and actually performing it, while the silver dollars lie idle in the Treasury. Mr. Hall. I do not understand you right at that point, Mr. Chair- man ; you do not mean that three hundred and sixty-one million dollars is all the paper money in circulation"? Mr. Springer. Oh, no; silver certificates only. If the people desired those silver dollars, they hold these $301,000,000 of silver cer- tificates, which are orders on the Treasury for silver dollars, and they could go at any moment and call for it. Mr. Walker. And your point is that the people do not desire the silver dollars'? BANiaN(i ANIJ CURRENCY. 377 Mr. Springer. They are uot calliug' lor them, and they are not in circulation, except as I Lave stated. Mr. Walker. Th(!y prefer i)a])er money to silver dollars'? Mr. Springer. They prefer the pa]ier money to the silver dollars and to gold dollars. It is uot coin therefore that is actually doing- business Mr. Walker. Or that the people want. Mr. Springer. Or that the peoide want, because if they wanted coin they would bring the gohl from its hiding ])laces and put it in circulation, and if they wanted silver it is there lyiug on deposit subject to their order to the amount of $301,000,000. Mr. Oox. If you will pardon me for just a moment there. You spe;!k of bringing gold out of its hiding places, what do you mean by tliat? Where is this gold of which you speak amounting to something like 1508,000,000? I want to locate it. Mr. Springer. That is held as reserves in the banks, some of it locked uj) in safety deposit vaults, some of it stored aw;iy in stoclciiigs, aud there is some of it carried, 1 suppose, in the pockets of people. At any rate it is generally out of sight. Mr. Johnson, of Indiana. I have heard a great deal about the hoard- ing of gold by the people. I venture the assertion that there are uot in my Congressional district twenty men who have any gold in their possession. Mr. Springer. I am not talking about that. lam simply saying, notwithstanding the fact the Treasury Department shows there is $508,000,000 of gold coin in the United 'States in circulation, the point that I make is that it does not ap]iear in circulation where we see it and know it. It is somewhere, however, according to the estimate, but I think the estimate is large. Mr. Oox. Do not the figares show that this gold, I do not mean to say all of it, but a large portion of it, is held by the banks for their reserve? Mr. Springer. I have so stated; that is the general statement. Mr. Warner. Is it not equally correct in regard to gold as Avell as to sUver"? If they wanted the gold they would call upon the United States for it, just as they would in regard to the silver, since up to this time they have been always getting it when they asked for it. Mr. Springer. They can get gold out of the Treasury, if they desire it. The greenbacks are all payable in gold, but as a rule they do not call for it to circulate it as money, only for the settlement of foreign balances. There is less than $100,000,000 at the present time in the Treasury for this purpose. Mr. Warner. As long as it is there to be had for the asking, my point is that there is no distinction in that regard between the gold and the silver! Mr. Springer. I do not make any distinction. I make this dis- tinction as between paper money aud coiu of all kiuds, that the coin that is needed and used in actual transactions is only used for subsid- iary and small transactions, and that the people do business largely with paper money. Mr. Hall. Would it not be more accurate if you said, " add all the paper money and silver and gold in circulation together and that does not perform but 5 per cent of the business of the country, the rest being done on the credit system?" Mr. Warner. By individual paper instead of public ])aper'? Mr. Springer. There is a table published by the Comptroller of the 378 BANKING AND CURRENCY. Currency wliicli I think expresses tLis fact very clearly. The Comp- troller called, on the 15th of September, 1802, on all of the national banks to make a statement of the amount of deposits on that day. Mr. Walkeb. You mean not tlie total amount of deposits, but that he called for the amount de])Osited on that day "? Mr Springer. I mean the deposits made in one day in ordinary business transactions in the United States, and it showed m the 3,400 national banks (they did not go beyond that) there was deposited $331,000,000 in those banks in the United States, and of those depos- its 90 per cent were in checks, drafts, aud private indebtedness. Mr. Walkee. JS'inety-three per cent is my recollection '? Mr. SprinCtEE. No, sir; 90 per cent in checks aud 10 per cent m currency on the day to which 1 refer. Mr. Hall. And that is a very large estimate"! Mr. Springer. Those were the transactions of the national banks, and that was the business done on the 15th of September, 1892 Mr Walkee. Let me say here that every time the Comptroller has called for tliose statistics it has been at my suggestion, request, aud urgency, even from the time of Mr. Knox down. Mr. Speingee. Of the 10 per cent which was received m money there is no statement as to whether it was in paper or coin, but I think you will flnd of the 10 per cent that was received m money that S per cent at least was in paper money and not over 2 per cent m com of all kiuds. Hence it is paper currency and individual checks that really do the business of the country. ■ ^, . I have simply referred to these facts for the purpose of showing that our duty as a committee, representing one class of the business of the House of Representatives which is committed to our care, is to ])eiiect some measure that will contribute to the establishment of a safe, sulfi- cient, and elasti(! paper currency for this country. I desire now to state my reasons briefly for favoring a national cur- rency, a currency having its authority and vitality from laws passed by Congress. I believe Congress has the power to furnish a national currency for all the people of this country, and I believe it is the duty of Congress to do so. Eeferring to this duty, Daniel Webster, m the U. S. Senate, on the 2Sth day of September, 1837, said: "That it is the constitutional duty of this Government to see that a proper currency, suitable to the circumstances of the times and to the wants of trade and business, as well as to the payments of the debts due to the Government, be maintained and preserved; a currency of general credit, aud capable of aiding the operations of exchange, so far as those operations may be connected by means of the circulating medium ; and that there are' duties, therefore, devolving on Congress in relation to currency beyond the mere regulation of the gold and silver coins. Gentlemen will lind tliat statement in the abridgement of the debates of Congress, Benton, volume 13, page 416. Mr. Waenee. The chairman is aware, of course, that does not refer to legal tender; and the chairman is doubtless aware that when Web- ster had matured his views upon that point he distinctly favored the concurrent use of a currency which might be called a national currency, and also of a local currency, corresponding to the Statebanking system 'I Mr. Springer. lie favored national banks. Mr. Warner. Hid not he favor the other as well? You will find that in his si)ee(;h made in Wall street, I think it was about 1840, and those were his tinal matnred views. Mr. Walker. Before i\hat body! BANKING AND CUURENCY. 379 Mr. Warner. It ■was a speecli made, I believe, at a mass meeting held in Wall street, New York City. Mr. Springer. The power of (Joiigress to thriiisli a national currency carries with it the duty of furnisliing it in ample volume for the pur- poses of trade and commerce. The currency should be sufhcient in all parts of the country for the transaction of business. If that is done then there is no place for local or State currency, and it would not cir- culate, unless perhaps at a discount, and if it does circulate at a dis- count it would be to the injury of those who used it. I desire to call attention to the fact that we have passed beyond the realm of specula- tion so far as the power of Congress over the subject of paper currency is concerned. Mr. Sperry. Let me ask you one question, so that I may get your meaning. You say that if we have a national currency that is accept- able over the country the local currency coiild not circulate? Mr. Springer. I do not say it could not circulate, but that if it did, it might be at a discount. I am of the opinion a local currency would not be necessary for the transaction of business, because if the Gov- ernment furnishes an ample volume there will be no necessity for a local currency and the national currency would be more generally used because it would be preferable. Mr. Warner. Does not the gentleman remember in the period between 1862 and 1866 and even 1867 we did have a national currency in the shape of greenbacks which circulated all over the United States, and at the same time a local currency in such general circulation that the national-bank bills could not be given out except by suppressing that local circulation, which was not done until August, 1806 'i Mr. Springer. That was an abnornal conditioji and I do not think the period between 1861 and 1866 should be referred to as a precedent in regard to anything concerning the currency and banks. We were entirely at sea then as far as money was concerned. Mr. Hall. Let me ask this question : Was not that a time to test the currency the best of all times? Mr. Springer. I know as far as the State of Illinois is concerm'd (I can not speak of any other State) we had a State bank currency, and in 1861 and 1862 it disa.ppeared like the dew before the morning sun and not a dollar was left. Mr. Warner. May I ask the chairman if the reason for that was not that it was founded theu, just as the proposed system is now founded by the chairman in his bill, upon a lot of stocks and bonds, the credit of which was attacked? Mr. Henderson, of Ilhnois. Upon bonds exclusively, I think. Mr. Springer. It was founded upon State bonds, and when those States went out of the Union it was supposed that the bonds would be conliscated. We can not legislate on precedents of a time when civd war had destroyed all confidence. We can not take conditions of that kind into consideration. Mr. Walker. You say this currency disappeared; do you mean to say it was found to be of no value"? Mr. Sp>ungbr. The bonds were greatly depreciated, and some ot them were supposed, for a time, to be worthless. Mr. Warner. Was there a general bankruptcy of the State ot Illinois at that time? Mr. Springer. There was a general suspension of the banks. Mr. Warner. I think the chairman misunderstood my question. My question was not in regard to a general banking system, but it 380 BANKING AND CURRENCY. was whetlier, at tlie time you Lave meutioued, tbere was general bank- ruptcy throughout llhnois, or was there simi)ly a crash in thefliiancial system '? Mr. Springer. Iu the haulviiig system ami uot a general bankruptcy. Mr. Warner. Then, although the curreu(;y based upon those secur- ities was worthless, is it not a fact that if the currency had been based upon the ordinary commercial paper of the State, would not they have passed through that ordeal unscathed ? Mr. Springer. Possibly. If the Government of the United States had guaranteed Mr. Warner. No, not that- Mr. Springer. I am answering further. Tou are assuming one condition and I am assuming that if the Government of the United States had been behind those issues, as beliind the bills I propose, they would not have been depreciated or attected by the war. JNlr. Warner. My point is, that without tlie Government being behind them at all, had that currency depended upon the business of Illinois — upon ordinary business transactions made through its banks- it would have passed through that ordeal uuscatlied. Mr. Springer. Possibly, and I am glad my friend has called out that point. Under the bill which I have introduced not only are all the assets of the banks, the State banks, the local banks, liable for this currency, but the bonds which are deposited are liable, and the Government itself is behind all of that. Mr. Warner. 1 may say to tlie chairman that I am with him, I agree entirely with the chairman that it is safe. My objection is not that it is not safe, but you use arbitrary and riuestiouable methods to make it safe. Mr. Hall. I know you do not wish to do injustice to anybody, I know that. Now, I want to draw tliis point to your mind and that is, in the time of the civil war, after the States had seceded, after Louisiana had left, Louisiana State bank notes could uot be bought for greenbacks or even for gold; gold was refused for Louisiana State bank notes under the State bank system of that State, which was somewhat similar to that in Massachusetts. Mr. Springer. That is all right. They may have been good in Mis- souri and Louisiana, but they would have been worthless in Dlinois. Mr. Black. I «'ould like to ask one question. I understand that your position in regard to State banks is based very largely, if not entirely, upon the exi3erience of Illinois? Mr. Springer. No, sir; I want to say right here, if you will permit me, I am willing to wipe out the past in regard to State banks and look entirely to tlie future and urge nothing against them excei^t the argu- ment of inconvenience. It is inconvenient to have forty-four different kinds of pajier money in circulation in the United States, and that is enough in itself to discredit State bank currency as far as I am con- cerned. Now, gentlemen, if you will permit me, I desire to say that, notwith- standing our difference of opinion in legard to the virtues of State banks and their failures, I hold that Congress has the power to deal with this subject, and if Congress has the power to deal with this sub- ject, it seems to me it does not require argTiinent to establish that a currency emanating from Congress or through authority of Congress, which would be acceptable in every fjart of the country without ques- tion, and have the fewest character possible of bills iu circulation so BANKING AND CURRENCY. 381 as to make it easily understood by the people, would be preferable to a variety of bills and a complication of systems. Mr. Hall. You add another to the five already existins"? Mr. Springer. One more would be less objectionable than J4 more, RTid to that extent, 1 think, the difference in degree would be in favor of my system. Mr. Johnson, of Indiana. There is sometimes a difference in princi- ple, too? Mr. Springer. Now, the case to which 1 wish to refer is Veazie Bank V. Fenno, reported in 8 Wallace, p. 548, where the Sui)reme Gonrt decided this question not only as to the right of Congress to prohibit the iState- bank issues, but as to the power of Congress to provide a national cur- rency. I wish to quote briefly from that decision: It can not be doubted that under the Constitution the power to provide a. circula- tion of coin is given to Congress. And it is settled by the uniform i>raf'tice of the (iov- ernment .and by repeated decisions that Congress may constitutionally authorize the emission of liills of credit. It is not important here to decide whether the quality of legal tender in payment of debts can lie coDstitutionally imparted to these bills; it is enough to say that there can be no question of the power of the Government to emit them; to make them receivable in payment of debts to itself; to lit them for use by those who see tit to nse tluin in iiU the transactions of commerce; to provide for their redemption; to make them a currency, uniform in value ami description and convenient and useful for circulation. Tlieso powers, uutil recently, were only partially and occasionally exerciseiect I have in ^iew. Now, i'or instance, the secretary of the State Democratic committeo in my State, a man who is the editor of the largest newspaper in the central part of my State, has come out as a candidate for Congress— he is not in my district and therefore 1 have got no fears of a personal character — but he advocates in his newspaper and through Ms speeches on the stump that all the U. S. Government has to do in order to make the people wealthy is to issue money to them and that the secur- ity for the money should be a loan on real estate, not drawing a dis- tinction between secnrity and convertibility, convertibility being the sine qua mm of a good currency, and if this committee could just send out in some form a conclusive argument suited to the average intelli- gence of the West and South I think it would be well, for I think we are all in the same boat, as I have been through the Southern States and have heard a. good deal on this very question. I believe that would be doing great good to the entire ])eoi)ie, because they want to do right, and I know my peoi)le are just as intelligent as they are anywhere else, exce]it possibly jieojile in the Northeast, whom I admit probably have better and more schoid advantages than we have. Mr. Brosius. Do you include in this statement the man who has promulgated this idea that the Government can make people rich by giving them money; do you include him in your intelligent class? Mr. Hall. No; my idea is this. The idea, they have is that if yon give the Government perfect security they are willing enough that it should be loaned at one-half or even one third tlie value, and that WOiTld be perfect security as far as that is concerned if it could b$ Ciir- BANKING AND CURRENCY. 385 riofl into practice, but the error they make is that that character of money is not f;ood money unless it is convertible money. Mr. Johnson, of Indiana. They thiulc because Government bonds which have a long time to run, can be kept at par, therefore you can keep that much money; they do not draw tlie proper distinction and I am glad you made tliat interruption and called the chairman's' atten- tion to it. Mr. Spi^ingbk. I want to call attention to the danc;er that would come ultimately to the people of adopting either of tliose methods of issuing and distributing the currency. If the Government goes into the business or is to go into the business of loaning money to the peo- ple it can only get its supply from printing it, and it therefore brings the printing press into competition with the existing capital of the country, and all the accumultited and loanable wealth of the country would be destroyed by the Government coming in competition with it by printing irredeemable currency and loaning it to the people. Now my understanding of the wants of trade is that the people need a cur- rency that they can obtain in their every day transactions. As I pointed out the other day, the transactions of tlie people in one day in this country are enormous, beyond the comprehension of the mind. Over $500,000,000 of triule is done every day in the United States, and the people need money in plac'cs where money can be had. If tlie Gov- ernment should issue $1,000,000,000 or $5,000,000,000 of money and loan it out on mortgages, advances it on farm products, i)ay it out for expen- ses of government, or for some special improvements, the next year the people who need money in their business ('ould not get it excei)t by going to the banks and capitalists to borrow it. This thing of supply- ing the people with money must be for all times in order to be adequate; it must be for to-morrow and the next day. The people who do busi- ness must have money accessible all the time— this Aveek, the next week, and next year to do business. This money must be ever present to help in financial transactions; it must be always accessible. If the Government went into the business this year and issued $5,000,000,000, the next year the people would have to borrow of the capitalists just as they did before. The Government can not create values by act of legislation. If the Government were to begin this system it would be but a few years until the issues would be beyond the reach of redemp- tion, and then the whole system would go down in financial ruin and bring all the business of the country with it. There can be no safe currency furnished to the people that is not actually redeemable, convertible into coin on demand, and if the Gov- ernment enters into the busbiess of furnishing money to the ])eople, irredeemable or unlimited currency, the Government, in order to make that currency good, must put up a sufficient coin reserve. The Gov- ernment would be called ui)ou to assume to furnish all the peoi)le at all times at all places with all the money they can use. This would be an impossible task. Look at the condition of business now. If you will re^r to the report of the Comptroller of the Oiirrencyfor 1S93, you will find there" are now in existence in the United States national banks to the number of 3,781, State banks to the number of 3,570, loan and trust companies to the number of 228, savings banks to the number of 1,0.W, and private banks to the number of 848, making a total number of banks of 9,466 in the United States doing business. Those are the places where the business of the people is done and to which business people go when they want money just as they go to a dry-goods store when they want dry goods, or to a clothing store when they want to get a 940 25 386 BANKING AND CUREENCY. suit of clothes. The people will go where those things are to be had. If the Govermuent is going into the iiioiiey-h)aning buHiiiess it must appoint agents almost as numerous as are the enijiloyes of those banks, which have ou an average say 3 or 4 men each employed, which would mean 35,000 or 40,000 employes. Mr. Sperry. Post-offlces? , . ,, Mr Springer. The post-oflices have all the business they can do now. If you add the banldng business to them you will liave to increase the number of employes, because the employes of post-offices are doing something: they are all fully engaged in transacting the postal business of the country The Government can not meet the business require- ments of the country by issuing its notes and loaning them tothepeople, or by paying them out for current or extraordinary expenses. How then, can the Government interpose in the matter of the cur- rency and not disturb existing values, or fall into the practice of unlimited issues? It can only do this by avaihng itself ot the exist- ing financial institutions of tiie country, using them as distributing aot-^ncies, as provided in the bill I have submitted, or in some measui'e of the kind. There is a great prejudice against banks. I know that such prejudice lias ])revailod in many parts of the country and that many good people think that a bank is an institution devised by wicked Wall street for the purpose of oppressing and robbing the people. This preiudice is not without foundation. , . • , It is due to the fact that State banks before the war and national banks since that time have been authorized by law to issue their notes, their "promises to pay," and circulate them as money, by loaning them out to the people. The people can not understand why a bank should be endowed with a function which properly belongs to Govern- ment only, the right to issue circulating notes, and thus create the money of the country. If, however, banks should be conhned to the business of banking proper— the business of receiving deposits, loaning money, selling exciia.ngo, etc., there are no institutions m existeiiee more beneflcent and more to be desired, when rightly managed, than banks If it were not f(u^ the banks the whole sarplus money ot the country whicli is now utilized, would lie idle in the pockets ot indi- viduals or in safe-deposit vaults. The banks enable the people to have five times more actual cuirency in circuUrtion than they woulrt have without them. In a high state of civilization, and where there is great public conlideuee, there will be a great number of banks and the o-reater will be the facilities for the transaction of business. ' Instead, therefore, of diminishing the number of banks, they oughtto be increased. Hence I put in my bill a provision that a bank may apply for this national currency which hasa capital stock of $L'5,000, and there is nothing requiring auy specified population of the city m which they are doing business.'^ Let every small village of the United States have a bank \vhere people can put in tlieir surplus earnings at night and lie secure. The surplus earnings will form an aggregate, which wi 1 furnish a loanalde fund for the people, who may thus do business with the surplus money of the country. In every coiiimunity where you find a bank you 'find the peoi)le thrifty and saving. They go to the bank and put in tlieir earnings and kcc]) them against a rainy day. I do not know whether banks encourage thrilt or thrift encourages banks, but they seem to go tisgethcr; they seem to go liand in hand. Xow, the bill which I have introduced has in view a system by which the banks, which are ac(;ustomed to loaning money to the people, can fiu'uish it to the people, and can supply themselves with a suthcient BANKING AND CURRENCY. 387 amount to do the business of the, eountiy. If this system were adopted, Coiis'ress would not be called upon to say' how jiiany thousands of dollars or how numy millions of dollars should be issued The system would be selfaotinjj- and sell^snpplvjii,£--, and tlie business of the eountry would determine how much was needed. The bankei's would not take out the money unless it was profitable to take it out and if it was profitable to take it out, theic, would be somebody who would want it who would pay interest on it and Rive security for it And if it were not profitable, they would not take it out, and if it had been taken out they would return it, and business only would be the guide as to what would be the volume of the currency. We might double our population and the law need' not be clianged. -And if we should have a population of ]0(l,0(iO,(t()() or 300,()0() 000 of peoi)le in this eountry, instead of 70,()00,0()0 or (ir>,()(j(»,(K>(), Congress need not be called upon even to determine whether it should he so much per capita or so much should be issued; whatever would be needed would be issued; wliatever was re(|uircd in trade would be called'for, and no more and no less. The objectiou which I luu-e to authoi'izing banks to take out circuilation or to issue eircuhiting notes without depositing the security with the (iovernmcnt is this: If the banks are to issue circulating notes in proportion to their capital, or upon some fixed standard tliat tlie Government sjiall prescril)e, and put up no security with the Government, they will be obliged to keep a reserve for the redemjition of their notes and to redeem, theui on demand, or Congress should require, as the Canadian systenj does, the establishment of central agencies where the money is redeemed as well as at the bank itself 1 am opposed to putting upon the banks the burden of redeeming the circulating notes of the eountry. The business of ban kin "■ has no necessary connection with the business of the currency or furnishing currency to the people. A bank of disecjunt and deposit has no neces- sary relation to the currency any more than it has to the coins of the country. You might just as well claim because the banks receive deposits and loan money that they shall have right to coin money and to issue coins with their own stamp upon them. There is no necessary relation between the two operations. The banker takes the coin as he finds it from the Government, and he pays out that coin which the Gov- ernment has provided, and none other in the way of com. Now, why not let him take the paper currency as he finds it from the Government and pay out that? What has a banker to do witli the currency of the people'^ Why should he be clothed with the power to say what should he currency and what should not? If I could 1 would divorce the banks entirely from the business of currency issuing and rerpure that the Government should sui)i)ly the currency upon proper security to be furnished it. Mr. Cox. If the chairman will yield to mejust at that point, I would like to hear the chairman ui)on this iiroposition for a moment. The security for your circulation is based upon State bonds, U. S. bonds, uuuiicipal bonds, etc. Mr. Springer. Yes; that is correct. Mr. Cox. JSTow, that class of bonds are all issued uiwn the authority of the States. JSTow, will not your bill in that aspect meet with this opposition, that the security for your circulation is entirely under the control of the legislation of the States and how is the Government of the United States to contr(d that which is based on that circulation? Mb. Springer, I will answer that, and I am veiy glad the gentle- 338 BANKING AND CURRENCY. man asked the question. Under the bill which I have proposed the Government of the United States alone is responsible for the currency it has put out and will redeem it in coin on demand. The oidy object in taking the security from the banks is to indemnify the Goverunient against any possible loss on the currency which it issues, and it takes, therefore the bonds which the banks offer as security. Now, the bank in depositing such security under this bill must guarantee the payment of the principal and interest of the bonds which it deposits, unless they are Government bonds, and of course the Government does not then require their guaranty, but the bank guarantees the pay- ment of the principal and interest of those bonds, and allof its assets are liable for their payment. If the bond depreciates 5 per cent after it has been deposited, the bill provides that the currency comniissiou shall notify the bank of this depreciation and call upon it to deposit other bonds to make the security good, and if the bank fails to make it good, then those bonds are treated precisely as if a private individ- ual had deposited them as collateral upon his note, and the Govern- msnt sells them in the market for what they will bring'. Mr Walker. Suppose it would not bring anything ''. Mr Springer. Then the Government holds the bank liable on its guaranty and holds all of the assets of that bank to make good the ^^SIit'wALKER. That is to say, the bank guarantees the Government and the Government guarantees the bank ? ., v, , •. Mr. Springer. The Government does not guarantee the bank; it simply guarantees the notes which are out. Mr. Walker. It is the same thing ? Mr Springer. No; it is not; the notes will always be good, bup- pose the Government might lose all of the amount which the bank puts up. Mr. Walker. Then what? Mr. Springer. The note- holder is protected always Mr. Walker. The Government loses that. Mr. Springer (continuing). Even if the Government should lose it all, but the history of the national banks in this country shows since the banking system was established in this country only $10,000,«0()has been lost to the depositors even, wliile the bill-hohlers have lost noth- ing and that the Government has collected $70,000,000 m thiit time from the 1 per cent tax upon the notes of the national banks; so that the Government would now be ahead $00,000,000 on the transaction it it had guaranteed the depositors and had paid all their losses. Now, 1 assume the Government will never lose aiiytliing, but, even if itdid, tbe tax which the banks must pay would more than cover any possible loss to which the Government coulil be subjected. But behind the Govern- ment, under my bill, lies the y)romise of the banks to make good the possible loss on the bonds, and the promise of the banks is all that is behind the bills that the gentleman from Massachusetts proposes to have issued under his bill; that is, the bank only is liable. Mr. Walker. That is not so. Mr. Springer. It is all you ask, as I understand your bill, that ttie banks should be liable for their own issues. My bill requires more than that; it requires that the banks shall deposit first-class bonds aDd shall be liable to the Government for their payment and that the Gov- ernment shall be liable to the bill-holder, so that under no circum.stances shall the bill-holder have any concern about the banks as to whether his bill is good or not. BANKING AND CURRENCY. 389 Mr. Cox. Will you pardon me? I understand very well the proposi- tion and the security of the note which you propose to issue. But the Government is liable for the note; tlien it is protected, as you say, by the bonds deposited there, and secondly it is protected by the value of the assets of the bank 1 Mr. Springer. Yes, sir. Suppi after the bank has deposited bonds, say of the State of Tennessee, and has complied with the law, that the legislature of Tennessee passes an act and refuses to assess taxes either to pay the principal or interest upon the bonds, how will you proceed witJi tliat! Mr. Springer. The bill requires that the boiuls should be sold in the market and lets the bank take care of its own collateral. The Gov- ernment has nothing to do with collecting the amount due on the bonds; it simply sells them for what they will bring. Mr. Cox. I know that is bound to be the process; you take an insolvent bond and put it upon the market, then do you require tlie bank to make good the dift'erence between the defaulting bond and the good bond? Mr. Springer. I do. The Government is required by this bill to bring suit Mr. Brosius. That is, it closes it up? Mr. Springer (continuing). To bring suit against the bank for the difference between the price received in the market and the outstand- ing notes which the bank has taken out. The bank is held liable for the difference, and all the assets are liable. Now, let ns see what are the assets of the banks of this country. The assets of all the banks of the United States on the 1st of October last were $0,777,00(1,000. The assets of the national banks were $0,000,000,000, and the assets of all the State banks were $1,130,000,000, and the assets of the savings banks were $1,700,000,000. Mr. Walker. Does your bill authorize the Government to bring suits against the banks collectively? Mr. Springer. No, sir; each bank by itself is responsible for the bonds which it has deposited. Mr. Walker. Then that point does not count? Mr. Springr. It shows this much, that assets of the banks are largely in excess of the capital stock. The cai)ital stock of all the banks is only equal to $1,082,000,000 in the United States, while the resources of all the banks are equal to $6,777,000,000, so the assets are about six times more than the cai^ital stock. Mr. Cox. That statement includes all the banks? Mr. Springer. It includes all the banks. You will see the relation- ship which exists, that the assets of the banks are six times as much of the capital stock, that is the average, and under my bill the banks can only take out an amount equal to 60 per ceut of the amount of the capital stock upon which they are taxed 1 per cent, and 115 per cent on which they are taxed 2 per cent, and 25 per cent more on which they would be taxed 4 four per ceut. Now, I assume, and this is what I regard as an elastic feature, that the banks would take out in currency an amount equal to only 50 per cent of the capital stock in ordinary times, but in times when business was greater, say between September and May, they could take oat 25 per cent more and pay 2 ])er cent on it, and in times of great financial stringency, such as last year, they 390 BANKING AND CITREENCT. would probably take out 25 per cent more and pay 4 per ceut on it for the time tliey had it out. Mr. Cox. The assets of the banks are $« for $1 as compared with the capital stock. This is the proposition you lay down "i Mr. 8PEINGER. That is what the record shows. Mr. Cox. Now, tell me how it is that a bank has $6 of assets for $1 of its caxjital stock; where does it get it? Mr. Springer. It is the deposits of the banks. Mr Cox. The bank becomes the debtor of the depositor? Mr Springer. The assets of the bank consis<-s of its capital, of its surplus, and of its deposits. Now, this bill of mine gives the Govern- ment a first lien on all of this just as the national-bank law gives the Government a first lieu upon the resources of the banks in order to make good any demands the Government has upon them. The bill- holder has the first lien upon all the assets of the banks to make good their claims, just as in the Canadian system and as m the Scotch system; the assets of the bank are held first fi)r the secnirity of the bill holders, and the depositors must wait until the bill-holders are satisfied. . -, Now, one thing further. A bank of deposit receives money and loans it out at thirty, sixty, and ninety days, and sometimes fi)r six mouths, and tlie banks promise to pay those depositors im demand. In fiiir weather this is all very well. But when thr, fiiuincial storm comes, and depositors are rushing wildly to get their deposits, and go to^the bank for it, everybody knows that the bank can not pay them. That is iust as certain as any fact that exists, that a bank can not pay allot those liabilities on demand, if they are called for at the same time. Now, it is proposed by some to base the people's currency and its con- vertibility upon that very place in our financial system whici) is the weakest of all others, namely, the banlvs of discount and deposits. Should we seud the bill-holder to the i)lace ^\ here dejiositors are rusli- ing in, in order that he may get his bill redeemed befoie the bank closes its doors"' Let us look at our financial histury a moment. Last sum- mer 154 national banks failed hi tliree or four montlis. There was not one man in this broad laud of oius who looked into his pocket to find out whether he had one of the bills of those broken banks ; nor did a banker look to see whether he had them in his vaults. Why? Because the Government had pr(mvised to pay them. Tlie Government had promised to pay those bills and nobody cared in that regard whether the banks failed or not. Now, sajipose that the Gov- ernment had not promised to pay them; suppose those bills rested upon the assets of the bank for their redeni]ition? Every national bank in the United States would have gone to tlJe wall; every national bank last summer, every one ol tiwm would have gone down. I under- take to say that there is not a- national bank in the [Jnited States that had any circulation outstanding that would not have gone down before that storm. Why did not tliey all go down ? It was because, by the wisdom of Congress, we liad placed the redemption of those bills, not upon the banks", which could not pay their own deiiositors, but upon the Government, which could pay the notes, and which had promised to redeem them. « Mr. Warner. Does not our experience show that your conclusion is an entirely erroneous one? Mr. Springer. No, sir; I think not. Mr. Warner. As a matter of actual fact during the very time when distress was greatest and financial failures most frequent, was there BANKING AND GTTRRENCY. 39 J not such a demand for currency that bn sin ess corporations, tliat mnnic- ipiil corporations, tliat nia.iinfacitnrin.i;' asw(ici;itioiis, and e\'eii i)rivate iudividualK were- called upon to issne euornious ainonnts of currency upon less security tlian \Yould liave l)eeii aObided liy any l)ank? And Inive you a single rec(ml of a single case in wliicli tliis cnrrency was returned upon a bank, or a corporation, or n])on an indiA idnal, in such a way as to cause liiui the slightest eniharrassinent? Mr. SnEiNaEi}. I will answer that. Tlie reason why currency was at a premium during the course of last yea,r was l)cca,use the Goveru- iiient had ])roniiscd to |iay not ordy the currency issncil through hun- dreds of national banks, but it was resjtonsilde for the great A<'iluiiie of the currency, amounting to nearly $1,1(H>,0()0,()()(). This vast sum, con- sisting of Treasury notes, bank notes, and coin ccrtilicates, was held at par by the promise of the G(jvernment to n]ake it good. That was what it had behind it. Now, the notes issued by th('d.ianks of iSouth Carolina and by the clearing-house association of i^ew York were issues made to meet that particnhu- emergency. Tlie security behiml it Avas more than ample, and everybody knew it. That made that cuiTency therefore as good as the (bnernnient money, but it was the Govern- ment credit that kept that standard np. Jf the (iovernment currency had been at a discount all else would have gone to the wall. The fact that in that emergency the clearing-house association Avas able to put np a guarantee of the allied banks of New York on clearing-house (!cr- tilicates simply shows that the securities that were demanded by tiie -people were in that very emergency' deeuied sutticier.t, and were talvcn accordingly. It was simply a v(duntary transaction with their cus- tomers for the x>urpose of settling balances. Mr. Warnbk. That is just what 1 am referring to. The people vol- untarily accepted and used not oidy the guarantee of tlie associated banks of New York, but, so far as I can find out, the voluid,ary guar- antee of every corporation, of every manufacturing association, ami of everybody else who issued shinplasters through all that time. Now, I am not commending the prudence of that, but 1 am calling the chair- man's attention to this, that, so lar fiom the distress of last summer, to which he particularly refers, causing such a lack of contidence in the institutions or individuals as to send currency in for redem])tion, the exact opposite of that took place ; that, in fact, even this illegal currency was never returned as the conserjuence of any lack of coulidence, but came back in a natural way as distress went away. Mr. ISpeinger. Now, 1 will ask the geidteman, in order to ntteily explode the position he has taken, to state whether he is willing to allow these corporations to furnish the cnrrency for the peo[i!e? Mr. Warner. I am willing that every Federal law upon our books which refers to legal tender, to bank currency, or anything of that kind, shall be absolutely repealed, and leave the currency to be fui^nished by individuals, by corjwrations, by municipal associations, or by anybody whom the several States shall permit — sul)jectonly to such i»rovisions as shall provide publicity and honesty as to the basis of issue. I go the whole length of it, though I am not oblivious to the advantage of having provided certain administrative details. Mr. Springer. The gentleman has answered me that he would i)re- scribe a system, throwing around the system safeguards Mr. Warner. I put no effectual guard except i)ublicity. Mr. Springer. He is willing to provide some guard under which private individuals and corjiorations cati issue currency, but he can hardly expect such a system to be adopted in this country. 392 BANKING AND CURRENCY. Mr. Warner. We could not go to a country where there is a worse banking sysleni. Mr. Springer (continuing). Because no Congress of the United States is going to throw down the bars and let every man and corpora- tion in tiie United States issue money ad libitum and only require publicity as a means of security. Mr. Warner. I would require publicity and honesty as to the basis of note issues. Mr. Johnson, of Indiana (to Mr. W^arner). You spoke of something which was good during the late panic wliich was not guaranteed by the Government. You refer to these various kinds of money you have just mentioned? Mr. Warner. I refer to the pay checks, certified checks, "clearing- house certificates" (which were not really such), corporation and indi- vidual shinplasters, etc. Mr. Johnson, of Indiana. The kind you haaid;ing association .aitor the same shall have deposited with the Treasurer of the United States lawful money to redeem its circulating- notes outstanding, as hereinafter provided. The avails of such assessments as aforesaid, so to be paid to the Comptroller of the Currency, shall constitute a guarantee fund for the ultimate redemption, after all other reasonably available assets liable therefor shall have been exhausted, of all circulation to be issued under this act. The Comptroller of the Currency may cause the guarantee fund hereinbefore mentioned, for the integrity and safe-keeping of which the United States shall he and C(uitinue to be responsible, to be invested in United States bonds, or, in his discretion, in such other securities as may produce tl.e greatest amount of income consistent with safety ; the revenue derived therefrom shall be used to defray the general expenses of the Bureau of the Comptroller of the Currency necessarily incurred in carrying out the provisions ol' this act. But nothing herein contained shall he construed as giving any liank or banking association the right to demand, receive, or dr.'tw any interest ujion the amount it n^ay have contributed to the guar- antee fund hereinbefore mentioned, or u]ion any part thereof, or to any repayment of such amount or of any part thereof. 396 BANKING AND CURRENCY. Any such "bank or banking assooiiilion, or its receiver, assignee, or legal itive, may at any time deposit witli the Treasurer of the United States Eighth, representative, — _ - - ,. lawful money of the United States equal to the amount of its outstanding circu- lation issued under this act, and thereafter tlie assets and stockholders or share- holders of such bank or banking association shall be free and discharged from any liability for or on account of any such circulation or its redrmptiou; and when any such notes, for the redemption of which lawful money has been thus deposited, shall be presented to the Treasurer of the United States the same shall he redeemed by him iu lawful money. Ninth. No bank or banking association shall, either directly or indirectly, pledge or hypothecate, for any purpose whatsoever, any of its circulating notes issued under this act ; any president, cashier, director, or other oflicer of any bank or banking association who shall knowingly violate the provisions of this section or who shall participate in or assent to any such violation shall be deemed guilty of a misde- meanor and shall be iined not less than one thousand dollars nor more than Ave thousand dollars, or ioiprisoned at hard labor not less than one year nor more than five years, or both. Tenth. No person, firm, corporation, or association shall receive from any bank or banking association or national banking association any of its circnlaling notes issued under this act as security, or as collateral security, for any loan of money, or receive the custody or promise of custody of such notes as security, or as collat- eral security or consideration for any loan of money. Any person, firm, corporation, or association offending against the provisions of this section shall be deemed guilty of a miadeuieapor and shall be finednot less than one hundred nor more tlian one thousand dollars, and a further sum equal to the value, at the face denominations, of the notes so received. Eleventh. It shall be the duty of the Comptroller of the Currency to receive worn- out, mutilated, or defaced circulating notes issued under this act and, on due proof of the destruction of any such circulating notes, to deliver to the bank or banking association issuiug the 'same other blank circulating notes to an equal amount. Such worn-out, mutilated, or defaced notes, after a memorandum has been entered in the proper books, as well as circulating notes which shall have been surrendered to be canceled, shall be destroyed by maceration in the presence of four persons, one to be appointed by the Secretary of the Treasury, one by the Comptroller of the Currency, one by the Treasurer of the United States, and one by the bank or bank- ing association whose notes are thus destroyed, under such regulations as the Secre- tary of the Treasury may prescribe. A certificate of such destruction, signed by tlie parties so appointed, shall be made in the books of the Comptroller of the Cur- rency and a duplicate thereof forwarded to the bank or banking association whose notes are thus destroyed. Twelfth. The provisions of sections fifty-one hundred and eighty-seven, flfty-oue hundred and eighty-eight, fifty-four hundred and fifteen, fifty-four hundred and thirty, fifty-four hundred and thirty-one, fifty-four hundred and thirty-two, fifty- four hundred and thirty -three, and fifty-four hundred and thirty-four of the Revised Statutes of the United States, so far as they are not inconsistent with the provisions of this act, are hereby made applicable in full force to the notes printed under the direction of the Comptroller of the Currency under the provisions of this act. Thirteenth. The Comptroller of the Currency, with the approval of the Secretary of the Treasury, shall cause notes in blank, in convenient denominations, to be printed upon the distinctive or special paper which has been, or may hereafter be, adopted by the Secretary of the Treasury for printing United States notes, and such notes to be furnished to banks or banking associations under the limitations above provided ; and shall cause to be registered each bank note delivered to any such bank or banking association, and .shall also receive, receipt for, destroy, and register the destruction of any such notes which may be redelivered to him by any such bank or banking association or national banking association for such purposes; and shall cause to be assessed and collected, safely kept, invested, and used the special assess- ments for guaranty of circulation issued under this act; and shall co-operate witli banks and banking associations and national banking associations iu carrying into effect this act according to the true intent and meaning thereof; and for such purpose may adopt and promulgate such rules and regulations consistent with this act as, with such approval, he may consider proper; and shall report to Congress at each regular session thereof, within ten days from its a.ssembly, his proceedings underthis act, the rules or regulations which he may have adopted or promulgated, his recom- mendations in such regard, and any fact which he may deem of special interest or pertinence in this connection. Seo. 3. That this act shall not be bo construed as in any way to exempt national banking associations from any of the provisions of the law heretofore existing except in so far as such provisions are necessarily annulled by the express provisions of this act. BANKING AND CURRENCY. 397 Mr. Warnee. Mr. Chairman and Gentlemen of the Committee : I shall endeavor to detain the committee as short a time as possible and shall try to be peculiarly brief, if in the treatment of such a sabject one can be so, in the remarks which I shall make in advance of questions, this in order, without troubling the committee any more than is neces- sary, to leave as nmch time as is possible for the discussion of such points as may be raised by questions. I take it that it is in such a way we shall more probably reach the particular matters which several mem .ers of the committee may think need elucidation. We have had under discussion a number of bills which have been discussed to such an extent that I shall try to take advantage of that fact in shortening the discussion upon this bill. It will be remembered that the subcommittee having in charge bills referring to the matter of the repeal of the tax against State bank issues reported here some months ago a draft of a bill which was gone over more or less thoroughly n the committee. Mr. Hattgen. Let me ask if that was after the bill was printed! Mr. Warner. It was. Mr. H ait GEN. Was your substitute printed? Mr. Warner. The draft that Avas printed was a report made, without committing individuals, by Mr. Cox, Mr. Hall, and Mr. Warner, and at the same time there was presented and i)rinted with that report a bill that Mr. Cox preferred Mr. Cox. Let me interrupt you one moment. The subcommittee was composed of three Democrats. Tliat bill was reported as the re])ort of all of the committee and then my bill was reported with it as a report of the minority and they were all printed together. Mr. Warner. In view of the fact that a comparatively lengthy report of the committee has been somewhat discussed, it may possibly lead to more prompt understanding of what this bill is to say that it diifers from that report mainly in two particulars. In the first place, I have so changed the basis of the bill, by striking out all reference to other institutions than State banks, and State banking associations, and national banks, as to conform to the action which the committee did actually take before dropping the considera- tion of that draft, so that this bill refers only and exclusively to State banks, State banking associations, and national banking associations. Mr. Cox. In so far as the tax on the others is concerned, it is not disturbed in this bill! Mr. Warner. It is not disturbed at all. I have simply adopted the action of the committee in so far as it was definitely had in amend- ment of the details of the draft. In one other respect the bill now presented by me differs materially from the draft rei)orted from the subcommittee, and that is this: As presented by the subcommittee the draft was an attempt to repeal all Federal legislation which to that subcommittee seemed inconsistent with our views of the constitutional rights of the Federal Government. The result was, necessarily, to leave absolutely untouched and uutram- meled by Federal legislation the questioji of what circulation should be permitted by any State within its own boundaries. It will be remem- bered, however, that before the committee ceased consideration of that draft, it had already ordered an amendment which trenched upon that principle. As explained at the time, it was regarded by every member of the subcommittee as utterly immaterial as a practical matter. No member of the subcommittee believed for a moment that a State cur- rency, forbidden by the Constitution of the United- States from being 398 BANKING AND CUERENCY. made a leg'al tender even within its State, and iahibited by express law of tlie Federal Government from any circulation whatever outside of that State, could either form any material part of our currency or be any obstacle m the way of any other currency. Mr. Johnson, of Indiana. That is, you thought it was nugatory and could not float? Mr. Waknbr. Could not float. That being the case, and this com- mittee having already by its action trenched upon the principle, it seemed to me best, as a practical matter, to confine this bill to such repeal of what some of us believed to be unconstitutional, unwise, and impolitic legislation, as would do awa.y with the prohibitory tax against State-bankissues. Witli that end the lirst section of this bill is so changed from the draft i)resented by the subcommittee as to [»rovide for neither more nor less than tlie repeal of the tax as to such currency alone as may be expressly authorized in the bill. Such is the distinction between this and the draft, which, having been discussed, is more or less familiar to every member of the committee. Another bill discussed in this coniniittee is the bill presented by the gentleman from Tennessee (Mr. Cox), providing for what has been generally termed the " uncmulitional" repeal of the tax against State bank currency. This bill diifers from that mainly in that this bill pro- vides by aHirmative legislation for permitfing national banks to take advantage of tlie same freedom, that by the repeal of the tax against State ba'nk currency, would be left to State banks and State banking associations. Let me ex])lain. The material ditterence between the bill pi'esented by the gentleman from Tennessee and the one which we are now discussing is not in the matter of more or less Federal super- vision. In so far as there is any differcjiee in that regard I want for myself to say I consider it immaterial. For, in my bill, as now ])re- sented, an attempt has been made to I'educe the whole matter of Fed- eral participation in carrying out the plan to such purely ministerial functions as scarcely to justify the claim that "supervision" is provided for; and, therefore, in that respect, I regard the difference between the bill introduced by the gentleman from Tennessee and that now presented by myself one of immaterial details rather than of principle. Mr. Johnson, of Indi;ina. Where does the President of the United States stantl on this bill'? Mr. Warner. I have not the remotest idea. In aniither regard, howevei', it differs very mateiially from the bill Introdnced by the gentleman from Tennessee. This diiference does not appear upon the face of the bill, but is the result of circumstances, which in brief are as follows: When the national banking system was established and given a monoiioly by the ten ]>er cent prohibitory tax law against other bank issues, it A'S'as not done in order to su]vpress wild-cat currency. In those times "wild-cat" currency was freqfiently referred to, but with reference to former years, and other money — of 1831 and 1845, etc. The wild-cat currency question had solved itself long before ISflO. The tax was not tlien imposed in order to keep out of circulation an unsound currency. It was imposed in order to drive out of circulation a currency that was so sound and of such good repute that the peo])le would not take the national-bank bills as long as they were allowed to use the State-bank currency. Mr. Johnson, of Indiana. Some of it was good and some of it was bad? Mr. Warner. At the time that this tax was taken off there was no suggestion made in either house of Congress of the badness, if you may BANKING AND CUKRENCY. 399 SO call it, of tlie currency as a re,;ison for the repeal; but it would of course be hard to make the statement that (nery bank througliout the United States was at that time in good reiiute. Mr. Beosius. I want to state, in that counection, the arguments made in support of the national-bank bill refers very frequently to the bad money which had existed before that. That was one of the arguments employed. Mr. Warner. The arguments, so far as I recollect, invariably and, I amcertaiu, generally, referred distinctly to bad money Avhichhad'existed years and years and years before, and not to any assumed state of the currency which then needed remedying in that respect. Mr. Johnson, of -Indiana. I have always understood the reason that the national banking law was enacted was in order to get a uniform currency througliout the whole country, whicJi, of course, involved tlie idea that there was a lack of uniformity, and also to furiiisli a market for the bonds. Mr. Warner. As stated by the gentlemen who preseiited the matter in Congress, commencing Avith Senator Slierman, before any bill was presented, it was in brief this: Inasmuch as the Government found it hard work to market its bonds or to find a circuhition for its legal ten- der paper, it was urged tliat a law should be ]iassed which, in the pre- cise language of Senator Sherman, should "destroy the banks," and compel the use of the national circulation thus given a monopoly. Mr. Brosius. Because the channels of circulation were tilled up with this State money. The Chairman. Please let me state that in the State of Illinois we had our worst condition of State banks in 1861 and 1862, when we lost all of our currency, and the people were left suddenly without any cir- culating medium, and at that time there was a demand for the national currency and the greenbacks came in. Mr. Warner. I am very glad the gentleman calls attention to that — although I should have preferred to have it come in at a later time — because the experience of Illinois is one of the most instructive things that has ever been had in any State. Illinois attempted to get along with a banking system based u))on special security. That special security consisted in a large measure of State bonds. With the slightest question of the security of these bonds — at a time wlien the general tiuances of Illinois was unshaken — at a time when, if the bills had been based upon the commercial pa])er of the merchants of Illinois, there was not a single one that would not have been promptly redeemed if sent in for redemption — a rumor, aftei'wards corrobinated by tlie fact, that the special securitj^ was depreciated or worthless, caused those bills to be sent in so promptly for redemption that it absolutely ruined the currency system thi'oughout Illinois. That is the case, and I am glad this point was called to my attention. The Chairman. The assets of the banks, however, were left for the payment as well as the special securities'? Mr. Warner. As a matter of actual fact were not the bills after- wards paid — the most of them? The Chairman. The bill holders lost nearly all. Mr. Warner. If that is the case, then it was because the condition which I have just suggested was not enforced. If there was no general financial crash in Illinois, then if those bills had been based in reasonable proportion upon the actual commercial paper of Illinois— on the notes of the merchants who did not fail, as they did not, for on this the Chairman will agree with me — there could have been no question 400 BANKING AND CURRENCY. either about the credit or currency of tliese bills or their redemption, Mr. Brosius. Let me suggest to my friend that the assets of the banks were liable for those notes. Mr. Warner. I have not looked up tlie question as to what those assets consisted of. If the banlis were allowed to issue currency beyond their capital, without limit in proportion to the good commercial paper they held, then the mere fact that the assets were liable for the bills is not a material condition Mr. Brosius. That is true. Mr. Warner. And to anyone who proposes such a system 1 have only to say that I consider it as bad as a special security system, which may go to pot without even the fact of insolvency being tlie cause. But to return. 1 have stated that I consider immaterial the differ- ence in regard to Federal supervision between the bill presented by the gentleman from Tennessee and that presented by myself. The mate- rial diflerence between them is this: At the time when this 10 per cent tax was im]iosed, the great busi- ness of Ijank-note circulation was carried on through local banks, under State laws. The moment the tax was imjiosed, and monopoly began under the national-banking act, the greater number of the old strong State banks took out national-bank charters and are classed to-day as national banks, although their business, their solvency, their commer- cial connections, etc., are growths of the old State-bank system, and not in any way the result of or promoted by their becoming national banks, which was simply an incident in their history— an attempt to accommodate themselves to the circumstances forced upon them. More than this, in many States there are practically no other banks in exist- ence than the natiorml banks. Not merely that, but in a iinmbei of • States, by constitutional prohibition or by inhibition of law passed in accord with their constitutions, there is no legal way by which any baiiks of issue, except national banks, can be established. The great States of Texas, Missouri, and Illinois are in that category. The result is this, that, whereas if the tax had not been imposed origi- nally, there is no question in my mind, any more than there is in the mind of the gentlema,n from Tennessee, but that we would now have an abundant and elastic currency supplied in a natural way; yet, since, in all of the States, a greater proportion of the institutions which can be most relied upon to furnish a safe currency are national banks; since in all of the States the only institutions which have had any expe- rience in the last thirty years in dealing with cureucy ai-ethe national banks; since in a number of the States, by their constitutions or by their laws, no other banks of issue except national banks are possible, the result of that condition of things is that the simple repeal of the l^rohibitory tax against the notes of State banks and State banking associations will not give the people an elastic currency, because it would still leave under the inhibition of the national banking act the very banks which alone could give, with any sort of promptness, a sate and elastic currencjy to our people. Mr. Johnson, of Indiana. Your idea is it would take time for the bank to change from one system to the other and that during that time there would be trouble in regard to the currency 1 -' Mr. Warner. That is one trouble; the institutions all over the countiy, which are in the best condition to supply currency under any law, which Avere the backbone of the old State systems, which are the only ones in some Stales which are permitted to issue by the State law any currency whatever^ would, by the mere lepeal of the ten per BANKTNO AND CURRENCY. 401 cent tax, be left powerless to do what they alone can do promptly— assist in furnishingr a safe and elastic currency. And so, believing that this matter is not merely a vindication of Demo- cratic principle, in which I agree thorouglily with my friend from Ten- nessee; believing that it is not merely a repudiation of the right of the Federal Government to interfere with what I believe to be the exclu- sive prerogative of the State, in which regard I would be glad to vote for the repeal of the State bank tax, no matter whether that repeal did any practical good or not; but, more than that, believing tliat what we want is practical relief; believing that what the Democratic masses as well as the Eepublican masses want is not merely a return to Demo- cratic principle, but a provision for a safe elastic currency, I propose this bill, which, m addition to the repeal proposed by the gentleman from Tennessee, involves also an enabling act. Without giving them a monopoly, without giving them any advantage, it puts national banks upon the same footing as it does State banks in the opportunity it "fves them to avail themselves of the new system of currency. "^ Mr. Oox. If this is within your line of thought just there Mr. Warner. Certainly. Mr. Oox. It gives both systems the same advantages; that is the practical effect. Mr. Warner. That is it. Mr. Oox. Then that necessarily changes the securities of the national banks? Mr. Warner. I am glad the gentleman asked that question, although I would have preferred for it to have been put a little later on; but I am glad to take it up now. The bill I propose does not directly interfere with the present national-bank system. It leaves every national bank free to issue national-bank bills under the same restrictions and the same regulations and upon the same security as now; and if, as some of our friends, especially on the Eepublican side, beheve, as I do not, that there are a great number of people throughout this country who greatly prefer a national currency, based upon national bonds, the lesult will be that the national-bank system Avill go on just exactly as it does now. National banks can take advantage of this act only to an extent which will not make the aggregate circulation of any national bank a greater per cent of its capital than is allowed a State bank right alongside of it. It can issue so much new currency under this act as, when added to the amount it shall have issued under the national- banking act, will make the same amount of currency outstanding in proportion to its capital as is permitted to a State bank. Have I made myself clear? Mr. Brosiiis. That is, the national banks can issue two kinds of ^jurrency? Mr. Warner. Precisely. But no national bank can issue any more currency in the aggregate than can a State bank right beside it with the same capital. Mr. Russell. Do not you think there might be a danger of the national currency being at a premium over State currency in certain sections of the country ? Mr. Warner. I see no earthly objection to national currency being at just as big a premium as anybody wants to pay for it. In other words, I have enough courage of my convictions to say that I am per- fectly willing to let the two kinds of currency stand together, and let 940 26 402 BANKINa AND CURRENCY. the ijeople cTioose betwecB them; and if the people want national-bank- iD"- currency so much that it is at a premium, the result will he that -the national banks will have, for that very reason, enough inducement to issue national-bank currency to drive this other currency out of circu- lation • and if the people want national-bank currency there is no reason, even from a Democratic standpoint, why they should not have it. If, on the other hand, the result shall be what T beheve it wdl be, and the people are equally well satisfied with the other currency, then, because It wnll be more easy and profitable to issue it than to issue the national- bank currency, I believe that the national-banking system will die a painless death. . ^.i, . ■ ^ Mr Beosius. I want to get that idea clear m my mmd on that point. Conceding that having two kinds of currency, and one would be at a premium over the other, do I understand you to say that would not be a real obiection to having two kinds of currency? _ _ Mr Warner. Mr. Chairman, my answer is this: It is simply incon- ceivable that it needs a Federal inhibition to prevent banks from issu- ing currency which can not get out at par, but which they will have to redeem at par as fast as it can be handed back through the window after it gets out the door. Mr Brosiitp. If the gentleman will excuse me, my inquiry was pred- icated upon the assumption of having two kinds of curreney; one would be at a premium over the other, and my inquiry was that if we assumed that, woukl not that be a real objection to have two kinds of currency, and I asked the question because my friend stated a moment ago that if one was at a premium he did not see any difference why people would not . • , i i, . •. • Mr. Warner. The hypothesis is so utterly inconceivable that it is very hard for me to answer his question, but I will answer that if it were possible for two kinds of currency to be in coincident circulation, and one kind was at a. premium, and there were people — and that would have to be included in the hypothesis— who liked the kind at a premium, and there were other people who liked the kind at a discount, I should say let each have what he wants. Mr. EussELL. Have you ever known of anyone who preferred a security at a discount to some other security at a premium? Mr. Warner. I never did, and that is the reason why the gentle- man's hypothesis seems to be almost unthinkable. Mr. Brosius. You say that that hypothesis is unthinkable. Does not my friend know that prior to the war, when we had a State bank currency, the notes issued by the different States had variable values, and that the Western and Southern money was always at a dis- count in the Eastern market? Mr. Warner. I believe Mr. Johnson, of Indiana. The people took that money, not from preference to the other, but from necessity. Mr. Warner. The gentleman from Indiana has answered a greater part of the inquiry of the gentleman from Pennsylvania. The differ- ence in the current value of notes before the war consisted of two fac- tors, one a mere factor of exchange, which, gentlemen will agree with 'me, is something which has nothing whatever to do with the particular matter we are now discussing, and which now, with our very great facilities for connnunicution between different parts of the country, is an immaterial matter. AVluit I mean is if mercantile paper is abso- lutely first class in Now York it will buy just as much of San Fran- cisco paper, probably, as it will buy of New York paper, and vice versa, BANKING AND CUREENCY. 403 but in former times, when communication was slow and expensive and risky, when we practically had no facilities for telegraphic transfers, so that a great loss of time and interest was also involved, the simple matter of exchange was a more important one. Now, to the other point. The other factor in the variation in the worth of money before the war was this : On account, largely, of lack of communication or facilities for communication, but sometimes for other reasons as well, difierent communities were absolutely forced to carry on their business by the roughest kind of barter, or to avail them- selves of currency which they themselves knew to be more or less doubtful. For example, there was a time in the western part of the gentleman's own State when the facilities for business in every shape were so limited that whisky was made legal tender. Tou could not seU a note for so many gallons of whisky at New York at that time except at great discount. The trouble was not that the whisky was bad, or that the people were not honest, but that, on aacount of the lack of facilities of com- munication, they had been forced to use poor means of exchange instead of good means, and had to take the consequences. But at present I beheve if the national banking law was repealed, which, how- ever, I do not propose, that the conimnnications now existing between all parts of our country are such as to take away the necessity for use in any part of any currency that its people did not consider as per- fectly good. In other words, there would be banking houses or agencies established at every town where good currency was needed which would be putting out there the currency of the strongest banks in the country. But if that were not true, the fact that we leave in existence all of the national banks, which now supply national currency all over the country, would, it seems to me, absolutely guarantee us against the existence of any currency which would circulate at a dis- count. Mr. Johnson, of Indiana. Your exjiectation is that under the prac- tical operation of this bill national banks would soon go out of exist- ence! Mr. Waknbr. My expectation is that the national-bank currency will soon go out of existence, because that, after this plan has been in operation a few years, there will be nobody, not even my friend from Connecticut, who will see the slightest reason for the existence of a national-bank currency. Mr. Johnson, of Indiana. Your answer to my question is, yes Mr. Waener. What is the question ? Mr. Johnson, of Indiana. By the practical operation of this bill national banks will go out of existence? Mr. Waenee. I do not think the bill will drive them out of exist- ence. I do think that under its operation there will soon be found to be no ofQce which national-bank bills can subserve to an advantage; but the bill does not drive them out of existence. The Chairman. Have you taken into the consideration of this mat- ter of a depreciated currency what is known as the Gresham law of finance? Mr. Warner. Unquestionably. Mr. Haugen. As to whether the national banks will be driven out of existence because of the Gresham law? Mr. Warner. No; the Gresham law operates only in case, either by legislation or by circumstances, a forced currency is given to poor money. What I mean is this: If, for example, the business of a par- 404 BANKING AND CURRENCY. ticular commiinity is very large and from a lack of communication there is only a supply of sliinplasters or of light-weiglit money, people may and will to a certain extent use that money rather than let their accounts go unsettled or be left to ordinary barter. That is practi- cally a forced legal tender. Xow, if that same result is brought about by a law which makes the poorer money legal tender in payment of debts, then people will use it for that purpose; and in every case where, either by law er by circumstances, a forced circulation is given to poor money, the result will be that everybody who stops to think— and most people do— will continue to pass that poor money and keep it in circu- lation while they will continually hoard the good money or use it to pay debts in quarters where creditors will not take the poor money. The result will be that the poor money will drive the good money out of cir- culation. If it is claimed that any amount of poor money or doubtful money which is not given, either by circumstances or law, forced circu- lation has any effect whatever upon the circulation of good money, then I do not concur. I believe it is generally conceded that this is entirely outside of the workings of Gresham's law. The Chairman. I do not concede it. Mr. Beosius. I do not take that as being conceded, and I do not think it is true. The Chairman. Let me state my disagreement on that proposition. The creditor will take the depreciated money rather than have his debt remain unpaid, holding that that is better than nothing, and if this Mr. Wakner (interrupting). The creditor will not take the depre- ciated money unless his necessities are such that he is practically forced to take it; and the fact that he is taking depreciated money does not make it current or help it crowd out good money any more than, if he takes a horse he would not biry except in payment of a bad debt, this drives good horses out of the market. In other words, I do not understand that Grresham's law involves a novel principle of currency or any uncommon trait of human nature. It is simply this, that it is so natural for us to prefer our own interest to that of o'ur neighbor that each of us, if he has both good money and poor money, will pay his debts with the poor money if he can make his creditor accept it and keep the good money for himself or pay it out to someone whom he can not make take poor money, with the result that the poor money is kept in active circulation and the good money hoarded or sent out of the country just as in Gresham's time. There is no Gresham law, or any other kind of a law, that says people will keep poor money when they can get good monev for it. As long as poor money has a legal or virtual forced ciurency it will drive good money out of .circulation ; but whenever this poor money is made redeemable in good money it will be promptly offered for redemption and the good money will drive out, or call in, the ijoor money just as it did in Gres- ham's time. Whenever current redemption in good money is adequately provided, Gresham's law has no basis on which to operate. If I may be pardoned the suggestion, the gentleman seems to have accepted the loose statement of Aristophanes, rather than the more accurate one of Eicardo, which, under permission, I will insert here. Oftentimes have we reflected on a similar abuse In the choice of men for ofiiee, anrl of coins for common use; For jour old and standard pieces, rained and approved and tried, Here among the (Grecian nations, and in all the world beside, Recognized in every realm for trusty stamp and pure assay, Are rejected and ahand(,ned for the trash of yesterday; For a vile, adulterate issue, drossy, counterfeit, and base, "Which the traffic of the city passes current in their plaoa. BANKING AND CURRENCY. 405 [Frere'a translation of Ariatophaneg, "Frogs."] Whilst each of the two metals was equally a legal tender for debts of any amount we were subject to a constant change in the principal standard measure of value. It would sometimes be gold, sometimes silver, depending entirely on the variations in the relative value of the two metals; and at such times the metal which was not the standard would be melted and withdrawn from circulation, as its value would be greater in hnllion than in coin. — Eioardo. Mr. Beosius. Miglit I say right there, the channels of circulation can only contain a certain amount of money "^ Mr. Warner. That is right. Mr. Brosius. If we fill those channels of circulation with a certain kind of money, inferior money, does it not crowd out the other? Mr. Warner. The gentleman is entirely correct in that. It is cer- tainly true that, while the amount of money which is required for business purposes varies from day to day and from week to week; yet at any given time there is a certain amount which for that time is sufflcient; and if there is afloat, under circumstances which prevents it from being promptly redeemed, or under circumstances which discour- age its contraction by redemption, a greater amount of money than is wanted, the poor money will tend to drive the good money out. We have an examide of that at the present time to which I would like to refer. In this corxntry, at the present time, we have a number of different kinds ot currency. Some of those kinds of currency, notably one, gold, is deemed by everybody throughout the country and through- out the world to be absolutely money. In the opinion of a great many people, 110 matter how small a proportion of our population, the other kinds of currency are subject to a question of doubt, infinitesimal it may be, so small as not to be expressed in difference of exchange, but a doubt which makes a preference, and, going outside of our country, the great mass of the people prefer the gold which they do understand to the other currency which they do not understand, even though they may not stop to reason in regard to the comparative safety of the one as compared with the other. At the present time, not, as I believe, on account of any question of lack of confidence in the currency, but as the result of numerous causes, there is not that certainty as regards the immediate future which induces prudent meu to want to borrow, or that assurance of prompt prosperity which induces prudent meu to want to lend money. The result is, between the borrower and the lender, that a large amount of money has accumulated in banks, and to-day in the city of New York alone there is, I presume, $100,000,000 deposited in the banks that is today drawing no interest, and they can not let it out at 2, or even 1, per cent a year. Mr. Russell. That is because it is a condition of the business of the country; that does not depend upon a currency system? Mn Warner. I am endeavoring to follow out the suggestion of my friend from Pennsylvania; the business situation is now such that what under ordinary circumstances would be merely a normal supply of currency is today more than, in the suspended condition of business, the business community wants to use. Mr. Cox. One moment on that point; is not this the state of facts Mr. Warner. I would like to continue this. Now the result of that, in exact accord with the principle which the gentleman from Pennsyl- vania mentioned, is this: People not being able to get interest lor their money look about for investments. There are very lew standard investments as to which a part is not owned in Europe— no matter 406 BANKING AND CURRENCY. ■whefher it is 10 per cent or 20 per cent ; in some cases the percentage is larger. Therefore, when a man tells his broker he is getting no inter- est on his money and that he has $20,000 or $50,000 locked up in the hank which he wishes him to invest in some way that will enable him to get a little interest, and that broker goes into the market and buys Erie, or New York Central, or sugar trust, or any other kind of invest- ment, that causes a current of those securities from other parts of the country and other parts of the world to meet the demand thus caused. Now then, if only 10 per cent of those are procured from Europe, if only 5 per cent are procured from Europe, the result is this, that the European part will all have to be paid for with the kind of money that is recognized as such in Europe. Therefore, even if everything here can be here paid for by any currency we have, the result will be that we will have a drain of gold from this country; that will be the net result on account of the plethora of currency as compared with the wants of business. Now, suppose we should have a business revival, of which there are some signs now — if there should come a period of confidence so that prudent men would be glad to start new enterprises and want to borrow money, so that other prudent men would have such faith in the average prosperity of would-be borrowers as to be willing to lend money — the result would almost immediately be that people would seU instead of buying bonds and stocks, and the result would be that the situation would become more favorable for securities going away than for them to come hither. The result would be not merely that the operation would be stopped of those causes which tended to drive out of this country the gold and keep in this country other currency, but there would be set in opera- tion causes that would bring gold to this country on account of the fact that our other currency was sucked up by the demands of business. We had an example in another line only a few weeks ago, when people hoarded currency. If you will remember, during last August everybody hoarded every kind of currency they could, in order to have ready money, and the result was that $40,000,000 of gold actually came back to us from Europe, brought here practicaUy by the exchange of securities. Now, whether it is by a panic, causing a want on the part of the people for the currency, or whether it is by expansion of business and growth of confidence that cause more money to be needed on account of the greater amount of business to be trans- acted, in any case, as long as we need the whole of, or more than, the currency we have of all kinds in the country, there is no tendency to drive any kind of currency out. But the moment that, either irom a sus- pension of business and a lack of demand for the currency we have in the country, or from any other cause, the amount of currency extant is greater than the amount required for the business of the country, then we have drawn from us the kind of currency, if there is any ktadwe have, that people like elsewhere; and we have left with us the kind of currency, if such there is, that is more acceptable here than elsewhere. Under this bill, I believe an absolutely automatic contraction of the currency would take iilace whenever the amount outstanding was greater than that required by the then demands of business. I believe too there would ensue instantly an automatic expansion of the cur- rency whenever the amount outstanding was less than the growing demands of business. And a main difference between this system and the system proposed by the gentleman from Illinois, the good points of which I I'ecognize, is its automatic elasticity. You take State-bank currency and let it be issued; and if, for example, a banker in New BANKING AND CURRENCY. 407 York found they were piling in the currency upon him he would promptly send home for redemption the bills of other banks. In each village they would send home for prompt redemption the bills of the banks of every other village ; and money of less repute would be most promptly sent home for redemption. Whereas now the national-bank currency, being good in every part of the United States, the currency proposed by the gentleman being evenly good, so that there is no ques- tion of redemption, that fact takes away an inducement for prompt redemption, upon which I confess I rely as most beneficent in order to help insure automatic expansion and contraction of the currency in precise proportion to the demands of business. Mr. Johnson, of Indiana. Your whole theory in regard to the auto- matic expansion and contraction of the currency is predicated upon the belief that some of the banks will not be worth anything! Mr. Waenee._ So. Mr. Johnson, of Indiana. I can not see that there is any other result. Mr. Warner. I am very glad that j^ou made that point. Mr. Beosius. That is the very point ujion which the whole system seems to be based. That is the pivot upon which the whole automatic system rests, that the money issued by the State banks is not as good universally as the national-bank notes, and that therefore for fear lest something will overtalte them, some misfortune, they are instantly returned for redemi)tion to those banks'? If it is not that fear which prompts the New York banks to return them at once for redemption, why would they return those notes any more than they would the notes of a national bank issued in Pennsylvania for redemption? Mr. Warnee. I will tell you. Under this bill the banks are left to get as large a ijroiit as possible from local circulation; and the process of issuing notes to meet the demands of their locality is so facilitated as to permit them to exploit in the most pro]npt and thorough manner the local field. Now, so long as the demand for the currency is such as to permit the banks in any locality to keep afloat the full amount of their notes, which they are permitted by law to use, they would have no particular interest in sending other notes home for redemp- tion — excepting periodically and in a perfunctory sort of way. The very moment the amount of currency in the country becomes redun- dant, then the only way that any bank can keep its own notes out- standing, and thereby continue its profits on circulation, is to keep the field about itself clear by sending promptly back to the localities from which they come the notes of other banks that are presented over its counters. Mr. Beosius. That is equally applicable to national banks as State banks! Mr. Waenbr. Yes, so far as concerns the now currency proposed, but not as concerns the present national-bank currency, the conditions for the issue of which are such as not to offer the same opportunities for profit, and hence not the same inducements to send home redundant circulation. The Ohaieman. I understand from your bill that the bdls of the banks are redeemable in United States notes, legal-tender notes! Mr. Waenee. They would have to be as long as we have legal tender. The Chairman. They would not be compelled to pay m com I Mr. Waenbr. Not necessarily; though if I had my way they would be. 408 BANKING AND CURRENCY. The Chaieman. And your reason for presenting them to the bank for redemption is the holder of the bill prefers the legal-tender note to the bank's note? Mr. Warner. The bill-holder, whenever he finds that he has more money than he needs, and he is thus compelled to choose without refer- ence to whether he knows anything about those bills or has any doubt as between the two kinds, will deposit the bills he does not know about rather than the bills he does know about ; while each bank the very moment they get to its counter — and there is the real place where the system effectually works — will be obliged, will be induced, will be practically paid, to send back promptly, by every means that the inge- nuity of commerce can devise, the notes of every other bank than its own. Mr. ExJSSBLL. And if he was fortunate enough at that time to hold the national-bank currency he would not do that ? Mr. Warner. I accept the gentleman's suggestion that under the national-bank system there is less inducement and opportunity when- ever we have a plethora of currency for the banks, of their own accord, to reduce it down to the proper level ; and it is because there is less inducement under the j)resent system, and because I want to give greater inducements and make the system more automatic in its workings, that I believe that in this respect the system I propose is superior to the present national banking system. The Ohaieman. Let me ask you there, in order that I may under- stand you thoroughly. The bills are in all instances printed by the General Grovernment? Mr. Warner. Yes, I am coming to that. The Chairman. The name of each bank issuing will be upon the bills which are to be signed by the bank officials '? Mr. Warner. Precisely. The Chairman. ISTow, this banking system is open to all banks exist- ing that may avail themselves of it? Mr. Warner. Within limitations. The Chairman. To issue 75 per cent of the unimpaired capital stock of the bank? Mr. Warner. Yes, sir. The Chairman. There are 9,000 banks in the United States, includ- ing loan and trust companies, of which there are 228. There are about 800 private banks and about 1,000 savings banks, and of national and State banks probably nearly 7,000. Assuming that only national and State banks will avail themselves of the currency you would provide for 7,000 different kinds of bills of banks, and each bank probably would have five difiorent denominations of bills, one dollar, five dollars, ten dollars, twenty, and a hundred, say, so you would have 30,000 dif ferent kinds of bills in circulation in the United States'? Mr. Warner. Yes, in the same sense that under the present national banking system we have, say, 20,000 different kinds of currency. The Chairman. These banks not being liable for their own redemp- tion Mr. Warner. The national banks are hable for the redemption of then- bills, and if the system is such as in the line of probabilities to leave the proposed guaranty fund a sufficient insurance against failure, the result would be the same here as in the case of the national banks. The Chairman. The f|uestion is, in regai'd to the circulation under that bill each bank would be liable for the redemption of its own bills. Mr. Warner. The national banks are now BANKING AND CURRENCY. 409 The Chairman, With the additional guarantee of the Govenimetit? Mr. Warner. Not at alh The Chairman. The G-overnment promises to jiay, ultimately, the national-bank notes! Mr. Warner. Not at all; the Government promises simply to apply certain property of the bank, to wit, certain national bonds that the bank has deposited, in the payment of the notes. The Chairman. That is, practically, the bill-holder does not look to the bank but to the General Government, but in your case the bill- holder would look entirely to the bank for redemption. Mr. Warner. The bill-holder wcmkl know that the bank had taken out what might be called a "Lloyd's'' insurance, which, in the opinion of CongTCSS, is sufficient to insure the prompt payment of their bills. The question of whether the assessment for the guarantee shall be a half per cent or one per cent, or whether it shall be accumulated to three per cent or to five per cent, is a matter of detail for the judgment of the committee. The Chairman. Just on that point. The guarantee fund raised by your bill is 1 per cent ? Mr. Warner. No, 3 per cent on the circulating notes. The Chairman. I did not so read it, but that is all right. That is all you have as a guarantee, that is collected from all tlie banks to be held for the redemption of the notes of a particular bank that might fail? ^ Mr. Warner. Precisely, for the currency alone. The Chairman. The tax derived from all parts of the country will be liable for the failure of one particular bank 1 Mr. Warner. Unquestionably. The Chairman. It is a general partnership by which they are all carried? Mr. Warner. It is like a Lloyd's insurance. The Chairman. Now the only fund is the fund that is raised here? Mr. Warner. Yes; so far as concerns the guarantee fund, and that is only to cover the currency and nothing else. The Chairman. You mean 3 per cent of the whole amount of the circulation? Mr. Warner. Yes. The Chairman. How much would the tax be upon each bank for the amount paid in? Mr. Warner. It pays a tax of one half per cent upon taking out, and also pays an additional tax of a half per cent on the amount out- standing more than a year. In view of the fact that a great part of that taken out is in circulation for a much less time than a year I beheve it practically involves for the fli'st two years a tax of about three quarters of 1 per centum ujoon the circulation. But in case of banks that continue a large circulation for a number of years, it would involve only a total assessment for the whole time of 3 per cent in the aggregate, in addition to the expenses, and would probably be re^luced to below one-half per cent a year on actual circulation as the ultimate result. The Chairman. This guarantee is the only agency the Government assumes so far as the redemption of the notes is concerned ? Mr. Warner. With one exception. Whenever a bank wants to go out of business or has failed, upon the deposit, by it or its receiver or representative, with the Treasurer of the United States of an amount of cash equal to the outstanding amount of notes issued by it, it is pro- vided that from that time all liability of the bank on account of its cur- 410 BANKING AND CUEEENCY. rency shall cease; and that the Treasurer shall apply the cash thus deposited to the payment of those notes when preseiited The OhAieman. Just as it is in the national-bank bill now. Mr EUSSELL. I want to call your attention to this provision under whicli the Comptroller of the Currency can issue these notes; that he must be satisfied " that it (association or bank) has made adequate and convenient provision for the redemption of its circulating notes to be issued as provided in this act." I want you, either now or perhaps at some subsequent hearing, to give your opinion of what that adequate and convenient provision should be? Mr Waknee 1 au) perfectly willing to answer the question, althougli I consider it somewhat immaterial. So long as the clearing-house asso- ciation of a city , „ . •, Mr EusRELL. But these banks are not all m a city. _ ^ Mr' Wakner. Wait a moment. If the clearing house ot the principal citv of a State was willinsi- to take upon itself the current redemption of those notes, tliat would ordinarily be sufficient. .In oth^ words what I mean to say is this, If I was a banker sitting m New York and I declined to ac(^ept exchange which was made payable at and accepted bv a clearing-house association of a large city in any State, I have no doubt that my friends, the presidents of the other banks, would say, and say rightly, I was a crank. I can conceive of circumstances, however , ^^ j.- Mr EussELL. That would depend upon the time. Mr Waener. I can conceive, however, of circumstances such as to raise a very proper doubt as to whether that was a safe provision. That is the rensonwhy.in preference to any hard and fast legislative pro- vision I, leave it in such shape that the Comptroller of the Currency can at any moment insist upon such provision as he considers adequate. The Chaieman. Is not that a very large discretion to give to any "^ Mr Waenee. I am inclined to think it is. That is the most objec- tionable provision to my mind in this whole bill; and the only reason why I venture to suggest it is that, after attempting to weigh the prob- abilities and the possibilities of trouble under this, and attempting to weigh the convenience of having some such provision for redemption, I have arrived at the conclusion that 1 would not be justiherl, by_a doubt as to the policy of giving discretion to an executive o&cer, m losing the great convenience and confidence which would, i believe, result from this proviso. a- ^- +i„-o Mr. Eussell. But he has got to adopt some rule according to tms, because he is not allowed to use these notes blank until he is satisted that the bank has made adequate and convenient provisions"? Mr. Waenee. Yes; he can change it the next day. Mr. EiTSSELL. I do not know about that, for if a bank complies witn the provisions ^ , Mr. Johnson, of Indiana. I think after you conclude your general remarks it will add much to this hearing if you wiU take it up by sec- tions afterwards. Mr. Waenee. That is what I intended to do. The Chaieman. Do you desire to continue your remarks at the next meeting ? Mr. Waenee. I think I had better do so. The Chaieman. Then the committee will now stand adjourned untu the next regular meeting of the committee, when Mr. Warner will con- tinue his remarks. Thereupon the committee adjourned. BANKING AND CURRENCY. 411 Committee on Banking and Cueebnct, Tuesday, February 12, 1894. The Committee on Banking and Currency this day met, Hon. Wil- liam M. Springer in the chair. Hon. John De Witt Warner, a Eepresentative from the State of New York, appeared before the committee in continuation of his remarks in advocacy of H. li. 5595. Mr. Warner then addressed the committee; he said: Mr. Chairman and gentlemen of the conmiittee: I have already referred to the general difference between the bill proposed by myself and the draft propos;fd by the subcommittee on the one hand and the bill proposed by Mr. Cox on the other. There have been two other hills discussed before this committee, one being that of the chairman. In view of the vei-y full discussion which that has had it may be proper to say that this bill is, nearly as may be, a connterpait of the bill pro- posed by the chairman, proceeding, as it does, upon a directly opposite priiudple. The bill proposed by the chairman, as he very fully explained, for example, was based upon the assumpti(m that it is the duty of the Government to provide a currency for the people, not merely to coin money — as to that he and 1 will agree — but to supply paper currency, a currency which does not work out its own redemption as coin does. Another princi])le suggested by him and worked out thoroughly in his hill is that the supply of currency and the administration of the cur- rency system is not necessarily or even desirably connected with any particular kind of business whatever, has no necessary connection with discounts, and deposits or the other classes of what are called hanking business; and also, it being the duty of the Government to provide a currency, and this having no particular connection with any other sort of business, that it is proper for Congress, and indeed the duty of Congress to undertake such details of administration as it may consider necessary to insure a safe, an abundant, and a satis- factory supply of currency. This bill is based upon the opposite assumption; that it is not the business of the Government to supply note currency any more than it is the business of the Government to supply our daily bread. This bill is based upon the ]irinciple that, instead of note currency having no connection with banking business, it has no business to exist excej^t as an incident, not necessarily of business transacted by a bank, but of the general kinds of business the greater part of which we ordi- narily term banking business. My bill is also based upon the principle that, instead of its beiug the Government's business to attend to every detail of management of our currency system, the best thing the Gov- ernment can do is, generally speaking, to let it alone. In my bill no, attempt has been made to meet all the exigencies and conditions which may arise in the development and use of a currency system. It is based upon the assumption that, if we should repeal every law in regard to the matter, this country would probably go on and have a pretty good bank-note currency. The only reason for any administrative provisions here — the excuse for it, indeed — is this: that the experience of civilized nations, especially those most nearly like ourselves, has led them on the whole to do their business with refer- ence to note currency under certain restrictions and subject to certain safeguards. Unquestionably, too, in view of the thirty years' paralysis that our State banking system has been subjected to, we have no right 412 BANKING AND CURRENCY. to assume, and it would be false if we did assume it, that our State hanks are in a position now to supply promptly as safe and elastic a bank-note currency as if they had had the experience and develop- ment of the last thirty years to base it upon. Therefore, though I doubt very much whether any advantage to be derived from any participation by the Government m the manage- ment or supervision or use of the bank currency system is sufQcieut to outweigh the probable disadvantages which in other respects will come from any interference by the Government with it, yet there is no question but that there are advantages v/liich, for the present, will come from having tbe system start out under such uni- form well-known, and well-established conditions as shall enable those who have no means of keeping track of different systems and those who are not (lualifled to weigh the advantages of different plans— and they constitute nine hundred and nmety-nme one-thou- sandths of our people— to have at the start a confidence that comes from knowing that the svstem they are asked to test is the result of the best experience of other countries under similar conditions. And therefore the provisions of this bill are merely an attempt to make our Government serve, not control, the note-currency system we propose, and to provide at the start such safeguards, a limited number of them, as it may be assumed each State would immediately or very soon adopt for itself in some shape or other. It is an attempt on the part of the Government to do, more cheaply and more advantageously for each State than it could do for itself, some- thing that it must be assumed to want done, either by itself or otherwise. In other words, the analogy between the system I propose and the post- office is perhaps the most plain one. There is no question but what every man around this table, no matter what his party, would immediately rise in strong opposition to our Government controlling in any manner the kind of news or the kind of correspondence or the sort or the amount of business that should be facilitated by the post-office; and yet there is probably not a man around the table who does not recognize the universal desire on the part of every civibzed man for facihties of commu- nication with his fellows, and who will not agree with me that the post- office simply does just what each individual is certain to want done more cheaply for each individual than he could do it for himself. That is the principle and only principle upon which I can for a moment jus- tify any even ministerial, as distiugaished from poUtical.or economic, supervision by oui- Government of a State-banking system. Now, brieflv to refer to the bill of ilr. Walker, I understand that the difference between the bill reported by the gentleman from Massachu- setts and the one reported by myself is this : 1 believe the gentleman from Massachusetts agrees with me, although I do not intend to speak for him, in the business principles upon which note currency can be most safely supplied, floated, and redeemed. He differs with me in the extent to which the details of administration, not economic, should go. He goes further than do I in committing administrative detail to the Federal Government. I do not understand that there is any very serious difiereuce between the gentleman fiom iMassachusetts and mvself as to the proper basis of a currency. Mr. Johnson, of Indiana. That is, he bebeves too much m the paternity of the Government, according to your theory? Mr. Warner. He agrees with me, as I understand it, that the currency business should be left to run itself as an incident ot other business with which the Government has nothing whatever to BANKING AND CURItENCY. 413 do; he, however, sees no objection to carrying the administrative assist- ance of the Federal Government dowii to matters of detail Mr. Johnson, of Indiana. And that, you thinli, is unwarrantable? Mr. Warner— to a point which, I think as a matter of policy, is unwarrantable. As I understand it he protests as strongly as I do against the Government attempting to regulate, in a political way, or even in a general economic way, the supply of currency. There' are some features in his bill which might suggest much more radical dif- ferences such as, for example, those providing for legal tender, but, as I understand the gentleman from Massachusetts, that is simply a concession to his own party friends. The first paragraph of the bill I have introduced provides for the repeal of all acts or parts of acts imposing a tax of ten per centum on notes of State banks and State banking associations, or of national banking associations, when issued under the provisions of this act. In other words this bill does not attempt to wipe from our Federal statutes all traces of what I consider unwarrantable interference on the part of the Government with the banking system; it simply repeals so much of that legislation as applies to State banks, State banking asso- ciations, and national banking associations, when acting under this act. Mr. Hall. Do you use the words "banking business" to mean the power of issuing currency. Just a moment ago you used them in that connection to mean the power of issuing currency? Mr. Warner. I do not remember to have used it just in that con- nection, but I woxrld hardly want to say that, when I use the words, I mean to limit them as narrowly as that, because the legitimate issue of currency seems to me to be an incident of what may be called the banking business, though not necessarily business transacted exclu- sively through a bank. Mr. Johnson, of Indiana. I do not understand the meaning of this section exactly. It repeals all acts and parts of acts imposing a tax of 10 per cent on national-bank associations, either when used for circu- lation and paid out or when used for circulation or paid out Mr. Warner. Mr. ('hair man, the peculiar phraseology of the first paragraph is due to the peculiar phraseology— and to some extent the incongruous phraseology — of the different acts now upon the statute books relating to the subject. I have endeavored in the repeal clause to include, as far as possible, the provisions of the several acts, and the result is not a very happy one, though not my fault, I hojje. Mr. Johnson, of Indiana. I do not understand that there is any tax imposed by the present law upon any national-banking association. Mr. Warner. I beg the gentleman's pardon. Thopresent law imposes a tax upon any notes of any national bank unless issued in accordance with the national-banking act. Mr. Johnson, of Indiana. That is in the existing national-bank act? Mr. Warner. Yes. Mr. Cobb, of Alabama. If you impose a tax upon certain banks and not upon others then the tax is not uniform. Mr. Warner. This bill imposes no tax upon any banks. Mr. Cobb, of Alabama. That is to say, because the United States crushed out the banks by a tax that therefore there are no banks? Mr. Warner. No; this repeals the tax as to every bank which has been "crushed out" by the U. S. Government. Mr. Johnson, of Indiana. This does not repeal the tax now imposed by the law of the United States u];on any person or individuals oper- ating, except such as are operating by virtue of the law of a State! 414 BANKING AND CUKKENCY. Mr. Wabnbe. You are right. Mr. Johnson, of Indiana. You have gone somewhat into the discus- sion of this in your bill here and also during the other discussions we have had before this committee, but now tell me why you oppose the • unconditional repeal of the tax upon State banks! Mr. Warner. The reason is this: Under our present national-bank act, if unconditional repeal was had simply of the 10 per cent tax against State banks or banking associations, then, since in several of the States there are absolutely no banks except national banks which would then be able to issue any currency whatever, and also because in the States where State banking systems were the strongest, the old strong State banks have taken national-bank charters ; therefore, smiple repeal will still leave incapable of assisting to furnish a safe and elastic currency the only banks which in some States could do so, and in most of the States the greater number of banks which are in the best con- dition, both as regards soundness and experience, for doing so. Mr. Johnson, of Indiana. Will not national banks surrender their charters under the national-bank law and accept charters under this law! , ,. , . Mr. Cox. What is to prevent other companies from estabhshmg banks, if you tepeal the act! Mr. Warner. I will answer the two questions together. There would be nothing to prevent the surrendering by national banks of their charters and going back again nuder State laws, but there are great objections to forcing them to do so— the great conservatism of business institutions, the expense involved in doing it, and the real loss which, especially in their opinion, consists in the parting with the good will that always attaches to an institution, unchanged in status and name, that has Avon for itself a good reputation. So much for that. And in great States Mke Texas, like Illinois, and like Missonri, their constitution or organic law is in such shape that, even if the national banks could take out State-bank charters, they could not even then issue any bills. Mr. Johnson, of Indiana. The necessary effect, then, of this wll is to create different kinds of banking institutions! Mr. Warner. It is to establish a new system. Mr. Johnson, of Indiana. Instead of preserving a uniformity it will have a contrary effect, necessarily, according to your own statement? Mr. Warner. It establishes one new system ; as long as the national- bank system continues, it may be said to be an additional system. Mr. Johnson, of Indiana. According to this theory the national banks would not, in those States which you have mentioned, go out and take charters under the new system! Mr. Warner. They might not immediately do so. Mr. Cobb, of Alabama. In that connection I want to ask your objec- tion to the existing systems of Mr. Johnson, of Indiana. Are those the only objections you have to the unconditional repeal of the tax of 10 per cent upon the State- bank circulation! Mr. Warner. Mr. Cobb some minutes ago asked the question it i wanted to favor existing institutions, and I will say to him very frankly I do. I always expect to be in favor of existing institutions ; and I believe that, as far as possible, what we should attempt to do is to facilitate the development of existing institutions under existing conditions rather than attempt any legislation which will, to any extent that can be avoided, interfere with existing institutions, to build up-new ones. BANKING AND CURRENCY. 415 Mr, Cobb, of Alabama. In that connection your point made there was you a;re opposed to the repeal of the State bank tax because cer- tain States in the Union had constitutional inhibitions against the estab- Ushment of State banks; that is one reason, and yet your very bill provides for a system which could not be estabUshed in Missouri and in these other States where the constitutions prohibit them. Mr. Waenee. I beg the gentleman's pardon. This bill provides for a system which could go into operation to-morrow in the States of Mis- souri, Texas, and Ilhnois, no matter whether they permitted their State banks to issue currency or not. Mr. Cobb, of Alabama. But they would not be powerless to prevent those under a State-bank charter; you mean under a national-bank charter? Mr. Warner. I appreciate the gentleman's suggestion. It is a fact that as regards the States of Texas, of Missouri, and Illinois, and others similarly situated Mr. Johnson, of Indiana. How many more are there! Mr. Warner (continuing) — this act does give an immediate and valuable franchise to national banks in those States, in which no other institutions in those States have at present any opportunity of sharing. If I were a citizen of Texas, Missouri, or Illinois I should feel it my duty to call the attention of the legislature to that and demand thattheflnanciers of those commnnities should be given achance to take advantage of this without complying with the provisions of the national -bank act; but as long as those states chose to keep their institutions from sharing the benefit of this act that would be their own lookout. Mr. OoBB, of Alabama. Would it not be the same thing if you should repeal the 10 per cent tax unconditionally and then call upon those States to take advantage of it in the way you suggest"? Mr. Johnson, of Indiana. According to your theory there would not be any great necessity for speed in changing the constitution of those States which inhibit these State banks, because you say conservative business would not desire to make a sudden change. Mr. Warner. Ko; there would probably be no great haste in chang- ing the system; and that would be because the national banks now in those States possess in large measure the confidence of the people of those States and would supply in part at least the immediate demands of those States for a safe and elastic currency. That answers the sug- gestion of the gentleman from Alabama. It is true we might pass an act in such shape as practically to choke the people of Missouri, Texas, and Illinois into changing their constitutions as a condition of receiving the benefits of this act; but my idea is rather to let them change their constitutions whenever they please, and that no act we shall pass should be such as will coerce them. If they wish to take advantage of it well and good; if they do not, then well and good, too. Mr. Hall. Suppose they do not take advantage of it, would not there be a tendency upon the part of those States that did avail them- selves of it to try to get out all the currency they could under the cir- cumstances, and make competition to furnish other States with the best currency. Mr. Warner. Unquestionably, and that is one reason why it is not worth while to coerce them. Mr. Hall. I want to ask another question, and that is this : Tou know that there is an objection, not in my mind, but an objection I have heard urged in a thousand different instances by the Populist 416 BANKING AND CURRENCY. class of the TJnited States. You will find the Populists are all opposed to State currency, or opposed to any kind of currency except a cur- rency issued by the national Grovernment, and the argument they bring against that is that the minute you divest the power of issuing money from the national Government where the people have control of it, and vest it in banking institutions at once the banking institu- tions organize and form a syndicate and will decrease the volume of the currency and bring about a corresponding decrease of the price of the products, and then buy up their products, etc. That argument I do not recognize has any sense in it for the reason that it is based upon a false principle, but I would like now for you to meet that. Mr. Warner. The terms upon which, in any State, local institutions are to be allowed to take advantage of this proposed system is left exclusively to the legislature of that State, and hence it would be entirely competent for the people of any State to afford such facilities and to offer such inducements, or on the other hand to impose such restrictions, as in their mind would head off monopoly, and see to it that they are supplied with an abundant supply of currency. Mr. Johnson, of Indiana. Is it your contemplation that in the course of time the national banks really would surrender their charters and this constitutional provision prohibiting State banks would be changed, repealed, and that the local banks, which I take is the aim of your bill, would supersede them? Mr. Warner. I have no hesitation in answering that the business common sense of this country will turn out to be much more true to its interests than will any prediction or supposition I may make. I believe, however, that the result will be this : A large proportion of the national banks, especially those which do not depend in a large measure upon their circulation, will continue at least a generation, possibly for two generations, to act under the national-banking act; but, in so far as con- cerns national-bank circulation, in all probability it will slowly dwindle, unless conditions of war or conditions of panic or such extraordinary ■ business prosperity shall ensue as shall continue the inducement to issue currency under the national-bank act. Mr. Johnson, of Indiana. The unconditional repeal of the tax on State-bank circulation would not interfere in those States which have constitutional prohibition; it would leave them to go ahead under the national-bank act? Mr. Warner. Certainly. Mr. Johnson, of Indiana. Then, the reason you gave for not provid- ing for the unconditional repeal would not ajjplyf Mr. Warner. I beg your pardon. They could still go ahead under the national-bank act, but they could not take advantage of this act which offers opportunities and inducements for a safe and elastic cur- rency, which the national- bank act does not offer. Mr. Johnson, of Indiana. But they could get the advantage just as quick that way as the other; they would have to rei^eal the constitu- tional inhibition'? Mr. Warner. K"ot the slightest; the national banks do not depend upon the State law, and are not affected by State constitutional pro- visions with reference to State institutions. Mr. Oox. I want to draw your mind to this proposition. Take the State of Missouri or any one of those States. You adopt your law and the national bauks in the State of ^Missouri want to get the advantages of the provisions of your law. Xow, will you tell me exactly what advantages that bauk would get under your law in those States which BANKING AND CUERKNCY 417 it does not already Lave under the national-bank act? Of course I understand your law in one respect; at the outset in furnishing the security for circulation I understand that it is different from the national bank law; but after it has done that, Avhat other advantage does it get under your law which it does not have under the present banking law of the United States? Mr. Warner. I do not entirely understand the question of the gen- tleman. Mr. Cox. Let me make it clearer, if you please. In those States which have provisions against the issue of certain circulation the only thing your bill can affect are national banks. Mr. Warner. And such other banks as, by their free will, the peo- ple of the States shall afterwards permit. Mr. Cox. I am putting my question on the basis of existing law. It simply now confers some benefits upon the national-bank system. Mr. Warner. Certainly. Mr. Cox. Because if it did not, it would not affect it at all. Now, then, I want to know what advantages or what privileges do the national banks get in the States of Missouri, Illinois, or other States that they do not already have under tlie national bank law. Mr. Warner. The privilege of issuing under terms which do not compel them to provide Government bonds. Mr. Cox. I see that. Mr. Warner. And the privilege of issuing without a special tax of Mr, Cox. You mean one-fourth of 1 per cent. Mr. Warner — practically 1 per cent a year on the circulation. Those are the two principal points. They could act with greater facility and promptness and at a less expense. Mr. Cox. Tour first point is that they get a circulation upon a dif- ferent security? Mr. Warner. Tliey will have better facilities to get circulation. Mr. Cox. Second, the tax on the circulation is repealed? Mr. Warner. And they will have less expense in getting the circu- lation. Mr. Johnson, of Indiana. You were asking about States which have no constitutional prohibition ? Mr. Cox. I asked about the States which have a constitutional pro- hibition. I want to see what benefit a bank gets under this law in those States, l^ow, that is the benefit derived by national banks in those States that have a constitutional prohibition, and those are all the advantages that any national bank can get under your law, whether there is a prohibition in the State or not? Mr, Warner. That is all. Mr. Hall. There is another constitutional inhibition existing which yon will find Mr. Warner. Please wait a monrent. Last summer we had a strin- gency of money, and money was worth almost anything you could charge for it. It was v^ei-y important to the people that that want should be supplied. The national banks started in to supply it and did their best, but as an actual fact their circulation did not in(;rease to any extent until after the want was over, and then it grew so rap- idly when it was not wanted that "the last state of that man was worse than the first." Under the system now proposed currency could be promptly supplied to relieve a community. 940 27 418 BANKING AND CURRENCY. The Chairman. By the deposit of securities? ^. ^ ^ ^ Mr Warner. Without auy special security at all. It a bank tor example had $1,000,000 capital it could issue $750,000 as quickly as the Comptroller had the notes printed. ,,,-., The Chairman. As soon as this bill was passed a bank with a million dollars capital would simply write to the Comptroller and state that it desired to make application to issue currency under this law, and if he would approve of it, he would send them notes to the amount of $750 000, and there would be nothing more to do except the signing of the officials' names to it. Now they would put these notes m the vault, and whenever anybody wanted to borrow money, or when there was anv strinc-ency, and they wanted to get it out, they would lendit out? Mr. Warner. Exactly; subject, of course, to the conditions imposed, which involve no unnecessary delay or expense. ^ ,, „, ^ Mr Hall I do not know how the constitutions of the btates of other members of this committee read, but here is a provision m your law in the second subdivision of the second section making the stock- holders doubly liable— that is, a double liability clause. Now, there is a clause in the constitution of our State which provides that there shall be no double liability of any stockholder. There is a .constitu- tional inhibition against it, abolishing any power of the legislature to make a law to create a double liability on a stockholder. Now, I do not know how the constitution of other States read, but I expect that upon examination you will find half of the States of the Union have a constitutional inhibition against a double liability on the stockholders. Mr. Warner. Mr. Chairman, my answer to that would be this; In the first place, I think the gentlemen is mistaken. I think the tendency in most States is towards an increased hability of stockholders and towards perhaps a Mr. Hall. It does not apply to banks solely, but all corporations. Mr. Warner. I understand, and if the laws of any State are m such a condition, and that State wishes to keep thein in such a condition, as not to permit the capital within the State— the institutions of its State— to take advantage of this act, it is far from my intent to coerce them ; that is their business. Mr. Hall. How is the law in New York? Mr. Warner. There would be no trouble about the law in New York. The Chairman. I want to ask, assuming a bank is organized in the State of New Y^ork with a capital of a million dollars and that stock has all been paid out under the law which makes the stockholders liable simply for the stock out, now can you make those stockholders liable for an amount equal to that which is a double liability, we will say, without the consent of every stockholder by a reorganization ot the whole bank. How can you make a bank liable when they have not agreed to be liable"? Mr. Warner. That is a very proper question. This act applies only to associations other than national banks. As to these other institutions, there would have to be legislation, upon such terms as it is ordinardy had in changing the corporate constitution of a bank. In our State, however, every charter is granted, with an expressed reservation ot the absolute power of the legislature to alter and amend its charter at any time. The Chairman. By the legislature, but not by Congress! Mr. Warner. Precisely. "Now, this act provides, so far as the mat- ter to which you refer is concerned, that it shall be provided for by State law. There are two reasons why I left it in that shape. lu the BANKING AND CURRENCY. 419 first place I do not believe iu passing Federal acts practically to coerce banking systems. I believe in giving them opportunities and in letting them take advantage of them if they please ; and, second, I have drawn this act, so far as possible, to avoid the question of jurisdiction between State and Federal courts. Mr. Cox. That was the difSculty you had. _ Mr. Warner (continuing). And by simply providing this prerequi- site there is left no possibility of any question as to the right of the State court to enforce tbe preference given as well as the double liabil- ity of shareholders. The Ghair»[AN. How would the note holder enforce any individual liability? Mr. Warner. By suit in the courts. The Chairman. Each man by himself? Mr. Warner. He could do so. But the States all have provisions for receivers, joinder of all interested by proceedings in equity, etc It IS not my idea tor one moment that this act contains or suggests all imitations, safeguards, etc., whicli ought to be thrown about anv banking system. "^ Mr. Johnson, of Indiana. You leave it largely upon the States? Mr. Warner. Yes. Mr. Johnson, of Indiana. Each one to pass its own laws? Mr. Warner. Precisely. In contradistinction to what our chairman calls currency— that is, something which is legal tender, somethiug . winch is separate from business, something which the Government is to see to— the currency provided for in this net is simply a series of bills of exchange payable to the bearer; and every proviso iu this act even though m form a limitation, is intended rather in a legitimate way to iioat the currency than to restrict it. Mr. EussBLL. Corporation notes which would circulate? Mr. Warner. W^e have gotten, Mr. Chairman, into such a vicious method of thinking as regards the extent to which we are dependent upon Federal Government, that we do not stop to consider as to whether law really amounts to anything or not. We assume that any Federal legislation we have upon the statute book is effective; and we believe that some terrible thing would come upon us if we did not have it. If we found a law upon the statute book to-day permitting the people of the United States to breathe as often as they ideased, and. ten years hence a revision of the statutes should occur, and that law should be •left out, I am greatly mistaken if three-fourtlis of the people would not howl and cry that the people of the United States were being left to suffocate. As long as that feeling remains, as long as we think we are dependent upon Federal law, we have got to go slowly. Now, Mr. Chairman, the second section of the act simply provides in the first paragraph that the institutions which issue circulating notes subject to the succeeding provisions may include State baiiks and State banking associations — whenever they are authorized to issue notes by the laws of their States — and also, without reference to local authority, national banking associations. The first condition is that the notes shall be printed iu blank by the Comptroller of the Currency, and it is provided that they shall be printed in such shape and form as to show what bank issues them, the State it is in, and that they are issued under this act. The object of that is not to restrict the cur- rency, but rather to assist its circulation by a practical guarantee against counterfeits. 420 BANKING AND CURRENCY. In accord also with the UBiversal admission, in case of notes in- tended to circulate as currency, that it is necessary for the pub he to be informed as to the amount of them outstanding, the Comptroller of the Currency is to register these notes and thus provide against over- issue. This whole paragraph is purely an administrative proyisiou, assuming what I believe to be universally admitted to be a naatter of fact that these are services which should be performedby somebody for each bank, that they are services in aid of and not in restriction ot cir- culation, and which can be performed by the Comptroller o the Cur- rency for all the banks at a less expense to each than it could be done by each bauk for itself. . . ^ ,, • + +• » Mr Cox I do not see that there is a provision for the registration? Mr' Warner. There are two matters, the distinctive paper and regis- tration elsewhere provided for, which, perhaps, should be put m that ^'^The'^CHAiRMAN. What is the necessity for the registration when you simply limit the amount to 75 per cent of the capital s^tockl Mr Warner There is the question as to what notes are outstand- ing, and their redemption, especially when notes of banks which have gone out of existence come in and they have to be redeemed. The Chairman. That is merely a record of the transactions which takes place with the Government'? Mr Warner. A matter of bookkeeping. Then, too, if there should . be discovered a peculiar kind of counterfeit yon can conceive that it would be desirable to know just exactly what bills were outstandmg which were "subject to that peculiar risk and subject to the peculiar kind of investigation necessary to head it off. ,,,,„,„t The Chairman. The object of that provision is twotold— to prevent the bank from overissuing^75 per cent of the capital stock and to secure such uniformity in the appearance of the bills as would prevent coun- Mr WARNER. Not merely to provide against its overissue, bat to provide against any issue that is not publicly known. For example if some bank of Massachusetts that has a capital of $.3,000,000 should have outstanding .mly $100,000 of currency, "fi^ even in the most ro^^^ lous times— if it was known that there was only $100,000 outstandmg- an Oregon bauk would not hurry to send it in for redemption ; vvhereas, if the same bank had currency outstanding to the amount ot three- fourths of its capital stock there would be a tendency to send it m. Now, while in my view it is better that currency should be elastic, I do not conceive that it is our business here to prevent a bank trom having any advantages for its circulation which its conservatism may earn for it. „ ., ai „ ci,.,n Mr. Black. In the second section of this bill you provide "he suaii be satisfied that it has made adequate and convenient provisions tor tlie redemption of its circulating notes." Where do you provide tor tlie redemption in this bill? -f ,-.„vn Mr. Warner. I will take that up. Under paragraph second it is pro- vided that the Comptroller shall not deliver these notes m blank unless he shall be satisfied, if other than a national-banking association, tliat, by the law of the State in which it is situate, the holders ot the circu- lating notes issued under this act of any bank or banking association have the first lien upon the assets of the bank, and the benefit ot tne provision for double liability on the part of the stockholders, ifiat i have already touched upon. Mr. Henderson, of Illinois. From what are yon reading? BANKING AND CURRENCY. 421 Mr. Warner. On i^age 2, section 2, I have referred to that very fully. Mr. Cox. Let me call your attention to this point: Subject to the necessary cost and expenses of administering tlie same, and that the shareliohlers of everj' such bank, or bants, or banking associations are held individually responsible for all of the outstanding circulation issued under this act, each to an amount equal to the par value of the shares held by him therein, I want to understand that. Is that what you call the double-liability clause? Mr. Warner. The stockholder is liable not merely to lose his stock, but also to be asssessed in addition as mucli as the par value of the stock, "together with any amount not paid n\) on such shares." This last is to provide for cases where baulks are organized by jieople subscribing and thereby making themselves liable for a certain amount of stock at a certain valuation, without, however, paying in their subscription except as it may be called for. Now, in case of a national bank they can not do that. They can not do it in most of the States to-day, but there is no reason, theoretically, why any State might not see tit to authorize coiporations to exist upojithat plan. It has certain advantages, even as regards security; and, therefore, in order to make the matter perfectly clear, it is provided in the first place that they shall be liable for tlieir stock, and in the second place for an amount of any unpaid subscription to their stock, and in the third place an amount in addition eCpral to the par value of that stock. That is simply to impose uj)on them t'le same resiionsibil- ities as are imposed on stockholders in national banks at present. The reasons why it is suggested in this bill that this should be pro- vided by State law is pai'ticularly to avoid conflict of jurisdiction between Federal and State courts. Now, in regard to paragraph 2, and the condition: That it has made ade(iuate and convenient provisions for the redemption of its circulating notes to be issued as provided in this act, etc. I do not believe, on the one hand, that there is any State in the United States which will permit the existence of a system of State banks to issue currency which would not provide some plan of redemption whicli would be practi(ially sufftcient so far as the security of tlie currency is concerned. In the next place I do not believe there is a single State where, even if this was left unprovided by law, the banks which would issue, and get any profits out of issuing, currency would not as tlie first means of getting their currency afloat, so as to get any profit out of it, make satisfactory arrangements for adequate redemption facilities. And. third, if there were such States and such banks I do not think the people in any locality would be fools enough to touch with a ten-foot pole the currency of an institution which would go into business with- out making such provision. What is more, I have no question but that not merely will the banks to be organized under this act come up to this provision, but I believe they will, of their own accord, arrange for much more elaborate and satisfactory provision for redemption at cer- tain points in this country than is here suggested. The object of this provision is simply, at the inception of the system, to piovide, in a uni- form shape, a redemption provision, which, being looked after by the Comptroller of the Currency, will satisfy those, like the gentleman from Connecticut, who have very little faith in local conditions, but who have a great deal of faith in anything which the Comptroller of the Currency, being a Federal oflicer, has attended to. 422 BANKING AND CURRENCY. Mr. Hall. I do not think you can say that the people generally can be relied upon to detect bad currency, for in Indiana, which I suppose is an ordinarily intelligent State, they accepted Confederate money Ihe other day, so a member of Congress told me. Mr. Johnson, of Indiana. We have some people who are Mr. Warner (interrupting). Mr. Chairman, there is absolutely noth- ■ ing we can do for that kind of people. I would give up that job in advance. ISTow, the third provisiou of this section is, "that the amount of its capital paid up and then unimpaired is not less than $50,000." The amount of the capital may be much more than .$50,000, but it must have at least $50,000 actually paid up, and its paid-up capital alone is to be used as a basis for circulating medium. In regard to national banks the minimum capital was fixed thirty years ago as .$50,000. Probably, $100,000 or $150,000 would be a less onerous requirement to-day than $50,000 was then. I believe it is in accord with the gen- eral consensus of opinion of the people that the least capital upon which a banker should be allowed to do a currency business is $50,000. Again, each bank has to pay the special expenses which are properly chargeable to it, as distinguished ft'om those chargeable to the system. With a very small bank the special expenses which would be necessary in preparing the plates and attending to its issues, etc., would become quite an onerous tax upon it. It would be a still more onerous tax if it was left to attend to the matter itself, and it would be still less able to do so in competition with larger institutions ; so as a practical measure, as an expression of what I believe to be the idea of propriety through- out the country in general, and also recognizing the fact that by force of circumstances which no law can change, a currency issue, when the expenses of proper precaution are taken into consideration, is not prof- itable unless it is of a certain extent, I have fixed at $50,000 the mini- mum of capital upon which it should be encouraged. Mr. Johnson, of Indiana. I have forgotten what is the smallest amount authorized under the national bank act"? Mr. Warner. $50,000. Mr. Johnson, of Indiana. Tour provision is the same? Mr. Warner. Yes. Mr. Hall. It is dependent upon the population in regard to the orgaidzation of a national bank? Mr. Warner. I mean that that is the smallest amount allowed. ^ As a matter of fact, if I was the czar of this country I should put it at $100,000, and I believe the people would approve it. Mr. Cox. They are forbidden to issue unless they have $50,000? Mr. Warner. Yes. Mr. Haugen. How about a State bank with less capital than $50,000? Mr. Warner. The State bank can go on as a bank of discount. This does not keep any State bank from going on as a bank of discount. Mr. Johnson, of Indiana. Sapps^se a State legislature complied with this provision and the bank had money issued to-day, and suppose, sub- sequently, the legislature changes these features? Mr. Warner. I should suppose that would stop the issuing of money. Mr. Johnson, of Indiana. What is the remedy and where could it be sought? Mr. Warner. In that particular case if the State undertook io violate in that way the obligation of a contract, which would be the case, if it attempted to interfere with the liabilities already incurred, I BANKING AND CURRENCY. 423 suppose the matter would go to the Federal courts, but for that general reason and not on account of any particular provision here. Mr. Johnson, of Indiana. Suppose the State legislature on some subsequent occasion would dispense with that condition or impair it! Mr. Warner. It seems to me that that would be an attempt to impair the obligation of a contract, and that it could be taken into the Federal courts. Mr. Oox. In that connection I will say that that impresses me very much, and I think if you follow that up it will impress you also. Suppose the State legislature complies with the conditions of this act? Mr. Warner. Yes. Mr. Oox. And it has concluded that a charter can be issued? Mr. Warner. Precisely. . Mr. Oox. If a subsequent legislature shouhl come along and repeal that act, does not it necessarily result that this is a forfeiture of the charter under which the bank is acting? Mr. Warner. Exactly; and I was discussing with Mr. Johnson the status of outstanding obligations. Mr. Oox. Now, if it is within the construction of the Federal statute, there is no difficulty about where the jurisdiction is; but here is the point I am after : The State complies with this, but the State has author- ity to put other matters there, and she will doubtless put others, as you said a moment ago you did not laropose to restrict it any further"? Mr. Warner. No. Mr. Oox. When you get these additional statutes you have got exclu- sive jurisdiction in the State courts and you have got exclusive jurisdiction under your bill in the Federal courts, so your charter is run undertwo independent governments as far as jurisdiction is concerned? Mr. Warner. You raise a question which has been raised in one shape or another in our State, and I i)resume has been raised in others. In these cases there is the authority of the State to alter or amend the charter at anytime. Now, I believe it is the uniform ruling of the courts, that no change which a State may make in a charter under such a gen- eral clau.se in anyway alfects the rights which may have already accrued or which may be already vested in the holder of any contract of or claim upon the institution. Mr. Oox. Eight there Mr. Warner. One moment — If the State, however, should insert either in its general law or in the special act incorporating a bank such a provision as in the opinion of the Oomptroller would Authorize a change in the charter not subject to such precedents as I have noted, then the Comptroller would say, "You have not provided for it, you have tied a string to the provision, and I can not accept it. If you simply provide for amendment of the charter at any time, then, under the law as devel- oped by decisions, that does not bother me; and as regards notes out- standing at any time they are amply protected, and after you change your charter I will simply not issue any more notes. If, however, the charter of your corporation is subject to be so changed as to make its liability for contracts already entered into contingent, that is not what this act says and I will not accept it." Mr. Cox. You have a serious difficulty existing in some States; take my own State and several others are in the same fix. There the cou- stitiuion provides that a charter granted by the legislature shall be subject to be amended or repealed. Mr. Warner. So does oiirs in New York. 424 BANKING AND CUREENCY. Mr. Cox. That is a coiistitutioual provision. Now let me draw your mind to this: Suppose after the legislature charters a bank and that bank has got the full amount of money, has come up to the provisions of this law, the legislature comes along and says, if we permit you to take out 75 per cent of this circulation, you need not be liable only to the extent of the stock. Mr. Warnek. Trecisely ; and the construction of our courts on that precise state of facts would be this Mr. Cox. You would have a direct conflict between the legislature and Mr. Waknee. No conflict. The Comptroller would smiply give out no more blank notes. Now so far as circulation already outstanding is concerned, the law in our State, which 1 believe is in accord with that generally accepted, is this— The change of the charter is power- less to effect obligations which have been entered upon before the change. You might have" to go into a court of equity; you might have to take your remedy in a diff'i'reut shape; but, if there is anything that is well settled in law, it is that provision of our Federal Constitution which provides against the interfering with the obligation of contracts. Mr. Johnson, of Indiana. How about the one who takes these notes subsequent to the act of the legislature changing the charter '? Mr. Waenkr. 1 am inclined to think in that case— if the notes were not actually Issued by the bank until after the change— there might be a very serious question of law. Mr. Johnson, of Indiana. Where would the remedy be? Mr. Warner. If it is assumed that, after a law of liis State had taken away its protection from bank notes thereafter to be issued, a citizen would accept notes thereafter issued; then it maybe assumed that that citizen would have an interesting problem on his hands. But when it is remembered, not merely that no one would take such notes, but that the bank would be subject to the 10 per cent penalty tax for issuing them, it can hardly be claimed that any practical difficulty is likely to arise. Mr. Johnson, of Indiana. Do not you think the greatest element of strength to a banking law in this country is for the remedy to be under one jurisdiction, either State or national? Mr. Warner. That is where the gentleman from Indiana and myself differ. While there are, unquestionably, advantages sometimes to be secured by a centralization of administration, yet in regard to this particular matter I believe it is a very serious question whether, even as to administrative detail, it does not do more hurt than good. The Chairman. This is a very important part of this bill, and I suggest that we meet on Friday and continue this hearing. Thereuj)on the committee adjourned. Committee on Banking and Ctjrrenot, Friday, February 16, 1894. The Committee on Banking and Currency this day met, Hon. William M. Springer in the chair. Hon. John De Witt Warner, a Representative from the State of New York, appeared before the committee in continuation of his remarks in behalf of H. E. 5595. Mr. Warner. The next proviso is that the total amount of circula- tion to be issued under this act shall not at any time exceed 75 per BANKING AND CUERENCY. 425 cent of the paid-up and tLen unimiJaired capital of the institution which issues it. That is of course an arbitrary provision. Experience has shown, however, as reason would suggest in default of experience, that tlie amount of circulating notes which a bank can safely float is somewhat in proportion to its actual capital, not merely because that actual capital may be finally resorted to for the payment of those notes, but because the general business of the bank bears some proportion to the capital which is invested in doing that business. Again, if the circulation is to be restrained to what I conceive to be its only legiti- mate function, that of serving as an incident to business in general, it is desirable that the amount of circulation shall be so limited as not to exceed the needs of the legitimate business which would be transacted through the bank issuing it. As to the proper figure, I think we will all agree, as the result of experience, that allowing more than 100 per cent of the cajjital to be issued in the shape of circulating notes has proven an inducement to illegitimate circulation and has brought about disaster. The Cana- dian law — which is the last law as to the workings of which we have definite data of experieucie — fixes the limit, I believe, at 100 per cent of the capital. In practice, however, even with all of the elasticity which has actually resulted under that law, I believe the actual issues have in no case gone above (J8 per cent in the case of any bank, or 60 per cent for the bulk of tlie banks. It would, therefore, seem that 75 per cent would afford adequate chance for eUisticity. Mr. Brosius. Their experience was that the limitation had no effect, they never reached that? Mr. Waenbe. They never reached it at all; so on the one hand 75 per cent would seem to be a limit sufficiently liberal to permit such elasticity as may be desired, and on the other hand there is no reason why conservatism in that regard may not be met by proyjosing to this extent a lower limit than the total amount of capital. The only other question is whether we would thus provide for enough currency. Mr. Cox. Just there I want to break in and ask- Mr. Warner. Just one word more. The other question, of course, is whether that limit is liberal enough to allow a proper elasticity. The mere fact that in Canada it is liberal enough might serve as an anal- ogy, birt not necessarily as a demonstration. When, however, you reflect that there is now about $700,000,000 of capital employed in national banks, and that 75 per cent of that would therefore permit of an extension of the currency through those institutions alone of say $200,000,000 or $300,000,000 above what is now utilized by them; that the capital invested in State banks which are now without a system of circulation but doing a profitable business, is probably a quarter or one- third of that, and would rapidly increase under the system suggested by this act^as there would be greater inducement for capital to embark in the business, there would seem to be no possibility but that the limit was liberal enough to permit all the currency that could salely or proper Iv be called for in this country. Mr. Cox. B"ow, under your law, under your proposition, what amount of cuculation could a national bank take out? Mr. Warner. The question asked in regard to that would be reacliea a little later. Mr. Cox. Probably I am ahead of you m regard to that ! Mr. Warner. On the one hand, in order to interfere as little as pos- sible with the national-bank act, and on the other hand m order so to 426 BANKING AND CURRENCY. draft the bill as to permit every national bank to have the advantages of the system by giving it similar opportunities to those given other institutions, it is provided, in the case of a national bank, that the cir- culation to be taken out under this act shall be only such an amount as, together with any circulation it may have taken out under the national- bank act, shall not exceed 75 per cent of its capital. Mr. Cox. That would give the national banks the right to take out altogether 75 per cent of the capital stock, l^fow what 1 want to call your mind to is this, assuming that, now would a national bank or State bank organized under it be compelled to take out any circulation? Mr. Waenee. It would not. Mr. Cox. Do not you regard that as a right serious difficulty? Mr. Warner. I confess I do not. Tlie assumption that the banking capital of the country can by any possibility find it to its interest to combine to keep the amount of money loaned below what it would be possible to furnish at fair interest, is in my mind unthinkable. If that could be imagined, the possibility that all of the rest of the country possessed of money would not immediately take advantage of such a conspiracy in such way as to defeat it, is to me unthinkable. Mr. Cox. When your national bank refuses to take out circulation of course the argument made ujoon that is that perhaps tlie bonds are too high, but under your system, that question of United States bonds being practically dispensed with, other security being substituted in its place, now suppose a bank is compelled to take out a circulation, not that they may take it out, but they are all compelled to take it out, and suppose it tiuds it cannot use the circulation, then does not your bill provide it may return the securities 'I Does not your bill provide it may return them to the Government, and is not the interest upon the securities, whether used or not, paid over to the bank? Mr. Warner. I have provided for no securities. I would say to the gentleman — I think I appreciate, if not the particular point at which he is aiming, at least the general drift of his thought, and my answer to it, as I understand it, would be this: This is a bill to give certain privileges to the States and to State and national banks, and to supple- ment these by a certain amount of administrative assistance on the part of the General Government. There is nothing in this bill which will prevent a State from imi)osing conditions to its authorization, which must be had before, as to its banks, this act goes into operation. It can, if it wishes, impose a special tax so long as the circulation out- standing is not more than a certain amount; it could, if it wished, exempt from taxation on condition that the circulation was kept over a certain amount. There is nothing to prevent each State from taking such measures as it pleases in that regard. Mr. Brosius. Allow me to correct a misapprehension which arose a moment ago ; I would direct you to section 10 of the act of 1882 which provides — At no time shall the total amount of such notes issued to any snch-«ssociation exceed 90 per cent of the amount at such time actually paid in of its capital stock. That is the limit. The Chairman. The original act, section 5171 of the Eevised Stat- utes, provides the amount of circulating notes which can be issued in proportion to the capital stock. Mr. Brosius. That act is repealed; this act repeals that. That is the old law which was repealed by the act of 1882 which makes the liuritation the same in all cases. BANKING AND CURRENCY. 427 Mr. Cox. But you can not get it on that except by a deposit of bonds, and you are not compelled to tate the circulation out. We have gotten now, however, off the poiat which I was much interested in. I drew your attention to the proposition if the securities upon which it was based for the redemption ot the notes finally would not be drawing the interest all the time whether the notes were used or not, so that if. the bank did not take the notes out they would get the interest upon the securities deposited for final redemption, and if they did take out the notes and get the use of the notes they would be just exactly in the position of the national banks where they get the inter- est upon the bonds and notes. Now, you said there was no security of that kind; I expect I misunderstood you, but you provide in your bill that some satisfactory means (I need not discuss that here) shall be provided, and that the securities shall be deposited in the capital of the State. Mr. Beositjs. No securities are provided but satisfactory means of redemption. Mr. Oox. That is what I am talking about. It has to be something satisfactory for the redemption of the notes. Your clause reads this way: That it has made adequate and convenient provision for the redemption of its cir- culating notes, to be issaed as provided in this act, either at the capital city of the State in which it is situate, or at some other city in such State -which shall have been approved hy the Comptroller of the Currency. Mr. Warner. I may say that the ordinary provision for redemption, even under the strictest and most conservative conditions, is not in general a deposit of securities. It consists most frequently in the undertaking of a clearing-house association to clear certain paper or to redeem certain notes. That is the ordinary provision. I can conceive of a case where a bank might choose to deposit securities and obtain such individual or other guarantee as the Comptroller might think sufflcient; there is a possibility that such provisions for redemption might be had, but such are not the ordinary ones, and they are not the ones which existed before the war. The best known system is probably that known as the Suffolk bank system, which was entirely independ- ent of any special security. The more commonly known systems are now the ordinary clearing-house systems, which could be used in pre- cisely the same way to clear, that is, to redeem, the notes of a bank, as they are now used to clear its exchanges. Mr. Cox. Yes; but you see there are quite a large number ot banks that do not belong to any clearing-house association. Mr Warner. There will be banks which belong to no clearing-house association, but there is no State where there will not exist either clear- ing-house associations or some other form of associations tor c earing the exchange most current in that State. It is entirely probable that a clearing-house association might exact from those banks a deposit ot securities before it would undertake that offtce, but that is something with which the Comptroller would have nothing to do. Mr. Bbosius. Tou could hardly conceive of a banking system m a State without a clearing-house association! ., •+ • Mr Warner. There is no such a thing. In some form or other it is almost necessarily ii.volved in every complicated series of business transactions. , . ^ , -, ^ ,i,^„^c Mr. Oox. I must confess that my mind is not clear and i always want to get it as clear as possible as we go along Now, you carried me into the clearing-house association subject, but I am on the point 428 BANKING AND CURRENCY. of the final redemption of tlie notes. Tbere must be some place where they must be paid. N"ow, if the clearing-house adopts a mode, would it be in regard to redemption, or would it be in regard to their circula- tion; so long as the clearing-house is satisfied that the circulating note is good and must be redeemed it seems to me, then, that is all the clearing-house can do. If they secure the redemption, then what kind of a legal obligation have we got on them? Mr. Warner. None whatever. The thing provided is this, that, until these agencies are in such shape that the Comptroller of the Currency shall consider adequate and convenient arrangement is pro- vided for the redemption, he bas no authority to issue a single dollar. Mr. Brosiits. You leave it all to him, and it is in his discretion? Mr. Warner. Practically, under sanction of the publicity of his work and the injunction to report in full to Congress his practices and rules in regard to the matter, in order that, if other legislation be needed, it may be had. Mr. Cox. Pardon me for this question, and then I think I will leave you. The final redemption of the notes would depend upon the pro- visions that the State might adopt itself ? Mr. Warner. It might in case a State chose to go to that extent in its law. Mr. Cox. There would be nothing in this act that would prohibit a State from going to that extent? Mr. Warner. Not the slightest. Mr. Cox. Then, when you get tothatpoiut and the State has control of what shall be done and provides for the ultimate redemption of the note and power to do that, I have some trouble in drawing a distinc- tion between tliat and the State-bank law pure and siuiple? Mr. Brosius. This is a State-bank law pure and simple, covered with a thin drapery of national authority? Mr. Warner. It is intended to be, as nearly as possible, an abso- lute enfranchisement of the banks of this country, leaving the several States to act as to institutions witiiin their borders, but adding for the time being an administrative system on the part of the General Government in regard to certain important matters, as to which the universal experience of civilized nations in banking has demonstrated the need of nniforuiity in order to bring about greater security— in order to bring about greater acceptability — this to assist the circulation of the currency and to secure such economy that the business attended to by the Government shall be less expensive for each than if it was done by each for itself. Mr. Cox. Pardon me, if you please, I hate to take up so much of your time, but I want to get this as clear as I can. ISTow, you have conceded, in the questions I have put to you, that so far as ultimate redemption of notes are concerned that the authority of the State is undisturbed. Now, then, when you come to uniformity Mr. Warner. You now use the word "ultimate." If you used that word I did not hear it. As far as the ultimate redemption of the note is concerned the guarantee fund is, of course, intended to insure that. Mr. Cox. Hear me, if you please, just there. The object to be attained and the object desired is that the notes shall be fully jirotected and that they shall be good? Mr. Warner. Not merely good, but current; this is for current redemption. Mr. Cox. Now, in order to make them good and current, you con- cede to me that the State has full authority as to how she shall do that? Mr. Warner. It may insist upon any conditions it pleases. BANKING AND CURRENCY. 429 Mr. Cox, Now, then, it is suggested to you by my friend on the left that one of the objects of Federal legislation is to provide uniformity in regard to the matter. Now, if 44 States have the i-ight to say what will support and make the notes good, how is the Federal Government to produce uniformity as to the security for the redemption of the notes and for their being current? Mr. Warner. If there shall be any su(;h difference between the laws of the several States as, after they having conformed to this act, shall caiise the notes of one State to be preferred over the notes of another, that certainly is, in a sense, a lack of uniformity. This bill, however, is drawn in accord with the conviction that, if these provisions are observed, the whole of the currency will be good. And it does not seem to me an objection that a State is given the opportunity to endeavor, by making its paper gilt edged, to get as much profit for its financiers, and such circulation for the notes of banks within it, as it may secure by such action. I doubt myself whether there would be any material difl'erence in the currency of notes of a State which made the most meager condi- tions and those of a State which insisted upon the most elaborate and most conservative detail, so long as they both came within the require- ments of this act. But if there should be a difference, they have a right to it. Take the State of Delaware, for example. If it thinks that by putting peculiar safeguards fibout its currency it can make Delaware currency acceptable throughout the country to an extent which the business of Delaware would not, of its own actual impetus, brhig about, why the State of Delaware is free to exploit that source of credit for the State and profit for its financiers. My opinion is that the State of Delaware would find that it had gotten into a business in which it had very little influence; but there is no reason why it should not attempt it if it wants to. The Chairman. Let me ask you a question right in that connection, bearing on that subject. What would be the means resorted to by bill- holders, in the hopes of securing tlie payment of good money for their notes, in the case of the failure of any bank having this issue? Sup- pose a bank closes its doors and the bills are scattered all over the United States, where does the bill-holder go to get his money? Mr. Warner. The bill-holder would be precisely in the same condi- tion as any other holder of an obligation on the bank, except that he would be entitled, first, to have all the assets marshaled and to be paid before other than bill-holders were allowed to participate; second, to have equity proceedings instituted and the additiojial liability of the stockholders realized; and, after practical exhaustion of those, third, to be paid from the guarantee fund provided for. The Chairman. That is simply an individual right of each individual I Mr. Warner. Precisely. , a . j The Ohalrman. They are scattered all over the United States, and of course you would not expect a man who had $5 upon a bank, say at Little Kock, to bring a suit in chancery and Mr. Warner. The receiver of the bank would marshal the assets as fast as possible and would deposit as promptly as possible with the Treasurer of the United States an amount of cash equivalent to the amountof currency which by the books of the Comptroller appeared to be outstanding. Ho would do it as promptly as possible as the only possible way of being able to go ahead and settle up the other affairs of the insolvent corporation. 430 BANKING AND CURRENCY. The Chairman. Eacli bill-liolder would wait for the winding up of the bank, and when there is anything deposited he would hunt it up and see if there was anything for him? Mr. Warner. I am astonished at the question, because the chair- man is pei-fectly well acquainted with what is done in regard to the bills of broken banks. The first thing that is watched for is as to the arrangement made for the redemption of the bills. In this case, the fact that the ISTational Government took charge of the matter after other resources had been exhausted, would practically make those bills con- tinue current as far as individuals were concerned, and, as far as banks were concerned, would probably bring about a deposit, either at certain places in each State or at a certain central point of the United States, according as the convenience of the different banks sugges- ted, of paper in banks in the course of liquidation. The Chairman. The i)ractice in our State of Illinois when the banks failed was for the bill holder to go to some bank and sell the notes for what he could get for them, and a few banks would finally get all of them and present them and get the profits of the discounts which they made by buying the notes. The bill holder always found himself in possession of an uncurrent bill, and he was apt, from necessity, having only a small amount, to take whatever he could get for them, and that furnished always a harvest for the bankers. Mr. Warner. That would doubtless be the result if you permitted a bank to issue three or four times the amount of its capital; if there was no place where the issues were registered so that any man could know in advance of the final settlement whether the amount of bills outstanding were three or four times the amount understood to be in circulation; if there was no provision for ultimate redemption; if there was no provision as to the liability of the stockholders, etc. Under such conditions as these I have no doubt but that the suggestion of the chairman would involve a very serious matter. But such are not the conditions proposed by me. Again, I want right here to say, as to the possibility that there may be trouble under this or any other system, that I do not for a moment deny the possibility of trouble under this or any other system. The only question is, how far we can go in anticipating and in preventing trouble without, in our anxiety to fix everything all right, doing more liarm than good. There is a limit, and my judgment is that this bill goes as far as is convenient, practical, or j)roper. Mr. Johnson, of Indiana. Do you rely for the ultimate redemption of the bills largely upon the tax imposed on the banks! Mr. Warner. I have studied somewhat the experience of the State which had by far the most extensive system of banking in the Union before the war, which system was under conditions as far removed from even the attempted safety provided by this as one can imagine, and subject to every vice that I have attempted here to head ofi'. The lesson of that experience is that this jirovision would have been far more than ample to provide for the ultimate redemption of the notes. With the additional safeguards thrown about the system by this bill, my belief is that the guarantee fund would be very rarely resorted to at all. The existenc'C, hoAvever, of a guarantee fand tf 3 per cent upon the total outstanding circulation, even if superfluous, would be certain to give such currency to the notes as to keep innocent billholders from being even temporarily subjected to inconvenience.' In my view such is the main benefit which would come from this provision. Mr. Johnson, of Indiana. In the case, however, of the failed bank BANKING AND CURRENCY. 431 you would rely upou tbeguaranteefundlargelyfor tlieultimate redemp- tion of tlie bills'? Mr. Waenbk. Certainly. 1 would place great reliance upon it as insuring ultimate redemption. I do not think however it would be often resorted to. Mr. Johnson, of Indiana. That is what 1 was trying to get in answer to my first question. Mr. Cox. A sufficiency of the fund guaranteed by that tax, whether it would be sufficient or not, must depend upou tlie other asset.s of the bank, which are provided by State law. Mr. Warner. It is a question of probabilities. Experience, how- ever, shows that without the precautions provided by this act, and irrespective of State laws, a guarantee fund of that size would, prac- tically, be sufficient, and that under the safeguards provided by this act, this guarantee fund is far more than ample. In my answer to the gentleman from Indiana, I say to him that while, of course, there is a possibility that that fund may be drawn upon from time to time, yet its main use, in my expectation, would be, not in the extent to which it would actually be called upou and therefore be effectual in bringing about ultimate redemption, biit in the guarantee which it would hold up to the nation that ultimate redemption was there and the assurance that would meanwhile be afforded the innocent note- holders of banks whose solvency was doubted. Mr. Johnson, of Indiana. You assume a guarantee firnd in place of bonds, as under the present system, would be sufficient, predicated upon statistics which have been drawn from national-banks'? Your claim is by reason of the failures under the national-bank act are shown to be very small as compared with the amount of money raised from the tax on national-bank circulation Mr. Warner. I repudiate any reliance on those statistics. My sug- gestion is based on experience under the M"ew York acts. Mr. Johnson, of Indiana. I simply want to observe the analogies are only good in the event the guarantee Mr. Warner. In case one depends upon an analogy Mr. Johnson, of Indiana. Whether one depends upon an analogy or not, the adequacy of your guarantee fund depends of course upon the safety of your banks outside of that by other provisions with which you \ave surrounded them. Mr. Warner. Precisely. Mr. Johnson, of Indiana. You feel you have amply protected the banks by the provisions of this bill'? Mr. Warner. I do. I base my conclusion, not upon our experience under the national-bank act, as to which the suggestion of the gen- tleman is pertinent and forceful, but upou the experience of the State of New York under the loosest kind of banking laws. Mr. Spbrry. Was that fund always sufacient? Mr. Warner. It was more than sufflcient to make the bills good; but by a construction of the act it was decided that depositors also had a right to share in this guarantee, so that, although the fund would have been amply sufacient to have paid all of the bills, even though the bills were 'so loosely issued that banks supposed to have $200,000 in circulation turned out to have more nearly half a million, although the precautions against counterfeiting were such that after they had paid out the whole amount of actual notes outstanding ot honest banks they would find they had been paying a lot of counter- feits, and that m*any of the genuine notes remained yet to be paid. 432 BANKING AND CUREENCY. For many years after it was established all payments made from it were refunded ft-om the assets of the broken banks. About 1843 the banks gladly paid assessments in advance to clear up matters then pending; but this mainly because by the new law the safety fund was available before broken bank assets, and the broken bank bills were accepted as payment on account of such assessment. And before it came to an end, by the abandonment of their circulation by Ifew York State banks under the national banking act, the safety fund had paid out millions of dollars in excess of enough to redeem every note having a lien upon it. It was the attempt to indemnify depositors that proved too much for the system. Mr. Johnson, of Indiana. You are drawing simply upon the experi- ence of the State of New York ? Mr. Warnbe. Yes. Mr. Oox. Now, let me draw the gentleman's mind to this proposi- tion. This bill provides for a guarantee fund? Mr. Warner. Yes. Mr. Cox. That is for the benefit of the noteholders? Mr. Warner. Yes. Mr. Cox. Now, you conceded a moment ago that the States have control of the matter so far as regarding the security for the same pur- pose, that is, for ultimate redemption? Mr. Warner. Yes, sir; so far as they care to provide it. Mr. Cox. When yon undertake to provide by Federal legislation for a guarantee fund in this way and leave the State to make provisions in regard to the other matters, does it not strike you that your guar- antee fund is an argument for the States and an inducement to the States to let the banks go into operation on a very weak and unsatis- factory security, relying upon that guarantee fund? Mr. Warner. So far as mere inducement to provide security is con- cerned, the existence of this guarantee fund might be used to some extent as an argument against the use of special security in some States where, if the guarantee fund did not exist, it might have been recpnred. I can appreciate that. Mr. Johnson, of Indiana. You state that the administrative features which you embody in this bill are satisfactory to protect the banks, and this bill is upon the theory that the States are already able to give good currency? Mr. Oox. It is conceded that so far as a fund for the ultimate redemption of tlie outstanding notes is concerned, a guarantee fund must and can be piovided for by the State. Now then, here is a dit^ ference in the system you are going to inaugurate and the system of New York : The very statute that provided a guarantee fund in the State of New York is the same power, the same legislature, as the one which provided the other additional security for the redenixjtion ? Mr. Warner. If the gentleman will look at the different variety of laws which were embraced within those relating to banks in New York which had the use of this guarantee fund, and also at the very serious defects in those laws as demonstrated by exiierience, there is one thing which I have no doubt the gentleman will do — he will admit that the plan I propose is much safer than was that. Mr. Cox. I concede all of that, but that system has this in it which that has not, that the State had the entire jurisdiction of the entire matter. Mr. Warner. Yes. Mr. Cox. Now you have split the jurisdiction, putting a part on the Federal G-overnment and leaving a part on the State government? BANKING AND CTJRKENCY. 433 Mr. Johnson, of Indisina. Let me ask a question right there which is suggested by the gentleman from Tennessee, altliough it may not be directly on what you are saying: What banking system can the people of this country devise through the medium of their State legislatures that they can not equally devise in Congress through the medium of their Eepresentatives! Mr. Warner. Mr. Chairman, the gentleman from Indiana belongs to a school of politics the members of which sincerely believe that when a matter can be attended to with, anything like equal convenience by either State or National (Government, the National Government should take it up. I belong to a school of politics the members of which believe "that where any matter can be attended to with anything like equal convenience by State agencies— indeed without such extraordinarv inconvenience as practically to call in national interference as a matter of necessity— that it should be left to the States. Mr. Johnson, of Indiana. Now do not you think that there is more likehhood of our securing uniformity by a general act passed by Con- gress, through the Representatives of the people in Congress, than there will be to have each State, through its own legislature, pass its peculiar banking laws? Mr. Warner. If what the gentleman means is identity, I agree with him; if what the gentleman means is uniformity in the sense I use it all through this matter— that is to say, uniformity in proper and neces- sary provisions— I should say that it is just as practicable to effect it by such an act as this, subject to further action by the States, as by an act of the Federal Government. Mr. Johnson, of Indiana. What I am driving at is this, if each State IS left to itself to devise, through its own legislature, a banking law, there is more likehhood to be a lack of uniformity and soundness of the currency, taking it on the whole, than through their representa- tives acting directly or in one central body, and the point I want to make is this Mr. Warner. Our Eepresentatives acting in this House are natu- rally affected by every wave of seutiinent, sound or unsound — I mean to characterizo neither — that for the time being seems to have the upper- most in politics. If this matter was referred to the States themselves, the States would be affected by such influences as work upon them locally. Now, sir, I have found the nearer you get home to what a man is responsi- ble for locally, and to what he knows about, the more conservative he is. For example, there is no question but that the State of Arkansas, if lam not mistaken, would instruct its Representatives to procure the United States to issue flat money. I believe there is not a district in Arkansas from which a representative in the State legislature would not receive his recall to permanent private life should he propose that the State of Arkansas do any such thing. Mr. Henderson, of Illinois. If you will allow me to ask one ques- tion? Mr. Warner. Just a moment. In other words, Mr. Chairman, while I appreciate the number of the political wild animals still roving about this country, although I might classify them in a different way from what would the gentleman from Indiana; my own idea is that it is a plagued sight safer to let those animals rove in their own locality until they are killed, in the places which they curse the most, than to bring them here in a menagerie to scare the nation. Mr. Johnson, of Indiana. Do you not believe a monetary heresy or 940 28 434 BANKING AND CUERENCY. craze may seize the best portion of the country and obtain recognition wliich would not be injurious in a State legislature where it was utterly powerless, but which when finally exploited and found its way here in the N^ational Government might influence the entire country? Mr. Warner. I do not believe there is a State legislature, acting in referejice to State law upon matters for which the State is responsible, and in which its citizens are primarily interested, that would not be more conservative than would the same legislature in egging on Con- gress to do something in which it had no responsibihty except m com- mon with others. Mr. Cos. Amen. . , . ^, . ^..., Mr Henderson, of Illinois. The question 1 want to ask is this. If it would be true that Arkansas would instruct her Representatives and Senators in favor of flat money, why "would not they, if they had the power, issue flat money themselves'? Mr. Warner. Mv dear friend, that is just exactly what they would not do. You take the men on this floor whom you— not myself— may pick out as being absolutely unsound on the financial propositions raised in this House, and examine them as to their capacity to conduct their own affairs, and the extent to which they have been conservative, in their private business and I think you will find, without exception, that they are perfectlv stainless from your own standpoint. Mr. Johnson, of Indiana. If your argument proceeds upon the the- ory that the State is an identity Mr. Brosius. I was just going to ask if the gentleman would allow himself to be called hoine to his bill by a question that I would like to put to him. In regard to the state of security we have developed m the progress of thirty years to a high state of perfection, but the diffl- culty is in regard to the state of elasticity. Kow, I would like to have the gentleman give me his judgment whether the provisions of his bill would be likely" to secure a higher degree of elasticity than we may secure under the national banking system with such modifications as mis;ht be suggested by himself. Mr. Warner. To the extent that the matter of the organization of banks and their permission to do business is left to the several States, to that extent will local laws be from time to time so modified as to ena- ble banks to meet the demand for elasticity of the currency. It will be easier, from time to time, in accord with the needs of the several sections of the country, to adjust the currency circulating within those sections if the matter is left with each State to act when- ever it may see fit and in sucli direction as it sees fit, compelled all the time to act within lines of safety, than if by any system, no matter how perfect it may be. we shail attempt to do the same thing through Federal legislaticm. The State legislature has power to adapt its leg- islation to the needs of the locality and the local development of busi- ness. Something which would be perfectly immaterial as to the sound- ness of the (;urreucy might be very material to its elasticity in certain quarters. Again, if Texas or Missouri, for example, proposed something which would be reasonable or desirable there, but in New Yorii or Massacluisetts might be dangerous, or at least not desirable, delay, inconvenience, and friction might result. The result would be just the'same in Federal legislation, as compared with State legislation, upon this subject, as it is now with the decisions of our U. S. Supreme Court on commercial matters, in comparison with tiiose of our State coui'ts. It is notorious that if you want to know what the law will be in the Federal courts, all you have got to do is to read the BANKING AND CURRENCY. 435 statutes and decisions of Few York, Illinois, Massachusetts, and a few other states. If you want to know what is the Federal law in a case not already decided, you have got to calculate how far the U. 8. Supreme Cfourt is behind those states. So in regard to the adjustability of a banking system to meet local as well as general developments in methods of doing business, the system I propose would be superior co the Federal system. I do not, however, wish to be understood as sug- gesting that the main requisites for securing elasticity could not be secured under a Federal system. The Ghaieman. Now let us go back to another matter, and that is the matter of final redemption; the Canadian system is a national sys- tem? Mr. Warner. Yes. The Chairman. You have assimilated your system to that, and the whole banking system of Canada is governed by a law passed by the Dominion of Canada! Mr. Warner. Yes. The Chairman. That law provides that each bank shall deposit an amount equal to 5 per cent of the average circulation with tlie Gov- ernment, to be called a redemption fund, and when a bank fails the whole fund that has been deposited by all the banks is liable for the circulation of that failed bank, and the liquidator immediately applies it to the payment of all notes outstandiag, and as soon as the bank fails to pay on demand, the notes of that bank draw 6 per cent interest, and so the bills, instead of going down, go to a premium. Now, the Scotch system is a joint system, every bank is liable for all the circula- tion, but they apply Mr. Warner. As to that, there is no reason why we should not have the branch-bank system here. The Chairman. So you have only one system in each case under which all the business of the bank is wound up, and therefore it does its work well in ordinary times ; but that is very different from a system where you simply enter into a portion of the business of winding up the bank by the Government and leave the bill-holder in an uncertainty. I would like to have you explain the difference between the system upon which yon base your bill as a precedent and the one which you have actually adopted. Mr. Warner. The chairman, except in a few particulars, has fairly stated the basis of the Canadian banking, so far as redemption is con- cerned ; and I have only to say in regard to that that Canada is rather comparable to one of our States than to our whole country ; and the reasons which, to me, make a State sj^stem, as distinguished from the national-bank system of the gentleman from Illinois, desirable, aie also in favor of leaving as much as may be to the State and as little as may be to the General Government. The only reason why I have not provided that there should be a central place of redemption, that there should- be, a guarantee fund to start with of, say, 5 per cent, to be increased, say, to 10 or 15 per cent, etc., etc., is because that after going over, as far as I was able, our experience, it seemed to me it was not necessary. The value of any currency system, especially in its prompt utilization by those who wish to borrow capital on as easy terms as possible, and as regards the whole question of elasticity, is largely dependent upon the lack of those things which offer obstacles to its being nsed and are a practical tax upon its use. I therefore felt it my duty in drawing this bill not to go further than the conservativebasis of experience suggested. 436 BANKING AND CURBENCY. There are no reasons, liowever, why, if the provisions of this bill are not ample for the pnrpose, amendments should not be had which shall meet, and more than meet, the very difference to which the gentleman has called attention, between this bill proposed and that now success- fid in Canada. Mr. Johnson, of Indiana. The Canadian system takes no note of geographical limits, although Canada is quite a large country. It is a broad national act to furnish the people with the currency. Mr. Bbosius. There is not a province in Canada that has any agency in the currency of the country at all; the Dominion of Canada is a unity. Mr. Waenee. Unquestionably. Mr. Cox. It is absolutely repugnant to our system of government. Mr. Johnson, of Indiana. Has it occurred to the gentleman that there may be more reluctance in regard to a guarantee fund for the practical guarantee of the solvency of every bank where 44 States will have to frame laws under which the banks would be conducted than if all of that was framed under one general law? Mr. Warner. I have no doubt the gentleman is entirely correct. The answer to that, however, is this. Putting as liberal an estimate as experience would justify upon the rate of the assessment proper to be required to make up and keep good this guaranty fund under the conditions suggested here, that rate is so far below the ordinary expenses caused the banks by our present system, that there can be no question but what it would be promptly and readily paid, espe- cially since it is in aid of increased i>roflts by facilitating the circula- tion. As to how much the banks would stand, whether they would stand an assessment of 2 per cent a year, for instance, I can not say. I think they will not be oppressed by the rate I propose. I think it is sufficient; and therefore I do not consider it important to discuss whether, under some other plan, they might not be willing to subraitto a higher rate. The Chairman. We were talking about final redemption. In case a bank fails and wants to wind ni^, I do not know that I understand what system you have provided for current redemption, except so far as the Comptroller of the Currency shall prescribe. Mr. Warner. None whatever. The Chairman. Can he prescribe a different system for one bank from another? Mr. Warner. Certainly. The Chairman. It is in his discretion? Mr. Warner. Absolutely. The Chairman. To say what each bank shall do for itself? Mr. Warner. I have no doubt, as a matter of fact, the practice will become crystallized into a very plain system, of rules within the first year, and tliat it will continue almost uniform except as modified by the development and facilities of commerce. The Chairman. Now, I want to ask if yoxi think there is a man in the United States who is so wise and great as to be intrusted with power so important as to exercise solely upon his discretion that respon- sibility witli nobody who caii make him even by mandamus do this and that or the other; he is above the courts Mr. Warner. I appreciate tlie suggestion of the gentleman, and, as I mentioned in an earlier hearing, this is the one clause of this bill about which 1 have had the most doubt. 1 believe that without such pro- vision at all these notes would be perfectly safe. It is unthinkable to BANKING AND CURRENCY. 437 me tliat it is necessary that we sLould have Federal statutes to prevent people from doing what is either impracticable or unprofitable, as cer- tainly would be the attempt, with the lime light of the press of this country thrown upon it, of any bank to ma,ke much profit out of circula- tion without providing adequate provisions for redemption. I have no question myself but what, as a matter of fact, there will not be 5 per cent of the banks of the whole country but which, directly or through some intermediary, will clear at New York, Chicago, St. Louis, and other cities. The provision of this bill is put here simply as an addi- tional — probably superfluous — safeguard. Mr. Johnson, of Indiana. All legislation proceeds upon the theory of the fallibility of the people. Mr. Warner. But not of the infallibility of legislators. Mr. Johnson, of Indiana. That is true. Mr. Warner. This is an enfranchisement of the banking currency of this country upon certain conditions, and it will take some time for this to get iuto practical operation. This act provides that whatever rules the Comptroller may adopt shall be submitted to Congress within so many days after the beginning of its session. And there is nothing, even if he did not submit these rules, to pi^event Congress from taking such further action as it may see tit in limiting his discretion. By the provisions of this act the attention of the Congress and the press of this country is to be called to those rules very soon after Congress meets. It is not a question of taking an old system and giving to a gentle- man at the other end of the avenue the capacity to throttle it ; it is taking a new system and putting upon it just such safeguards as we believe will practically insure its safety, and then allowing him until Congress meets to make such rules as within the provisions of this act, not incon- sistent with it, he shall think proj^er in regard to details, which we can afterwards change if we please. My own belief, Mr. Chairman, is that ten years after any system of this kind goes into operation, the only call for the exercise of discretion of the Comptroller will be in the line of adapting this system to some new development of clearing houses or communication facilities; and that by that time the peo^jle will have become so used to knowing that they can attend to their own business that in all probability this power of the Comptroller to ujake rules will be absolutely forgotten, unless in a good, fresh burst of Demo- cratic feeling it should be thonglit best, because they have not amounted to anything good for many years, to take away the restrictions that fetter the natural development of banking in the States. Mr. Johnson, of Indiana. Arenotpeopleattending to their business either through Congress or their State legislatures when they pass a law, regulating any particular kind of business? Mr. Warner. In one sense, yes. There is, however, a way of attending to one's business which interferes with the business of other men and communities, and there is a way of attending to one's busi- ness by abstaining from bothering as far as possible with other people's business; — and that is Democratic. Mr. Johnson, of Indiana. The gentleman is evidently afraid of too much legislation? Mr. Warner. Exactly; I believe our principal business is to repeal bad laws. Mr Johnson, of Indiana. I am afraid the gentleman will succeed in putting a bad law upon the statute books. Mr. Brosius. Where a business is a general business a man can only attend to his own business by attending to the business of people gen- erally at the sametime? 438 BANKING AND CURRENCY. Mr. Warner. I accede entirely to the gentleman's suggestion. The main difference is in the tendency of men. Some find it easy to believe that a particular thing is an excuse for attending to other people's business ; and others find it hard to believe that anything but the most urgent necessity justifies anyone in interfering with anybody else's business. The Chairman. I desire to have Mr. Warner explain whether the proposition to delegate to the Comptroller the power to make regula- tions in regard to current redemption of these notes is not in fact a dele- gation of legislative power by Congress to the hands of an individual? Mr. Warner. It is so only in the sense that discretion as to any detail of business in any Executive Department is a delegation of leg- islative power. The Executive Departments are, of course, our agents in one sense; anything they do or leave undone are our acts and omis- sions ; and the leaving to them of any discretion is leaving to them a matter which might possibly come within legislative power. The question, however, is not as to theory. The gentleman will immediately admit if we start down at the last detail as to how the Treasury Department is going to be run, that he would go a great way before he would interfere with the discretion of our executive oflicers in regard to details and methods. On the other hand I admit that if we start from the top down we would go a great way before I should not hesitate in leaving any discretion whatever. The question is simply where the line is to be drawn ; and whether the question is one of busi- ness which may be properly left to an executive oflicer, or a question of politics which can not be properly left to him. Mr. Johnson, of Indiana. It is a very hard thing to have the gov- ernment of many men without a little delegation of power. Mr. Warner. It is impossible. Thereupon the committee adjourned to meet on Friday, February 23, 1894. Committee on Banking and Currency, Friday, February 23, 1894. The Committee on Banking and Currency this day met, Hon. William M. Springer in the chair. Hon. John De Witt Warner, a Eepresentative from the State of New York, appeared'before the committee in continuation of his remarks on H. E. 5595. Mr. Warner. Mr. Chairman and gentlemen of the committee : I am a little uncertain how far, so far as the bill itself is concerned, I may be deemed to have proceeded, but, as I understand, the ground has practi- cally been covered down to and including line 56, on page 3. The next paragraph, paragraph 4, simply makes definite what notes shall at any time be considered as outstanding and provides, for the purposes of this act, that all notes shall be considered as outstanding after the blanks have been once issued by the Comptroller until their actual destroyal shall be made and registered by him. There will occasions arise which would not be met by that provision. For instance, a steamer might sink in mid-ocean carrying down alarge amount of those notes. It has never been found practical, however, in any legislation to ]irovide for special cases. Tliey have been dealt with by special legislation whenever occasion arose. So, to any objection to the provision here, that it does not apply to every possible case, my BANKING AND CUEEENC^. 439 answer is it does apply to cases which can properly be naet by a gen- eral act, and that extraordinary cases will have to be met in the future, as in the past, by special legislation. We had special legislation, as you will remember, in regard to bonds at the time of the Manhattan Bank robbery. The next paragraph is paragraph 5, on page 4 of the bill. It pro- vides for reports by every banli or banking association which shall take advantage of this act, and which is not a national-banking association, such reports being precisely the same in character and extent as are now required by the national-banking act of national-banking associ- ations. The reason for the exception of the national-bank associations by this act is, of course, perfectly plain. They are already provitled for by legislation which, so far from being repealed, is expressly confirmed by this act. The next paragraph — paragraph 6, on page 5 — provides for the right and the duty of inspection, by the Comptroller, of the banks, not national banks, taking advantage of this act to the same extent as he now has the right and duty in regard to national banks. The reason why national banks are excepted from this particular provision is the same as in the case of the similar exception from the former provision. There is, however, one jjoint in this connection to which it may be proper to call attention. While the reports and investigations and the publicity of the result of these reports and inspections are the same as now provided for in reference to national banks, there is nothing in the act by which the Comptroller can take advantage of the results of these inspections and reports to supervise, control, or in any way direct the course of the bank so inspected or reporting except in one regard. He is left with the discretion of judging whether the results of such reports justify the issue, if it is asked, of more blank notes under this act. With that excej)tion, the objecl; and effect of these examina- tions and these reports is simply to give such publicity to the affairs of each institution — to secure a collation at the point where it will be most accessible to the whole country of the result of the examination of these institutions, and thereby, as far as jiossible, on the one hand to keep the public informed of their status, and on the other hand to give the public the benefit of the natural rivalry which would arise between these systems to make them as perfect as possible — this in order, not by control, but by inducement on the one hand and a men- ace of loss of circulation and credit upon the other, to bring about the most healthful and most prompt development in the direction of secur- ity of the State system thus permitted. It is not, except indirectly, a provision for the security of the notes whicli are issued Mr. Johnson, of Indiana. In other words the Comptroller may make examinations and publish the information, but has the Comptroller any power to proceed and appoint a receiver Mr. Waenee.. No. Mr. Johnson, of Indiana. All the power he has is not to deliver the notes— that is, any additional notes, if he thinks they have not com- phed with the provisions of this bill or if he expects it to fail. Mr. Warner. There is no special result as regards notes which are already outstanding, except in so far as the tendency of this system of examination and these reports shall bring about a more conservative course of business on the part of the bank and a more limited accept- ance of notes on the part of the public in case its condition has not been good. 440 BANKING AND CUREENCT. Mr. Beositjs. Do I understand tlie Comptroller has no power to close a bank under any circumstances ? Mr. Waenee. 1^0, sir ; not the slightest. He has nothing whatever to do with it. Mr. Beosius. But he determines whether it shall have any circula- tion in the beginning? Mr. Waenee. Unquestionably. Mr. Beosius. Suppose after it gets its circulation and it is dis- covered to have perpetrated a fraud, he has no power to withdraw it? Mr. Waenee. Not the slightest. It would do no good if he had the power; he could do nothing more than marshal the assets of the bank and the guarantee fund in his hands to pay the notes. He is to liave the power to withhold the giving out more notes, and therefore would actually have the power, so far as security of circulation is concerned, that he now has under the national-bank act The difference is this, that I have left him without that apparent guardianship over every- thing on earth, upon which people rely for protection in times when there is no trouble, and which they find worthless whenever the strain really comes. The omission of this takes away from the notes no security which by any possibility they would have by giving the Comptroller additional powers. It simply avoids a conflict after tlie colt has been stolen, if it has been stolen, between two authorities, as to which one shall look the stable door. Mr. Cox. In the first instance, if they have got the currency and misapplied it or have been guilty of fraud, everything the Comptroller can do is to say that they shall not have anything more? Mr. Waenee. Precisely ; that is all that he can do now. Mr. Beosius. Oh, no. Mr. Waenee. He can stop the bank, but what good does that do? Mr. Cox. Then who shall stop the bank? Mr. Waenee. Any man who holds one of its notes or one of its obligations and who wants it stopped. Mr. Cox. To what court would it go? Mr. Waenee. In a State court if he was a citizen of that State, and to the United States court if he was a citizen of another State. Any man who holds any note or obligation of that bank is left absolutely free to stop it. Mr. Cox. One more question, if you please. I understand that i^roc- ess. l^Tow an application, say, is made for taking out currency? Mr. Waenee. Yes. Mr. Cox. And the bank insists that it has complied with the law and the Comptroller insists upon the other side that they have been guilty of fraud. Then there is a sharp conflict between the bank and the Comptroller; who is to decide? Mr. Waenee. The Comptroller is absolute until that authority is curtailed in some way by Congress. Mr. Cox. It will then take additional legislation to relieve that bank, notwithstanding it may be absolutely solvent? Mr. Waenee. I have no doubt, after the first report here from the Comptroller, that there will be a section or two added to tliis bill which will be a guide and a limit to some extent in the exercise of his discre- tion. I have no doubt, as the operation of the act goes oa, that pre- cedents will become more and better estabbshed and legislation more definite, so the question my friend raises will become almost an imma- terial one. For the present, however, he possesses the discretion giveu by the bill. BANKING AND CURRENCY. 441 Mr. Cox. There is no way you can reach the Comptroller unless there is legislation directing him to issue more money ! Mr. Waenee. No. Mr. Cox. He can not be touched by the courts'? Mr. Waenee. The very moment you make legislation providing cer- tain limits or providing certain conditions then, upon comi)liance with those conditions or upon the claim it has been complied with, you can mandamns the Comptroller 1 believe. Mr. Hall. But you give the Comptroller here judicial power, there- fore he is not liable. Mr. Waenee. For the time being, unquestionably; until we can see our way clear to Mr. Hall. But I mean under your bill'? Mr. Cox. Now, your legislative power also is granted power that it shall issue currency "J Mr. Waenee. Under certain conditions named in the act. Mr. Cox. Now, then, when that is done it raises a question of some character or kind. Now, suppose the Comptroller says : " I do not think you have complied and 1 will not do it." Then you are driven to the United States courts for a mandamus for the construction of the act. Mr. Waenee. Precisely. Mr. Cox. When you. do that can you mandamus the Comptroller of the United States in a State court? Mr. Waenee. In a State court! I should imagine not, under a Fed- eral act. Mr. Cox. Well, I am trying to get your mind on this point; you will necessarily have to go to a Federal court to exercise that power! Mr. Waenee. Unquestionably; and any legislation which we pass here, enfranchising in any way a State-banking system from the impris- onment to which it has been subjected for the last thirty years, is sub- ject to precisely the same suggestion. Mr. Cox. Now,^ moment ago you held when a bank was in an insol- vent condition the Comptroller could not wind it up or put it in the hands of a receiver! You then said the noteholder must come to the State courts? Mr. Waenee. To the State con^rt if he is a resident and to the U. S. court if he is a nonresident. Mr. Cox. Does your act confer jurisdiction upon the State and Fed- eral courts! Mr. Waenee. Not the slightest. Mr. Cox. Then, if he has to go to the State court to wind up a bank, and you have to go to the Federal court to get a mandamus on the Comptroller to comply with the law, then you meet two jurisdictions in regard to it! Mr. Waenee. Not the slightest. It is only one of the cases which may arise under any act, on account of the relations between the State and Federal courts— not on account of the phraseology of any particular act, but because it is a matter as to which Congress has acted or the Constitution speaks. For example, if our State of New York passed a law which I believed tended to impair the obligation of a contract, then, not because there is any authority given by the act to go into the Fed- eral courts, but because of our Federal Constitution, I can carry that point to the Supreme Court of the United States. In that sense there is a dual jurisdiction in regard to nearly everything we do. We pass here a certain act of Congress. If there arises a question of interpre- tation of that act, the Supreme Court of the Umted States, and the 442 BANKING AND CURRENCY. Federal coiirts before it gets tliere, are tlie arbiters. In this sense any legislation enacted by Congress may be said to involve a dual jurisdic- tion, uidess it takes jurisdiction away from the State courts. Mr. Hall. I want to say, in order to clear the question in my own miud, of wliicli Mr. Oox, of Tennessee, spoke a few moments ago. Under the sixth section of your bill, and under the same spirit running through the whole Ijill, the Comptroller of the Currency is given certain judi- ciary functions. He is to decide whether a bank has acted in such a way as not to entitle it to further currency. In deciding that question he acts in a judicial caxjacity. I want to know if there is any authority for any court to mandamus an ofiicer who acts in a judicial capacity! I just ask that for information"? Mr. Waenee. If what the gentleman refers to is to cause by a man- damus a certain decision to be rendered in a matter as to which discre- tion is given, I answer him, no. If the question is as to whether a mandamus does not lie to compel any officer upon whom a duty is devol\'ed to perform that duty, then I say, yes. Mr. Hall. But tliat is the very question. Do not you leave it discre- tionary with him here; do not you leave him that play of ground that is necessary to iierform those functions? Mr. Warner. Unquestionably, unless this bill is so amended that it shall iH'escribe move definitely the conditions under which he shall act, or until we have further legislation which shall do so; then it is very probable that, in most of the cases which might arise under it — questions such as the gentleman raises — the Comptroller might plead that he was not subject to mandamus. Whether he would be subject to mandamus afterwards would depend upon the nature of the legisla- tion had. Mr. Hall. But I am speaking of this bill? Mr, Warner. I believe most of the questions would be such as would not be reached by mandamus. I mean most of the questions that might arise unless further legislation was had. Mr. Cox. As a rule, you can not mandamus a man to perform a duty when discretion is lodged with that man? Mr. Warnbe. You can not do it at all so as to take away that dis- cretion. Mr. Oox. Does it not follow, on the other side, that where you author- ize and direct him' to do a thing, then a mandamus will lie? Mr. Warner. It will lie to compel him to act, but it will not lie to compel him to act in the direction any particular man wants. Mr. Cox. It will compel him to act when the law discloses what he shall do? Mr. Warner. Precisely. Mr. Cox. But it does not compel him to act when he exercises his own discretion? Mr. Warner. I think we agree, but let me see. A mandamus will lie to compel an ofiicer to perform his duty Mr. Walker. Any prescribed duty. Mr. Warner. To perform any prescribed duty. It will not lie to direct the manner in which he shall perform that duty, provided the law leaves it to his discretion. Mr. Cox. Then you must have your act either one of two ways. If you confer discretion upon the Comptroller there is no way to force him to do it? Mr. Warner. E^one whatever, until you have either amended this act or by subsequent legislation made more definite provisions. BANKING AND CURRENCY. 443 Mr. Cox. I would like to know whether by this act or any other act, if you confer discretionary powers uiaou him, why as a matter of course there is no jurisdiction lying in a mandamus? Mr. Warner. iSTot as to the discretionary power, no; but it is very easy so to draft a law that the question as to his action shall depend sim- ply upon a proven state of facts, and in that case you can lead liim by mandamus right square up to the trough and make him drink. Mr. Johnson, of Indiana. Your bill re<]uires that the fState shall charter the State banks and require that there shall be a first lien of the noteholder uj)on the assets of that bank. Now, suppose the State does that and the Comptroller of the Currency refuses to issue on the ground it has not done so, and it was very clearly susceptible of proof that it had been done, the court could mandamus! Mr. Warner. Yes, sir. Mr. Johnson, of Indiana. Now, I want to ask you in regard to another branch of the subject which I wish to get you to exi)lain. If you should unconditionally repeal the 10 per ceut tax upon State bank circulation there can be no conflict of jurisdiction between the Federal and State courts, they being all before the State courts? Mr. Warner. None caused by this law. Mr. Johnson, of Indiana. Under the national banking law there can be no conflict, because everything is amenable in the courts of the United States'? Mr. Warner. Well. Mr. Johnson, of Indiana. But under the conditions which you seem to establish by your bill the jurisdiction must necessarily be divided, and there may be frequent instances in which doubtiiil questions would arise as to which court would take jurisdiction of the matter; am I right or not? Mr. Warner. Mr. Chairman, the gentleman is not right. If we simply have the unconditional repeal there would still be possible appeal to the Federal courts in any case; for example, involving any question of impairing the obligation of a contract, in any case involv- ing the construction of the repealing act, in any question involving the question as to wliether or not some other act upon the statute books was more or less inconsistent with the repealing act. Mr. Hall. Just right there I want to know if the Federal courts, in case of the unconditional repeal of the State bank tax, would not be the court that a man would go into ninety nine times out of a hundred if he were a nonresident of the State in case the bank had not com- phed with the conditions to have a receiver appointed under the Fed- eral courts? Mr. Warner. Unquestionably. Mr. Hall. Therefore, it is open to the same objection as your bill on that point? Mr. Warner. In the extent to which this act leaves any even administrative assistance in the hands of the Federal Government, I think the gentleman wiU admit we have seen there is a clear demar- cation of the jurisdiction. There is, as there must be always, the ques- tion of the construction of this act, but as between the most extreme case the gentleman can imagine of the demarkation between the two lurisdictions and the demarkation laid down in this bill, there is no material difference. Mr. Johnson, of Indiana. I will put the question to j^ou again, whether the absolute and unconditional repeal of the 10 per cent upon State banks would not greatly simplify the question of jurisdiction as 444 BAKKING AND CURRENCY. compared wifh the conditions which will exist under the biU which yon propose? Mr. Warner. It would not. Mr. Johnson, of Indiana. Do not you know just to the extent this bill makes extra provisions to that extent there will be room for a con- flict of jurisdiction 1 Mr. Warner. Mr. Chairman, my belief is that the provisions of this bill are such as are likely to prevent a very much larger number of appeals to the Federal courts than would the simple repeal. I do not mean to say that upon certain points there might be cases carried into the Federal courts under this bill which would not be carried under unconditional repeal; but what I do believe is, under this biil there are not likely to be nearly as many carried as there would be under uncon- ditional repeal. Mr. Johnson, of Indiana. That is a remarkable proposition to me, and I confess it surpasses my understanding. Mr. Warner. Mr. Chairman, of course it is impossible to go into all contiTigencies; the gentleman, for exam])le, would apiweciate this. Mr. Johnson, of Indiana. Allow me for a minute. Mr. Warner. I want to finish this. For example, if we have uncon- ditional repeal there will arise under the varying conditions of our State constitutions and laws questions which will be very much more varied and numerous than if this act is passed. I am now glad to yield to the gentleman. Mr. Johnson, of Indiana. I do not care to have you yield to me now, as the question I was about to ask was pertinent to what you were saying a minute ago. The point I wish to make was that where there was unconditional repeal of the State-bank tax then the whole subject of the currency system is remitted to the States, and the State courts would have exclusive jurisdiction; that under the existing system — the national-bank system, the whole matter is placed within the control of the U. S. courts and they practically have exchisive jurisdiction; but your system as laid down by your bill necessarily involves the exercise of jurisdiction in the U. S. courts for one purpose and jurisdiction in the State courts for another purpose, therefore creating a double jurisdic- tion, and in that respect it is lacking in simplicity both from what would result from unconditional repeal and what now results from under the present national-banking system. Mr. Warner. If the gentleman will pardon me, the last sentence I have answered perhaps in a weak way before, and I will not take up time further to discuss that. As to the first two propositions h© makes in regard to a State bank under unconditional repeal, and a national bank system under unconditional repeal, not merely will I recall my own suggestion and those of my friends from Missouri and Tennessee; but his own experience as a lawyer will lead him to be most prompt in admit- ting thatour Statebanks have now a great part of their litigation carried on in Federal courts, and that, under the national banking system, a great part is carried on _ Mr. Johnson, of Indiana. You are simply, I think, begging this ques- tion. I do not believe you have seen the point. All of that which exists now comes toward the general end of the law, whereas you are engraft- ing by a specific provision in your bill Mr. Warner. The gentleman is certainly entitled to his opinion. It is perhaps as much begging the question on his part as upon mine to assume in advance the correctness of what he believes the probabili- ties will be rather than what I believe they wiU be. BANKING AND CURRENCY. 445 Mr. Brosius. Will you not accede to this proposition, that where you establish a money institution, or any other kind of an institution, and subject it to the control of both Federal jurisdiction and State jurisdiction, though it may be in separate and distinct direction, yet subjecting it in some respects to the control of both jurisdictions, you increase the comiilexity of that system! Mr. Warner. Nof at all; it all dei)ends iipon the circumstances. You can conceive of State bank systems which would bring more litiga- tion into the Federal courts than any national-bank acts we have ever had, and you can also conceive of a national-bank system — I do not think ours is peculiarly liable to objection in that regard, however — which would bring more litigation into State courts than almost any State system. The whole question depen ds upon whether the ijrovisions of your bill are such as to encourage, or, on the other hand, to antici- pate and obviate litigation in one or tbe other class of courts. Mr. Bkosius. Let me introduce this modification of my proposition: Other things being equal, joint jurisdiction, Federal and State, would increase the complexity! Mr. Warner. There is no such thing as "other things being equal," because the whole question is whether the bill is so drawn as to create and bring about litigation, or, rather, to a\'t)id it. Mr. Johnson, of Indiana. Where were the former litigations under our old State-bank system, in the State com-ts? Mr. Warner. In the State courts if the plaintiff happened to be a resident of the State, for there the State would have oiiginal jurisdic- tion. In the United States courts if it was anybody residing out of the State. As a matter of actual fact, suits against State banks were frequently entered through the Federal courts on behalf of people outside the States in order to avoid local jurisdiction. Not merely in those cases which were cognizable exclusively in the United States courts, but in other cases, whenever they can be removed from State courts, it is frequently done. Mr. Johnson, of Indiana. The main litigation was in the State courts, however! Mr. Warner. I beg the gentleman's pardon. The litigation, as far as mere collection of ordinary debts against the institutions or ques- tions of liability between two solvent institutions, was largely in the Statecourts, perhaps in a majority of the cases; although as a matter of fact in the .latter^lass of cases the extension of commercial facili- ties has brought them more and more into the Federal courts, until now a large ijroportion are in the Federal courts. But in cases which bear upon the question of marshaling the assets of insolvent institutions and meeting liabilities lor circulation, my limited expe- rience is that proceedings are perhaps most frequently taken primarily in the name of some one who, being outside of the State, can carry it into the Federal courts and tSiereby lessen the risk of local influence. Mr. Johnson, of Indiana. But all. State litigation grew out of a general provision of law, and not, of course, out of the particular pro- vision of the national law, for there was no such law. Mr. Warner. I accede to what I understand to be the gentlemen's contention in that regard, which, by the way, is precisely the point I made a half an hour ago. Mr. Johnson, of Indiana. Let me ask you a little different question on that branch. Under the present national banking system the Comptroller may not only have an examination of the banks, report of circulation, etc., but immediately upon finding them insolvent or in 446 BANKING AND CURRENCY. danger of insolvency lie may proceed in behalf of all the creditors to put them into the process of liquidation? Mr. Warner. Precisely. Mr. Johnson, of Indiana. Under the system yon propose, when he discovers its insolvency he is utterly powerless to do anything except to give publicity to the facts ! Mr. Warner. Precisely. • Mr. Johnson, of Indiana. And according to that statement the set- tling of the affairs of the bank is left to the individual act of the cred- itors ; there is no concerted action 1 Mr. Warner. I beg the gentleman's pardon ; he is too good a law- yer not to know that the inevitable turn of affairs is that one party would sue on behalf of all the others and Mr. Johnson, of Indiana. I understand that; but in place of having some central authority, like the Comptroller, coming in and acting for all parties, it is left to the individual creditors of the bank, Tom, Dick, and Harry, to act. Mr. Warner. We are getting back to the old question as to whether the moment a man becomes vested with a Federal office there is thereby added to his intellect, to his integrity, and to his leisure to attend to these things. Mr. Johnson, of Indiana. The only question is whether a central authority is preferable to its being scattered all over the country! Mr. Warner. I have no question whatever but that a proper receiver, acting under the courts upon the ground, who represents iii that i^articular community the creditors of that institution and stock- holders, will be ordinarily the better man and the local courts the more convenient tribunals. Mr. Johnson, of Indiana. A receiver on the ground is appointed by the Comptroller, as I understand it? Mr. Warner. Sometimes. Mr. Johnson, of Indiana. With full knowledge Mr. Warner. I am not suggesting that the Comptroller would not attend to it fairly well. Mr. Walker. And generally a man familiar with the bank and all of its operations! Mr. Warner. That depends upon the Comptroller's appointment. Mr. Johnson, of Indiana. You speak of the provisions of your bill as far as contemplated national control is conceri«Bd as purely admin- istrative? Mr. Warner. Not purely. Mr. Johnson, of Indiana. Largely, then? Is not your "whole bill constructed upon a total and entire mistrust of State banks 1 Mr. Warner. Ho, sir. Mr. Johnson, of Indiana. This bill, while purporting to be in the interest of State banks, is constructed upon a mistrust of State banks'! Mr. Warner. My bill is constructed largely in the way of a conces- sioQ to the conservatism of gentlemen who have the opinions of my friend from Indiana. Mr. Cox. Will you yield to me for one question just in this connection of jurisdiction, as I regard it as a very important one? Let me call to your mind tiiis proposition: Take the State of Missouri; say this law is passed and it goes into effect; the constitution of Missouri is such that she can not legislate at all in regard to it. Mr. Warner. Not until she changes her constitution, as I under- stand. BANKING AND CUREENCY, 447 Mr. Cox. Tlien all the relief that Missouri would get, if she got any at all, would be through the system of national banks? Mr. Warnee. Yes, and I may add the fact that all other States having the same authority Mr. Cox. That being so, that the State of Missouri could get no relief except through the operations of the national bank act, then as a matter of law the State courts of Missouri would have no jurisdic- tion whatever ? Mr. Warner. In that particular case, no. Mr. Cox. Now, suppose we go from the State of Missouri to the State of Tennessee, which is not prohibited by the constitution of the State, and she avails herself of the benefits of this act, then in the State of Tennessee in the same business you have got the U. S. courts, having concurrent jurisdiction, whereas in Missouri you have the Federal court alone? Mr. Warner. Tou have a certain lot of institutions in Tennessee in regard to which in most cases initial action would be in the State courts. Tou have a certain lot of other institutions as to which in most cases initial action would be in the Federal courts, but as to neither one of those institutions is there any complexity arising from the fact of the other's existence in the State. Mr. Cox. One more question and I will not bother you any more in regard to this question of jurisdiction. Sui^pose a case is presented, and the case involves a constrtiction of jurisdiction which is granted by the State, now I ask you what court would have jurisdiction in such a case as this 1 Mr. Warner. The Federal courts, if it arose under this act. Mr. Cox. The Federal court would be construing the charter of a State, granting j)0wers, limitations, and restrictions? Mr. Warner. Certainly. Mr. Cox. A charter granted by a State is an act of its legislature. Is not that legislation by the State? 'Sow, do you mean to concede before this committee you will transfer the jurisdiction of a State court upon its own statutes over to the Federal courts ? Mr. Warner. The Federal courts would be compelled to accept as the law governing the construction of that charter the law, either leg- islative or judge-made, if we may so call it, of that State. Mr. Brosius. How could you mandamus through a Federal court unless there was a Federal question involved in it? Mr. Warner. The construction of its statutes and its laws, given by the courts of a State, would be conclusive upon the Federal courts ; but it would be for the Federal courts to say whether or not the Comp- troller had acted or had not acted as he was commanded to do by this act. Mr. Beositjs. That was not the question asked you by Mr. Cox; that is not the point. Mr. Cox. Let me be understood. I will take my State, as that is easy for me to handle. Say she charters a bank under your law. A foreign note-holder comes to the conclusion that the bank is insolvent. Now he gets jurisdiction on account of his nonresidence in the Fed- eral courts, but here is my question: The resident note-holder in the State of Tennessee brings a suit that involves the construction of the powers granted in that charter, or limitation of power. Now, I under- stood you to say a moment ago that the Federal courts Mr. Warner. Not at all. My an.swer assumed your question to relate to what the Comptroller could be made to do. 448 BANKING AND CIJEEENCY. Mr. Cox. I see you misunderstood me. Mr. Warner. I said he could be mandamused. Mr. Cox. The resident note-holder brings suit over which the juris- diction of the State court is complete ? Mr. Warner. Certainly. Mr. Cox. Then the foreign note-holder brings his suit upon the very same question, that goes to the Federal courts ? Mr. Warner. Tea, that quasi dual jurisdiction exists now as to the obligations of every institution or bank in the country. Mr. Cox. This is what I want to get at. If that law which you pro- pose adopts a charter of the State of Tennessee as part of itself, as a part of the law, makes it a part of the law by act, does not that confer absolute jurisdiction as a part of an act of Congress in the Federal courts ? Mr. Warner. It would if your supposition was true, but this act does not make this act a part of that law. It s-imply provides the State must have a certain law, but it does not make that law a part of this act any more than the provision of the Constitution provicling for trial by jury makes every jury trial a matter for transaction in Federal courts. Mr. Cox. What covrrts decide whether the State has jurisdiction or not; where is the jurisdiction to determine that question? Mr. Warner. The particular matter, I suppose, that we were lately considering would be a question of fact to be proven in the Federal courts by the production of an authenticated copy of the law as the State has passed it. Mr. Johnson, of Indiana. But it would not depend upon the construc- tion of local courts, because Mr. Warner. As far as concerns the mere fact that a statute has been passed and the wording of that statute, that would be simply a matter of proof in the ordinary manner. As to the construction of a statute, the law and decisions of the State would — unless I am mis- taken, which of course is possible — be conclusive upon the courts of the United States. Mr. Johnson, of Indiana. Unless there is something in conflict with the law of the United States"^ Mr. Warner. Of course. Mr. Johnson, of Indiana. Suppose under your bill some State bank would apply for money to be issued to it by the Comptroller and would insist that the provision of your act requiriug that the charter of a State bank shall provide for a first lien of the note-holder over the assets of the bank was provided for, and suppose the Oomjrtroller of the Currency should deuy the charter contained any such provision, the questiou would go before the Supreme Court of the United States? Mr. Warner. Precisely. Mr. Johnson, of Indiana. Now, do you contend that the Supreme Court of the United States would be bound to follow the decision of the local courts, that the charter did contain that provision? Mr. Warner. Such is my understanding. Mr. Johnson, of Indiana. If it was borne upon the face of the charter that it did not? Mr. Warner. The decisions of the court of last resort of a State, as I understand it, are conclusive upon the Supreme Court of the United States and upon aU Federal courts as to what the statutes of that State mean. BANKING AND CURRENCY. 449 Mr. Johnson, of Iiidiana. Eight there a minute. You mean in con- struction of a law passed in accordauce with the law of the United States? Mr. Warner. Yes, or any other. The Chairman. I will say to the gentleman that the time is passinsr very rapidly, and I think we have heard a good deal on the question of jurisdiction. Mr. Brositjs. On that question of jurisdiction I was going to submit a question. You provide in your bill, if I remember it, for reports to be made to the Comptroller and examiners to be appointed by Federal authority, but it does not provide that any report is to be made to any State authority or any examination by a State authority, and from your argument I have learned that the Comptroller having had the examinations held and having received the reports Mr. Warner. And published them. Mr. Brosius (continuing). Can take no action predicated upon the results of these examinations? Mr. Warner. Except in one regard, a negative action. Mr. Brosius. Why do you have reports made to the Comptroller and the examinations supervised by him when he can take no action what- ever on the results? Mr. Warner. The gentleman asks a question which brings out a point I want to enforce as much as possible. It is not upon the arbitrary action of any Federal officer that I rely for the security of this system. It is rather upon the common sense of the American public, and the honesty of American financiers, especially when the affairs with which they have to deal are dragged out and held up in broad daylight, that we propose to rest. The object is to keep that lime light on them just the same as is dpne in Wall street. We do not rely there mainly upon policemen and private watchmen to keep vaults full of securities from being robbed. Every single vault stands where it can be seen from the street, and in front of it burns a bright light day and night ; and any man will teU you that that is the most eifectual protection you can have. Mr. Johnson, of Indiana. But you do not object to a State passing laws prohibiting the robbery of these banks? Mr. Warner. Each State can have as many examinations as it please ; it can make as many provisos as it please as to how they shall do business. Mr. Brosius. Eight on that point, you say the States can provide by statute; now can the State provide by statute for any examination upon which the right of that bank to circulation would depend? Mr. Warner. Unquestionably, it can provide for an examination, and that if the result of the examination is not such as contemplated by the State law, the authority of that bank to issue circulation shall be revoked. The Comptroller is not authorized by this act to issue currency to any institution not holding the authority of its State. Mr. Brosius. I do not find anything in your bill which confers upon the State authority to make any conditions upon which that bank shall be entitled to its currency? Mr. Warner. The second section reads as follows : That State banks, and State banking associations, "when thereto authorised T>ij the laws of the Stales in which they are respectively situate," anA. also national banking associations, may issue circulating notes subject to the following regulation, etc. 940 89 450 BANKING AND CUERENGY. That authorization may be conditioned in any way that the State may devise. Mr. Johnson, of Indiana. The State may impose any other additional conditions as it sees fit, and which is not in coniiict with the general provisions of this bill ? Mr. Warner. Certainly. Mr. Brosiits. Let me get your statement in my mind there. Do you mean primarily the State authority shall name and enact into law the conditions upon which the State banks shall receive currency from the Comptroller? Mr. Warner. It must have done so before they can receive it. Mr. Johnson, of Indiana. Or put any other provision which it sees fit to impose upon it? Mr. Warner. Certainly. It can go further than that; it can make the existence of the corporation as such dependent upon the falfillment of any condition it pleases. Mr. Johnson, of Indiana. Tou have no objection at all to the State legislature taking such control as it sees fit of these banks; it is simply a choice of jurisdiction with you? Mr. Warner. Largely. Mr. Brosius. Tou say largely choice of jurisdiction, do you not mean wholly choice of jurisdiction? Mr. Warner, ^o, sir; I do not. There are a great many other points than mere jurisdiction. I referred to some in a former hearing. While the ground i)rinciples upon which banks should be ijermitted to issue their notes as circulating medium are applicable in the main to the case of any civilized nation, yet when it comes to the details, even more important details, there are certain provisions which may be desirable, though not necessary, which in some localities would lead to very little inconvenience, in other cases would lead to such incon- venience as, in comparison with the uses to be subserved, would make such provisions undesirable. There are a great many respects in which, — if it is desired, as I take it we all desire, a currency should be elastic and serve in the best inauner possible the i^eople of every locality — that end will be subserved by leaving to the State or the locality the power to adjust minor details in such a way as best serves its own condition. Mr. Johnson, of Indiana. You have no provision in this bill for sim- plifying the currency by providing for the retirement of silver certiii- cates, gold certificates, and greenbacks. Mr. Warner. There is nothing of that kind in this bill. I will antici- pate, perhaps, a question of the gentleman, and I will say I think it is desirable that such legislation should be had; but it is a question between a complicated currency and a complicated bill, and I have believed it easier to get through this House a somewhat simple biU than a very complicated bill intended to bring about simplicity. Mr. Walker. It is better to have a simple currency than a simple Mr. Warner. My friend is entirely right. If I should for a moment think it possible to assist rather than retard even the limited relief con- templated by this bill by securing an amendment to it providing for the retirement of the greenbacks, for the absolute inhibition of the gold certificates, or for the calling in or retirement of the Sherman notes, I would be glad to go further now and take the Government out of other people's business; I should be only too glad to favor it. I fear, how- ever, it would dump the bill. Mr. Johnson, of Indiana. Is it not your belief this bill will furnish a very safe and elastic currency if by its provisions it was entirely BANKING AND CUERENCT. 451 under national control, without repealing the State bank circulation and allowing the national banks to issue under it? Mr. Warnbk. Perhaps. But I call the attention of the gentleman to the consideration which I mentioned a few moments ago, in which, without reference to the mere question of preference between Federal and State jurisdiction as such, I believe the bill, in the shape in which I have presented it, would be more useful in its operation than in the shape suggested by the gentleman from Indiana. Mr. Cox. Before you leave that (for we are all trying to get some- thing that is valuable), if you were to confer jurisdiction upon the national banking system, and extend the basis of its currency to include State bonds, municipal bonds, etc., then have not you reached the ques- tion of elasticity more effectually by that than you have by this? Mr. Waenbe. You have not, Mr. Chairman. The very fact that you require special investments and special handling of investments as a prerequisite to issuing currency goes to destroy elasticity. The extent to which it destroys it, or would destroy it under conditions sug- gested by the gentleman from Tennessee, might be perhaps less than the extent to which that elasticity is destroyed now by the very strin- gent provision for a certain limited class of securities which the law provides; but I will say to the gentleman from Tennessee that I can not imagine a system which would lead to more endless and more com- plicated and more intolerable litigation than would a system which — either by a definite provision of the original act or by an indefinite discretion given any ofBcer, State or national — should attempt to pro- vide for a currency based upon all these kinds of security. Mr. Johnson, of Indiana. I think your safety fund is a correct method of obtaining an elastic currency, but I am afraid it would be only a safe fund iu the event tbe whole thing was referred to national control; that is where I differ with you. Mr. Waknee. I see. The next paragraph relates to the safety fund. ISTow, as to the phrase- ology of that paragraph, I will not go into it in detail. It is intended to provide a very simple system for a very complicated lot of possibili- ties, complicated not from their nature but from their number. It is intended to provide, first, for expenses chargeable specially to any bank. It is intended, second, to provide for general expenses chargeable to no bank in particular but properly chargeable to them all in carrying out this act, and, third, it is intended to provide a guarantee fund for the circulation. And in order to avoid what has been the objection in some systems, where the same end is sought to be attained, it is provided that this provision shall be made through an assessment, which shall be so definite in character that there can not arise any ques- tion either as to its amount whenever it is levied, or as to its limit in any one year, or in any other direction which will seriously interfere with the business calculations of banking institutions. To that end it is provided that upon taking out the notes, no matter if the bank intends to leave them in its vault indefinitely, an assessment shall be made calling for one-half of 1 per cent on their face. It is also provided that within a certain time after the first of January in any year an assessment of one-half per cent shall be paid upon any notes, which upon that first day of January shall have been outstanding more than one year. In view of the fact that the first assessment is calculated upon notes even if they are not put out at all, it is of course possible that the net may be a little more than one-half per cent on the circula- tion, but it is perfectly definite. When the banks take out notes they know just how much they pay; they know if they are assessed on the 452 BANKING AND CURRENCT. first of January next it wiil be one-half of 1 per cent on their circula- tion, and that of itself is an inducement to get in circulation that which is then outstanding. Now, it is provided that the money thus raised is to be used, to pay— first, the special expenses of the banlc; second, tlie general expenses of the system; and third, to keep good a guarantee fund of 3 per cent upon the whole circulation. Whenever a bank is behindhand, that year it pays the one-half per cent assessment; and with that excep- tion it is free from all assessments whatever. In other words, if there is a slight deficit in the guarantee fund, the bank pays a half per cent, then for one, two, or thre'e years, it may be relieved from all assessments. This will amount probably to a net assessment of between a half and three-quarters per cent the first two years, and, say, about a half per cent the first six, or seven, or eight years, and after that, in my belief, the yearly average of assessment will be nominal. Mr. Bbosius. There is one difficulty which seems to be in the sys- tem, and 1 would like to get rid of it if 1 can ; what justice is therein requiring honest banks to use their funds to protect the obhgations of dishonest banks? Mr. Warner. If that was the main feature there would be no jus- tification. But the object of this assesswient is to float the circulation by holding before the people such a guaranty in connection with the publicity otherwise secured as shall give the notes unquestioned cur- rency, and tliereby profit the banks at the same time. Mr. Johnson, of Indiana. That is one of the conditions upon which the bank can go into the banking business? Mr. Brosius. If there are any better means of doing it, that is, if each bank can protect its own circulation, would not that be better! Mr. Warner. Precisely. Mr. Brosius. Each bank protects its circulation now? Mr. Warner. I do not mean for one moment to suggest that any proviso, however repugnant to business principles or business conven- ience, by which a bank can protect its own circulation is better than any other proviso, however consonant with business principles and how- ever xuTjper to secure convenience Mr. Brosius. You want the United States Government to protect every bank instead of the banlc protecting itself! Mr. Johnson, of Indiana. As I have interrupted Mr. Warner a great deal during the discussion of this subject, I would ask that he be allowed to continue his remarks at onr next meeting. Thereupon the committee adjourned to meet on Tuesday, February 27, 1894. Committee on Banking and Currency, Tuesday, February 27 1 1894. The committee met at 10 a. m., Hon. William Springer iu the chair. Hon. John De Witt Warner further addressed the committee on H. E. .5995, as follows: Mr. Chairman and gentlemen of the committee: I think that at the last meeting we had practically concluded the discussion of the effect of the guaranty fund, its principle, its amount, and its sufficiency hav- ing been pretty well gone over. The next paragraph simply provides that when for any reason, either because of misfortunes giving it no choice or because it prefers BANKING AND CtTRRENCY. 453 to do so for reasons of its ow;n, a bank shall go out of tlie business of issuing circulating notes, the bank itself, or its receiver or representa- tives, may deposit with the Treasurer of the United States an amount of lawful money equal to the amount of its then outstanding notes, and that thereupon that bank, or its representative, may do what it pleases with its assets, so far as the United States or its currency is concerned, and that the Treasurer of the United States will redeem upon presentation any notes for which such provision is made. The object is plain; the means by which it is to be obtained are simide; and the Government, being protected by an actual deposit of cash equal to the amount of the bonds registered as outstanding, is in a- position to lose nothing, while the public is reassured and protected by knowing that in every such case the cash is there to meet the notes. The next paragraphs, 9 and 10, prescribe penalties on the one hand against the officers or representatives of a bank in case they shall hypothecate its circulating notes, and on the other hand against those who shall accept such notes as collateral. The reason for these sections is this: Though I do not understand that it has of late been a common practice, it has been the case in former times, and might possibly be so again, that a bank whose credit was too poor to float notes miglit have such a business standing as would induce other j)eople to advance it money on hypothecation of a greater amount of its own notes. This in itself would be an evil in bringing about conditions which would make it to the interest of those not connected in any legitimate way with the bank to put its notes into circulation at a point distant from the bank, and especially make it to their interest to keep just those notes in circulation which would be least worthy of being so kept. Now, if the Government had no connection with these notes, it might be said that this would be an evil against which we should hardly under- take to provide by this act; but, inasmuch as this act provides for a guaranty fund to be kept in the custody of the U. S. Government, the law should provide not merely safely to keep this fund consecrated to the use for which it was intended, but should also prevent, as far as possible, illegitimate drafts upon it. JVIr. Johnson, of Indiana. When a bank goes out of existence, it loses the interest it had in the safety fund. Mr. Warnbe. It is thereafter not assessable. Mr. Johnson, of Indiana. All that it paid in is gone? Mr. Waenee. All it paid in is gone. It is expressly so provided. The next paragraph is B"o. 11. That simply provides for the redemp- tion of worn, mutilated, and defaced notes issued under this act. The only question is whether that object is attained by the wording of the paragraph. As to that, I have in large measure followed the corre- sponding legislation which has heretofore been effectual m connection with national-bank notes. The twelfth paragraph provides that certain sections of the Eevised Statutes of the United States— which I believe are in the main those referring to the counterfeiting of greenbacks, national-bank notes, etc., but which may include other and less material provisions— shall be applicable to the currency issued under this act in the same degree as to the currency to provide for the safety of which they were originally enacted. . -, n ^ , Jn the thirteenth paragraph the Comptroller is given dehnitely ex- pressed powers covering the greater part of the duties devolving upon him by this act, and is also directed to cooperate with the institutions 454 BANKING AND CURRENCY. affected in carrying out this act according to its true intent, and for such purpose is directed, as to all matters contemplated ic the act, but the procedure in regard to which is not specially outlined, to adopt and promulgate such rules and regulations as, with the approval of the Secretary of the Treasury, seem to him to be such as best to effectuate the spirit of the act. In order to keep the attention of Congress constantly fixed upon the extent of the discretion which it has left to the Comptroller, in order that there may not merely be an opportunity, but an incite- ment, to perfect this act by further details, in case it shall seem proper, the Comptroller is directed to report to each session of Congress such rules and regulations as he shall have adopted. In other words, hav- ing provided for the essential features of the administration of the currency which is contemplated, this leaves the attending to the busi- ness details in the hands of the one who, under all the circumstances, can best attend to them, not merely leaving to Congress the right to alter or amend this act, but in addition to that providing for publicity of such regulations as shall have been adopted and regular report of the same, so as to insure the watchful care of Congress. Section 13 simply provides that no provision of the national-bank act shall be considered as repealed, unless it is necessarily abrogated by the provisions of this statute. This is not so much an attempt to perfect this act in its operations upon institutions other than national banks as an attempt to guard against the possibility, in cases where the provisions of this act do affect national banks, that they shall be so construed as to relax anything of the strictness of the national-bank act, except as necessarily required. Mr. Johnson, of Indiana. I want to ask you a question about the methods of procedure when a bank is insolvent. Tour bill provides that the safety fund shall be invested in securities. A bank becomes insolvent and, as I understand it, there is nothing to protect the bill holder until the concerns of the bank have been settled up, and it is ascertained what balance is coming out of the safety fund. Mr. Waunee. You are not entirely correct in that. Mr. Johnson, of Indiana. There is no payment out of the safety fund until a long time after the bank has been forced into liquidation. Mr. Warner. In some cases the report of the examiner would show at once that the safety fund had to be relied upon. Mr. Johnson, of Indiana. Every bill-holder would necessarily know that there would be quite a long delay between the time when the bank would go into insolvency and the payment of the notes, and the effect would be to destroy the bill-holders' security. Mr. Warner. I do not think it would. Mr. Johnson, of Indiana. Would it not leave in doubt the real value of the notes, which would dei)end upon how much was to be paid! Mr. Warner. I do not think it would. Mr. Walker. That is practically what the present act does. Mr. Johnson, of Indiana. Every bill-holder under the present law knows that he is to be paid in full"? Mr. Warner. In case a large number of banks, having circulation out- standing, should fail at once, under such circumstances as regards the re])orted amount of their assets as compared with their circulation, as raised a question as to the ability of the guarantee fund to meet the deficit — after the application of those assets, and also the assessment upon the stockholders — In such a case as that, the contingency which the gentleman suggests might possibly happen. BANKING AND CURRENCY. 456 Mr. Johnson, of Indiana. Under the present law the bills are paid at once"? Mr. Waenbe. So they would be here. Mr. Johnson, of Indiana. I asked you whether or not, under the national-bank law the bill-holder is not paid promptly by the G-overn- ment? Mr. Wabnbr. The Government has no business to do it. Mr. Johnson, of Indiana. The Government does do it, and the law authorizes it. Mr. Warner. The law authorizes the application of the bonds in the custody of the Treasury. Mr. Johnson, of Indiana. Brushing aside any uncertainties, the fact is that the Government promptly redeems notes in case a bank fails. Mr. Waknek. The notes are not presented for redemption. Mr. Johnson, of Indiana. The moment they are presented for redemption the Government pays them? Mr. Warner. The fact is that if they were so presented the Oov- ernment could not pay them. Mr. Johnson, of Indiana. Let us try to get at the real point of dis- similarity between your bill and the present law. There is never the least anxiety on the part of the bill-holder about his money, because tlie Government holds bonds and would promptly pay him; therefore there is no inconvenience arising to him. Mr. Warner. That was not true in 1866 and 1867. Mr. Johnson, of Indiana. Now, it seems to me that between the existing system and the one you propose there is all the difference in the world, because under the present system the bill-holder gets his money promptly on the failure of the bank, and the knowledge on the part of the bill-holder under your act that he might be siibjected to some delay would affect the question. Mr. Warner. If the gentleman means that, until the people had been accustomed somewhat to the working of this system, there might be uneasiness on the part of some gentlemen, like the gentleman from Indiana, who would worry, and therefore send to their banks these bank notes for deposit, or remittance, or for redemption, I am inclined to think that is so. I know it was so in case of national bank notes in 1866 and 1867. I know that at that time, upon a rumor as to a national bank, we were ordered to carefully sort out its bills. For a long time after the national-bank bills were in circulation we were mighty careful about taking them, if we could help it; and whenever we had a lot of money for deposit, we sorted out the national-bank bills in preference to the state bank bills. I have no doubt that for a year or two there would at once arise, when a state bank failed, the question at to whether or not its notes were good. I have no doubt that some people might pass them in through their banks. I have no doubt that some banks might write letters of inquiry or watch the papers for reports of the condition of banks, or look at the amount of the guarantee fund ; but after a rea- sonable length of experience under this act there would scarcely be a possibility of there happening such a case as has beea suggested by the gentleman from Indiana; and my experience under the national- bank act is my reason for believing that the experience would be the same in this case. Mr. Johnson, of Indiana. Inconveniences would arise, not so much on account of failures as on account of men's necessities. If a bank 456 BANKING AND CURRENCY. fails and the bills will not be redeemed, the holders would be exposed to loss or deprivation, or discount until the time of payment. Mr. Warner. I know that for the first year or two of the workings of this, or any act which might be passed — even if it were based upon bullion — until a number of institutions had failed, and until their notes had been redeemed, there would be some people who would worry. They did worry, for example, in regard to the national-bank currency at the time when that currency first began to be put into circulation, but there was no resulting loss to anybody, or even inconvenience which was worth taking into account. Mr. Johnson, of Indiana. A good note in hand is not so valuable to a man as a good note which is payable at once, for he can utilize the one and he can not utilize the other, and for the same reason a bank note in the hands of a man who needs money is not so valuable as one which is payable at once. Mr. Warner. The difference is that the inconvenience in reference to a good note of an individual would be much greater than any incon- venience which could possiblj^ aiise even under the contingency sug- gested by the gentleman as to the currency. The analogy is not one of commercial jjaper which circulates as money, but it is one of paper circulating as currency under the conditions suggested by the gentle- man. To return to often-threshed straw, we had during the months of August, September, and part of October an extraordinary issue of illegal currency all over this country. I have made inquiry in a great many cases (and I have no doubt that the gentleman's own experience has also extended to a great many cases) where the currency was issued, sometimes by municipal corpora- tions, sometimes by business corporations, sometimes by individuals, and sometimes by trustees of securities, which those who accepted the currency did not know anything about; but I have yet to hear of a single case where doubt in regard to the payment of such currency has kept a single dollar from circulating. I do not mean to say that you might not have gotten up a currency so obviously bad that it would not have circulated, but Mr. Brositjs. But that currency was not in general circulation throughout the country. Mr. Warner. No; and I am glad the gentleman has made that point. That currency circulated locally because of confidence in its soundness. The knowledge, however, upon which this confidence was based was so imperfect as to bear no comparison to the knowledge that under this act every individual in the United States would have to justify his confidence in the currency now proposed. The Chairman. As you have referred to last year's crisis, I will ask you whether the comparison you institute was a fair one as compared with the general circulating medium. These issues which you have spoken of were gotten up for that emergency and were adequate to it; but suppose the whole amount of circulation under your bill — suppos- ing it had been in force, and the banks had one hundred millions of cir- culation out under it, and there was a reserve fund in their control of three million, or 3 per cent, and that 150 of the banks failed, as they did last year, with one hundred millions capital, and one biOion five hundred millions of circulation, what would have been the effect? Mr. Warner. In the first place it is simply unimaginable that, with a limit so liberal as 75 per cent of the capital, it should be even approx- imated in practice. BANKING AND CUREENCY. 457 The Chairman. What security would the bill-holder have iu that case? Nobody would know what the banks had, and they could not pay depositors? Mr. Warner. In the first place, your supposition is an extreme one. The Chairman. It occurred. Mr. Warner. No ; I beg the gentleman's pardon. If those banks had failed, the outstanding notes would not in all i^robability have amounted to anything like the sum supposed. Again the gentleman's suggestion that banks failed with more circulation outstanding than the capital they had may indicate the reason why they failed. And this could not laappen under this bill. I believe it is hard to imagine the probability, or even the reason- able possibility, in which under this bill a community would not feel that it was abundantly iirotected. One hundred and fifty banks would not fail in any one day. By the time any considerable number had failed it would have become known that their assets were far more than the circulating notes, and therefore that there would be no draft upon the guarantee fund. But the question raised by the gentleman does not go to this bill, but rather to whether the Lloyds assurance plan adopted here provides a large enough capital, and whether the charge for annual premium is large enough to make the insurance secure. If, however, the question is raised, and I am asked what would become of the currency in case the banks of this country, generally speaking, turned out to be so rotten that, in any large proi)ortion, their total assets would not amount to 75 per cent of their capital, so that this guarantee fund would be generally drawn upon, then I must answer that it would be absolutely immaterial what laws are passed. If any community is so thoroughly demoralized that its business is in that shape there is no salvation for it. Mr. Brosius. Under the present law every dollar would be liable in that extreme case. Mr. Warner. The gentleman is mistaken; the value of the present system would depend upon the market for Government bonds. And if he will simply recur to August or September of last year, he will, I think, agree with me that in such a crisis as that suggested by our chairman, matters would be infinitely worse than that which we passed through a few months since. G-overnment bonds would not be market- able any more than so much waste paper. The strbigenoy last August occurred in the face of the fact that men were ofiering to put up Gov- ernment bonds to secure currency. The first bill brought before this committee at this Congress was pressed upon the assumption that there was no market for Government bonds unless the Government itself should make one by issue of new currency to be paid out on their deposits. If you imagine such a cataclysm as our chairman suggests, the national-bank system would collapse like a slit balloon. No bank- ing system can bring salvation to a community broken down by its own demoralization. Mr. Cox. You have under your bill for final redemption three fea- tures—first, the safety guaranty; then the first ben upon the assets of the bank; and lastly, the liability of the stockholders of the bank. Those are the three things which secure notes of issue. Mr. Warner. But in different order from that suggested by you. Mr. Cox. I am not after the order. Suppose ten banks should all close up the same day. In that event what would you take hold of first under your bill with which to redeem the notes? Mr, Waener. The assets of the banks would be available. 458 BANKING AND CUEEENCY. Mr. Oox. Tou would undertake to enforce, first, tlie lien upon the assets of the banks, and until that was accomplished and the assets ascertained, it is utterly impossible to tell what the guaranty func would be subjected to. Mr. Waenee. Certainly. Mr. Cox. Then, having enforced the first lien upon the assets of the bank and having found that those assets were deficient, what fund would you next go to! Mr. Waenee. Allow me to read the provision. Mr. Oox. I want to make it quite clear while we are on the point We have settled one proposition, and that is that on the failure of a bank the first fund to be assessed is the assets. We then have left two sources — the liability of the stockholders, and the safety fund. After you have resorted to them and there is a deficiency what fund would you next assess! Because that question leads to the main one. Mr. Waenee. Let me read you the clause. The phraseology of the clause we are now discassing is found on page 7, line 141, and follow- ing lines, and is such as to provide that this guarantee fund shall be held for the ultimate redemption after "all other reasonable available assets" shall have been exhausted, etc. In other words, while the gentleman is entirely correct in his assumption that the ordinary assets of the bank would be first resorted to, it is not true that these would necessarily be finally exhausted before any payment could be made out of the guarantee fund. While the gentleman is right in his assumption that the liability of the stockholders is another resource, it is not true that the guarantee fand could not be drawn upon until after that resource had been entirely exhausted. The question as to what are "reasonably available" assets is one concerning which, sitting around the table here, with the circumstances of any bank before us, I fancy we would have little difference of opinion. Mr. Oox. What would you take hold of next? Mr. Waenee. Unquestionably, the order you suggest is the proper order. The only suggestion I have in modification of it is that this act does not provide or contemplate the exhaustion of all contingencies which may arise before courts, or the final settlement of litigation which may arise, but that guarantee fund is held there — subject to suchrules as the Comptroller may make and promulgate, and such as Congress may approve or change, if it pleases — to provide for the ultimate redemp- tion of the notes after " reasonably available " assets have been exhausted. Perhaps I ought again to recall that I believe the use of this guar- antee fund to be not so much for the actual payment of the notes of a broken bank, as to serve as security put up where all the world can see it, which will prevent such a doubt existing, as to the notes of a broken bank, as shall trouble minds like that of my friend from Indi- ana, or shall cause banks to worry or hesitate to receive the notes. Mr. Cox. This is the principal trouble in my mind : If a bank becomes insolvent, the law has the first lien upon the assetts, and that being the primary fund to be taken, every man knows that that must become exhausted, because every interest comes in. You as a lawyer know that, and in a case where a bank would not pay but 50 cents on the dollar there must be something else to help, and you must either resort to individual liability of the stockholders or to the safety fund. This primary fund must be first exhausted, which would probably take two to five years, and then you have got your notes outstanding, and you can not tell what amoant of the individual liabihty clause or what amount of the safety fund you will BANKING AND CUEEENCY. 459 be compelled to intrench upon. When you have done that, would not the depositor, under your bill, have a perfect right to come in with his interest to be protected, and insist that you exhaust the safety fund before you call on him for a liability as an individual stockholder! Mr. Waenee. No ; this act provides against that, although I am frank to admit that there is one matter which should be considered and dis- cussed, and which the remark of the gentleman has brought to my mind since he began speaking. This act provides that this guarantee fund shall be liable for ultimate redemption after all other reasonably available assets liable therefor shall have become exhausted. While the gentleman has been si^eaking there has occared to me a point as to which, if amendment be desiralale, it may be had. The point is this : If the Comptroller should see fit, as he might in case notes were presented, to pay them ont of the guarantee fund even before the assets or liability of the stockholders had been exhausted, whether, standing in the place of the note-holder, he would be entitled to receive, to make good the guarantee fund, such dribbles as might come in, which he had not considered at first as reasonably available assets. It would be easy to provide for that, if necessary ; but, in my opinion, as long as this act provides for no special cancellation of these notes so redeemed, the Comptroller holding them — he and not the bank having paid them — would be substituted in equity, so that, without special provision, the guarantee fund would be made good. Mr. Cox. The depositor would be substituted for the note-holder upon the fund which he might be entitled to first. It is simply work- ing a substitution. If the depositor objects to that, and the noteholder says, "Tou have a lien on the assets of the bank, and you must first exhaust that, and then you must go to us if there is any liability exist- ing in favor of the note- holder over and above that, he has no right to hold him there. Coming back to the original question, would it not be necessary, when you instituted that sort of proceeding, to buy the notes outstanding at a discount? Mr. Waenee. No ; as I understand the gentleman, he refers to the power which is frequently exercised by courts of equity, in oases where one fund is equally available to pay either of two obligations, and another fund is available to pay only one obligation, so to marshal the assets so as to give neither fund such a priority as unnecessarily to prevent those dependent on either fund from getting its rights. Mr. Cox. It is not the law. Mr. Waenee. Courts of equity go a great way. Mr. Cox. When there are two funds, and one is subject to two liabil- ities — that is, where two interests are concerned in it, and a second fund independent of that where there is only one interest Mr. Waenee. I have heard the statement of the gentleman. As I understand it, it does not differ materially from my own idea of the matter. But, in any case, the principle and the practice suggested are absolutely limited by the other principle, that by no administration of law can you take from any suitor before a court any jot or tittle to which he may be entitled as a matter of legal preference. It is possible that there might be a difference in opinion as to where that principle appHed;but, in view of the fact that it is so generally applied, so uniformly acceded to, and even the details of carrying it out so well settled by long practice in all courts of equity, it seems to me, although the question is an interesting one, that it is academic, so far as any real trouble is concerned. 460 BANKING AND CtJRRENCY. Mr. Cox. If you have to go through litigation as to whether a certain fuud is liable to redemption, I should say that the delay (of course it is a mere matter of opinion) would work the notes down to a discount. Mr. Johnson, of Indiana. Do you concede that under your bill the safeguards are sufficient to protect the note-holder! Mr. Warner. Tou are making the suggestion I was about to make in answer to the gentleman from Tennessee. The question is as to the sufiflciency of the "insurance" provided. Mr. Johnson, of Indiana. Would it be possible to provide in your bill that in case of the insolvency of a bank the notes should be paid, leaving the Comptroller to reimburse the Government out of the assets! Mr. Warner. It would not violate the principle of the bill. Mr. Johnson, of Indiana. I think if any hardship would come to the note-holder, that might be obviated by what I suggest. Mr. Warner. It would be subject to two objections. One objection, although wholly administrative, is this: I believe (and 1 think every one will concede as a matter of principle) that the current redemjition should be in the hands of the banks; that the Government should be called in as little as possible, and that, as far as possible, even ultimate redemption should be left to be provided for by the banks. The other objection is this: In case of any considerable number of banks failing, the probability of large drafts upon the guarantee fund would be so increased as to raise the qitestion as to whether it Avas adequate ; though it might be unquestionably sufficient as an insurance for ultimate isayment under the provisions of this bill. Mr. Brosixjs. Was it not the case itnder the New York safety sj'stem, that when banks failed it was foitnd that the safety fund was small? Mr. Warner. That was the case aboitt 1842, though it soon accrued sufficient to pay the notes of the banks that then failed. It must be remembered, however, that the New York fund was liable for note issues far beyond proper proportion to capital, and drawn uiwn at once without any attempt to realize on assets of the banks. Indeed, I believe that up to 181 1, all amounts paid from the safety fund, from the time it was established before 1830, had been made good from the assets of the banks themselves. All in all, however, the safety fund was from the very begiuuing — right through the meanest lot of panics this country has ever suffered, at least in regard to bank-note currency — sufficient not merely for all notes legitimately outstanding, but also for all of the overissues, and for all of the vast mass of coun- terfeits that under those conditions had been worked off. When they came to a])ply the act, it was so construed — and to my mind correctly, although its author vehemently objected and claimed that it was not so meant — that the guarantee was made to serve the depositor as well; and although later on I believe this was corrected, the great depletion of the fund provided under the New York law was neither to make good the legitimate circulation, nor even to make good the illegitimate or overissue circulation, nor yet even to make good the counterfeit circulation, but, to a greater extent than was caused by either of the three other sources, to nuike good the loss to depositors, including the state itself. It must be remembered, too, that the one-half per cent per annum, constituting the .3 per cent safety fuud, was assessed upon the capital only of a system of banks which were permitted a circulation of from 100 per cent to 150 per cent of their capitals, and which in general lived weU up to their privileges. r r BANKING AND CUERENCY. 461 Mr. Johnson, of Indiana. That was where the number of notes of failed banks was in excess of the safety fund. Mr. Waknek. I concede to the gentleman from Indiana, as I did to the gentleman from Tennessee, that if any considerable portion of the banks of this country failed at the same time and without assets, I do not know any plan that would help them. Mr. Johnson, of Indiana. When those banks failed the safety fund was not equal to the notes, to say nothing of the depositors. Mr. WAENBE. I am not sure that that was the case even in 1842. It must be understood, however, that the only pertinency of the gentle- man's suggestion is in cases where assets are assumed to be absolutely nothing, and it must be remembered that the limitation of currency in proportion to paid-up capital was liberal in theory under the IsTew York laws, and reckless in practice. Mr. Johnson, of Indiana. I think there were bonds issued in those cases. Mr. Bkosiits. a large amount of money was borrowed for the purpose. Mr. Warner. The safety fund finally replaced everything that had been so used. Mr. Johnson, of Indiana. It seems to me, if you put all the banks under national control, and then provide that in case a bank fails the Government should apply, first, the safety fund promptly, by using that method to enforce the other provision, and I think that would be better than the one suggested in your bill. It would make it available at once. Mr. Warner. As regards the first suggestion, it involves a question of principle. As to the second question, it seems to me that that is a matter of expediency, and the disadvantages in the change would per- haps outweigh the advantages. Mr. Johnson, of Indiana. I had in mind the noteholder. He knows ■ ' the Government will promptly and immediately take hold of the assets and realize on those assets, enforce the double liability, compensate him, and replace the safety fund. The note-holder would feel that that could be done more expeditiously and certainly. Mr. Warner. In case it was proposed to wipe out all of our system and substitute another, there would be more force in what the gentle- man suggests. If we had no currency outstanding, except such as came from this system proposed, the effect of a crisis within the first year or two after the operation of the system might exaggerate the probability of the contingency referred to by the gentleman; but, in the first place, the whole question, I think the gentleman will admit, is not that of actually redeeming the notes, but of making such provision for the redemption of the circulation as shall leave no inducement for their presentation. It, therefore, comes down to a question of apparent adequacy. Mr. Johnson, of Indiana. And a question of behef upon the part of the note-holder? -,.,•! Mr. Warner. Exactly. And as the bill is not intended to displace the present currency of the national banks, and therefore leaves the cur- rency to be provided by this bill to come gradually into use as com- munities shall need it, and the people shall have faith m it; and inas- much as it is simply unthinkable that for the first three years the country will be in a large measure dependent upon this circulation, it seems to me that these circumstances minimize the gravity, if you should cons*ler it grave at all, of the contingency against which the gentleman proposes so carefully to provide. I believe^ therefore, that 462 BANKING AND CUREENCY. we would not be justified iu putting any additional obstructions upon tbe circulation by larger taxes upon circulation to provide a somewhat larger guaranty fund to start with — though the rate of the assessment and size of the guaranty fund to be provided thereby is one of detail rather than of principle. Mr. Johnson, of Indiana. It is my opinion that this bill in its present form will not pass. If these banks were placed under th* control of tbe ISTational Government it would be a bettor way. I do not believe elasticity can be obtained with bonds; and the question, it seems to me, is whether it would not be better to compromise than to ofi'er in this way a measure that would be defeated. I may be wrong. I have talked with a number of gentlemen about it. Mr. Warner. If I may make a suggession, this matter should not be treated as a political question. We shorild draw bills, and • am certain— speaking for myself, and I think for the gentlemen on oc side of the House — that we could so draw a bill that it would, througli discussion, enable us to come to an agreement in the committee, an enable us to offer to the House a bill which would secure the suppo; of a great portion of our colleagues of all parties. As to the detail; it could be amended so as to be approved by the judgment of tl"-. House. Mr. Johnson, of Indiana. A great deal of the opposition to tne present national bank law is that it is claimed that the currency has no elasticity. Another objection was that we should not tax the peo- ple to pay interest upon bonds iu order to have security. Your safety fund obviates this objection; but there is also a strong objection to remitting to State banks, or relaxing Government control in any way, and that would ultimately be antagonized. I would suggest whether the safety fund would not be an immense stride in curing existing evils. Tou admit that it would be? Mr. Warner. Unquestionably. Mr. Brosius. The idea is to make a leading modification of the present law by a safety fund, instead of security? Mr. Johnson, of Indiana. That is my idea; but I do not believe any proposition letting the thing pass over to the States, instead of being retained in the hands of the General Government, will be met with favor. I would not say it would not be done at some future time; bi.; for the present I am afraid of it. BANKING AND CURRENCY HEARINGS, 1893. INDEX. Page. BABCOCK, Hon. J. W., ofWisconsin X94 On H. R. 1951 (supervision of national banks) 194 Text of bill 5^94 Frequent bank examinations by different examiners 197 National banks to insure each other's deposits.. 199 BtACK, Hon. J. C. C, of Georgia '/. 246 On H. E. 256 (national banks loaning on real estate) 246 Text of bill 246 Explanation of bill 247 BLANCHAED, Hon. NEWTON C, of Louisiana .!!."".'..!!! 205 On H. E. 1814 (repeal tax on State banks) 205 Eetum to State banks of issue 206 State-bank currelioy based upon State and municipal bonds 207 Comparative statement of national banks in 1890 and State banks in 1860 . 209 Conditions now different from tliose prior to civil war 211 • Congestion in money centers 215 BEAWLEY, Hon. •WIUIAM H., of South Carolina 257 On H. R. 3825 (suspend tax on State-bank notes issued between August 1, and October 15, 1893) 257 Text of bill 257 Explanation of bill 258 BBYAN, Hon. W. J., of Nebraska 164 On H. R. 3378 (to secure depositors in national banks) 164 Text of bill 164 Loss to depositors 165 Special safety fund 166 Eeimburaement 175 COOPER, Hon. GEORGE W., of Indiana 275 On H. E. 4326 (to subject to State taxation national bank and United States notes) 275 Text of biU 275 As to the power of Congress 278 Will it contract tbe currency 279 COOPER, Hon. S. B., of Texas 158 On H. E. 246 ($3,000,000 additional United States notes) 158 Text of bill 158 Purposes of bill 160 Congestion of currency 163 DAVIS, Hon. JOHN, of Kansas 53 On H. E. 3434 (to prevent contraction of the currency) 53 How volume of money in circulation may regulate prices 54 Parity between gold and silver 58 Value and price - 60 Maintaining equal prices 61 Eedemption of currency - 61 Debtor and creditor relations - 64 Farm mortgages 66 Legal-tender Treasury notes redeemable in payment of taxes . . 1 68 Rising prices preferable 69 Fiat money 70 Coining paper 74 Value and volume 74 Additional money gives rising prices 78 940 30 *63 464 INDEX. DAVIS, Hon. JOHN, of Kansas— Continued. Page. How to increase money 78 National elections of 18.52 and 18.56 80 E conomy of national-bant and Treasnry notes 81 Senator Plumb on contraction of the currency 84 Effect of war upon finances 86 Does contraction of currency injure anyone 89 ENGLISH, Hon. THOMAS D., of New Jersey 230 On H. E. .3759 (repeal tax on State banks) 230 An unconditional repeal unwise 230 GEESHAM, Hon. WALTER, of Texas 263 A flexible currency founded ou bullion 263 A national-bank system 264 Broadening and extending the class of securities 268 Ad elastic currency 268 HAKTEK, Hon. MICHAEL D., of Ohio. On H. E. 64 (national-bank circulation up to par value of bonds) 93 On H. E. 2 fgeneral exchange of United States bonds for greenbacks) .... 99 On H. E. 62 (national banks, security of depositors) 101 On H. E. 66 (national banks, circulation on other security) 103 LESTEE, Hon. E. E., of Georgia 116 On H. E 97 (repeal tax on State banks) 116 Text of H. R. 97 116 HLstory of national banks 117 National-bank circulation insufficient for needs of the people 119 No Government obligation to supply circulating medium 122 Veazie case, power to restrict circulation of State banks 131 McLATJEm, Hon. J. L., of South Carolina 29 On H. Res. 1.5, to issue $125,000,000 of Treasury notes 29 Marketing crops 30 Clearing-house certificates 30 Copy of clearing-house certificate 31 Present authority to increase the currency 34 Currency lost or destroyed 37 The present situation 38 Present authority to increase the currency 42 The best remedy 43 Emission of currency : loan to banks 44 The jiresent situation 45 Value and price 50 Appendix 52 Bank profits , 53 Effect of contraction of currency 53 Clearing-house certificates issued in Columbia, S. C 236 On H. E. 3825 (suspend tax on State-bank notes issued between August 1 and October 15, 1893 ) 257 Text of bill 257 Explanation of bill 258 McEAE, Hon. T. C, of Arkansas 152 C)n H. E. 127 (To increase Treasury notes and retire national-bank notes). 152 Taxes already too burdensome 153 A flexible currency 155 MEIKLEJOHN, Hon. G. D., of Nebraska 201 On H. E. 1993 (national banks, embezzlements) 201 MEYER, Hon. ADOLPH, of Louisiana 250 Moving crops in the South 250 GATES, Hon. WILLIAM C, of Alabama 5 Ou H. R. 136 (repeal tax on State banks) 5 National-bank circulation 67 National banks, loaning on real estate (H, E. 135) 7 Nation al lianks loaning on real estate, usury 8 State-bank circulation '. 10 History of State and national bank systems 19 State-bank circulation wanted 23 Views of Francis A. Brooks 24 Banks controlling volume of currency . . 26 OUTHWAITE, Hon. J. H, of Ohio '. 190 On H. E. 258 (soiled paper currencv) 190 Text of bill '.... 190 Paper money as a carrier of infection 192 INDEX. 465 Page. SHEAEMAN, Mr. THOMAS G., of New York 216 Do we want money or exchange 216 The demand for money 216 What do the peoj)le need 217 What is a bank 218 To what extent money is necessary 219 Farmers' banting methods 219 The cost of farmers' banking 220 The trne remedy 221 Coin going out ; banks coming in 221 No inJlation in bank checks 222 Why remedy is not adopted 223 Taxation destroys banks 223 Branch banks desirable 224 The remedy adequate 224 SNODGEASS, Hon. H. C, of Tennessee 203 On H. E. 292 (national banks, usury) 203 SPEINGER, Hon. WILLIAM M., of Illinois 361 On H. E. 4960 (to provide a national currency) .361 Commission created 361 Security deposited 362 These notes not subject to tax 363 Elasticity 364 Eedemption of notes 36.5 A uniform currency 368 Amount of bonds in existence 369 Capital stock and number of banks 371 WildjCat currency 372 Secured State-bank circulation 373 Legal tender 373 Fiat money 374 Convertibility of bonds 37.5 Amount of circulation - - 376 A national currency - - 378 Power of Congress 380 Distribution of currency 382 Desirability of banks 386 Volume of currency - 387 Discount banking and issue of currency are separate functions 387 Security for circiilation 387 Assets and capital stock of banks 389 Banks of discount and deposit 390 Eedemption of bank currency 390 Voluntary guaranty 391 Broad and permanent system 392 TALBEET, Hon. W. J., of South Carolina 178 OnH. E. 384 (loan to States on their bonds) 178 Text of bill - 1J8 Depression in agricultural industries 179 Proposed relief 18"^ State-bank circulation 1^1 Currency per capita 185 Populist or Alliance 187 TURNEE, Hon. HENEY G., of Georgia - 231 Eepeal of tax on State banks 231 Effect of removal of tax 231 Congress should not interfere in monetary systems - - - 233 TUEPIN, Hon. L, W., of Alabama 239 On H. E. 3438 (national banks loaning on real estate) 239 Text of bill.. 239 Pay less money to foreigners 240 Advantages ""^2 WALKEE, Hon. JOSEPH H., of Massachusetts - 2^9 On H. E. 171 (to reorganize the national banking system) 279 Inadequacy of the present banking system 280 Text of H. E. 171 --- 281 Scheme developed in H. E. 171 288 The Government not a banker 289 The Government's redemption fund ""0 "466 INDEX. ^ i. 3 Page. WALKER, Hon. JOSEPH H., of MasBachusettB— Continued. 291 The bant a conserver of wealth 291 Bank reserves lie idle under present law V ' tt si" Loss to the people in interest on the gold redemption fund m the u. o. ^^ Treasury •- - 293 GoTemment supervision nq. Provisions for safety of currency notes - 295 Elastic circulation 295 Interest on loans lessened .- j V ' "-V ' 9qr Net earnings increased to a hank on currency issued hy it ^ab The system proposed in connection with the bond system ^» < Advantages to new communities 209 Encouragement to establish new banks ° Uniformity of the currency secured ^^2 Speedy action demanded gQg An epitome of the subject V^"'i 1 qn«> Appendix A-List of insolvent national banks etc • — -■ ■ ^"^ Appendix B-Figures of the actuary of the U. S. Treasury dUb Appendix C—BiU H. E. 171in practice ^^^ Appendix D— Examples of same „.„ AppendixE— "Banking"— an address.. -- „^ Appendix F-" Banking and currenoy"-an address ^^ Two kinds of issues provided for ------ 344 How to organize a bank under the biU . . - . - - - - • - ■>■;,;"%■■"■" Bill contemplates eventually taking National Government out of bankmg ^^ business V;-t,'-V V 34^7 Loaning money on real estate prohibited g^ Effect of bank reserve - 35]^ How to organize a bank - 304 WAENEE, Hon. JOHN DE WITT, of New York... „„. On H. E. 5595 (to provide a safe and elastic currency) |a* iatnl?bLksailowedtotake;dVan^^ ^^ Constitutional inhibition on ba,nk issues in^several States -----•;-■-_;;;;; ^02 ^__^^ 1 several States - 400 Premium on one"kind of currency over another .......--.- ^^^ Gresham's law - - - - - -, 'e'''+''^ 409 Guarantee fund, for ultimate redemp fcion of notes 4^^ g^nSn^^SiS'SJ^monB-onbk^isBue^-iiis-^States::::^ 414 Eedemption facilities 425 Canadian banking - 427 Eedemption facilities ------ ' 431 460 New York State safety fund system - 435 Canadian banking -. "„"■•", 451 Guarantee fund, for ultimate redemption of notes 40^ WnilAMS, Hon. JOHNS., of Mississippi OnH.E.2014 (national-bank system) ^^ Security of depositors -^^/^ Eepeal of 10 per cent tax EEEATUM. On page 194, near bottom, caption of bill, for 1591 read 1951. o HEARINGS (CONTINUED) EErOKE THE ITTEE ON BANKING AND CURRENCY FIFTY-THIRD CONGRESS, SECOND SESSION. 18 9 4 WASHINGTOi^: C.0VEEN3IENT PRK^TINCI OFFICE. 1894. BANKING AMD OL'RRENCY 463 Committee on Banking and Cureency, Washington, D. C, June 15, 1894. The committee met at 10:30 a. m., Hou. William M. Springer (rliair- maii) presiding. The Chairman (to Mr. Coombs). Having introduced the bill under consideration, we will ask you to submit any views you may have. Mr. Coombs. Mr. Chairman, there seems to be a slight misunder- standing in relation to who are to talk here to-day. It is not my inten- tion to spend any time on the bill, but to introduce Mr. Jordan, the subtreasurer of the New York subtreasury, and Mr. Trenholm, the Comptroller of the Currency under Mr. Cleveland's former administra- tion, who are in favor of this bill. The design of the bill is as far as possible to provide for the collec- tion of practical and scientific information that will enable us to intel- ligently foFmulate a banking and currency system, doing away with the mixture of currency and providing a system that will be automatic as far as possible, and on a basis that will embrace the whole situation. The bill provides, as you will see, for parties to be selected from all portions of the country, so that the whole country may be represented as far as possible, all sections of it, and the pecuUarities and wants of each section. It has been brought to my attention this morning that the National Board of Trade and Transportation has passed a resolu- tion, at their last meeting, in which they indorse, virtually, this measure. I would like to retire, Mr. Chairman, in favor of these two gentlemen who are here, if the committee will accept them in my place. Mr. Jordan. I would rather have j^Ir. Trenholm address the com- mittee. I think he has something else to do ; therefore, if he will speak first he will oblige me. Mr. Trenhoj.m. I would prefer thatMr. Jordan or Mr. Coombs would talk, because they have considered this measure more fully than I have done; the object to be attained, however, is one to which I have given a good deal of attention, and I think it is important at this time that some such plan as is proposed in this bill shoirld be embodied m legislation or put in action by the G-overmnent, because the minds of the people of this country are by no means made up upon many funda- mental, or at least underlying questions, as. for example, whether all the money of ordinary circulation should be supplied by the Govern- ment, or if not supplied by the Government, at least guaranteed by the Government, and the paper elements of the cirrrency redeemed by the Treasury, or whether we shall separate the functions of the Treasury from the currency arrangements of the country, and leave all paper circulation to be supplied wholly by private effort, either corporate or otherwise. ,. ,, ,, ^ If we are going to have all our paper money suppliedby the Govern- ment, holding the Government responsible for it and looking to the Government t"o arrange about its volume, its character, keeping it m good condition, seeing'that it is properly retired, providing proper cen- ters of redemption, and all that sort of thing, then Congress must devise a totally different system from beginniug to end from the system that we want if we are going to leave these matters to be done by pri- vate effort-thatis, nongovernmental effort; and before Congress can be expected to decide these fundamental questions the people must be v>T.niin-i,f f,i nTiriovaf-'jTirT flipiu aud what thcv invohc. brought to understand them and what they 464 BANKING AND CURRENCY. We know that there is a very strong feeling in favor of the repeal of the 10 per cent tax on State-bank issues, which would be a step in the direction of leaving the field of currency supply open to everybody. It would be open to anybody if we simply repeal that tax, and the manifest objections to an ill-considered abandonment of that Govern- ment control of the currency, to which we have become habituated, creates opposition to the idea of naked repeal. We have a system growing out of the exigencies of the war, a national banking system, including a national-bank currency, but the national-bank currency is really nothing but a governmental currency carried on in the name of the banks, with which, however, the bankers have nothing to do really except to draw profit from it. This profit seems very much greater in popular estimation than it actually is, and for this reason the national-bank system is exposed to an odium that is not founded iu reason and that is a serious menace to the permanence of that system as oneprovidingpopular banks of deposit an^i discount, which alone it really is. As such a system it is too valuable to give up. These two questions, the State bank note tax question and the national-bank currency question, are the most prominent just now, but there are behind these the legal tender, the silver dollar, and the Treasury note question not yet settled and likely at any moment to spring into activity. Xow, when we consider how wide a scope each one of these questions takes, and how important it is that whatever legislation is hereafter brought forward should be harmonized with what now exists, as well as with what we desire to come to, it seems to me that it would be impossible for us to reach a conclusion or to get public opinion to crys- talize on any particular set of measures, unless these are carefully con- sidered and are brought out with a sufficient degree of authority to attract general attention and excite general discussion. The debates that take place iu Congress, and the reports of committees on the various measures heretofore proposed, do not reach the great mass of the people. The only channel through which they can reach the people is afforded by the newspapers, and the newspaper writers are not as yet themselves sufficiently educated in these matters to digest and deliver intelhgibly to their readers the substance of such debates and reports. I do not speak of the greatj ournals of the country ; they are ably edited, and the men who conduct them have studied these ciuestious and are well able to expound them, but I am sneaking of the papers that are read by the great majority of the people— the voters of the country— those whose minds have to be satisfied in order that any legislation may go through Congress. Those editors generallv are not sufQciently informed to feel the confidence and independence that they ought to feel in bringing their views forward m communities where opposite views prevail. It is not that they are afi-aid to contradict local sentiment, but they mistrust their own conclusions. For example, we know that in some parts of the country there is a very strong prejudice against State bank notes, and as a consequence you will hardly find a newspaper there advocating any form of repeal of the tax on State bank issues, while on the other hand, in other parts of the country the feeling against national banks is very strong, and it has found definite expression in an agitation in favor of repealing the tax on State bank notes, hence m those parts you will find very few newspapers willing to oppose that repeal. And so it is all over the country. It is not in Xew York, Boston, Philadelphia, Chicago, or St. Louis that discussion is needed; it is among the great mass of the BANKING AND CURRENCY. 465 people. To reaeli them we must use the instrumentality of the press, hence it is the local or rxiral ]3ress that we must kee^) in view. To this end I think a commission composed of well-known men should be appointed who would command the general confidence of the people, first, on the score of their impartiality and i^atriotism; secondly, on the score of their knowledge of the subject and of the needs of different sections and classes; thirdly, on the score of their ability to present their findings and conclusions in a simi^le and intelligent manner. If such a commissioji should be organized, and after proper consider- ation and deliberation its members should agree upon a report, I believe that report would be published in every corner of the land, and would be fairly and dispassionately discussed ; and if the conclu- sions reached should be set forth iu a brief and clear manner, the minds of the people would be enlightened, and although there might not be immediate universal concurrence with its conclusions, a basis for intel- ligent discussion would be aftbrded. There is a vast amount of dis- cussion wasted at present because it is expended on subordinate questions. A great many plans are being discussed which in practice would be found to be more or less incompatible with each other, while if we are to have a uniform and suitable currency it must be through definite, consistent legislation, and such legislation can be devised or brought about only by just such means as this bill proposes. When this is done we may find public opinion stifficiently concentrated on one comprehensive measure to give us a hope of getting something prac- tical accomplished. It seems to me that the time allowed in the bill is not long enough. Considering that the commission is to be composed of men from differ- ent parts of the country, who probably have different ideas, and reck- oning the time that will be necessary to discuss the various plans proposed, I do not think a report could be reached by next December. The 1st of December, 1895, would be the earliest time at which such a commission could report. Whether it takes one year or two, however, the obtaining of such a report mast necessarily be the first in any series of practical steps that are to be taken to bring order out of the confusion of our banking and currency laws as they exist to-day, and to reduce into some sort of coherence and consistency the varying opinions that now prevail Mr. Jordan. May I make a suggestion, that if Congress saw that the time was not sufScient, they would have control of it in December, and could extend the time for the commission to report. Mr. Trenholm. Would it not be better, then, to make the time early in 1895? Mr. Jordan. February, 1895, then. Mr. Black. Could you suggest anything, Mr. Trenholm, that we could do now outside this commission for relief, if you think any relief is necessary? Mr. Trenholm. I would like to ask, what is it from which you thmk the country ought to be relieved 1 That is what I would like you to tell me. Mr. Black. I think when a physician diagnoses a case he tells what the matter is. I come to you as a physician. Mr. Trenholm. Even if I were a physician, I should luqiure where the pain is before attempting to diagnose the case. Mr. Black. I want to have your views on what I concede to be your superior knowledge of the subject. Mr. Trenholm. I think it is a very important question, and one 466 BANKING AND CURRENCY. that particularly appeals to members of Congress. There is a feeling throughout the country of uurest and dissatisfaction with the present condition of things. Business men are interfered with in their enter- prises, and there is a good deal of anxiety among those dependent upon industrial operations. The people feel that this unsatisfactory condi- tion is, in some sort of way, related to the currency or money question, yet few individuals see what the connection is between their own busi- ness and the general condition of the currency. Consequently, the peo- ple everywhere turn to Congress, just as you are now turning to me, saying. We do not know what is the matter, biit we want you to give us some relief. Xow, 1 think it is very difftcult to say what is the matter. A great many persons think they know, but it would be impossible to get any considerable number of these to agree as to what is the matter. My ideas on this subject run vsomewhat in this Avay: Confidence in the maintenance of any prevailing condition of things is essential to sustained industrial energy and productiveness, and of all things related to industry money is the most important, hence all industries are affected injuriously when confidence is shaken in the maintenance of our money m a condition of uniform and uninterrupted effectiveness for each and every purpose for which money is used in connection with industry. This coufideiice was shaken in 1893, and our industries have not yet recovered from the shock. Industry depends upon confidence directly and, through its dependence upon money, indii'cctly, for all money, gold, silver, and paper, and all that passes as money, dejiends for its efficiency as money upon confidence. If there was a doubt in the minds of the people of the world at large, if there was a doubt even in the minds of the leading bankers of Europe as to the permanency of the value of gold, gold itself would not circulate as it does to-day — that is, it would not perform the many functions that it does to-day. What confusion in industry and iu the minds of the people would be produced by that condition of things ! Now, this actually happened as to silver as long ago as 1878, but as there was no silver money to speak of in this country then, no effect could have been exerted upon our industries by the subsequent depre- ciation of that metal if we had not foolishly attempted, by legislation, to forestall and to arrest that depreciation. If our legislators had at that time recognized the force of the natural laws that govern these things, they would never have burdened us with silver coinage statutes. These statutes are at the bottom of all our monetary confusion, for by their operation they produced the strained and artificial condition which collapsed last year, and through that collapse gave occasion for this cry for relief that comes from the people to Congress and now from Mr. Black to nie. What relief can be given '? It is not possible to undo in a short time all that has been done by mistaken legislation and mis- directed administration during a period of sixteen years; but a com- mencement can be made, and if I may be allowed to say so, I do not know of any better way of commencing than by showing to the people that the Congress of t') -day is more sagacious than those which sat in 1878 and 18'JO. To restore public confidence in the intelligence and courage of Con- gress on financial subjects woirld be a great^gain. The appointment of a monetary commission is a good first step, and another thing that 1 think would give relief would be to estsiblish an absolute convic- tion in the minds of the people that, never mind what comes, never mind what party prevails in the future, ne\er mind what course the BANKING AND CURRENCY. 467 politics of this country may take, we are going to maintain the cou- vertibiUty of all kinds of our money into gold. If we had that fixed m the minds of the people I think one of the causes of anxiety would be dissipated. . ^ „^ , , ^^, Mr. Coombs. May I ask you a question right there ? VVould not the investigation of this commission develop in a clear way tlie relation of coin, both gold and silver, to currency— the necessary relation; that is, there is a growing feeling in the country that coin is a commodity 1 Mr. Trenholm. I suppose the commission, if it reaches any conclu- sion at all, would have to reach some conclusion on that subject as the basis for other conclusions of a more practical character. Mr. Coombs. Whether that coin related simply to the balance of our operations with foreign countries; I suppose that would be taken into consideration. Mr. Jordan. It is so stated in the bill. Mr. Coombs. Yes; we must recognize the fact that while it is per- fectly good among ourselves, its position is coustantly liable to change on account of our relations with foreign countries who use different currencies. In other words, the circulating currency among ourselves is one thing; its relation to the foreign demands that are made upon us is another. Do you suppose they could come to that point ? Mr. Trenholm. I think they would have to come to that point, because no system of currency circulation will answer for an industrial and commercial nation that does r.ot take cognizance of tlie requirements of foreign trade and provide for them. Our surplus crops can be mar- keted abroad only through the instrumentality of foreign exchange operations, and the producers of these crops would suiter more than any other class if our currency arrangements should prove an obstacle to the easy and natural flow of bills of exchange payable m Loudon, iaris, Berlin etc In setting up a water mill it is as important to provide a tailrac'e for the stream after it leaves the wheel as it is to conduct it to mT. Springer said awhile ago that issuing bank notes is like turning fish loose in the sea-each one goes where it is carried by the forces bearing upon it, and no one cau foretell wlnther they m^y ^f Th s i. true; but fish swim or float, while bank notes pass tro^^ liaiul to hand among persons more or less intelligent, and the ^i^f f ** ^^stams this circulation is not behind thebank note or m the ^^^^^^ance of the note it is a force extraneous to the note, it ^^ confadence-oouMence that ^ note is genuine, that it has been honestly issued, and, above all, that it wil be redeemed on demand. It is the ^^^t"^-f ,X<^^"{;f,,X7JXe" tion that serves to render a bank note an f^cceptable ehicle of value If we had a bank-note circulation m this country (whch we ha.e not at iDresent^ ¥ew York would necessarily be the place ot geneiai leclcmp S and Lds would have to be kept ou hand there to eftec redm^^ tion and these funds would have to ^^ ^-'^/^^.^^^^^y.^^l^f;; *,';'; j^eans New York is also carrying on a trade with foreign countaie^ by means Sills of exchanoeh^u^ New York is the point where bank currency S tetrex'change meet. Western banks ^^^^^^^tJ^ ^ purchase of exchange on Xew York, .^^'^^^^'^i^'Sf/^f * f ? ''^^Serto ntended for shipment abroad; banks m the ^onthse then notes ^ buy exchange drawn against cotton and other products, all mtenclea ^'^Thetanks'of New York thus receive a great amount of exchange froln thtSntSTomts payable in New York and ^ by foreign bankers. These bankers might like to pay m steinng 468 BANKING AND CUEEBNCY. excliauge, but the banks can not accept tliat because they can not cut that sterling exchange up and use it for currency. Therefore we must have in 'Sew York a stock of coins as a medium for converting sterling exchange into currency. Whenever the bills drawn on foreign countries exceed in amount the demand from importers there is a balance left over, which has generally been called the balance of trade. That balance has to be settled, because every bill drawn represents goods exported, and we do not send our goods abroad without getting full value in return. If the demand for sterling bills exceeds the supj)ly, the balance of trade is said to be against us, and then we have to settle for it. These settlements can be made only in gold, because that is the money of the world. Now, if we do not have our ci^rrencj^ so related to gold as that its value will be lixed and, so far as can be foreseen by the most long- sighted business man, not liable to change, you can readily see how the element of uncertainty as to the value of our currency dollars would be introduced and how that uncertaintj' would be increased or diminished by fluctuations in the balance of trade. Mr. OooMBS. Let me siiggest, right there, that the balance of trade msed to be considered in my early business experience as the difference between the value of exports and the value of imports ; that is inter fered with to-day by securities, American securities, held abroad. Mr. Teenholm. But there is always a balance, even after allowing for the value of securities exported and imported '? Mr. Coombs. Always a balance; yes, sir. Mr. Teenholm. There is another matter, Mr. Oombs. There are in this country a number of banking firms whose capital belongs nowhere, neither here, nor in England, nor in Germany, nor in France. It is tramp capital; is always on the road; employed in London to-day, to- morrow it may be transferred to New York by cable, and to Berlin the next day. Wherever the highest fraction is paid for its use, there it goes. This has been the case since the cable has been established, and it puts every country in the position of not being able to reckon upon the amount of capital that it can permanently command. Each country has to comx)ete for the use of these masses of floating capital, and the highest bidder gets it unless the question of security arises. The Bank of England rate of discount determines the price of money throughout England— each change in the rate has an effect upon ster- ling exchange in New York immediately. If we had a system of cur- rency in this country which was not so firmly fixed as even the pres- ent currency is, we would have a great deal of anxiety and confusion every time there was an abnormal condition of things abroad. The degree of that confusion and anxiety would be indicated by very high or low rate of exchange. Mr. 000MB3. I suppose also the use of that capital is determined by the stability of the securities '? Mr. Teenholm. Yes, sir; one of our present troubles is that that capital was withdrawn from us last year, and will not come back until the bankers who control it have much more confidence than at present in the future of our legislation on currency matters. One reason England is in the position she occupies to-day finan- cially IS because there has not been a shadow of a doubt in the mind of any human being as to the absolute permanency of the basis of values in that country. A capitalist would rather lend at 1 per cent a year and be perfectly sure that he will get back absolute value when his money is repaid, than at 10 per cent per annum with the risk of having to BANKING AND CURRENCY. 469 accept in repayment cxirreucy of depreciated or even uucertaiu or fluctuating value. Mr. Coombs. In other words, a speculation. Mr. Trbnholm. A speculation — gambling. Now, the more j'ou can eliminate gambling and the elements of chance from business opera- tions the more you stimulate business ; because yoTi encourage every man to do the best he can, confident that he sees every element of the problem. But if there are uncertain elements to be taken into consid- eration, then he is cautious and sits still, and would rather sit still a year than to go into things when he doesn't know how they will turn out. And there are thousands of people in this country to-day leaving their money idle because they think it is better for their money to remain entirely idle than for them to run any risk with it. If it were absolutely certain that this Congress would not attemi^t any legisla- tion on financial questions, but would appoint a commission like the one proposed in the bill, and decide not to do anything until the report of that commission had been made, I think it would give the country confidence. Mr. Jordan. The idea of this commission, then, is to find out the wishes and relations of each section of the country to the currency, and hopes the results of its inquiries will be to remedy the defects which it finds — in the present system — and that a general scheme can be devised by Congress which will do this; it would not be to build up any one theory or system, but to examine all the facts, and reach a conclusion from these and from experience? Mr. Trbnholm. Well, if the commission amounts to anything it would have to lay out a plan that is both scientific and practical — that is, based on knowledge, consistent with reason, in harmony with the habits and business methods of our people, and adapted to the widely varying conditions that prevail in different parts of the country. No one should be on that commission who could not fairly consider all facts and reasons and be open to conviction on any point. Mr. Warner. May I ask, Mr. Trenholm— I have been thinking over the results as proposed in the shape of this commission. As I under- stand you, if it took up a subject with reasonable thoroughness and pro- ceeded with such deliberation as to gather in properly what ought to be included in the investigation, that a report from them might reason- ably be expected, say January 1, 1895, so as to allow Congress, meet- ing the previous December, to consider such report in January or Feb- ruary, 1895. That means practicaUy, I take it, even if legislation is proceeded with somewhat more promptly than usual, that it would be January, 1896, or later than that, before we would expect anything to be actually put in operation. Now, without suggesting whether that is desirable or undersirable, may I ask whether, from your knowledge of the present condition and probable trend of currency matters in this country— whether there would be apt to occur any trouble before then, or whether, in your opinion, it would be safe to let matters rest until then. In other words, the theory is one thing and the situation another. Mr. Trenholm. As to whether we may have time enough to con- sider this matter of monetary trouble or apprehension of monetary trouble Mr. Warner. Any necessity for immediate attention! r -4. a Mr. Trbnholm. I think the condition of the Treasury of the United States affects all these questions. The Treasury balance now takes the place partly of those balances of trade calculations which 1 was referring to in answer to Mr. Coombs. I think the only danger or the 470 BANKING AND CURRENCY. only anxiety that we need apprehend now would be that the Secretary of the Treasury should lose physical control of the situation. Next in importance to the people feeling absolutely coufldent as to the standard of value, is the ability of the G-overnment to maintain that standard. There is a great difference between passing a law and being able to enforce that law or keep it in operation. Congress may resolve in the strongest terms that the basis of values should not be changed, and may pass acts to support the resolution, and yet the basis of values may become changed. It is beyond the power of any human agency or any government to prevent the operation of those natural laws which operate ui)on money and credit and confidence. The only jiower that exists to-day by which our currency is main- tained on a parity with gold whereby alone all its elements circulate with freedom and enjoy more or less confidence, is the ability of the Treasury to liquidate our paper money on demand by giving in redemp- tion of it gold to the man who wants gold and silver to the- man who wants silver. Our system demands as the price of its preservation that every citizen who has a demand on the Treasury shall receive the kind of money that he wants and not the kind that the Treasury wants to get rid of. Therefore the Treasury is banking against the public at large. Every man can take greenbacks then and get gold for them. The Governiaent may pay him in greenbacks any amount that is due him, but he can take the greenbacks to the Treasury and get gold for them.. Hence the Treasury must be strong enough to be able at all times to meet any such demands. The strain upon theTreasury will increase in proportion with each increase in the volume of those elements of the currency that people want to get rid of, i. e., those for which gold will be demanded at the Treasury. To relieve the Treasury, therefore, we must do two things: First, we must remove apprehension as to any ele- ments of the currency, and thus we will not only diminish the demand on the Treasury for gold, but, as experience shows, we will cause gold to flow in as freely as it did before this stringency. On the other haud, we must make the Treasury strong enough in gold — that is, so strong that people will believe that if they want g'old they can get it. If they know they can get it then they do not want it. Is not that so, Mr. Jordan? Mr. .Jordan. Yes, sir. ^ 3Ir. Teenholm. Mr. Jordan found in the first administration of Mr. Cleveland, when there was ,ureat apprehension — there were negotiations with Xew York bankers for loans— $15,000,000— and people were uncer- tain as to how the Treasury would get through. Now, wliat Mr. Jor- dan did was to cause immediately the subtreasuries to pay out gold. What was the effect ? It was like a sucked pump, where you have to pour a little water down to begin with, and then you begin to pump the water up. Paying out gold had a like effect upon the" currency of the country. It started little streams of ijold frcnn all over the country, until after while there was so much gold that the Secretary of the Treasury did not have to borrow. Is not that a fact ? Mr. Jordan. Yes. Air. Trenhol;m. Therefore, in answer to your question, Mr. Warner, I think that if we can first of all satisfy the public as to the deter- mination of the Government, through Congress, the Supreme Court, and everything else, to keep the standard of values absolutely fixed, and secondly, if we can satisfy the public that the Treasury is going to be made strong enough to put that resolution into practical effect, and maintain it, we need iiave no apprehension of any currency trou- Dles for a long time to come. I do uot see anvthing that can affect the cnirrency, except what may result from one of those two causes, and to BANKING AND CURRENCY. 471 if we remove those two dangers I think we would have ample time for the commission to discuss the whole question and make this report and for the country to become educated on the subject. Mr. Waenee. I had in mind the particular matter to which you have just alluded, and I confess I appreciate your suggestions more than I realize any definite conclusion from them. Of course if we do not have any trouble we won't have any trouble. My incjuiry was as to whether, under present conditions, which are so much better known to both Mr. Jordan and Mr. Trenholm than myself that I need not refer to them, it is safe now to undertake a plan which inevitably postpones— and I think we. will all agree that the estimate- is a very conservative one— any actual relief upon this matter until 1896 or 1897, probably longer, hut I mean in the regular course, unless at the same time we have m mind expedients to meet troubles which may occur meanwhile. And then in addition to the particular matter to which Mr. Trenholm has referred, and it is the first qnestion, there is this other less impor- tant question, perhaps. We have been accustomed to having ever since I have been old enough to know anything about these matters an annual stringency in our currency, practically twice a year, and one big one along in August. , • ^ .. Mr. Jordan. As Mr. Trenholm has just discussed the subject trom a general point of view, 1 will merely give some of the details as to why it is desirable that this commission should be formed. It would ascertain from actual investigation at the different commercial or busi- ness centers the need for currency, when it is needed, and to what extent. At these different points can be learned the local wants— what amount of currency the banks ship and receive by express or other methods of transportation, the cost of the issue of currency to the banks, the lenath of time it stands out, and the amount of profit derived from its use, and what profit is made by its loss, though this latter point can only be ascertained at Washington. By making these and similar inquiries the commission can ascertain how much currency is needed and the points at which it should be supplied or redeemed. Abroad they have had a series of thorough examinations as to the gold and silver currency, and partially of paper, but this country can furnish the most complete information as to the subject of a paper cur- rency, because we have passed through every phase of its use. I do not believe that until such an investigation be had it would be safe to enter into any new scheme for the creation (if a currency; sucli a step would affect too many interests to be taken lightly or without due examination and care. In order to provide for the interregnum which must take place before action can be had upon a bill to be devised by the commission, a temporary loan, or a series ot such loans should be provided for, giving the Secretary power ^ boiTow trom tune to time such sums as may be necessary, at a rate ot interest ii;>tt'j exceed 3 per cent. If these loans were made with he condition tl-atte tiiicates issued for the moneys borrowed could be used ^« ^ i^se ve bj the banks, the money could be borrowed at l^- to 2 per c^'^ 1 ^ /^^" ™ ' and the currency .vants of the country be more thoroughly provided for than at present. „ ^ . , „, .^-.^n/i,-. A temporiry loan with a reserve-clause tea nre is not ", f ^^^ fmedj it has been used before and used successfuHy, and would enable the Government, by taking care of the f'^^cefive issues as thej pitseu^ themselves (taking them up and putting them ^ ^"^ ^^^ "l^^l^ to j)revent a renewal of the present system of gold depletion ^^hlch i. going on in New York. 472 BANKING AND CURRENCY. Tliis depletion can not be stopped by any Government remedy, because it is a treatment of gold as a commodity. People can make a profit upon gold shipped in two methods: 'First, they can borroAT at 1 or IJ per cent, ship the gold, and sell the exchange at its highest price, say 4.89| to 4.90. If by any chance we should drop from a gold to a currency basis, the borrowers of this money would make a large profit from the resulting premium on gold. Another element of profit is that, using their credit in shipping gold, they sell the resulting exchange at the highest point, say 4.90 ; then sixty days or more there- after they buy back that exchange at 4.83 or 4.85 or lower, and thus make a substantial profit. No Government legislation can reach such a condition of things if we are to remain upon a specie basis. Gold has two functions to fill— of a reserve currency here and as a means of settling our debit balances abroad. Tlie fact that the Bank of England paj's a fixed price for all the gold presented to it is sufftcient to estabhsh the price of this gold as a commodity; and, necessarily, whenever money becomes too cheap here gold will flow abroad, because of the better price and wider use to be obtained in the markets of the world than in this country, where it has ceased to be used as a currency, though it is still the basis of all values, both of our paper currency and our exportable merchandise. As to the matter of a temporary loan, if by reason of its operation money were to increase in value in New York City even to the low point of 3 per cent per annum, it would act as an immediate check upon exports of gold, by reason of the greater value of money here than in the existing condition of the London and continental money markets. 1 should like to present a table showing the actual monthly move- ment of currency " in and out " of the city of New York. Statement showing appro'ximalety the monthly movement of currency to and from Kev) Tort: City hanlis. Montli. January . . February . March April May June nly August . . . September October. . , NoTember Dacember 13.9 7.0 4.9 8.6 15.7 12.3 14.3 75.7 8.4 - 6.9 9.0 11.2 12.3 46.8 Out. 5.5 8.8 9.9 7.8 8.0 6.0 9.1 14.8 20.9 27.4 12.4 24.0 122.5 In. 25.4 11.0 7.8 15.9 23.1 22.5 21.9 127.1 11.7 10.9 11.3 21.0 Out. 7.1 10.1 16.0 11.3 4.9 6.6 11.9 24.3 14.4 10.8 13.6 19.7 17.7 22.1 15.5 16.5 9.8 8.0 8.5 14.2 67.9 17.4 37.0 22.5 17.0 13.7 107. 122. 6 17.2 17.9 10. 5 24.0 20.9 96.5 21.6 24.4 34.2 20.0 12.7 102.9 219. 1 183. 1 In. 30.7 22.1 24.2 25.1 26.2 16.0 15.4 159.7 11.7 30.4 38.6 52.0 30.3 163.0 Out. 9.2 15.2 26.1 9.7 11.2 40.0 26.7 138.1 28.0 10.7 16.0 17.0 14.9 224.7 47.0 27.5 23.6 31.8 36.0 29.7 *13.4 208.9 208.9 >ao Julyl4. Out. 13.7 12,1 16.6 17.1 18.6 15.7 7.8 101.6 101.6 BANKING AND CURRENCY. 473 Statement sIiowUkj approximately the monthly movement of currency, e(e.— Contiuued. RECAPITULATION. In. Out. Increase. Decrease. Net gold. Cash in Export. Import. banks. 104.0 75.7 i6. 8 127. 6 63.5 122.6 96.5 159.7 163.0 ■208. 9 55.7 99.5 67.9 107.6 80.2 102.9 138. 1 86.6 101.6 20.0 10.1 112.9 August to Decemljer 52.7 4.3 -28.' 2' 103.2 59.7 72. 3 120.7 August to December 44.1 133.3 42.5 43.4 156. 5 August to December 6.4 19.3 118.0 21.0 76 4 .57.7 91.2 August to December 47.0 ■207. 4 107.3 HO. 3 221.3 1,064 3 840.1 327. 5 ■'24. 3 103.2 243.8 9S. 8 i 1 If you will examine the table recapitulating tlie movement it will be found tliat every large accumulation of currency at this point was fol- lowed by an equally large exportation of gold. The only instance in which this was not the case was at the time of the panic, when the banks associated themselves together and bought exchange for the purpose of importing gold. ^r , ■ Tou will also see from the table that the movement into New York is heaviest from January, including July, and outivard from August to December, inclusive. When this movement changes it shows an abnor- mal state of things. The mass of this currency, which does not include the national-bank currency, passes through the United States Treasury. The per cent of redemption of the Government currency and that of the national banks is about the same, say 25 per cent of the amount outstanding: thus the currency is renewed every four years, and the opportunity for its loss is very slight. With the exception of the cur- rency in use during the war, the loss does not amount to over one-half of 1 per cent on the total issue, or say, allowing for the exceptional loss during the war, Ave or six millions of dollars. The cost of redemption of the national-bank currency is larger than it should be, owing to the place of redemption, Washington, though other reasons operate to the same end. The average cost is $1.55. It is my opinion it can be done for $1. The Bureau can not stand any e.xtra strain when put upon it which results in slower redemptions than would otherwise be the case, and compels an advance by the Government to the banks, as the ireas- ury makes immediate payment for the notes when received. It seems to me, if the proper testimony can be put betore the pro- posed commission, both the national and Government systems ot paper issue can be improved, though I do not believe in the Government doing a banking business ; it never has done it well, and from ignorance of the laws which govern the movement of currency it is impossible for it to properly discharge the functions of a banker. It it is to con- tinue the business, it should at once set to work to determine the proper reserve to carry upon its paper issues; and it seems to me the proposed commission would afford a powerful aid in this direction. I have just been through an experience at ^^ewlo^iim i-eceivingthe money for $50,000,000 of bonds, producmg, say, jo.s,000,000 About $43,000,000 of this was paid in in gold and gold certihcates. T'lat gold is ail gone. Assuming that one hundred miinons ot reserve is to e carried upon legal tenders [and including the Treasury notes tlie 474 BANKING AND CURRENCY. reserve should be at least thirty-flve millions more than that sumL we have, say, the sum of $250,000,000 legal tenders free of interest. Five such operations would compel the United States to pay 3 per cent per annum upon the entire issue in order to maintain it incirculation, but this redemption and re-redemption would go on ad infinitum. Would this be good sense! Such a course would bankrupt air individual. Is there uot a direct relation between an individual and the Government? It is clear that we should have some method by which we can pro- tect our store of gold in this country, both in the Treasury and in the banks. We are powerless now to do this, but your proposed commis- sion should make this subject a matter of special examination, as it is of the utmost importance to this country. It could be done as to the banks by a very simple remedy — abolish the usury laws — but thatwould not protect the Government so long as it issued a currenc y which it proposed to redeem in gold. If authority were given to the Secretary to issue temporary loan certificates bearing a low rate of interest, or a rate sufficing to keep capital here instead of its moving abroad (owing to the better returns received there), this would be of great service in controlling such movements. Another remedy is to put the Treasury on its feet so that its monthlj income shall slightly exceed its monthly expenditures. Half our difficulties would cease by this remedy alone. Our trouble in the Treasury comes from the fact that any kind of currency, whether legal tender, silver certilicates, or Treasury notes, wheu in excess, excludes the others, and we are put, practically, for the time upon a paper basis exclusively. At this moment, if it'is a part of the pobcy to maintain our jniblic credit that our interest must be paid in gold, the Treasury would be a purchaser in the market for that purpose. This should not be so; the Secretary should be given the power to take up any excess in form of currency by the temporary loans I have spoken of before. To the objection that this would cause a contraction of the currency, I say no, because the certificates could be used as reserve, and as soon as a demand sufficient to take off the excess currency arose the Secretary could pay off the loans, and the marlvet would be again supplied with all the currency it had use for. BANKING AND CURRENCY. 475 Committee on Banking and Cubkency, June 15, 1894. STATEMENT OF ME. RODERICK H. SMITH OF NEW YORK. Mr EoDEEiCK H. Smith, of NeAV York, appeared before the com- mittee ill behalf of bill H. E. 4232, introduced by Mr Brosius, He said : Mr. Obairmau and gentlemen of the committee : Preliminary to enter- ing upon an explanation of the "bill to establish a gold currency and a silver currency on a basis of interchangeable value," which my honora- ble friend, Mr. Brosius, has introduced and brought to the attention of your body, I desire to submit a few remarks calculated to assist such explanation. It seems to me that the causes of the present business depression can be clearly and specitically demonstrated; that these causes, through proper Congressional action, and by that alone, c;iil be quickly mitigated and eventually removed, with this resultant eflect, that the farmers and producers of the country, upon whom the social structure rests, shall shortlv be enormously benefited; that the idle millions shall be set to work ; that the wheels shall turn in the factories ; that railroad earnings, now partially collapsed, shall be restored; that industry shall be vivified; that mobs, riots, and bloodslied, incident to the conflict between capital and labor, shall be averted, and that the Great Republic of the West shall shortly become the leading comiiiercuil nation of the world. , ■ ■ /. i First, I desire to call your attention to the dehnition ot one word. What is price? . _, , ,. ,.; Price is the expression, in terms of the money unit, oj the relation whicH exists between the tldnq which measures and the thincj which is measnred. " Price," said a friend to me the other day, " is what yon can get tor what you've got." Very well, what have you got ? " W heat. And what do you propose to get for your wheat"? " (xolcl.^^ \ou P^'pose to measure >our wheat by gold, do you? "les." Very well, I said your definition of price is the same as mine. You have got wheat you propose to (.et gold ; the relation between them, expressed in terms oi the money unit, is the price. " Yes, that is true." " Price, ' says another "is the equivalent." Equivalent of what, I ask? " Equivalent of commodities or things that are for sale." Equivalent means equal to and implies two things. Equivalent of commodities m what 1 ask - "In miney." Oh, you mean, then, that price is t^^ /elation which exists between tlie money and the commodiies; between the thing which measures and things which are measured ? "Yes, that r, tiue. And when you speak of gold prices you mean the relation which exists between gold and the things which are measured in gold . ies. When you speak of silver prices you mean the relatioi which e^xrst. between silver and the things which are measured in silver ies And when you speak of copper prices you mean the ^^f «>uw ich exists between copper and the things which are measured m < oppei . " Yes, that is so." 476 BANKING AND CUREENCY. Says Geu. W. 8. Marriott (Grammar Political Economy) : The price of anything is its value expressed in money. Prices represent the rel- ative value of the commodity used as money and all other things, and are deter- mined, like every other value, by the equation of supply and demand. Says MacLeod (Blemeuts of Political Economy, p. 9226): Value consists in the relation of exchanges which take place between such and such a product, between such a quantity of one product and such a quantity of another product. Price is the expression of this value. Hence it is clear that value is a ratio. And, he miglit have added, price is the expression of that ratio in terms of the money unit. Henry Fawcett says : The price of a commodity may, therefore, be defined as its value when estimated by comnarisou with those precious metals which by general consent have been adopted as money. A definition well meant but turgid. In the third century of the Christian Era, the Roman jurisconsult Paulus g'ave a description of the origin of price. The origin of buying and selling [says Paulus], goes back to barter. Primarily there was no money. One thing was not called "merchandise" and the other "price," but every one, according to his needs and according to his circumstances, bartered things useless to him for those which would be useful to him; for it often happens that what one has too much of another lacks. But, as it would not always or easily happen that you had what I should have wished for, and that, conversely, I had what you wished to obtain, choice was made of a material which, being declared forever legal value, would obviate the difficulties of Ijarter by means of a quantitative equation. And this material, stamped in the corner by the State, circulates with a X)ower which it derives, not from the substance, but from the quantity. Since that time, of the things thus exchanged, one is called merchandise and the other is called price. Three hundred years later this description was thought worthy to be incorporated in the Pandects of Justinian, compiled and promulgated in the sixth century. The following illustration of price making is presented. Here is aa inhabited island in the center of the sea. To those without it is inac- cessible, to those upon its surface it is confining. Upon this island lead ami tin is the standard money. One pound of tin or lead, called a dollar, is the unit of value. Upon this island there are, all told, but 5,000 pounds of lead and 5,000 pounds of tin, and, as the island is inac- cessible, these metals can not be increased in amount. The products, cpiantities, and prices of same, measured in terms of the standard of value of this island, are shown in the following diagram: First year. The tiling wliicli measures. Bimetallic atandartl of value : Lead 5, 000 'J'in 5, 000 Total 10, 000 1 pound, tlie unit of v.alue, is called a dollar. The things which are measured. Wheat.... Corn Cotton Oats Cattle L amber... Suiiar Iron Copper Zinc Pound.s Value 1 50, 000 80, 000 60, 000 40, 000 30, 000 70, 000 20, 000 120, 000 20, 000 10, 000 1 to 5 1 to 8 1 to 6 1 to 4 1 to 3 1 to 7 1 to 2 1 tol3 1 to 2 1 to 1 Price ex- pression per pound. $0.20 .12J •lOf .25 .33J .14? .50 .08i .50 1.00 BANKING AND CURRENCY. 477 Prom this the islanders learned that price is the expression, in terms of the money unit, of the relation which exists between the thing which measures and the thing which is measured. Political economists make the distinction, as shown above, between the meanings of the words "price" and "value." Price is the expres- sion, in terms of the money unit, of the value ratio; value is the rela- tion or ratio which exists between the thing that measures and the thing that is measured. J. B. Howe says: Value is an equation expressing the terms of excliange between two tilings. (Political economy in the use of money, ) Van Buren Denslow says: Value is a sense of relation or equation between two things. (Economic Philoso- pty.) Oairnes says: Value is the ratio in which commodities in open market arc exchanged against each other. Jevons says: Value is proportion in exchange. If price is the expression in terms of the money unit of the value ratio — that is to say, if price hinges upon the relation which exists between the things comi^ared^hen to change the quantity of the thing that measures or to change the quaiitity of the thing that is measured necessarily changes the ratio, and this changes the price. For instance, returning to the illustration: The following year the natives of this island found that production had largely increased; large crops had been raised, with the result that prices had declined, as follows : Second year. The tiling which measures. Bimetallic standard of value : Founds. Lead 5,000 Tin -5,000 Total 10,000 1 pound, the unit of value, is called a dollar. The things which are measured. Wheat Corn Cotton Oats Cattle Lumher Sugar Iron Copper Zinc Pounds. 70, 000 100, 000 80, 000 50, 000 60, 000 120, 000 30, 000 150, 000 50, 000 25, 000 Valae ratio. 1 to 7 ItolO 1 to 8 1 to 5 1 to 6 1 tol2 1 to 3 1 tol5 Ito 5 1 to 2J Price ex- pression per pound. 10 12i 20 I?* 06} 20 40 The islanders thus learned that to increase the quantity of the things which are measured, that which measures remaining the same, decreases prices. But it may be said that prices are not made in this way, but that the money is first compared with the commodities in the aggregate and that each separate commodity shares pro rata. Even if this were true it would not change the principle here set forth. The following year the natives found that production had largely fallen off, so that the production of each article on the island was even 940 2 478 BANKING AND CURRENCY. less tlian dnriug the first year here considered, with the following result on prices : Third year. The thing which mea.sures. Bimetallic standard of value : Foxinds. Lead 5.M0 Tin °.°"° Total 1».0«° 1 pound, the unit of value, is called a dollar. The things which are measured. Pounds. Wheat.. Com Cotton-. Oats - . . . Cattle . . Lumber Sugar .. Iron Copper . Zinc . - - 40, 000 60, 000 40, 000 20, 000 25, 000 60, 000 10, 000 .10, 000 10, 000 5.000 Value ratio. 1 to 4 1 to 5 1 to 4 1 to 2 1 to ^ 1 to 6 1 to 1 1 to 5 1 to 1 4 to 1 Price per pound ex- pression. $0.25 .20 .25 ,60 .40 .lej 1.00 .20 1.00 2.00 The islanders thus learned that, to decrease the quantity of the things which axe measured, that which measures remaining the same, increases ^'^in the fourth year the natives of this island raised exactly the same quantity of commodities as they did the first year here considered, but in the meantime there had arisen a dispute concerning the money ot the island. One party said that they did not want to use tin for money as it was too brittle and too light, and besides, as business was done on confidence, there was enough of lead to do all the business anyway, and "as we have time contracts payable in lead alone, we'll throw tin out." This they did, the producers of wheat, corn, and cotton acquies- cing • " We, too," they said, " want to have a return of confidence." The business men of the island then went forth and made up the prices of their products with the following result : Fourth year. The things which are measured. The thing which measures. Pounds. Eatio. Price per pound. Monometallic standard of value : Pounds. Xeaii 5,000 Wheat Corn Cotton Oats Cattle Lumber Sugar Iron Copper Zinc 50, 000 80, 000 60, 000 40, 000 30, 000 70, 000 20, 000 120, 000 20, 000 10, 000 1 to 10 1 to 16 1 to 12 1 to 8 1 to 6 1 to 14 1 to 4 1 to 24 1 to 4 1 to 2 $0.10 .061 .08 .12 .16 .07 .26 .041 .25 .50 1 pound, tile unit of value, is called a dollar. The islanders thus found that " confidence " had cost them dearly, as the prices of all their commodities had depreciated one-half. One class of the islanders, however, those who held time contracts payable in lead "of the present standard of weight and fineness," found that they had gained, as their dollars now commanded twice as much of com- modities as they formerly did. The intelligent portion of the commu- nity, however, drew the following conclusion from this state of affairs: That, the quantity of the things which are measured remaining the same, to reduce the quantity of the thing which measures reduces prices. BANKING AND CURRENCY. 479 Having tried the confidence plan the people became dissatisfied with it and, as is usual in such cases, rushed to the other extreme. They decided that having thrown tin out as a measure of value they would next throw out lead and use copper, of which they had 20,000 pounds, as the standard. This they did with the following result : The things which are measured. The thing -which measures. Pounds. Eatio. Price per pound. Standard of ralue : Pounds. Copper 20, 000 1 pound, the unit of value, is called a dollar. Wheat Corn Cottou Oats Cattle Lumber Sugar Iron Zinc 50, 000 80, 000 60, 000 40, 000 30, 000 70, 000 20, 000 120,000 10, 000 lto2i 1 to 4 1 to 3 1 to2 1 to U lto3i 1 tol 1 to6 J tol $0.40 .26 .334- .50 i!oo ■ m 2.00 The islanders thus found that, the things measured remaining the same, to increase tj^e quantity of the thing that measures increases prices. This last situation, called inflation, while it was of great benefit to the producers, was a corresponding detriment to the money-lenders, for their time contracts when due would purchase but a small part of that which they were enabled to purchase when the loan was made. The command of dollars over commodities had greatly lessened. At last, however, it was decided that what the islanders really wanted was not a dollar which, by reason of its growing scarcity, was constantly increas- ing in its command over commodities, iior did they want a dollar which, by reason of its rapid increase in quantity, was constantly losing its command over commodities, but that, all things considered, they wanted an equitable dollar — or, as one of their great men put it, " a dollar unchanging in value through time." From these illustrations I deduce the following laws of price : (1) That price is the expression in terms of the money unit of the relation which exists between the thing that measures aud the thing that is measured. (2) That to change the quantity of either changes the relation and thus the price. (3) That to increase the quantity of the thing that is measured, the thing which measures remaining the same, decreases the price. (4) That to decrease the quantity of the thing that is measured, the thing which measures remaining the same, increases the price. (5) That to increase the quantity of the thing which measures, the things measured remaining the same, increases the price. (6) That to decrease the quantity of the thing that measures, the thing that is measured remaining the same, decreases the price. But the definition of price here given is not as complete as I desire. In the foregoing illustrations of price-making, it will be observed that the value relation between the thing which measures and the things which are measured has been treated as though it were a comparison of quantities only. I conceive that, in addition to this quantitative relation, there is also a qualitative relation which enters into the equa- tion when things of human estimation are compared or valued. This qnahtative relation, it is manifest, arises out of the human estimation put upon the things compared and is as diverse as the human beings 480 BANKING AND CURRENCY. wlio make it. The same thing has different values to different men and in different places and under different circumstances, but the qual- ity of the objects compared remaining the same at the same time and place: then to increase or diminish the quantity of either of the objects changes the relation, and therefore the price, as before stated. True money, I think, is first of all a commodity limited m amount, and a commodity which contains value-giving factors which are recog- nized by mankind and for which they will exchange value-giving ^ John Henry Norman, member of the Loudon Chamber of Commerce, a man of masterly skiU in bullion and coin, forcibly asks: If true money does not effect the work it does by its value-giving factors, Tvhy not aV,olisli gold and silver as intermediaries in effecting exclianges^ Let anyone who understands something of the prodnction of gold and silver, and has gone throuo-h a mint with intelligence whilst its works were m operation, ask himself the questfon : Why all this simply for a medium of exchange of suhstances and services if these metals do not effect their work by their ciuality or value ? ^ Why should these nonproduoing gold and silver islands part with their value-giving factors for these metals for the purposes of money, if they do not accomplish their work by their value-giving factors which they contain ? If it can be demonstrated that true money does not accomplish its work by means of its contained value, aiid that a iudiciously arranged currency system, consisting of biti*)f paper, could equally well facilitate individual and international interchanges of substances and services, does it not follow that the establishment and keeping up of a monetary system is a Dure Avastef This country had to part with and has to part with its value-giymg factors in some form or other for such gold as it uses for currency purposes, whici might have been retained here if interchange can be effected as well without gold. And again he says : Price is ordinarily determined by the value-gi^^ng factors contained in the stand- ard substance, in comparison with the value-giving factors contained m the thmg priced. All trade arises out of barter, and the principle of barter is recip- rocal advantage. You give so much of your services to me and I wiU give so much of my services to you, is the principle underlying all com- mercial transactions. This principle shows itself with brilliant clear- ness in international trade. Money between nations is always a com- modity which passes by weight and fineness. No attention is paid to the superscription on the coin. Inconvertible paper is instinctively repelled from all such transactions. Of what possible use is incon- vertible paper to a Hindoo, a Malay, or a Chinaman. It is, therefore [says Berenger] , neither by order, nor by agreement, nor by chance, that gold and silver are money, but by fitness ; because no other commodity is aa favorable to the multiplication of exchanges as are the precious metals. In a "^"rd, they are money by the force of events, which always and necessarily controls all efforts opposing it. It is the expressed opinion of many Eastern business men that sUyer is worth nothing anyway, and should be banished from business life. As about 700,000,000 of the population of the globe are now using that metal as money and are willing to give up their labor and their products for it, one would naturally Infer that something must be wrong with these business meu, or else two-thirds of the population of the globe are mistaken, to put it mildly, in the estimation which they put upon their goods and services. Eicardo put forth the idea that the value of the precious metals lay in their cost of production. If he had added to his formula, " and in the quantity produced as contrasted with the quantity of, and the value- giving factors contained in the commodities or objects which arecom- pared with them," his idea would have been the same as that which is here set forth. BANKING AND CURRENCY. 481 Bouamy Price asks : How does money perform its work? The tool, knife, works by means of its sharp edge— it cuts; everyone sees this instantly; bnt how many can tell how it is that money buys? It works by means of its worth, its value, as a piece of metal. On this conditional fact all understanding of what money is hangs. To buy is to exchange one thing for another on the basis of the value of the one thing being eqnal to that of the other. The late Dr. Soetteer lield the same view. In order to take into account, then, this qualitative relation which, I think, is part of the equation when things are compared or valued, the definitiou of price is amended as follows : Price is the expression, in terms of the money unit, of the quantita- tive and qualitative relation which exists between the thing that measures and the thing that is measured; or, to put it in simpler form, price is the money expression of the value relation. THE QUANTITATIVE THEORY OF MONET. The quantitative theory of money arises from the 4th and 5th laws of price which I have presented to you. If the quantitative theory of money is true then the laws of price as before referred to are correctly stated, and, conversely, if the laws of price are correctly stated then the quantitative theory of money is true. The quantitative theory of money is this : That to increase the quantity of money in a country increases prices and to decrease the quantity of money in a country decreases prices. Senator John P. Jones, of iSTevada, in his great speech in the Senate in October last covered this subject in an able manner. I quote from his remarks on that occasion : John Locke, in his considerations relating to the value of money, said: "Money, while the same quantity of it is passing up and down the kingdom in trade, Is really a standing measure of the falling and rising value of other things in reference to one another, and the alteration in price is truly in them only. But if you increase or lessen the (|uantity of money current in traffic in any place, then the alteration of value is in the money." Locke further said : "The value of money in any one country is the present quantity of the current money in that country in proportion to the present trade." David Hume, the historian, says : " It is not difHoult to perceive that it is the total quantity of the money in circu- lation in any country which determines what portion of that quantity shall exchange for a certain portion of the goods or commodities of that country. It is the propor- tion between the circulating money and the commodities in the market which deter- mines the price." Ficthe says : "If the quantity of purchasable articles increases, while the quantity of money remains the same, the value of the money increases in the same ratio; if the quan- tity of purchasable articles remains the same, the value of the money decreases in the same ratio." ' James Mill, in his treatise on Political Economy, says : "And again, in whatever degree, therefore, the quantity of money is increased or diminished, other things remaining the same, in that same proportion the value of the whole and of every part is reciprocally diminished or increased. John Stuart Mill (Political Economy) says: "The value of money, other things being the same, varies inversely as its quan- tity; every increase of quantity lowering the value, and every diminution raising it in a ratio exactly equivalent." And again, as I have already quoted in connection with my remarks on cost of pro- duction, Mr. Mill says : "Alterations in the cost of the production of the precious metals do not act upon the value of monev, except just in proportion as they increase or diminisii its quan- tity." 482 BANKING AND CURRENCY. Eicardo (Reply to Bosanquet) saya : .-,,,, x • j.^ t,. ^ "The value of money in any country is determined by the amount existing. Itiat commodities would rise or fall in price in proportion to tlie increase or diminution of money I assume is a fact that is incontrovertible." Eicardo further says : -, j -u j "There can exist no depreciation in money but from excess; however debased a ooinacre may become it will preserve its mint value ; that is to say, it will pass in cir- culation for the (so called) intrinsic value of the bullion which it ought to contain, provided it be not in too great abundance." John Stuart Mill again says : "We have seen however, that even in the case of metallic currency the immediate agency in determining its value is its quantity." (Principles of Political Economy, vol. 2, p. 89.) , „,„, William Huskisson (The depreciation of the currency, 1819) says: " If the quantity of gold in a country whose currency consists o± gold should be increased in any given proportion, the quantity of other articles and the demand for them remaining the same, the value of any given commodity measured m the com of that country would be increased in the same proportion." Sir James Graham says : ■ "The value of money is in the inverse ratio of its quantity, the supply ot com- modities remaining the same." Torrena, in his work on Political Economy, says : "If the value of all other commodities, in relation to gold, rises and tails as their quantities diminish or increase, the value of gold in relation to commodities must rise and fall as its quantity is diminished or increased." Prof. De Colange, in the American Cyclopedia of Commerce, article Money, says r " The rate at which money exchanges for other things is determined by its quan- tity. * * * Supposing the amount of trade and mode of circulation to remain stationary, if the (luantity of money be increased its value will fall and the price of other commodities will proportionately rise, as the latter will then exchange against a greater amount of money ; if, on the other hand, the quantity of money be reduced, its value will be raised, and prices in corresponding degree diminished, as commodi- ties will then have to be exchanged for a less amount of money. * * • In what- ever degree, therefore, the quantity of money is increased or diminished, other things remaining the same, in that same proportion the value of the whole and of every part is reciprocally diminished or increased." Says Prof. Sidgwick, of Cambridge University: " The exchange value of any particular coin will vary in exactly inverse ratio to the variations in quantity of the aggregate."— (Principles of Political Economy, p. 251.) ,^ . . So absolutely clear are the leading writers that the value of the money unit is, in every case, other things being equal, determined hy the number of units out, and does not depend on the material of which the money may be composed, that they have not the slightest hesitation in asserting that the rule applies even to uncovered paper money, so that the value of every dollar of gold aud silver in circulation is diminished or increased according as the quantity of paper money is increased or diminished ; and reciprocally as to all of these, the increase in the number of dollars of either kind dimiuishiug the value of each dollar of the others, while the decrease in the number of either increases the value of each of the others, without the slightest regard whatever to the material of which either of the dollars is composed. Prof. Fawcett, in his work ou Political Economy, says: " In discussing the laws of price, the principle was established that general prices depend upon the quantity of money in circulation compared with the wealth which is bought and sold with money, and also upon the frequency with which this wealth is bought aud sold before it is consumed. If more wealth is produced aud an increased quantity of wealth is bought and sold for money, general xirices must deelinc unless a larger quantity of money is hivuglit into cin: illation." When Prof. F,awcett says that "general prices must decline unless a larger quan- tity of money is brought in to circulation," lie is but stating in another form of phrase that the value of money increases as its quantity diminishes. This is the quantita- tive theory. Prof. Fawcett further says: "The amount of money required to bekeptiu circulation depends upon the amount of wealth which is exchanged for money. Hence, ceteris paribus, ilie amount of money ought to increase as the poxmlation and rvealth of a eountry advance." (Political economy, p. 371.) If the amount should be increased, surely the increase must be an increase of tha quantity. Mr. N. A. Nicholson, of Oxford, in his Science of Exchanges, says: "Whatever sulistance may be used as currency, an excessive quantity of it (more than is required by the wants of the community) necessarily causes a diminution of its purchasing power." BANKING AND CURRENCY. 483 Continues Senator Jones : There is one principle of monetary science that, if held steadfastly in view, will constitute an uneriing guide through what would otherwise he a path of inextri- cahle difficulty. That principle is that the value of the unit of money in any country is deter- mined by the number of units in circulation. In other words,' the value of every dollar depends on the number of dollars out. The greater the number of dollars out, other things being equal, the less will be the value of each dollar; the fewer the number out, other things remaining the same, the greater the value of each — and this without any regard whatever to the material of which the dollars are composed. This is the key to the liuancial situa- tion in the United States. Much more, it is the key to the financial situation in every land. Without this key it is in vain the student attempts to unlock the door leading to the arcanum of monetary knowledge. Unlike man5' of the locks made by man, the lock on that door is unpickable. The household of science is one that thieves can not break through and steal. He who would enter must first find the key. With this key in hand, the most secret recesses may be explored with confi- dence. Without it, the student travels in a circle, returning, after much labor, to thepoint from which he started upon his journey. Like one in a maze, when most confidently exi^ecting to find his way out, he but sees himself coming up against im- passable barriers. To the jiossessor of this theory and of an impartial mind, that is to say, a mind in search of truth for truth's sake, there is no phenomenon of industry, of com- merce, or of finance that is not accounted for. With it all facts in the monetary world harmonize. All the teachings of history illustrate its force. It has, there- fore, for support hoi h reason and experience. It resolves all doubts, unriddles all enigmas, makes clear that which without it would be an insoluble problem of political economy. Eat in order to receive all the benefits of truth men must not approach the investigation with a predetermination to prove some special theory. The truth is always its own justification. No Senator will rise in his place and deny that, other things being equal, the value of each unit of money in a country depends on the total number of units forming the monetary circulation of that country. No Senator will attempt to deny that, all other things remaining the same, the prices of property and com- modities in a country are regulated by the number of units constituting the mone- tary circulation of the country. Gen. W. F. Harriot says: The general standard of prices depends upon the quantity of the commodities used as money possessed by the intertradiug world. Fronde, in his History of England, gives as the restilt of his inves- tigations that a given quantity of gold or silver at the beginning of the sixteenth century would purchase twelve times as much as at present. In Nicholas's account of the privy purse of Elizabeth of York he shows, as examples of the value of money at that period (latter part of fifteenth century), that the highest salary of any of the Queen's ladies was £33 6s. 8d. per year and the lowest £5. For the support of two nephews and a niece of the Queen and two women servants and a man servant, in all five persons, only 13.s. 4(7. per week was allowed. A surgeon's fee for going from London to Richmond to attend the Queen was IS.v. M. Workingmen's wages were 6d. per day. The' evidence of prices having been lower when gold aud silver were scarcer and of prices rising as those metals became more abundant might be multiplied indefinitely. Regarding money as a desired commodity, the more plentiful it is the less must be its value and more of it must be given for a certain quantity of other produce, and when more money is given the higher is the price. It is evident that a general rise or fall of prices means a rise or fall in the value of the commodity used as money. Thus we can not escape the conclusion that the general standard of prices depends upon the quantity of gold in the intertradiug world. 484 BANKING AND CURRENCY. Yan Buren Deiislow says (Ecouomic Pbilosopby) : The rise in tli6 prices of commodities wliicli results from an increase in the volume of money is due to a decline in the purchasing power of the money itself, and not to any actual increase in the value of commodities. This is tlie quantitative tlieory. MacLeod says (Elements of Political Economy, p. 68) : Chauges in the value of money are produced by changes in the supply and demand of money as well as by changes in the demand and supply of commodities. Said the late Prof. Emile de Laveleye: In the Greek democracies the legislators, and notably Solon, reduced sometimes all debts by law, in order that the people might not be brought to misery by usurers. After the discovery of America and that of the placers of California and Australia, nature, not law, reduced the weight of debts by increasing the quantity of money. Wolowski says: The sum total of the precious metals is reckoned at fifty milliards, one-half gold and one-half silver. If, by a stroke of the pen, they suppress one of these metals in the monetary service [tliat is to say, reduce the quantity], they doublethe demand for the other metal, to the ruin of all debtors. He evidently sees that the debtors will be ruined by reason of the faU in the prices of their commodities due to this reduction in the quantity of the money available for payment of their debts. Prof. Shields Nicholson, of Edinburgh, in an article in the Nine- teenth Century for December, 1889, states that every economist_ of repute since Eicardo's time has been an advocate of the quantitative theory of money. Manifestly, if you add to the quantity of money in circulation m a country, you expect to get so7ne effect, else why go to the trouble of increasing it? When you inquire wduit that effect is, you find that invariably it is to raise prices; the opposite is also found to be true, to decrease the quantity of money in a country invariably lowers prices. This latter effect may occur, however, not by an actual decrease in the number of dollars out, but by ceasing to supply money while popula- tion, commodities, and commerce are increasing in quantity, which is equivalent thereto. In 18C0 you increased the quantity of money in circulation— result, rising prices. In 1864 you began to decrease the quantity of money in circulation, first, by canceling greenbacks, and, second, by reason of tne increased demand which at that time arose for money south of Mason and Dixon's line, a demand which was equivalent to a sudden increase in population— result, falling prices, which reached a limit in 1867 and 1868, when an upward reaction in prices resulted, which terminated in 1871 and 1873. In 1873 you passed an act for the resumption of specie payments, .still continuing to retire greenbacks, while the population increased all the time — result, falling prices, which terminated in 1878, when you stopped retiring greenbacks and passed a bill which added to the circulation at the rate of two millions per month — result, rising prices, which terminated in 1881 and 1883. The vast increase in popu- lation and in the quantities of things to be measured during these periods stopped the advance in prices which was again started by the enactment of the Sherman act in 1890; and this act, having the effect to drive gold out of the country, as it had become saturated with money not worth par in the markets of the world, combined with European complications and the fear of a silver standard, brought on the present unfortunate situation. BANKING AND CURRENCY. 485 THEORY OF FOREIGN EXCHANGES. I desire now to call your atteption to the theory of foreign exchanges, which flows from the laws of price and the quantitative theory of money, before set forth. If price is the expression of the value relation, and if you increase the quantity of the thing that measures, that is to say, if you increase the number of monetary units in cu'culation, then YOU are certain to get an advance in the prices of commodities and property in general. Continue this addition to the monetary volume for a sufficient length of time and you raise prices above the normal level existing for the same commodities in other countries, and this being the case, you attract imports, for I hold it to be an incontrover- tible principle that commercial movements, like all physical movements, take place along the line of least resistance, or of greatest traction, or of their resultant. ... „ , , Nowadays, the prices of goods and commodities m all markets are instantly known by reason of the telegraph, and a higher range ot prices for the same goods in this country, the tariff wall being consid- ered, is certain to start such , goods toward this market, for proclucts will always seek the best market as naturally and as certainly as ttie needle seeks the pole. i -p „ As I said before, continue this addition to the monetary volume toi a sufficient length of time and prices rise, with the first resultant eflect that importations are attracted, for you now have a good country m which to sell and a poor country in which to buy, and the second resultant effect from this constant addition to the currency is, shortly, an adverse balance of trade— that is to say, your purchases have been greater than your sales. _ , , An adverse balance of trade requires to be settled, and this settle- ment must be made with gold, for that is the only metal atpresent recognized as international money. Allow me to present an illustra- tion: Uniied States. England. Quantity of B,oney 1,000 M- Gold^,, Quantity of money 800 M. Eange of prices inn^ir " " Addition to volume suuju-. Q.o„as Eesultant range of price 1.33%--1 As before remarked, you now have got a good country to sell in and a poor'SnTyto buy'il, and the -texchange of gooc s for goU goes steadily forward as long as additions are made ^o the .0 uine ot^^^^^ currency, and nothing can prevent this ^t^^r^ .«* Sf J "Prices at prniditions save to contract your currency here and piit down piices at nelorttLInterni^ional level. Now this ^vas done m t le summer of ^893 bv thfbankers of the country, who, while they could not contract hcuJreScy itself, contracted the credits whmh are -ar ec^ up-m the currency, so that an analagous effect was produced. 1 1 ices tell ana *^^Srh^^f;Lr?^^:'^hroughincrea.ingJ.^^^^ r thhil- in which the Sherman act worked, and had it been aiiowea to run oblong etugh all the gold of the country would, m time, have ''Wetn "member the adverse balance of trade of 1893; the custom^ houses filled with foreign goods, and here is the explanation of it. It Eancre of prices 1^0% • No addition to. Yolame of money. 486 BANKING AND CUERENCY. is undoubtedly true that other influences were causing to some extent the outflow of gold, notably the Austrian demands, but yet, this influ- ence, 1 think, had the greater effect. Mr. G-oschen says: Sometimes Governments, simply for their own purposes, issue a quantity of paper money; the natural consequence will he overimportation ; prices will rise in conse- quence of the increase in circulation, and accordingly attract commodities from other markets, while the prices of exports having risen also, these latter will be less easy of sale abroad. The efflux of specie shows that the balance of trade is against that country for the time ; the equilibrium must be restored when the specie is exhausted by slackening importation and consumption. (Theory of the Foreign Exchanges.) The theory of foreign exchanges, then, is as follows : That, as the (quantity of money in a country is increased and resultantly as prices rise beyond the normal level existing in other countries, importa- tions are attracted, and an adverse balance of trade is produced. If this theory of foreign exchange is true, then at the present time we can not add State bank notes or greenbacks, or, in fact, any kind of similar money, to that at present in circulation without menace to the gold reserve. It is this theory of foreign exchange that forces us at this time to look to the quality of such future addition to our currency as we may propose to make, that is, if we propose to maintain the gold standard. If we are to further increase the quantity of money in the country, and this we must do if we desire to start prices moving upward instead of constantly trending downward, we must at the same time preserve and maintain the quality of such additions. Daniel Webster truly remarks : The circulating medium of a commercial community must be th.at which is also the circulating medium of other commercial communities, or it must be capable of being converted into that medium without loss. It must be able not only to pass in payments and receipts among individuals of the same country and nation, but it must also be able to adjust and discharge the balance of exchanges between differ- ent nations. Gen. F. A. Walker says: If there is any one thing which political economy declares with an unfaltering voice it IS that the principal money circulating in the hands of the people of any country should be of full metallic value. The coinage of billon or token money is indeed admitted by political economists, but only as" applied to what may legiti- mately and strictly be called the " small change " of trade. What may be called the qualitative theory of money here referred to— that the money of a country should be of uniform commercial value— has at this point a most vital interest. An intelligent appreciation of the theory of foreign exchanges, which I have endeavored to make clear, shows us the reason why the money of a country "must be able not only to pass in payments and receipts among people of the same society and nation, but that it also must be able to settle the balance of exchanges between different nations." It is perfectly clear that, if we make a sufflcient quantity of dollars which are not commercially worth par in the other markets of the world and put them in circulation in this country, the first resultant ettect of such increase in the quantity of the currency will be a rise in general price, and the second resultant effect will be an adverse bal- ance of trade, which balance must be settled with dollars that are commercially worth par in foreign markets, while the dollars which we make and which are not commercially worth par, stay in this country; and it can be clearly seen that if we only make enough of such infe- rior dollars we can drive out all the superior ones. It then seems clear to me that if we are to have a single gold standard we must then be BANKING AND CURRENCY. 48-T conteut with gold prices, and this means low prices, for if we raise- prices above the level existing in other countries goods flow towards^ this country and gold flows out. Low prices or falling prices mea^a bad business for the merchants and farmers of this country, and this cuts down the earning power of the railroads, necessitating the reduc- tion of wages of employes, who, nowadays being organized m labor unions, resist such attempts at reduction by strikes, and these latter breed mobs, riots, and bloodshed. If then, we are to add to the volume of money at present m cnxuia- tion we must see to it that such additional dollars shall be of such a character as that they will be able to be converted into the moneys of foreign countries- without loss. If this result is practically achieved,, then foreign balances can be paid with this money when such balances arise. I will show later how this can be done. What, then, is the point at which we have arrived"? It is this : First. That the commercial quality of the money of a country should be uniform. , , ^ , «- • v- Second. That the quantity of money in a country should be suthcient to maintain a normal level of prices. In the measure which I shall shortly bring to your attention the quantitative and qualitative the- ories of money are reconciled. In order to clear the ground, however,, there are some topics which I first desire to consider. HAS GOLD ADVANCED? In speaking of price, the illustration was used of an island in the sea and certain laws of price were drawn from the experience of the peoples upon this island. The world is also an island, globular m torm ever whirling and vastly circling through the boundless depths of space. This island is inhabited. To those beyond it is inaccessible; to those upon its surface it is confining. , . ^ . • , i p+„„ The peoples who live upon the surface of this flying island after many ages of painful experience, which has cost the ^f nflce of the lives of millions of brave men and noblewomen, at last have found that it is an island; have exploredits surface; l^.^^^«™W^^°'jtitscon^ tinents, its oceans, its mountain chains, and it s nvers ; have established governments of Various characters; have «^'ercome by invention the rude obstacles which nature presents to man's development, have drawn the metals from the earth and fashioned them ^-^o^losy, .elvers and the numerous instruments which agriculture requires ha. e built steam railways and steamships; \a^^e o^«'^^«"f/tT.?Hf t^t iSSa and snace bv the telescope : have harnessed the winds, the lightning,, theca aracts^Lcl the tiLs, until at the P-^-Vr'staiS on\"e that many of the inhabitants of this island are well staited on the ^til^— S^Sory of the peoples Tllf^i^StJ^tlSIf divides itself into ages of progress as, first, JV^^f'^^Xiial -a^e- the barbarian age; third, the pastoral age; fourth the agiicultuial a^e, flfJh, the mUitaiTt age; si'xth, the incbistrial age; ^f^jf ^J «^«^f Jf^t may at present be found ^^PO'^/ifief^V'' If^ fhntl^ to saTeTch ^n/iAfv ni-inears to be a growth, a development; that is to say, eacu King personTs the descendant of' his parents and they of their parents and so on back If any of us will but follow his family tree back far SnouS he wm doubtless'^flnd that he will soon ^-^-^^ .^^ ta^S! the Saxons, Danes, Celts, I^orsemen, Angles, or farther back stili 488 BANKING AND CURRENCY. among barbarian tribes of northern Europe. In passing through these various stages of development we have retained traces of each ; for instance, from our ancestors, the Norsemen, we get the names of the days of the week: Sonstag, the sun's day; Mondstag, the moon's day; Twigestag, Tuesday; Wodinstag, Wednesday; Thorstag, Thursday; Freyastag, Friday; names derived from their gods of war and of thunder and from their goddess of peace. In the savage state there is no trade. Savages do not have that idea. Piracy and plunder take its place. Stanley, found, after leaving the region of the trading negroes, in his voyage down the Congo, in 1876, that the savages had no use for a stranger but to eat him. In order to live he had to adopt the same tactics as they did and steal his rations as he went along, always leaving, however, some trinket which they would find when he was gone. This savage age, however, in the course of time unfolds and develops into the barbarian age. In the early period of barbarian life what there was of trade mani- festly was carried on by means of barter: three bows are exchangeable for the carcass of a deer; one plaited mat for a hollow gourd; a copper necklace for a slave, etc. I^ow, it can be seen that in this sai»age society some are by nature better adapted for bowmaking, fishing, hunting, and other pursuits than are others, and so are partly drawn, partly led into making the implements required for the chase, Ashing, and warfare, and from this primary differentiation of abilities arises a diversity of trades and occu- pations. Some are engaged in bow-making, some in hunting, some in fishing, others in building canoes and other work. This diversity of occupa- tion and specialization of industry which becomes more complex as the society advances necessitates that the laborers, in order to supply their daily wants, shall interchange the products which each group of workers produce for the products produced by other groups, and in this manner barter arises. But it soon comes to be discovered that there are certain articles, limited in quantity and either useful or ornamental, and probably the latter, for the ornamental invariably pre- cedes the useful, that are universally desired, and being universally desired are interchangeable for all other things in the colnmunity, and to these is thus given by common consent and daily usage the function of money, a mediu:n of intei'chauge and a measure of value. In such societies wainpum, cowry shells, glass beads, copper and brass rods and a host of such like articles constitute the money medium. But members of such communities living for the most part by hunt- ing and fishing soon exhaust the wild animals on which they live and are forced to domesticate them and provide fields where they may feed and protect them. Prom these causes, slowly and by insensible grada- tions, extending over long periods of time, the barbarian changes into the pastoral and this again into the agricultural type. Among peoples in this stage of development cattle and sheep con- stitute the principal money medium, although other articles are used m barter. In the Iliad (vii, 468), when the vessels of Lemnos bring wine to the Greeks : From Lemnos' Isle a numerous fleet lia.l come freighted with wine * ' ; * ^ « All the other Greeks hastened to purchase; some with brass and some with gleam- ing iron, some with hides, cattle, or slaves. BANKING AND CURRENCY. 489 In the Eig-Veda and the Zend-Avesta and in Homer the objects are valued at so many head of cattle. The arms of Dlomede are worth 9 oxen, and those of Glaucos 100. The prize to the wrestlers at the games given at the funeral of Patro(;hus are 12 oxen Minerva's shield, the ^gis, had 100 tassels, each valued at 100 oxen. Ihe tribute which the Frank conquerors imposed on the Baxons was reck- oned in oxen. The word "pecuniary" comes from pecus— cattle. Ihe Enslish word "fee" comes from the Saxon word feoh— cattle ; the bcan- dinavian "fa "—wealth, is identical with it. The Greek word xr.^/.a sig- n fles both property and a flock. The Gothic word "skatts" sigmfles treasure and a flock: "schatz" iu German is treasure; "sket" m San is cattle? In Hebrew, "kassaph" means both sheep and money ; " gamal" means camel and payment. The Sanskrit rupya, the Tpee of the Indian coinage, is derived from rilpa-cattle. The ancient Greek pieces of money used to bear the design of an ox, and the same is true of the Eoman os, a piece of bronze weighing about a pound. I wish to state in passing that the laws of price, before set forth, apply with equal force to this cow money and wampum money, etc., as to a 1 other kinds of money. It is easy to conceive that if the number of oLn in circulation in a country wa's largely increased they became relatively cheap and the prices of commodities rise; while to largely decrease the nilmber of oxen in circulation would raise their exchange value ilnd consequently lessen the prices of commodities measured m them. The use of otirrency, Says Aristotle, rgVt?li^Si ClTtl^'y set^f p upo, every coin as . max. of its value, to relitve themselves from tho trouble of weighing i*- Among all peoples and in all ages money has l^een_%f ^^ all a com^ modify limited in amount and esteemed by man and utilized by hmi as a medium of interchange and a measure of value. + ^ +i, ^ui. Tshalleive myself the pleasure, at some future time, to set forth with dist nctie's^ thTstory, hire simpV outlined of the histo^^^^^^^^ money leal economy. • i ^ ■„! And, however hlended and complicated with other social phenomena industrial evolution may he — Says Charles S. Ashley, no one who has ever fixed ^?y^Z:^:ri^^f^J^'&S.^f^^^ see how strikingly they revea themselves 1^^^^^^^ ^^^^^^ ^^^ feathers faintly dividesandagamdividesuntil head and nmo^ ^^ impelled by an appear, and finally the chick ^t^ps lorui s^ ^j^ig^g ^rmit the organizations indwelling force evolves f^r^ulw social wants, and also the functions they ?errm?rdThYp?o^c:rt"»y --• ^ ^ . ^ ^^. _^^ ^^.,,,,,, The human race duriug those many a^es have W^^^^ as money, and many others; ^^^^^ X |unction of money, and have SV'S.S\»e%t\wel™XU, . A., suite. 490 BANKING AND CURRENCY. for that function, whence it results that by a process of natural selec- tion and elimination the leading nations of the world for many centuries prior to 1873 had discarded all material as money save two, gold and silver. England, it is true, had discarded silver in 1816, but by reason of her isolated position and scant population in comparison to that of the then commercial world, this movement had no great effect upon the relative value between the metals. When, however, Germany closed lier mints to silver in 1871 and 1873, thus forcing other continental nations to follow, the divergence began to be marked and has grown more marked as time progressed and as silver was dropped by one nation after another. This divergence of relative value between the metals by some is looked upon as a decline in the value of silver, by others as an advance in the value of gold. It is perfectly clear that the gold price of silver has declined in the last twenty years, but it is also as clear that its value has not declined, as an ounce of that metal will exchange for as much wheat, cotton, minerals, etc., as ever it would, as will be shown later on. On the other hand, it is clear that the gold price of gold has not changed, because that would be impossible, but that, nevertheless, the value of gold has largely risen, for a dollar of it will now exchange for more cotton, wheat, meats, minerals, etc., than ever it would. The distinction between value and price, usually confused, is here clearly shown. Senator John P. Jones, of H"evada, in his remarkable speech deliv- ■ered in the Senate in October, 1893, says : We are, however, able to show that at various times during the prooress of the fall of prices, but prior to the looming up of the silver question, the cliange that •was tatmg place was attributed, even by champions of the gold standard, to the insufflcienoy of the monetary supply. In fact, before the fall began it was by some writers foreseen as a danger lurking in monometallism. Before any nation of Europe thought of imitating the example of ■Oreat Britain by going to the gold standard. Prof Stanley Jevons expressed his sense of the danger of a rise in the value of money which would be incurred by such a movement. Ko man then living was bet- ter entitled to be heard on any subject relating to money, his researches having placed him in the first rank of investigators and economists. Writing to M. Wolowski, the eminent French economist, in acknowl- edgment of a tract on the subject of money on the 12th of January, 1868, Prof Jevons said : As regards the theory, I feel strongly in what an admirable manner you have set forth the principles of the so-called " double standard," and the danger we might Tun ot a rise m the value of gold were silver entirely demonetized. Knowing the hopelessness of any movement to induce the creditor glasses among his own countrymen to replace the gold money of Great Britain by silver, yet seeing that if other nations should demonetize sil- ver the value of gold would rise, Prof Jevons in his communication to Wolowski added: Yet, it is only by a more or less replacement of this kind (a replacement of silver for gold m Great Bntam) that a rise in the value of gold would be prevented. (Investigations into Currency and Finance, p. 320.) In an article in London Economist of May 8, 1869, Prof Jevons said: ing thi°u8e\^f *oiY^°^*'' °^ population and trade tends to lower prices by increas- Of course in the term "use of" Mr. Jevons included "demand for" •as an increased use involves an increased demand. In 1871, two years before the demonetization of silver, Ernest Seyd BANKING AND CURRENCY. 491 made a prediction regarding the effects that would follow demonetiza- tion, which, in the light of subsequent facts, must be deemed nothing ess than remarkable. He said : It is a great mistake to suppose that the adoption of the gold valuation by other states besides England will be beneficial. It will only lead to the destruction of the monetary equilibrium hitherto existing, and cause a fall in the value of silver from which England's trade and the Indian silver valuation will suffer more than all other interests, grievous as the general decline of prosperity all over the world will be. The strong doctrinism existing in England as regards the gold valu- ation is so blind that, when the time of depression sets in, there will be this special feature: The economical authorities of the country will refuse to listen to the cause here foreshadowed; every possible attempt will be made to prove that the decline of commerce is due to all sorts of causes and irreconcilable matters. The workman and his strikes ^\t.11 be the first convenient target, then speculation and overtrading will have their turn. Later on, when foreigu nations, unable to pay in silver, have recourse to protection, when a number of other secondary causes develop themselves, then many would-be wise men will have the oppor- tunity of pointing to specific' reasons which in their eyes account for the falling off in every branch of trade. Many other allegations will be made totally irrelevant to the real issue, but satisfactory to the moralizing tendency of financial writers. The great danger of the time will then be that, among all this confusion and strife, England's supremacy in commerce and manufactures may go backward to an extent which can not be redressed when the real cause becomes recog- nized and the natural remedy is applied. ADMISSIONS OP ME. OIFPEN BSPEOIALLT. Among the most doughty of the champions of the gold standard and most determined opponents of bimetallism stands Mr. Eobert Gifien, statistician to the London Board of Trade. His writmgs constitute the very arsenal from which all the advocates of gold monometalhsni draw ■ their ammunition. Hence I shall be pardoned for quoting him freely. Before the silver question became the burning question that it now is, Mr Giffen put himself on record with reference to the cause of the baleful fall of prices. He declared that the cause was continuing and persist- ent, and one from the uninterrupted action of which a continued and progressive fall of prices was naturally to be expected. He shows that there was need for an increase, not a decrease, of money, if prices were to be maintained firm. „ -r n • t i arm In a paper before the Statistical Society of London, m January, 1879, Mr. Giffen said: There is a sreneral agreement that during the last few years there has been a heavy ihere is a S^'i^^^^g;"?,'^'; . ^ i^ price which cripples the weaker borrowers and fall in puces. It ^^ "fjf *r^ 'f^P^J,^ of loeses by which stronger borrowers are causes bad debts ^,^;;^^^^^f^^ii^,?;''|Vioes^ and more bad debts and losses are 'ZXleTKtn^lZif^^^jS^^^^^^ as are now declared, therefore, wemay he rrethat'they are preceded and accompanied by a heavy fall m prices. In discussing in the same article the question of the msufaciency of the anmial current gold yield to meet the monetary wants of the world, Mr. Giffen says : . It is.a moderate oal^Uatio^i f^at J^ -1^ ,^^^^ '^f:^Tlf:vr^:^''^i^TZ2IZ^a\ at lelst three times what they were, assuming prices to remain in equilibrium. 492 BANKING AND CURRENCY. But, he adds : While during the last thirty years the annual yield of gold has been falling away from its first superabundance, the current demands for the metal have certainly been growing with marvelous rapidit.y. JSTow, observe his next statement. Speaking of the extraordinary demands made by the addition of Germany and the United States (upon resumption of specie payments) to the list of gokl-standard countries, and the practical inclusion of France in the same list, he says of these new demands : They have been supplied very largely by a continued pressure upon existing stocks till an adjustment has at length been made by a contraction of trade and fall in values. Eeferring to the mode in which an insufflciency of money -would express itself, Mr. Giffin proceeds : The way a scarcity or abundance of gold would tell upon the money market would be by producing monetary stringencies and periods of temporary difficulty and dis- credit, by which, perhaps, the tendency to inflation in prices at one time would be checked and the tendency to depression at another would be aggravated. The average rates over the whole period when these stringencies were occurring might be lower than at times when they were fewer, but the mere fact of successive strin- gencies would help to produce the effect described on prices. Now, the course of the money market since 1871, when the German Government began to draw gold from London, has been full of such stringencies. The crises of 1873 and 1875 were no doubt i)recipitated by them; and since 1876, in almost every year except 1879 and 1880, there has been a stringency of greater or less severity directly traceable to or aggravated by the extraordinary demands for gold and the difficulty of sup- plying tiiem. Looking at all the facts, therefore, it appears impossible to avoid the conclusion that the recent course of prices, so different from what it was just after the Austra- lian and Californian gold discoveries, is the result in part of the diminished produc- tion and the increased extraordinary demands upon the supply of gold. In a paper of Mr. Giffen's, read before the Statistical Society of Lon- don in December, 1888, published in the journal of that society for that month, he said: We can say positively that the recent change from a high to a low level of prices is due to a change in money, of the nature or in the direction of absolute contrac- tion. And after showing the extremely slight additions that had been recently made to the stock of gold, he said : The stock with additions has had to do more work, and it has only been able to do 80 because prices have fallen. In the same paper, speaking of the effects of this insufficiency of gold, he said : It is obvious beyond all question that these efl:"ects may be important. The debt- ors pay more than they would otherwise pay, and the creditors receive more. The matter is thus not unimportant to the two large classes of people who make up the community. Appreciation is a most serious matter to those who have debts to pay. It prevents them gaining by the development of industry as they otherwise would. PROF. JEVONS AND MR. GOSCHEN. So well convinced was Prof. Jevons of the injustice of gold as a stand- ard for deferred payments that in 1875 he wrote of it: It should cease to be the permanent standard value because, as I have explained in chapter 25 (of Money and the Mechanism of Exchange), long enduring debts and transactions will be regulated by the tabular standard of value, the amounts of debts, althoug.: r.; ressed in gold, being varied inversely as gold varies in terms of other commodities. BANKING AND CURRENCY. 493 Discussing the effects on prices of an increased demand for gold tlie same writer in an article in the Contemporary Eeview for May, 1881, says: It stands to reason, of course, that if several great nations suddenly decide that they will at all costs have gold currencies to be coined, in the next few years the annual production can not meet the demand which must be mainly supplied, if at all, out of stock. The result would doubtless be a tendency to a fall of prices. And after referring to the gold stock in Great Britain, and consider- able gold fields of the British colonies, he added : If these foreign nations insist upon having gold currencies, they must pay our price for gold, and they mxist, in raising the price, benelit us and our colonies. In 1883 Mr. .Goschen, afterward chancellor of the excheqirer of Great Britain, read a paper before the Bankers' Institute of London on the "Probable results of an increase in the purchasing power of gold." After showing that within ten years an enormously increased demand had arisen for gold, and that in that time Germany, the United States, Italy, and Holland had absorbed $1,000,000,000 of it, Mr. Goschen said: Economists will accordingly ask themselves what result, if any, is such a phenom- enon likely to have produced? I think there is scarcely an economist but would answer at once, " It is probable, it is almost necessary, it is according to the la,w3 and the principles of currency, that such a phenomenon must be followed by a tail in the prices of commodities generally." Just as a large amount ot gold poured into Europe in 18.52 and subsequent years created a rise in prices, so the counter phenom- enon must produce a fall. And at the same meeting of the Bankers' Institute at which Mr. Goschen's paper was read, Mr. Giffen stated that if the supply of new money were not sufficient to maintain the equilibrnim between demand and supply— considering the increase of population and wealth- then we may have a long-continued fall of prices from generation to generation, and this will probably have a very great effect as time goes on. PEOF. ROGERS AND GEN. WALKER. The total insuffloiency of gold for the monetary purposes of the world, considering the unequaled extension of industry and commerce, is emphasized by Prof. Thorold Eogers, in an article m the Princeton Review for January, 1879. . ij r i „ cot^c. Speaking of the " rapid rise in the economic value ol gold, he says . The fact has been commented on with considerable but unequal &/««^y f • ^ave- leye, in a recent number of the Revue des Deux Mondes, r^l^^^^^^i^^l''S«i; ?°Vto good grounds, that the annual produce of this metal is not more than suthcient to cover the annual wear and tear of the currencies. And he adds : ,,14.1. Unless we are to assert that the --!-«« "^ g^J^ '^"'i ^^^,^^/tLTLmand it must demand which exists for them and the means for f'"PPly;;°f that demand^ it must follow that a large demand brought to bear ou a limited supply will attect the values of those precious metals, and through them lower prices. Writing in 1879 of the effects of demonetization of silver ouxleadmg American economist, Prof. A. Walker, now president of the Massachu- • setts Institute of Technology, said : The second immediate consequence of ^\.^^ZT^JZZt'<^'t^X ^-^l aU enhancement of the purchasing power of gold, now !«" ^hrougnou^ pie^ > Europe to perform the whole office of money ^l^i?!^; XrTavfnVlee^'^^^^^ out of money mass composed both of gold and silver The latter ha^mg bee ^^ ^^^_ its use as full-valued money, and emitted to the purposes 01 sm*| ished to the East, the value of the former has by a necessary conseque 940 3 494 BANKING AND CURRENCY. greatly, even in tlie few years that have intervened since this disastrous act was accomplished. The eifect upon industry and trade of a diminishing money supply in enhancing the burden of debts and fixed charges, and in disparaging the profits of business and hence reducing the motives of production, have been discussed so much at length that we need only inquire here as to the fact. Two notable pieces of testimony on this subject have been given to the public within the past few weeks. In an article in the January number of the Princeton Review, Prof. Thorold Eogers, of Oxford, in discussing the causes of the present general disturbance of commerce, writes as follows : The first cause in importance, the most general, and in all probability the most enduring, is the rapid rise in the ecouomical value of gold. While the area of civilization is widening and, therefore, the demand for an ade- quate currency is being extended, the most populous state of Europe has abandoned a silver for a gold currency, and has had, as a fruit of a successful war with France, an exceptional power of attracting gold to itself, with singular snceess indeed, to the incredible misfortune of its people. Germany has eft'ected a monetary revolu- tion on the grandest scale, and has beggared its own industries. Taking into account the growing intercourse of civilized nations, and particularly the sensitiveness which they feel at any event which may check the activity or derange the machinery of trade and production, it appears that at no time has the drain on the existing stock of gold been so sharp and rapid as at present. On the 28th of December the London Economist, in a remarkable article on the causes of the present depression of prices, which that journal finds to be greater than after the panic of 1857 or that of 1866, gives as the principal causes the fol- lowing : First. There has been a diminution in the supply of gold. Second. There has been a marked increase in the demand for gold. The effect of the adoption of a gold standard in Germany, as well as in some other European countries of minor importance, has been, as we have clearly seen, to depreciate the value of silver, measured by a gold standard, in an extraordinary manner. Large masses of silver have been demonetized and thrown upon the market. But, on the other hand, large masses of gold have been required to take their place, while, as has been shown, the supply has been actually diminishing. Ml. Courtney says : It is a dream to sujipose that gold is stable in value. It has undergone a consider- able appreciation in recent years, and industry and commerce have been more ham- .pered by its movement than they would have been had silver been our standard. Whether the appreciation will be maintained undiminished is uncertain, but every step taken toward the further demonetization of silver must tend to the enhance- ment of the value of gold. A comparison of the range of prices for wheat and cotton and the gold price of silver bullion for the past twenty years will demonstrate a much more than accidental relation between them. The following table gives the flgnres : Year. Wheat per bushel. Cotton per pound. Silver per ounce. Year. Wheat per bushel. Cotton per pound. Silver per ounce. 1872 $1.47 1.31 1.43 1.12 1.24 1.17 1.34 1.07 1.25 1.11 1.19 Cents. 19.3 18.8 16.4 15.0 12.9 11.8 11.1 9.9 11.5 11.4 11.4 $1.32 1.29 1.27 1.24 1.15 1.20 1.15 1.12 1.14 1.13 1.13 $1.13 1.07 .86 .87 .89 .85 .90 .83 .85 .80 .65 10.8 10.5 10.6 9.9 9.5 9.8 9.9 10.1 10.0 8.7 7.0 $1.11 1 01 1873 • 1884 1874 1885 1 06 V875 1886 99 1876 1887 97 1877 93 1878 1889 93 1879 1890 1 04 1880 .90 1881 1892 86 1882 75 BANKING AND CUKEENCY. 495 Index numbers shoiving the downward trend of wholesale prices, not in one class of com- modities merely, but in all classes of commodities from the year in whioli silrer was demon- etized. Year. Vegeta- ble food (wheat, etc.). Animal food (meat, etc.). Sugar, conee, and tea. Total food. Miner- als. Tex- tiles. Sundry mate- rials. Total mate- rials. Grand total. 106 105 93 92 100 95 87 89 84 84 82 71 68 05 64 67 65 65 75 109 103 108 108 101 101 94 101 101 104 103 97 88 87 79 82 86 82 81 106 105 100 98 103 90 87 88 84 76 77 63 63 60 67 65 75 70 71 107 104 100 99 101 96 99 94 91 89 89 79 74 72 70 72 75 73 77 141 116 101 90 84 74 73 79 77 79 76 68 66 67 69 78 75 80 76 103 92 88 85 85 78 74 81 77 73 70 68 65 63 65 64 70 06 59 106 96 92 95 94 88 86 89 86 85 84 81 76 69 67 67 68 69 69 114 100 93 91 89 81 78 84 80 80 77 73 70 67 67 69 70 71 68 Ill 1374 102 1875 96 96 94 1878 87 83 1880 88 1881 85 84 1883 82 1884 76 72 1886 69 68 70 1889 72 72 1891 72 Note.— The foregoing are the tignres of Mr. Augustas Saner lieck, published by the Koyal Statis- tical Society of Loudon. The average prices of ten years (1868 to 1877) are taken as 100, and upon that basis the tigures given above for the separate years result, showing a persistent decline of prices m every department of industry. Adam Smith in liis Wealtti of Nations (book 1, chapter 5), says: Gold and silver, like every other commodity, vary in their valne. The discovery of the abundant mines in America in the sixteenth century reduced the value of gold and silver in Europe to about one-third what it had been before This revo- lution in their value, though perhaps the greatest, is by no means the only one of which history gives some account. And again he says : Increase the scarcity of gold to a certain degree and the smallest bit of it may become more precious than a diamond. Prof. Prances A.Walker (Money, p. 210) says: Gold and silver do, over long periods, undergo great changes of value and become in a high degree deceptive as a measure of the obligation of the debtor and the claims of the creditor. Thus Prof. Jevox estimates that the value ot gold fell between 1789 and 1809 46 per cent; that from 1809 to 1849 it rose 14,'5 per cent, while in twenty years after it fell almost 20 per cent. Jevons, in his Money and Exchange, says: We are too much accustomed to look upon the value of gold as a fixed datum line in commerce, but in reality it is a very variable thing. The effect which this advance in the value of gold is having upon the people of Ireland is well summed up by Archbishop Walsh, of Dublin In an interview originally printed in the Dublin Freeman's Journal, and since published in a pamphlet entitled Bimetalhsm and Monometallism, Archbishop Walsh says : Here is where the difdculty comes in. In all such ca,se8 the farnier is under the ohlio-itiou of navine year after year an amount speoihed m pounds, shillings, and pence But thenSent, or other annual payment which he has to make, although FtTs thus specified in amount, is really increasing-that is to say, becoming more 'TfbTnrt^eTaJtTto/p:int,it comes to this, that year after year more coru more hay, more cattle, have to be sold by the farmer to enable him to get the gold which is required to meet that annual payment. But, of course, if he has not more corn, more hay, more cattle to sel he can not, out of what he has to sell, get enough to enable him to make that payment. 496 " BANKING AND CURRENCY. And, plainly, the longer the term for which his " fixed " annual payment has to he made, the more disastrous must be the results to him. ■ As for the tenant purchaser, he probably thinlts tliat, after the extra pressure of the first few years, he may look back to easy times for the rest of his life. He little knoTvs what is before him. If things go on as they are, it will be harder for him ten or twelve years hence to pay £40 a year than it would be for him to pay £50 a year now. But of all this he knows uothiny. How could he? His only idea is that a pound is always a pound, a sovereign is always a sovereign. So in the belief that the yearly payment, when it is reduced to £40 will be well within his reach, he puts his head into the halter. Again he says: The adoption of bimetallism or some similar remedy, if there be a similar remedy, is, I am convinced, a matter of imperati\'e necessity — that is, if the agricultural tenants of Ireland are not to be driven to inevitable ruin. At the Brussels conference Mr. Alph Alhird, delegate from Belgium, said: The crisis, which has been carefully observed by you for so many years, shows itself more particularly in the fall of price, which acts on agriculture, manufactures, and the commerce of all nations. It is produced by the increase in the value of gold, by what it is agreed to call the appreciation of gold. Mr. McCreary, delegate of the United States, said : The annual production of gold in the world was, in the year 1890, $120,000,000. If from the world's annual product there is deducted $60,000,000, which, according to Mr. Burchard and Dr. Soetbeer, is the annual consumption of gold in the arts and manufactures, there remain but $60,000,000 as the annual net product of gold for monetary purposes. I presume no candid and well-informed person will claim that this amount is .sufficient to meet the increasing demands of the world. Mr. Goschen asks: If all States should resolve on the adoption of a gold standard, would there be sufficient gold for the piirpose without a tremendous crisis? Mr. Van Den Berg, delegate of the Netherlands, said : I can not conteuiplate the future without terror if we persevere in the path which Europe has unfortunately entered, by abandoning aud proscribing silver and by relying upon gold alone for international exchanges. Universal monometallism is an unattainable Utopia. Sir William Houldsworth said: I was a member of the Royal Commission on the Depression of Trade which sat in 1885 and the gold and silver commission which sat in 1887-'88. These five definite conclusions were arrived at in 1885 : (1) Th.at the depression dated from the j'ear 187.3 or thei'eabouts. (2) That it extended to every branch of industry, including agriculture, manu- factures, and mining, and that it was not confined to England, but had been experi- enced to a greater or less degree in all the industrial countries of the world. (3) That it appeared to be closely connected with the serious fall in general prices, which even then was most observable, though it has since been more strongly marked, resulting in the diminution — in some oases even the total loss — of profit, and conse- quent irregularity of employment to the wage-earners. (4) The duration of the depression has been most unusual and abnormal. (5) That no adequate cause for this state of things was discoverable unless it could be found in some general dislocation of values caused by currency changes, and which would be capable of aft'ecting an area equal to that which the depression of trade covered. The second commission confirmed the findings of the first commission in every particular aud in addition revealed — ' the serious consequences which had resulted from the destruction of that par of exchange between gold and silver which had practically existed for seventy years before 1872, and the disruption of which had dislocated and embarrassed trade between gold and silver using countries and turned legitimate commerce into little better than gambling. BANKING AND CURRENCY. 497 111 conclusion be said : Let us see if tliose are right who say there are no great evils impending npon the world from the disuse of silver as a standard of value? If in the next eighteen months we are not wise enough to adopt a scientific monetary system for the world's commerce the logic of events will, I believe, force that svstem upon us at later date. Sir Guilford L. Moleswortli, delegate of Britisli India, said : It is absurd to suppose that a revolution of the character could have affected gold prices so seriously and yel; should have left silver prices iinafCected. Silver is the standard of value of more than half the world, yet silver prices have remained stable, whilst gold prices have fallen from 40 to .50 jier cent. AVhilst shutting their eyes to these facts the advocates of such a theory (that improvements in machinery have caused the fall) are also blind to the following facts: (1) That the depression which has occurred is a necessary consequence of the suspension of the free coinage in silver in France and was predicted (by Ernest Seyd), and the prediction has been fulfilled to the letter. (2) That since 1871 the poijulation demanding gold has quadrupled, and the for- eign trade demanding gold has trebled. (3) That the demonetization of silver for internatioual monetary purposes in Europe has caused gold to perform single handed the work previously done by gold and silver combined. (4) That the annual supply of gold scarcely exceeds the amount required for indus- trial purposes. It follows, as a necessary consequence of these facts, tljat with the increased demand for gold its value must rise, or, in other words, gold prices must fall. I repeat " it is gold that is sick, not silver." The honorable delegate submit- ted a chart showing the ap])re- or experience, sought to establish a double standard of giving to gold coin and silver coin equal legal currency in payments, whatever might be the amount of the debt. When Mr. Kuggles said that in regard to the use of both gold and silver the fathers were less enlightened than he was, he evidently did not have in mind the statement of Alexander Hamilton that — To annul the use of either of the metals as money is to abridge the quantity of cinnlating medium, and is liable to all the objections which arise from a compari- son of the benehts of a full with the evils of a scanty circulation. BANKING AND CUREENCY. 499 Or, if Mr. Rug-gles intended to say that tlie framers of tlie Coustitu- tion were less enlightened than he as regards the point of the variability of the metals, he was again mistaken, for Secretary Hamilton declared — that if tlie unit belong indiscriminately to both the metals it is subject to all the fluctuations that happen in the relative value which they bear to each other. Thomas Jefferson declared the same thing. Eobert Morris was equally explicit to the same effect, and followed up his declaration with the remarkable statement — that if this (i. e., the variability) can not be overcome we must not allow it to pre- ponderate, for it weighs alike against every other metal. As 1 was saying, this conference of 1867 was distinctly a gold con- ference and unanimously declared itself as such. From this interchange of purely gold sentiments at this conference arose, I tliink, the causes of the demonetization of silver by Germany in 1871 and 1873, and by the United States in 1873. These events occurred and time, that test of truth, rolled on. Shortly it was discovered that a mistake had been made. The United States was the first to discover it. They found that they were not quite as enlightened as their representative . had supposed, and that the Constitution of the United States after all was something more than a schoolboy's essay. This mistake was realized by the United States and the conference of 1878 was called on August 10 of that year. The governments of Europe were invited— to join a conferenee to adopt a common ratio between gold and silver for the purpose of establishing internationally the use of bimetallic uioney and securing iixity o± the relative value between those metals. Twelve couutries were represented. At the second session the United States presented the proposition — that the use of both gold and silver as unlimited legal-tender money may be safely adopted; iirst, bv equalizing them at a relation to be fixed by mternational agree- ment ; and, secondly, by granting to each metal, at the relation fixed, equal terms ot coinage. Mr. Pirmez, delegate of Belgium, declared— that the country which he had the honor to represent could not do otherwise than reiect this proposition. To remove the restrictions to which silver was subjected m those countries of the Latin Union which have the metallic circulation would have for its immediate result to give enormous profits to .speculators in the metals, hy enabling them to withdraw gold and replace it with silver in the circulation. Dr. Broch, delegate for Norway and Sweden, maintained that if a ratio between gold and silver should be adopted and fixed mternation- ally, the oscillations which, in spite of this purely conventional relation must take place in their real values, and the fluctuations of the metal in circulation, must cause frequent perturbation m foreign trade. It the bimetallic system by some impossible combination of circumstances should be extended in Europe it would bring about the disappearance of gold. Mr. de Thoerner, delegate of Eussia: " In order to prove how difficult it was by means of laws and convenTional action to nrodiice an effect in opposition to natural forces," cited the experience ot Kussia in r'egtd toVe coi^cideVt circulation of gold and silver, ill-?,^-*-^ ^^^^^'th: ver^ will-known law of Gresham, and said "these facts prove how opposed to the ^ery Iture oflhing^ it is to endeaVor to establish a fixed relation between gold and silver. Mr Feer-Herzog, delegate of Switzerland, did not think that a fixed ratio could be advantageously established between t^e values of two metals which the chance of production and the accident of "'teinationa commerce were constantly modifying. As to the political possibility ot 500 BANKING AND CURRENCY. establisMiig an international double-standard system lie denied it entirely, independent of these impossibilities of a j^olitical order were those of a commercial nature. The precious metals were used in the manufacture for jewelry, watchmaking, etc. This industrial demand, varying according to times and circumstances, ATOuld produce varia- tions in the price of the merchandise, and this would aft'ect the mint receipts. The fixity of value between gold and silver was therefore absolutely impossible. All the governments together, with their united eiforts, could not struggle against the force of events. Mr. Primez, delegate of Belgium, said: Let me dwell upon the fundameutal error which suggested the measure which has been proposed. The error is in the belief that it appertains to governments to call value into existence. Governments have an almost unlimited power in preventing the creation of values or in destroying them. They are powerless to create or pre- serve those which are disappearing. By measures which are restrictive of liberty, by clumsy interventions, they may arrest the development of wealth ; they are with- out power to decree it. The law'may factitiously bring nearer to each other the value of gold and that of silver by fixing an arbitrary relation between them, but the sum of the two values will remain the same. Mr. Goschen has explained to us the position of India towards England, and the difficulties which have been caused by the fall of silver. If the ideas I am combat- ing were sound, England would have a very simple means of putting everything right. Let her make the rupees a legal tender in England at the relation of 1 to 15^; they would immediately rise, and the exchange of London on Calcutta would approacli par. Why does she not do it* Because she knows too well that she would be paying herself with a vain appearance and that what the rupee would gain the pound sterling would lose. The influx of rupees in England would drive out the sovereigns. This suggestion of Mr. Primez, made in 1878, was tried by the India council in 1893, which tried to fix a minimum par of exchange at 15^^, for council bills and failed, thus justifying this view set forth by Mr, Primez fifteen years ijrior to that time. Mr. Primez continues : If England fancied that the fixedness of exchange saved her the loss she now undergoes, she would be like the merchant who is handed a piece of cloth which is too short and who declares himself satisfied, because, having had the ingenious idea of shortening his yardstick, he fancies he has received what was due him. Take other cases and you will always have the sameresult. Never will you arrive either at increasing a value or at preserving it contrary to economic facts, because from them alone is value derived. Bur, will the grand federation of governments at last have succeeded in substitu- ting for the moving waves of natural relations of value the calm surface of an invariable artificial relation? It will have bound the two metals by the strongest lin'.; which laws can form, but will that link always keep them at the same distance! No, not even that. It will very soon be perceived that that link can contract or expaud ; th,at it is only, if I may venture to say so, of India rubber, and that it will leave them suf6cient play to separate and break the dreamed-of harmony. The two metals will not have the same va.ue in dift'erent countries. The silver- pi educing countries, where silver consequently will be the most plentiful, will be the first where gold will disappear; these countries will have a silver currency before the others. The countries, on the other hand, where there is a considerable produc- tion of gold will be the last affected. Speculation will first withdraw the gold from all the countries where it is worth most. We shall then, for example, see the United States have only silver money and Australia have only gold money. The uniformity thus pursued will still escape. This being the case, there will be no fixed par of exchange. If the discrepancy between the two metals be circumscribed within certain limits, it may be afBrmed that, within those lijnits and by reason of the immense speculation which will arise from the option of substituting one for the other, thanks to the legal ratio, the fluctu- ation will be more frequent than ever. This substitution will be a long operation, but if the ratio be commercially false — and it will be false because it is this very- falsity which is to rehabilitate one of the metals — the other metal will gradually withdraw from circulation; it will find greater use in industrial and artistic con- BANKING AND CURRENCY. 501 sumption; it will be sought by those who make hoards, and will end by being at a premium. This is what would happen ; The grand alliance of all nations, after casting mone- tary relations into an unprecedented crisis, would lead only to a complete defeat, because it would have attempted to struggle against economic laws aa invincible as the forces of nature. Sir Thomas Seccombe, delegate of England, said : As to the establishment by an international agreement of a fixed ratio between gold and silver, he thoiight the discussion had clearly demonstrated that this meas- ure could not be classed among practical questions. Mr. GoscLen said:- 1 believe that it would be a great misfortune if a propaganda against silver should succeed, audi protest against the theory according to which this metal must be excluded from the monetary system of the world. As to the desire which has been expressed that the hope be left open that some day a fixed relation may be estab- lished between gold and silver and an international value given to them, the English delegate declared " that in his view it was impossible to realize this, impossible to maintain it in theory, .and that it was contrary to the principles of science." At the conclusion of the conference the delegates of the European states expressed their sincere thanks to the Government of the United States for having called the conference, and declared that while it was necessary to maintain in the world the monetary functions of both gold and silver, "that the differences of opinion which have appeared exclude the discussion of the adoption of a common ratio between the two TTlfl'Jlls The propositions of the United States were ably presented and defended by Gen. P. A. Walker and S. Dana Horton, to whom his countrymen will forever be indebted for his compilation of papers relat- ing to monetary questions which were included in the report of the monetary conference of 1878. Said Mr. Walker : Whether the money supply of Europe and America would be reduced by the completion of the movement initiated in 1871 to the extent of 30 or 20 per cent, the consequences could not but be most disastrous. Suflbcation, strangulation, are words hardly too strong to express the agony of the industrial body when embraced in the fatal coils of a contracting money supply. Mr. S. Dana Horton contended that it was to the commercial interest of the several states that a Hxed ratio with free mintage should be established, and thatthe welfare of mankind demanded it. These views, however, had no practical eflfect upon the conference, and it adjourned. The third international monetary conference met in Paris on April 19, 1881. It was called by the governments of France and the United States "to examine and adopt, for the purpose of submitting the same to the governments represented, a plan and a system for the establish- ment, by means of an international agreement, of the use of gold and silver as bimetallic money, according to a settled relative value between those metals." ^ ^i ^x,- j. n- Dr. Broch, of Norway, again informed the conference that bimetallism was a political impossibility. n ^ n . . ^ Eduardo Primez, of Belgium, again stood up and told the conference that the proposition presented was illogical in principle. He said : Even if this conference were given full powers of action in the names of the nations represented here ; even if the nations not represented here were summoned ; even if this conference were intrnsted ^it^^ t.li^^^«°i"*^ ^'S^* f, l^"''l',^,"S^^^^^ in visiting with the severest penalties those infringing tbe bimetallic law neverthe less, if it^pretended to decree the respective value ?{SO^'^''f^f':''l^'^Z'^ utterly powerless, for the arbitrary is not able to resist the nature of things. 502 BANKING AND CURRENCY. Mr. de Tlioemer, of Eussia, said : Bimetallists are right in desiring the circulation of the two metals, but they are wrong in desiring arbitrarily and by decree to give an immutable value to silver. Monometallists are wrong in desiring to drive silver altogether out of the monetary market, but they are right in exclaiming against the pretension of their opponents to regulate the mutual relation of gold and silver. Said Count Rasconi, of Italy: To sum up, gold is not sufficient. The monetary condition of the world causes serious discjuietudes. To proscribe one of the two metals would be tantamount to abolishing money and turning the course of mankind three thousand years back. Mr. Porssell, delegate of Sweden, asked : Now, the bimetallic treaty once concluded between the principal states, standing back to back to bear the burden, what guaranty is to be offered to us that the prac- tice would always, or ever, be in conformity with the stipulations of the treaty! What guaranty — to cite, among others, the most conclusive case — what guaranty against the sudden and forced adoption by two, three, or four of these states of the paper-money system? What guaranty against a recurrence of those political crises which these monetary cataclysms have already made them all successively undergof Count Elscoxi. Will Mr. Pirmez kindly answer one word — What is money? Mr. Pirmez. It is merchandise, but merchandise weighed and verified by the state. Count Euscoxi. If the conference makes that declaration all debate is certainly at an end, anil the law of bimetallism and of the ratio becomes absurd and impos- sible. After holding thirteen sessions the conference failed to come to any agreement as to the means of realizing the object for which it had been called, and adjourned to meet at a later date, but did not meet again. The fourth international monetary conference met in Paris in Octo- ber, 1889. It had no offlcial character, and, its members failing to agree u])on any solution of the silver question, adjourned. The fifth annual international monetary conference met in Brussels on November 22, 1892. It was called by the President of the United States, who invited the governments of Europe to send delegates "to consider by what means, if any, the use of silver can be increased in the currency systems of the nations." Twenty countries were repre- sented. After holding nine sessions it failed to come to any agreement as to the means of realizing the object for which it had been called, and adjourned to meet on May 30, 1893. The Hon. Henry W. Cannon, delegate from the United States, pre- sents his conclusions as to the results of the Brussels conference as follows : While the declarations and statements made by the different delegates to the con- ference from the several couotries represented are of the greatest importance and value to the people of the United States in their consideration of the silver question, nothing definite was accomplished, and we are forced to the conclusion, from what transpired, that an international bimetallic union can not be formed nor an inter- national bimetallic agreement fixing the ratio between gold and silver entered into unless a great change occurs in the ]iublic sentiment of Great Britain, whose posi- tion in the conference is indicated by a statement of Sir Rivers Wilson, who declared: "Our faith is that of the school of monometallism, pure and simple. We do not admit that any other system than a single gold standard would be applicable to our coun- try." This statefneut has recently been confirmed by the utterance of Mr. Gladstone in Parliament. Upon the action of England apparently depends the action of the majority of other countries. M. Tirard, delegate from France, who has since become the minister of finance of that country, declared himself opposed to any bimetallic agreement unless it included Great Britain, Germany, Austria, and Russia. Belgium, Italy, and Greece annoirnced that they were of the same BANKING AND CURRENCY. 503 mind. Germany, Denmark, Sweden, Norway, and Switzerland declared that they proposed to remain on a gold basis, and Austro-Hungary also stated their intention to abide by the gold standard, which they are in the course of adopting. The Netherlands, Spain, and Mexico were ready to join in a bimetallic union, provided Great Britain would unite. No declaration of policy was made by Russia or the Eoumanian Government, although iutimating that they did not consider bimetallism a practical policy, and Turkey and- Portugal expressed no opinion. Under these circumstances it is evident that unless our executive and the principal members of our national legislature are willing to agree to some proposal or policy looking to the purchase of silver bullion and the issue of notes against the same by the other nations in conjunction with our own country, nothing can be accomplished at the adjourned meeting of the international" conference. As heretofore stated, it is evident that no agreement iixing a ratio between gold and silver can possibly be arrived at at the present time, and it is useless to continue to discuss bimetallism. At this conference Alfred de Rothschild said : Apart from other considerations, it seems to me impossible to come to an nniversal agreement in respect to a general currency qnestion, as no two countries are aiifce as regards tlieir individual wealth, resources, and expenditures. Mr. Raffolovich, delegate of Russia, said : I still indorse the opinion of Mr. de Thorner, that it is contrary to the nature of things to establish a fixed ratio betweeii gold and silver. Nothing which has hap- pened since 1878 has induced me to modify it. Mr. Cramer Frey, delegate of Switzerland, said : At present, as in 1878 and in 1881, Switzerland continues to consider it as a fixed principle of her monetary policy that there should not be two standards or two measures of value. Mr. Weber, delegate of Belgium, said: The losses which might result from the breaking up of the Latin Union, of which, however, at present, there is no indication, are calculable, whereas the losses whicli might accrue to the next generation from an internati_onal '''S^?«'"'^°*Xrnntfo,7al have in view are incalculable. Who dare to prophesy the condition of/°t«™^tional affairs, the condition of Europe and of the world, when the term of t^e interna- tional monetary conference runs out? After twenty or t^/^ty-fiyty.'f r^' \t\?'°^i able duration of such an agreement, who will be the creditors and who the debtors? No one knows. Mr. Tirard, delegate of France, said : This is in truth a difficult undertaking Peoples already f^^^ advanced ^ "j^^'li^;^^ tion have habits customs, and laws which are adapted to their traditions. Ihey aie not applfed in an arbitrary fashion-they are bound up with the very conditions of the existence of these peoples. Hans Forssell, delegate of Sweden, said : I sunnose however, that men of practical statesmanship will aim at the most that is nSle to obtan namely, a union of all the American and European states hav- nra metallic circuLaUon. It would never be possible to include either states with nanerTandard 01 the s^^^^^^^ states of the East. They console themselves F,Xcra"that noue of them would be able to draw gold away from the bimetallic !,r,frf„ Ruf it ?s absolntelv wrong not to reckon with that inevitable outside. It whi 'h wiuTeinand rmore and more is it is depreciated by monetary law. 504 BANKING AND CURRENCY. Assuming that au international agreement could be had for the ask- ing, between England, Eussia, Prauce, Germany, and the United States, at the ratio of 16 to 1, how would it work? Euglaud - 1. 29 Russia 1.29 France 1. 29 Germany 1. 29 United States j - 1. 29 The four hrst countries above mentioned are not large producers of silver. The United States and Mexico are large producers. As the freight charges on silver from the mines to the United States Mint would be less than to the mints of other countries, the silver, including Mexican silver, would naturally flow to it. This silver, after coinage, would be put in circulation and thus raise prices; these prices would attract imj^orts and, after a time, an adverse balance of trade would result. Gold would go out to settle this balance because of the fact that the freight and insurance charges on gold are one-half those on the same value of silver. After the gold had all been abstracted then we would commence to send silver, which necessarily must be a legal tender in the receiving country. Suppose the receiver demurs. Suppose thatthe rating, which the 156 countries of the world put upon silver is different from that put upon it by the 5 contracting nations. Suppose that the doors of, say, the English mint close to silver, which must necessarily atfect its price; what then? A contract of this nature may be compared to those which railroad managers have lately made and which have all turned out failures — the presidents' agreement, the gentlemen's agreement, the Western Traffic Association — because the factor of personal interest could not be controlled after the agreement was made. Look at this project as you would at any other business project. What are the conditions? What is the proposition? The conditions are these: There are 161 countries in the world in diiferent stages of development. Twenty-nine of the conutries have monetary systems, of which 15 are gold and 14 are silver. There are, at present, but 9 gold monetary systems in operation; the remaining 6 have degenerated into inconvertible paper currency systems. There are, at present, but 11 silver mouetai'y systems; the rest are inconvertible paper currency systems. This is the situation. The proposition is for an international agreement among several of the great trading nations. In view of the conditions and the well- known propensity of the metals to fluctuate, in making au international monetary agreement do we know what we are doing? Is not this propo- sition a leap in the dark? Is it not the most stupendous speculative scheme in which sane men have ever been asked to embark ? Back of these conditions, however, and far surpassing them in impor- tance, is the consideration of the truth of the proposition upon which this idea of a fixed ratio is based. The logical assumption upon which the advocates of a fixed ratio between gold and silver base their belief is, that legislative bodies can, by enactment, make constantly varying values constantly equal to each other. Gold and sUver are two sepa- rate commodities, and fixed quantities of each must necessarily vary in value the same as fixed quantities of any of the metals or other com- modities, unless it be conceived that they shall be produced upon exactly parallel lines, and that the commercial and mint demands shall always be exactly parallel. Any one who can conceive of such a state of affairs permanently BANKING AND CUEEENCY. 505 continuing among the world's population of over one thousand mil- lions of human beings is welcome to hold that view. Let me present an illustration which, I think, is parallel in iirinciple to the idea pro- posed. The United States may pass a law to the effect that the tide shall not rise or fall tomorrow. Would that stop the tide! And sup- pose all the great nations of the earth should pass a law to the same effect. The tide would rise just the same, would it not? There are some things that legislative bodies can not do. They have no control over the laws of nature. The days of fiat money have gone by; the rule now is to get in line with the laws of nature. What is proposed is an arbitrary measure and not a natural one. Mr. Prime says : The object of law is not to enforce a legislator's arbitrary will, but to respond to Ihe requirements of communities, and to satisfy tliera it should be the truth of facts, the truth of law. Laying aside, then, this project of an international ratio, which after twenty-live years' trial appears to be politically impossible, impractica- ble, unbusinesslike, contrary to the laws of economic science, and illog- ical in principle, the ciuestion at once arises, what can be done that is ]n'actical, that is businesslike, that is in accord with the laM^s of eco- nomic science, and that is logical in principle? The following bill to establish a gold currency and a silver currency on a basis of interchangeable value, together with the supplemental bill to fix the denominations of gold and silver coins to be issued by the United States, and to estabhsh the free coinage thereof, are offered as a comprehensive and complete monetary plan suited to the exigen- cies of the present occasion. The bill first mentioned, which is the more important of the two, and which is before your body, will now be considered. THE REMEDY. The first great cause of the present business depression, as has been shown, lies in the advance in the value of gold, due to the demonetiza- tion of silver since 1873 by the great trading nations of Europe and by the United States. This cause has shown itself in the persistent decline in the prices of commodities, which was predicted, which came, and of which we have the explanation. In order to arrest this dechne and start prices advancing again, the pricing instrument, that is, the thing which measures the prices of all commodities and which has been cut in two, must be restored. The quantity of standard money must be increased. Silver must therefore be rehabilitated. Since an interna- tioTjal agreement to secure this end seems hopeless, impracticable, and illogicarin principle, the proposition is presented that the United States shall move forth alone and increase the quantity of standard money in the world. By the term " standard money " I mean money that answers to Daniel Webster's definition of a perfect money, before referred to, a money that is worth par in every market. Manifestly, if the United States is to move forth alone and restore silver as money, or what is the same thing, solve the silver question, that can be done only through enactment by Congress of a measure that will solve it. The solution of the question then turns upon the words and the arrangement of the words iu the bill in which it is proposed to use silver as money. Mr. George S. Ooe, of New York, says : The only obvious and practical solution is the retinion in money of those ancient but temporarily dissevered elements. 506 BANKING AND CUREENCY. M. Boissevain, delegate of the Netherlands at the Brussels confer- ence, says: To restore bimetallism in its integrity it would not suffice that gold and silver should be used concurrently, it is necessary that the two metals should be placed upon a perfectly equal footing; that they should both be considered the monetary standard; that both should have full legal tender and that both should have free coinage. House bill 4232, now before your body, and which receives and treats gold and silver upon exactly equal terms, is offered as a solutiou of this question. 1 will take up the sections oue by one. H. E.4232. FiFTY-THiED Congress, First Session. October 24, 1893.— Keferred to the Committee on Banting and Currency and ordered to be printed. COPYPaGHT, 1893, BY EODEEICK H. SMITH. Mr. BrosiuB (by request) introduced the following bill: A BILL to estabUak a gold ciirrenuy and a silver currency on a basis of interchangealjie Talue. Be it enacted bi/ the Senate and Souse of Representatives of the United States of America in Congress assembled, Section 1. That twenty-three and twenty-two one-hundredtbs grains of pure gold, as established by law on I'ebruary twelfth, eighteen hundred and seventy -three, is, and shall continue to be, the unit of value of the United States of America^ and shall be termed a dollar. This section fixes at once and for all time the question of the quality of the money of this country. The only reference to the quality of the country's money other than that referred to in this section, Vhich I havehere been able to find, is contained iu the Sherman Act of 1890. It was there stated that " it is the established policy of the United States to maintain the two metals at a parity." It is pointed out that although it may be tlie policy of the United States to maintain the metals at a parity, that policy is not necessarily tne law. In this section then, all doubt is at once removed — the quality is fixed. William Graham Sumner, of Yale College, said in 1891, in a letter to John Henry Norman : I hold firmly that the first point in the doctrine of money is the concei^tion of the unit defined by a certain weight of one metal of a certain fineness. Sections 2, 3, 4, and 5, providing for a representative gold currency based upon deposits of gold bullion in terms of the unit, are so simple as to need no explanation. I will read them : Sec. 2. That gold bullion of the fineness of nine hundred one-thousandths or more, hereinafter called fine gold bullion, when presented in the amount of one hun- dred dollars or more, may be deposited in the Treasury of the United States or at any coinage mint or assay ofBce that the Secretary of the Treasury may designate, and the depositor shall receive therefor registered Treasury notes of such domina- tions as he may desire, hereinafter called gold Treasury notes and hereinafter pro- vided for, equal in amount to the number of dollars deposited. Sec. 3. That the Secretary of theTreasury shall c'ause to be prepared gold Treasury notes of the following form, respectively, with such other formal additions thereto as the Secretary of the Treasury may prescribe, in such amounts as maybe required for the purpose of section two, in twenty-dollar, fifty-dollar, one-hundred-dollar, five-hundred-dollar, one-tLousaiid-dollar, five-thousand-dollar, ten-thonsaud dollar, twenty-thousand-dollar, fifty-thousand-dollar, and one-hundred-thousand-dollar denominations, to wit: This certifies that there has been deposited in the Treasury of theUnited States an amount of golfl equal to twenty dollars. This note is redeemable in an amount of gold equal to twenty dollars on demand. Sec. 4. That the gold Treasury notes issued under the provisions of this act shall be redeemed upon demand at the Treasury of the United States, or at any coinage BANKING AND CUREENCY. 607 mint or assay office of the United States that the Secretary of the Treasury may designate, in an amount of flue gold bullion equal in value to" the number of dollars demanded. 'All notes so redeemed shall l)e canceled, registered, and destroyed. Sec. 5. That the gold bullion received under the provisions of this act, the total amount of which for the time being is hereinafter called the gold-redemption fund, shall be deposited and kept at such place or places as the Secretary of the Treasury may designate, and shall be used for no purpose otlier than the redemption of the gold Treasury notes arising under the provisions of this act. Section 6 provides for the issue of a representative silver currency based on deposits of silver bullion, whicli currency when issued, is of the same commercial quality as tlie gold currency and of interchange able value with it. Section 7 sets forth the method by means of which the world's gold price of silver is to be made from day to day. Sbc. 6. That silver bullion of the fineness of .999, hereinafter called fine silver bullion, when presented in the amount of one hundred ounces or more, maybe deposited at the Treasury of the United States, or at any coinage mint or assay office in the United States that the Secretary of the Treasury may designate, and the depositor shall receive therefor registered Treasury notes of such denominations as he may desire, hereinafter called silver Treasury notes and hereinafter provided for, equal at the date of deposit to the net value of such silver at its market price, such price to be determined by the Secretary of the Treasury under rules and regu- lations prescribed in section seven of this act. Sec. 7. That the Secretary of the Treasury is directed, on each business day, to inquire into and ascertain the market price of fine silver bullion in the several countries of the world with which we are principally connected in commerce. Theee various market prices he shall translate at the gold par of exchange into terms of the unit of value of the United States and shall take an average from them, which average shall be the price at which the Coverument of the United States shall receive or deliver fine silver bullion on the following business day in exchange for the silver Treasury notes arising under the provisions of this act. In determin- ing the world's market price of silver, as aforesaid, no deductions, additions, or allowances for freight, insurance, or any other charge shall be made. In section 7 I have used the language of Thomas Jefferson when con- sidering the same subject, simxdy reversing the words "gold" and " silver," as silver, in his day, was the unit of value, while gold is now that unit. He says : The proportion between the values of gold and silver is a mercantile problem alto- gether. Just principles will lead us to disregard legal proportions altogether, to inquire into the market price of gold in the several countries with which we shall be principally connected in commerce, and to take an average from them. Alexander Hamilton also recommended this method. He says : There can hardly be a better rule in any country for the legal than the market proportion, if this can be supposed to have been produced by the free and steady course of commercial principles. The presumption in such cases is, that each metal finds its true level, according to its intrinsic utility, in the general system of money operations. The Secretary of the Treasury is directed to inquire into the price of silver in the several countries of the world with which we are princi- pally connected in commerce. This, I think, is better than to limit him to inquiries in one country or one market, for he thus gets the advantage of. that "true level" of which Hamilton speaks. He has this in his mind, " What I want is the world's price." Having obtained Ms quotations for fine silver in two or more markets, he is directed to translate the prices at the gold par of exchange into terms of the unit value of the United States. The par of exchange between countries having a gold unit of value is fixed by the proportion which the weight of pure gold contained in the unit of that country bears to the weight of pure gold contained in the unit which is compared with it. Thus the English pound, the unit of value in that country, contains 113.0016 grains of pure gold. The unit of value in the United States, $1, con- 508 BANKING AND CURRENCY. taius 23.22 grains of pure gold. The par of exchange is the quotient of 113.0016 divided by 23.22, or $4,8605+ American gold, equals an Eng- lish pound. It is evident that this par of exchange can not change unless the weights of either or both units are changed. The Secretary of the Treasury inquires the price of silver in the Eng- lish marliet, and he should, in ascertaining the price, base it upon the last sale of a considerable quantity. He finds that the price is 29J pence for an ounce of 37«.40 or 0.925 fine. This price is equivalent to 31.859 pence 0.999 fine; 31.859 pence translated at the par of exchange is equal of 64.578 cents, as follows: 240 pence or £1 is equal to .$4.8065; 1 pence is one two hundred and fortieths of $4.8665 or 2.027 cents; 31.859 pence times 2.027 cents gives 64.578 cents. To obtain the par of exchange with any other gold unit country it is only necessary to know the weiglit of pure gold contained in the unit of value of that country. Any schoolboy whith this information and a knowledge of the system of weights prevailing in that country can read- ily ascertain the price of a fine ounce of silver at the par of exchange. Tables can be made which will show this at a glance. Assuming that the price of silver in the German market is the equivalent of say 04.635 cents, and which is determined in the same way as the Bnghsh price, the Secretary takes an average from them, which would be 04.606 cents, as the world's gold price of silver on that day. This is the price at which he receives and delivers silver on the following business day in exchange for the silver Treasury notes arising under this act. The reason why he makes the price to-day for to-mor row is because of the difference in time between Washington and London, Paris, Berlin, etc. The markets at these latter places close about four hours earlier than do ours. A price made here to-day based upon prices current in Europe and set for to-morrow thus becomes to-day's price there. The element of time is eliminated. The reason why the Secretary makes the price at the par of exchange is because that is fl.xed and definite; the Secretary is making money, and this has nothing to do with the variable rates of exchange which are caused by the scarcity or plenty of commercial bills in the market. Skc. 8. That the Secretary of the Treasury shall cause to he prepared silver Treas- ury notes of the following form, respectively, and with such other formal additions thereto as the Secretary of the Treasury may prescribe, in such amounts as may be required for the purpose of section six, in tive-doUar, ten-dollar, twenty-dollar, fifty- dollar, one hundred-dollar, iive hundred-dollar, one thousand-dollar, live thousand- dollar, ten thousand-dollar, twenty thousand-dollar, fifty thousand-dollar, and one hundred thousand-dollar denominations, to wit: This certifies that there has been deposited in the Treasury of the United States an amount of silver equal to five dol- lars. This note is redeemable in an amount of silver equal to five dollars, on demand. This section provides for the denominations of the silver Treasury notes and for the inscription to be placed upon them, which is the same as that upon the gold Treasury notes. The $1 and $2 bills are dropped. This feature has met with the approval of everyone to whom I have Slacken concerning it. As Mr. Charles A. Otis, of Cleveland, Ohio, says: "We don't want any more of that smallpox money." Sec. 9. That the silver Treasury notes issued under the provisions of this act shall he redeemed upon demand at the Treasury of the United States, or at any coinage mint or assay office in the United States that the Secretary of the Treasury may des- ignate, in an amount of fine silver bullion equal in value, at the then jirevailing mar- ket price, to the number of dollars demanded, such an amount of fine silver ballion to be determined as provided in section seven of this act. All notes so redeemed shall he canceled, registered, and destroyed. BANKING AND CURRENCY. 509 This sectiou provides for the redemption of the silver Treasury notes m terms of the unit at the then prevailing market price. As we have seen, when the note is issued it is worth par in gold, although it has silver behind it. When the note is redeemed it is worth par in gold, although it has silver behind it. The note itself, therefore, does not vary in value. The note is constantly of the same commercial quality as the unit. The element of variability is removed. Sec. 10 That the silver bullion received under the provisions of this act the total amount ol which for the time beiug is hereinafter called the silver-redemiition fund shall be deposited and kept at such place or places as the Secretary of the Treasury may designate, and shall be used for no purpose other than the redemption of the silver Treasury notes arising under the provisions of this act. The Government, acting as custodian and trustee,^holds this treasure as collateral for notes outstanding. Sec. 11. That when the market price of fine silver, as determined by the Secre- tary of the Treasury, shall exceed one dollar and thirty-five ceuts per fine ounce, it shall be the duty of the Secretary of the Treasury to refuse to receive deposits of silver bullion for the purposes of this act. This limits the " up " price, to guard against any possibility of a " corner" in the price of silver. Sec. 12. That whenever the total value of the silver-redemption fund, at the prevailing market price, as determined by the Secretary of the Treasury, under the provisions of section seven, shall be less than the total amount of the sih^er Treasury notes arising under the provisions of this act then outstanding, to the extent of two to ten, ten to twenty, twenty to thirty, thirty to forty, or forty to fifty millions of dollars or more, it shall be the duty of the Secretary of the Treasury to impose and collect a charge in each event at the rate > if one-quarter, one-half, one, two, and five per centum, respectively, upon the face value of the silver and gold Treasury notes thereafter issued under the provisions of this act; and the Secretary of the Treasury shall from time to time invest the money so arising in the purchase of fine silver bullion at the then prevailing market price, which said silver bullion shall be deposited with the silver-redemption fund, and when so deposited shall be apart and applicable to the imrpose thereof. Whenever the total value of the silver- redemption fund, as determined in this section, shall equal or exceed the total amount of the outstanding silver Treasury notes issued under the provisions of this act, no charge shall be made. The effect of section 12 is twofold : First, to save the Government against loss in the event of a decline in the gold price of silver; and, second, which is by far the more important, to limit and regulate the quantity of money in circulation, so that a normal level of prices will prevail, or, to put it in another way, produce a dollar unchanging in value through time. The first effect of this section will now be considered. The objection has been raised by Mr. David M. Stone, editor of the Journal of Commerce, that in the event of this bill becoming a law, then, if silver should decline in price, the Government would lose, as it would not have enough silver in the redemption fund to redeem all the outstanding silver Treasury notes in silver at the low price. Having first secured the note-holder, as is manifestly just, the next endeavor is to secure the Government. The Government is secured from loss upon its silver held as collateral, in case of a decline in the price of silver, in four ways : First. The Government is partly secured from loss on its holdings of silver, in the event of a decline in price, through the operations of the natural law of supply and demand. There is some limit beyond which the price of silver can not fall, for it can not be produced without cost. Since the dawn of history silver has always had some value. Suppose that with silver at 90 cents per ounce there are 1,000 mines which can 940 i 510 BANKING AND CURRENCY. be profitably worked ; witb silver at 80 cents per ounce, there are a less number of mines that can be profitably worked; with silver at 70 cents per ounce, there are a still less number of mines that can be profitably worked ; with silver at 60 cents per ounce, there are but few mines that can be profitably worked, and with the price at 50 cents per ounce, only the unusual and phenomenal mine can show a profit. We have recently had an illustration, fresh in the minds of all, of how supply is shut off by reason of a decline in the price of silver. On the other hand, with every decrease m the price of silver comes an increase in the demand for it. Many people who can not aflord solid silver knives, forks, and spoons on the table, with silver selling at 90 cents per ounce, can afford to have them when silver is selling at 80 cents per ounce. Put the price to 70 cents and you again increase the number of people who can aftbrd to use silver on the table. Put the price lower yet, and the electricians, watchmakers, silversmiths, and others, double and quadruple its consumption. The lower the price sinks the greater is the demand for silver for use m the arts. At the low price there are thousands of uses to which it can be put, where the high price before prohibited such use. The Government is, there- fore, partly protected against loss on its silver held as collateral, by the natural law of demand and supply for the product, which demand increases as the price sinks, and which supply decreases with every lowering of the price. Second. The Government is further protected against loss on its sU- ver held as collateral by reason of the fact that some of the notes which are issued against it are certain to be lost, and therefore can never be presented'for redemption. The Government thus makes a constant profit to its silver redemption fund from this source. To determine with any degree of accuracy what percentage of profit per annum would accrue to the silver redemption fund by reason of this constant loss of notes is difacult, as no experience parallel to that herein proposed has been recorded. The nearest approach to such an experience is found in the consideration of our fractional currency, the amount of which, when issued in 1863, was limited to $50,000,000, and which had practically disappeared from circulation fifteen years later, in 1878, leaving about $15,000,000 then and now outstanding, which represents a gain to the Government of about 3 per cent per annum on the yearly average amount ($34,000,000) of fractional currency in cir- culation during the period of fifteen years. It is not claimed that the gain to the silver redemption fund by reason of the loss of notes will be anything near as large as 3 per cent per annum; but it is claimed, first, that the gain will be something; and, second, that the gain will be constant. Third. The Government is further protected against loss on its silver held as collateral, in the event of a decline in price, by reason of the fact that it is proposed slowly to retire, through reorganization, all our $1 and $2 bills, and to replace them with fractional silver coins, as pro- vided in the bill set forth in the chapter entitled " Gold and silver coin- age" (Silver Question Settled) ; and it is there provided that the seignior- age profit arising from the production of these coins shall be placed to the credit of the silver redemption fund as fast as they are issued. The profit to the silver redemption fund from this source will be enormous, and that profit will be constant, because of the fact that as population increases more fractional silver coins will constantly be required. It is pointed out that the lower the price of silver sinks from $1.03 per ounce, although the value of the silver redemption fund is correspond- BANKING AND CURRENCY. 611 ingly diminished, the profit on all subsidiary silver coins taken out is correspondingly increased, while, should the price of silver rise toward $1.03 per ounce, the profit on the coins taken out is diminished and the value of the redemption fund is increased. The ratio for these coins has been set at 20 to 1, which is equivalent to $1.03 per ounce for silver. It may be necessary to change this and make the coins lighter. Fourth. The Government is further, and, in connection with the fore- going, completely, protected from loss by reason of a decline in the price of silver by the provisions of section 12, which provides a method by means of which it is enabled to limit and eventually to recoup any loss which in the future may become apparent in the silver redemption fund by reason of a decline in the market value thereof. By reference to that section it will be seen that a graded charge is imposed upon all who take out notes after a deficiency appears in the market value of the silver redemption fund, and the money arising from this tax is used for the purchase of silver bullion, which is deposited with the silver redemption fund, thus building up its value. An illustration is pre- sented: It is supposed that this bill is a law; that silver dechnes in price ; that the following amounts of silver have been deposited at the dates and prices mentioned, and that silver Treasury notes to the amounts shown have been issued therefor : Date. Silver deposits. Price. Notes issued. November, 1894 Ouneea. 5, 000, 000 5, 000, 000 6, 000, 000 5, 000, 000 5, 000, 000 5, 000, 000 Cents. 75 72 70 68 65 60 $3, 750, 000 December, 1894 January, 1895 February, 1895 March, 1895 April, 1895 ■1 000 000 Total 30, 000, 000 on ?,oo nno Value of silver redemption fund on May 1, 1895, 30,000,000 ounces at 60 cents .$18,000,000 Amount of notes outstanding May 1, 1895 20, 500, 000 Deficiency in silver redemption fund 2, 500, 000 The Secretary of the Treasury is now directed to impose a charge of one-fourth per cent on all gold and silver notes taken out while the deficiency of the silver redemption fund stands over $2,000,000 or under $10,000,000. If the price further declines and the deficiency exceeds $10,000,000, but is less than $20,000,000, the charge is made of one-half per cent, and so on, as is provided in section 12. As the deficiency increases, the tax becomes greater until it practically becomes prohibitory. By means of this simple provision it is intended that the liability of the Government shall be limited, and that it shall be enabled, by investing the proceeds of such tax in silver, which is deposited with the silver redemption fund, constantly to keep a reason- able parity of value between that fund and the amount of silver Treasury notes outstanding. " It seems to me," writes Congressman Brosius, " that when the con- tingency arises that will bring into operation the eleventh section of the bill, the man who exchanges silver bullion for currency will pay for a dollar note a dollar's worth of silver plus the charge— that is, he will pay more than a dollar's worth for a dollar. Would anybody do that« Would not the operation of exchanging bullion for currency cease at the very moment that the decline in the value of silver required the extra charge to effect the exchange?" Under certain conditions, yes; tinder certain other conditions, no. The question of the rate of 512 BANKING AND CURRENCY. interest prevailing at tlie time of the tax arises here. Suppose the contingency of the one fourth per cent tax present. This being the case, no one would present silver bullion in exchange for currency unless he could see a profit, beyond the amount of the tax, in loaning the monev so taken out in the market. When the rate of interest was extremely low no notes would be taken out, the currency would not be increased in amount, and the liabiUty of the Government would be limited to the amount of notes then out- standing. The manufacture of money would cease. On the other hand, when the rate of interest was high, even though there was a tax on the notes, they would be taken out, for it now becomes profitable to deposit silver, pay the tax, get money and loan it in the market. -A man is perfectly williug to pay lOO^ per cent or lOOJper cent for a dol- lar if he can turn around and sell that dollar for 101 per cent, 102 per cent, or more. The prevailing rate of iuterest in Western States is from 6 to 12 per cent, while the rate in Xew York (Jity varies from 2 to 200 per cent per annum. The rates for call loans in New York during the month of June, 1893, have frequently ranged as high as 75 per cent per annum. During the month of August, 1893, currency was at a premium of from i to 5 per cent over certified checks. Under these conditions would not a man be williug and anxious to pay a tax of i, 1, or 2 per cent on currency if he could turn about and sell it for more? The second effect of section 12 is, I think, to produce a dollar unchanging in value through time. What all political economists desire is stability of tlie pricing instrument. It should not contract, it should not expand too rapidly. Contraction and inflation end in the same pit. As we liave before seen, the money of a country should be of the same connnercial quality, and the quantity of the money in a country should be sufficient to maintain a normal level of prices. Standard money, then, covers two ideas — quantity and quality. We have before fixed the quality, it now remains to regulate the quantity so that prices may be always normal. We don't want too much or too little money in circulation. We want an equitable pricing instrument. Eiiiile de Laveleye says: There is not, therefore, a fixed standard of values in the same way as there is of length and %vei,ulit. What is desirable is to adoxit one as fixed as possible. Johu Stuart ^Mill says: But the desideratum sought by jjolitical economists is not a measure of the value of things at the same time and place, but a measure of the value of the same things at different times and places. Monteflore Levi, in'esident of the Brussels conference, says: How would it be possible for the mercltant or the manufacturer to-make, with safety, contracts extending over a long period, as important business operations generally do, if the shrewdest judgments and the best founded calculations might at any moment be upset by a sudden mo-('ement of the money market? Mr. Yan den Berg, delegate of the Netherlands, said : Of all the functions that money performs in the social organisms, the most impor- tant is that which it performs as the standard of value. It should preserve, not an absolute stability, for that would be contrary to the nature of things, but as great a relative stability as possible. Sir William Houldsworth said: But it is not the banking system which makes England prosperous. It is her industries and her commerce. What we want is a perfect system of currency, upon which those industries and this commerce may rest securely, and upon whose sta- bility they can rely. BANKING AND CURRENCY. 513 Senator John P. Jones, of Nevada, said: In order to measure equitably the natural and inevitable mntatious in the value ot other things, mouo\- should be of unohangini.- value. That is to sav, any given amount of money should, as far as human foresight can regulate it, require at all times^ an e(]ual amount of sacrihce for its acquisition. No one will deny that the most important quality that money can possess is that it shall truthfully measure and state equities. John White, of Baltimore, in a letter to S. D. Ingliam in 1830, says : But whatever performs a duty so imnortant in its extent and consequences ought to be as invariable as possible. Alexander Hamilton says : There is scarcely any point in the economy of national affairs of greater moment than the uniform preservation of the intrinsic value of the money unit. On this the security and steady value of 2}i-ojpetiy essentially depend. The second effect of this section, as I said before, is to limit and reg- ulate the quantity of money to the demands of commerce. Suppose this bill a law, the things of which Ave are certain are as fol- lows: (1) That the quantity of money in the country would be increased. (2) That prices would rise. (3) That after a time imports would be attracted and an adverse bal- ance of trade produced. (4) That silver Treasury notes would be sent forth to pay this balance at the foreign redemption agency, of which I shall shortly speak. (5) That if these notes were not used in circulation in the receiving- country, they would be presented for redemption at such agency. (6) That in order to redeem them, silver must be sold in the market. (7) That when large quantities of silver were sold, the price of silver miist necessarily decline. (8) That with this decline in the price of silver, the market value of the silver redemption fund would be impaired. (9) That when this occurred, the tax provided would be imposed upon all gold and silver Treasury notes thereafter issued, and if this tax was large enough no new notes would be taken out. (10) That no additions being made to the currency, prices must cease rising, and no additions would be made to the currency until the silver sent in payment of imports had been absorbed by commerce, and the price of silver had again advanced. It is thus intended to automatic- ally regulate the quantity of money in such a manner that a normal level of prices will always prevail. The practical question which each one will ask is, Will it work satisfactorily? The answer is, that if the laws of price, the quantitative theory of money, and the theory of the foreign exchanges are correctly stated, it will work satisfactorily, for it is upon these natural laws that this regulative clause is based. Sec. 13. That the gold and silver Treasury notes issued under the provisions of this act shall be a legal tender in payment of all debts and shall be receivable for customs, taxes, and all public dues, and when received into the Treasury from these sources may be paid out in accordance with law, and such notes, when hold by any national banking association, shall be counted as part of its lawful ueserve. The legal-tender provision iu this section is not a necessary feature, as the dollars provided are always commercially worth par, in repre- sentative and convertible value, in the markets of the world, and, by means of the foreign redemption agencies, are convertible into the cir- culating medium of other commercial communities without loss. The legal-tender feature is, however, a convenient one, as, without it, the creditor might demand the delivery of the coined gold or silver bars in 514 BANKING AND CURRENCY. payment, and this might not always be convenient to the debtor who is distant from the Treasury. Sec. 14. That the sold and silver Treasury notes issued under the provisions of this act may be exchanged on demand by the holder thereof at the Treasury of the United States, and at such other place or places as the Secretary of the Treasury mav desi<^nate, for an enual amount of new notes of the same character and of such denominations as he may desire. The notes so presented for the purpose ot exchange shall be cancelled, registered, and destroyed. This note idea seems to have come to stay, and this provision is therefore important from a sanitary standpoint, as dirty notes are a channel by means of which infectious diseases are readily spread. The ease with which these notes, when soiled, can be exchanged for new ones, combined with the fact that the American women, let us hope, may soon set the fashion to have clean money, will do much to remedy the present disgraceful condition of our currency m this regard. Sbc 15. That the President of the United States, upon the application of the Sec- retary of the Treasury, may, by proclamation, designate and appoint redemption agencies in any foreigA empire, state, or country for the purpose of redeeming, by conversion or otherwise, as herein provided, the notes arising under the provisions of this act. Prior, however, to the issuance of any such proclamation by the Presi- dent of the United States the Secretary of the Treasury shall be m receipt ot a proper bond of indemnity, the provisions of which said bond shall be such as the Secretary of the Treasury may prescribe, from the firm, banking house, corporation, or other business institution with which such redemption agency is to be established, and who shall be citizens of, or, in case of corporations or companies, organized under and amenable to the laws of that country where such an agency is to be estab- lished The notes arising under the provisions of this act shall be redeemed at sach redemption ageucv so established in the same manner and under the same regulations as here prevail, or in such a manner and under such regulations as the Secretary of the Treasury shall prescribe as will enable them to be converted into the money of that country without loss, and when so redeemed or converted shall be canceled, registered, and destroyed. The Secretary of the Treasury, by requisition upon the Secretary of the Navy, who is directed to cooperate, shall util- ize the vessels of the United States in establishing its various redemption agencies throughout the world and in supplying them from time to time with such coined gold and silver bullion, bars, or coins as may be necessary to redeem the notes arising UQder the provisions of this act : Provided, That, in the event of war with any coun- try where such a-'ency is established, the obligation of the United States to redeem the notes arising under the provisions of this act at that redemption agency ceases. TJie Postmaster-General of the United States is directed to devise and establish a special system of registry for the purpose of enabling the owners thereof to send to or bring from such countries where such redemption agencies have been established the notes arising under the provisions of this act without charge, other than a reg- istry and mailingfee, whichregistry charge shall be fixed by the Secretary of the Treasury and may be changed by him from time to time, but which charge shall always be at a less rate per centum on the par value thereof than is the aggregate rate per centum of cost of shipping gold bullion of the same value to that country where such redemption agency is established. In the event of the loss of the notes while in transit, which have been duly registered as herein contemplated, the Sec- retary of the Treasury is directed, upon sufficient proof of loss, which shall be made' by the Postmaster-General, and upon application of the owner thereof, to issue to the owner thereof new notes of the same character and amount, taking a satisfactory bond of indemnity from the owner thereof. A description of all notes which have been registered as herein contemplated and which have been lost while in transit shall be published at least once a year in the report of the Secretary of the Treasury. All silver or gold Treasury notes which have been registered aS herein contemplated, and whi<;h have been lost while in transit, and for which new notes have been issued, shall be considered as canceled. Section 15 provides for the establishment of redemption agencies in foreign countries. It may be urged against this section that the treas- ure of the United States in the hands of such agencies would be liable to seizure in time of war. These agencies, it will be noticed, are under proper bonds of indemnity and performance, and are amenable to the laws of that country Avhere such agency is established. This would BANKING AND CURRENCY. 515 have the result to make any injury done to such firm or corporation in its financial capacity by its own government an injury done by such government against its own citizens, and liable to make restitution through the judgment of its own courts. It is the opinion of Mr. George S. Coe, of New York, that this objection has no particular weight and is hardly worth consideration. There is one other objec- tion, however, that has been urged by Mr. J. Harsen Rhoades, of New York, against this feature, and that is that should such agencies be established the foreign merchant might not be willing to take in pay- ment of his debt these silver Treasury notes, redeemable in silver at the redemption agency — that is, that he would not want the silver, and the point has been made that you could not force him to take it. This objection has been met in the provision. These notes must be able to be converted into the money of that country without loss. This can be accomplished in this way : Suppose this bill a law, and a redemp- tion agency to have been established in London. After arrangements have been concluded and the necessary papers signed, our first move is to send to London on one of our warships say 10,000,000 ounces of sil- ver, which we deposit in the redemption agency. Next we take say 2,000,000 ounces of silver from the agency vaults, sell it in the London market, and obtain therefor English money — pounds, shillings, and pence — which we return to the vaults of the agency. We are now in a position to redeem. The assets of the agency now consist partly of silver and partly of English money. An English merchant presents a silver Treasury note of the denomination of $10,000, which has been sent him in payment of an American debt, and asks for redemption. Suppose the price of silver in the English market is equivalent to 80 cents per ounce, American money. "Very well," we say, "what do you want in redemption ! An amount of silver at the present price, which is equal in value to $10,000, which would be 12,500 ounces, or shall we give you the equivalent of $10,000 in English money at the par of exchange?" To redeem f 10,000 of silver Treasury notes, the price of silver bemg 80 cents per ounce, requires 12,500 ounces of silver. To redeem $10,000 of silver Treasury notes byconversion into English money at the par of exchange (4.8665) requires 2,054 pounds, 17 shillings, and 3^ pence; 12,500 ounces of silver at 80 cents per ounce equals $10,000; 12,500 ounces of silver at 39.4534 per ounce (which is equivalent to 80 cents at the par of exchange) equals 2,054 pounds, 17 shillings, and 3^ pence. Take any other price and you will have the same result. Tables can be made showing with accuracy the equivalents. If a $10,000 note can be converted without loss, any other sum can also be converted in the same manner. We stand ready to convert all silver Treasury notes presented tor redemption into English money without loss to the holder. All Ameri- can notes are, therefore, worth par in English money. It is immaterial to us whether the English merchant asks for silver m redemption of his Treasury notes and sells that silver in the market, obtaining EngUsh money therefor, or whether we sell the silver and get English money, which we use in redemption of the silver Treasury notes at the par of exchange. Both transactions are, as far as we are concerned, commer- cially identical in their results. . , m, ^- Nothing is lost on our part, neither is anything gamed. The notes are simply converted without loss to anyone. The practical method ot doing this, it seems to me, would be to have a constant supply of Eng- lish money and of silver on hand at the agency. When the amount ot 516 BANKING AND CURRENCY. English money declined by reason of its use for redemption, more silver could be taken from the vaults, sold in the market, and the supply could thus be renewed as required. Thus this objection is answered, for he would be a strange Englishman who would refuse to take Eng- lish money in payment of an English debt. It is thus that our silver can be allowed to easily, naturally, and equitably flow through the channels of commerce, and become absorbed in the world's great ocean of trade without undue pressure upon existing monetary systems. Let us follow this out further and see what influence such agencies would have upon the future financial standing of the United States. When the balance -(^f trade is against the United States, these silver Treasury notes, should we so desire, could be sent to Loudon to settle it, lu'ovided the cost of registering and mailing the notes was less than the cost of freight and insurance on the same value of gold. The freight and insurance charges on gold now aggregate about two-tenths per cent. The mailing and registering charges on silver Treasury notes could be made one-tenth per cent, or even a less per cent, in which event the silver Treasury notes would surely go forth to settle the balance. They arrive in London and are converted into English money at the par of exchange. The debt is settled with our silver. In a short time the balance of trade favors the United States. What happens then? One thing only. Having redeemed all the silver Treasury notes we had previously sent them, they, the Englishmen, are forced to pay their balance in gold, as they can not take out silver notes at our redemp- tion agency, and as gold is cheaper to ship to us, because its weight and bulk are less tban the same value of silver. Would we not, in this way, get back the $200,000,000 and more gold which has been drained from us during the past three years without going to the expedient of issuing bonds therefor, as has been suggested by some? The advantage of this solution as contrasted with a bond issue is that when we obtain the gold we own it, whereas should we issue bonds to get it, we would still owe for it. The proposition is sim- ply this — when we pay our foreign balances we use silver; when the foreigners pay us their balances they use gold. Where would you find most of the gold of the world in ten years if we should adopt this policy? Under these circumstances the gold must come here and stay here, if we so elect. But suppose, when we send our silver Treasury notes abroad in payment of balances, the foreigner refuses to redeem or convert them into his money at the redemption agency, but holds the notes. It is to be pointed out that he certainly would not hold the notes unless he could make some use of them, because, if he holds the notes in his safe, he would be losing the interest on them. If he refuses to convert his notes, the only use to which he can put them is to use them in circulation, pay them out to his countrymen in settlement of his debts, and this is the very thing we want him to do, and, if he does this, silver takes a larger part in the circulating medium of the world, and is to that extent consumed and removed from the market. So whichever way you may look at it, whether he converts his notes or not, the net result of either transaction is profit to the people of the United States. If the foreigners convert their notes, we eventually drain them of their gold ; if they do not convert the notes we get a larger use for silver in the circulating medium of the world. lu the above illustration but one agency has been referred to, that at London. The same illustration will apply with equal force to the agencies pro- posed to be established in Germany, France, and elsewhere. BANKING AND CURRENCY. 517 When the idea set forth in this section is practically can there is, I think, nothing to hinder its execution, then i-ried out, and then the results achieved through this plan will be of the greatest importance to the foreign trade of the United States. It is a well-known business prin- ciple that increased facilities bring an increase of business, and there- fore an increase of profits. The age of industry is drawing on, and to succeed in this industrial age we want good business facilities, good railroads, good telegraphs, good steamships, and most of all a good currency good everywhere. A good currency is the basis of all per- manent business relations, and when that currency is made universally good, as is here proposed, the effect upon our business can not be other than beneficial. The denomination of some of the notes herein pro- posed has purposely been made large, so that foreign exchange may be paid with them when foreign redemption agencies are established. Instead of ferrying over and back vast sums of gold these notes would pass. The present system of paying balances is expensive, cumber- some, antiquated, and dangerous to the interests of mankind, for if a vessel goes down the treasure she carries is lost to the people of the world, while under the system proposed, a proper method of registry being devised (as provided in section 15), there need be no insurance charges, no freight charges, and, in case of the loss of a vessel, mankind would lose but a few pieces of paper; the treasure would lie in the vaults of the depository. In settling this silver question a great many other questions are settled with it, and it is in this direction that the United States may now use its silver to gain and keep the trade of the world. An inter- national agreement as arrived at by the protocols of a monetary con- ference is the weakest thing we can at present do, and is utterly impracticable, as the results of the Brussels and other conferences have shown. To make such an arrangement of any nature with foreign nations would be to throw away an opportunity for a far-reaching and tremendous profit whicb may never present itself again. The oppor- tunity has presented itself and business prudence dictates that we avail ourselves of it. The invasion of Europe and the South American countries with American money, every dollar of which, at all times, is of standard value and convertible into their money without loss, wiU mark an era in the history of industrial progress. "Bat," says Mr. George Gunton, of I^ew York, "the duty of the Government vessels is purely for war, offensive and defensive; they were not intended for the purpose of carrying silver and gold to our various redemption agencies throughout the world." In the name of commerce the Government establishes light-houses on our ocean coasts, on the great lakes, and on our rivers, and employs a fleet of vessels to carry supplies to them. Why not, in the name of commerce, and for the interests of the people of the United States, employ the naval vessels to a small degree in establishing and supplying with gold and silver our foreign redemption agencies throughout the world? Think of the investment which the Navy represents. Think of the money (about $25,000,000) it takes to maintain it from year to year. Why not turn it, in a small degree, to some productive purpose! If the Navy is not to be used as an auxiliary to commerce for what is it to be used! In a short time, let us hope, it will be much larger than now. What are we going to do with it then? Send it forth to conquer other lauds'? No one favors that idea. Are you going to let this great instrument, repre- senting an enormous investment and costing millions annually to main- 518 BANKING AND CURRENCY. taiu, Ue practically idle, ouly to cruise about from here to there and play war °? . • ^ • i j • The only rational policy, aside from the protective idea involved m the creation of a navy, which can be suggested is to use the naval ves- sels as the auxiliaries to the national commerce, and it is in this direc- tion that they can now be used. If the Treasury Department is required to keep at its various subtreasuries in this country sufficient gold and silver to meet the demands of the note-holders and to move it around from one subtreasury to the other without cost to the note-holders, then it should also redeem its notes at its foreign agency free of charge to the holder. Sec 16. That coincident, as nearly as may be, with the passage of this act, the Secretary of the Treasury, at his discretion as to duration and amount, may impose and collect a tax, not to exceed one per centum ad valorem, on all silver or silver Treasury notes imjtorted to the United States. Section 16 gives the Secretary of the Treasury power to place an import tax on silver. The object of this tax is not to " protect " the sdver pro- ducer, but to protect the American people from losing their gold. Under present arrangements exchange balances in favor of this coun- try can be paid in silver, while exchange balances against us are pay- able in gold. Balances are now paid in gold, because of the fact that the freight charges on gold are cheaper than those of the same value of silver; therefore, it is cheaper to send gold. The contingency may arise, however, when the ability to put a small tax on silver imports or silver notes would be beneficial to this country, and the Secretary of the Treasury should be given the power to protect the gold holdings or to increase them, if it is wise to do so, and this he may do by discrun- inating against the silver notes. Sec. 17. That so much of the act of July fourteenth, eighteen hun- dred and ninety, entitled "An act directing the purchase of silver bul- lion and the issue of Treasury notes thereon," and so forth, as requires the monthly purchase by the Secretary of the Treasury of four million five hundred thousand ounces of silver, or any part thereof, at the mar- ket price, is hereby repealed. This section repeals the purchasing clause of the Sherman act. As that has been done, it is necessary to eliminate this section. Before considering section 18 allow me to call your attention to the present state of the national currency: 1 . United States legal-tender notes 2 SilTer dcdlars and certificates, Bland act- 3. Trade dollars recoined 4. National-bank notes 6. Treasury notes 1890, Sherman act Amount out- standing (millions). Gold reserve (millions) . 346 \.,^ 5^X)0^ 1-100 153-'''^ The straight lines represent those classes of the currency which are a direct, and the irregular lines those classes which are an indirect, demand upon the gold reserve. Included in the first item are the currency certificates, which are practically legal-tender notes of large denominations and are obtaina- able by depositing legal-tender notes and taking out currency certifi- cates therefor. When the legal-tender notes or the Treasury notes of 1890 are pre- BANKING AND CURRENCY. 519 sented for redemption and gold demanded, it is instantly paid and the notes reissued, leaving the amounts outstanding, as stated, constantly at the same figure. These are thus a direct demand upon the gold reserve. The silver dollars, silver certificates, and national-bank notes are an indirect demand upon the gold reserve in this way : If a holder of any of these notes or dollars desires to obtain gold upon them he can deposit them at a bank and withdraw legal tenders or treasury notes, present these latter at the Treasury Department, and get gold. If the banks refuse to make the interchange the parity of the money is broken. It may be said that the demand is not liable to occur. This is true as long as the gold reserve is properly maintained, but there is a point somewhere below the one-hundred-million mark, and no man can exactly set it, where the holders of these notes would be certain to make a rush to cover to get their gold while they may. When the gold reserve is gone, when the Government refuses or is unable to redeem any of the above currency by conversion or otherwise, the parity between all the classes of the currency is broken, and that means a new standard of value, a new level of price adjusted to that standard, inextricable confusion, and a monetary tempest. Guarding against this extreme situation, however, stand the banks of the city of New York, with gold holdings of about one hundred millions of dollars. The situation then, thus far, is this : The Government has outstand- ing over one thousand millions of money, all of which is dependent for parity upon a gold reserve of about $100,000,000. But this is not all, and even this situation, weak as it confessedly is, need not cause much apprehension but for the fact that we are a large debtor country. Europe, according to the best estimates obtainable, holds about three thousand million of American securities. Mr. Gladstone recently stated in the House of Commons that England held two thousand mil- lion sterling of foreign indebtedness. If 25 per cent of this sum is invested in America, the above estimate of $3,000,000,000 would be nearly covered, to say nothing of the holdings of American securities in Germany, Holland, Spain, and elsewhere on the Continent. Now, it is admitted by all that times are hard the world over, and it can be easily seen that, in the event of a monetary crisis m England, which is likely to arise through her monetary operations with India and the far Bast, owing to the constant fall in the price ot sdver, thus affecting her exchanges with those countries, or which crisis may hap- pen on almost any day on the Continent, a portion of those who hold American securities will be forced to send them back for sale m our market to provide for their losses in other directions. Should such a condition arise and should but 2 per cent, or^60,000,000, of the foreign- debt holdings be returned for sale in this market an extremely embar- rassing situation would here result. (This appears to be going on now ; nothing else will explain the shipments of gold trom New lork ) io meet this demand, should it be made, we could and would probably do two thines- First, take some of their securities and send gold, and, se<5- ond put down the bid price for some so low that the foreigner would refuse to sell : whichever alternative we accept to meet this assumed demand the net result of our action is further depression here. TirSaring failure of 1890 withdrew about $75,000,000 of gold from • New York. Eepeat that experience to-day and the result would be perilous. A demand for gold equivalent to 10 per cent ot the foreign- debt holdings would take out of the country every gold dollar m sight 520 BANKING AND CURRENCY. in the 10,000 banks and the Treasury Department. As long as this state of aftairs exists, so long must hesitancy mark the operations of the capitalist. ISTew business enterprises are delayed, railroads are not built, canals are not dug, factories are not started, with the result that labor is idle, ill clothed, and hungry. This vast mass of currency, over one thousand millions, not oue dol- lar of Avhich, of itself, is standard money, but which is all held at the gold line by the gold reserve, has it not produced among the people of this great country that disease-of which Copernicus speaks, the mor- bus numericus — the malady of numbers, a. disease more fatal to the peo- ple of a country than war,' or pestilence, or famine. Consider itsinsta- bility — an adverse balance of trade, or a crisis abroad, washes away the gold foirudation and makes the superstructure totter. In truth, the American house of business is now founded on the sands. It is here, in the weak and unfortunate situation of our national currency, that we find a second cause of the depression in trade. The greater portion of the national currency at present floats between mat- ter and spirit. Has not the time arrived when men's minds should be brought back from metaphysics to matter; from that exile and abstract promise stamped upon most of the paper money of the country to the commercial fact; from the sign to the thing signified! In attempting the reorganization of our present currency those characters of money, I think, should be first reorganized which, by reason of their present commercial situation, lend tliemselves most readily to reorganization. The so-called Sherman notes of 1890 are clearly in this commercial position. Of these notes there are outstanding about 153,000,000. The silver purchased with these notes amounts to about 168,000,000 ounces and at present lies idle, useless, and unavailable for their redemption. The proposition is to reorganize these notes and render this silver available for their redemption, thus instantly relieving the Govern- ment of the gold liability now practically existing upon them. Section 18 is drawn with this end in view. Sec. 18. That, within two years and at the discretion of the Secretary of the Treas- ury, the Treasury notes arising nnder tlie provisions of the act of July fourteenth, eighteen hundred and ninety, entitled "An act directing the purchase of silver bul- lion and the issue of Treasury notes thereon," and so forth, may be exchanged upon demand, when presented in the amount of one hundred dollars or more, for equal amount of the silver Treasury notes arising under the provisions of the present act. An amount of fine silver bullion equal in value at the then prevailing market price, as determined in section seven, to the face value of the notes so exchanged, shall be transferred from the silver-bullion fund of eighteen hundred and ninety (which sil- ver-bullion fund includes all the silver purchased under the act of July fourteenth, eighteen hundred and ninety, and the dollars coined therefrom, which dollars shall be jjarted, fineil, cast into bars to be coined and stamped, and returned thereto) to the silver redemption fund, as contemplated in this act, and shall thereupon become a part, and shall be applicable to the purpose thereof. All notes so exchanged shall be destroyed. Any deficiency or surplus of said silver-bullion fund arising under the law of .July fourteenth, eighteen hundred and ninety, in making the exchange as above contemplated, shall be carried to the general account of the Treasury. After July first, eighteen liundred and ninety-eight, the notes arising under the provisions of the act of .July fourteenth, eighteen hundred and ninety, shall not lie a legal tender. Section 19 retires the currency certificates and thus leaves the legal- tender notes, upon which they are based, in such a position that they also can be retired or reorganized later on. Sec. 19. That the act of July eighth, eighteen hundred and seventy-two, entitled, "An act for the better security of bank reserves and to facilitate bank clearing- house exchanges," is hereby repealed, which said repeal shall take effect on July first, eighteen hundred and ninety-five. BANKING AND CURRENCY. 521 Sbo. 20. That any gain or seigniorage, not elsewhere specified, arising under the provisions of this act, shall he accounted for and paid into the silver or gold redemp- tion fund, as it respectively may arise. Sec. 21. That the silver and gold bullion dej)osited under the provisions of this act shall be subject to the requirements of existing law and the regulations of the mint service governing the methods of rec6ii)t, determining the amount of pure sil- ver or pure gold contained, and the amount of charges or deductions, if any, to be made. Skc. 22. That nothing in this act shall be construed to prevent the purchase, from time to time, as may be required, of zinc, nickel, or other base alloy or bullion, for the purpose of the sudsidiary and other coinage, nor to atlect the legal-tender quality, except as specifically set forth in section eighteen, of any obligation heretofore issued by the United States. Sectiou 23 provides for an issue of boiids to provide for deticieu- cies of Goverument revenues due to the business depression. Skc. 23. That the Secretary of the Treasury is authorized to prepare and to issue bonds of the United States, herein provided for, to the amount of fifty million dollars ; said bonds to be payable, principal an interest, in standard money of the United States, in twenty years, with the option reserved to the United States to pay in ten years from date thereof, which said bonds sliall be prejiared in denominations of one hundred dollars and multiples thereuf, and shall bear interest at the rate of two per centum per annum, payable ijuarterly, and shall consist of registered and coupon bonds, -which shall be availaljle as a basis for national-bank note circu- lation under existing law. The Secretary of the Treasury, at his discretion as to time and amount, may offer foi sale said bonds herein provided for, at par, and when sold shall carry the proceeds tfiereof to the general account of the Treasury. Sec. 24. That the term "standard money of the United States," used in section twenty-three of this act, shall be interpreted to mean gold coin of the present stand- ard of weight and fineness, or an amount of tine silver bullion equivalent in value thereto, as determined by the Secretary of the Treasury under the provisions of sec- tion seven of this act This term " standard money of the United States," as here interpreted, means the money arising under the provisions of this act. The words "standard money" thus means two tilings— quantity and quality; the quality being always uniform, the quantity being so regulated as to maintain a normal level of prices; thus the standard money of the United States is money unchanging iu value through time. This term, so interpreted, is worth more to the business men of this country, in a business way, than any other six Avords ever written, for it can be incorporated in time contracts and deferred obligations, l^fone but gamblers will thereafter endeavor to make time contracts payable in anything else. Sections 25, 26, and 27 are necessary provisions. They are as follows : Sec. 25 That a sum sufficient to carry out the provisions of this act, in all its parts, is hereby appropriated out of any money in the Treasury not otherwise appro- priated. . , , .i, i, ■ ■ J- ii • Sec. 26. That all acts and parts of acts inconsistent with the provisions o± tfiis act are hereby repealed. -,,._._ ^ Sec. 27. That this act shall take effect thirty days from and after its passage. CONSTITUTIONAL PROVISIONS. This bill is founded upon specific constitutional provisions. Section Viri, clause 5, of the Constitution of the United States of America, grants to Congress the power "to coin money, regulate the value thereof and of foreign coin, and fix the standard of weights and meas- ures." It is first pointed out that the Constitution does not grant Con- gress the power " to malte coin, regulate the value thereof and of for- eign coin;" the power granted is the power "to coin money, regulate the value thereof and of foreign coin, and fix the standard of weigiits and measures." While it would have been easy to have said the for- mer, had they meant it, and this is the manner in which this clause is 522 - BANKING AND CURRENCY. generally interpreted, yet this is the very thing the fathers did not say. They well understood that fixed quantities of gold and silver can never long remain of equal commercial value. Mr. Secretary Hamilton, in his proposition for the establishment of a miut, expressly declares "that if the unit belong indiscriminately to both the metals, it is subject to all the fluctuations that happen in the relative value which they bear to each other." Mr. Thomas Jefferson, in his report upon a money mint, declared the same thing. Mr. Eobert Morris, financier to the Revolutionary government, in his proposal to establish a mint in 1782, was equally exi^licit to the same effect. This is not only clearly shown in the reports, letters, and writings of these great men, but it is specifically set forth in the words of the provision. Why else did the Constitution grant Congress thepoAver to "regulate" the value of money and "fix" the standard of weights and measures? That which infixed is stable. We regulate that which fluctuates. It is assumed, and the assumption is a self-evident proposition, that the intent of the framers of the Constitution was to give to Congress the power to i)rodirce dollars of gold and silver which should always be of equal and interchangeable value at home and abroad. It cannot be seriously maintained, I think, that they intended to grant to Congress the power to produce dollars of gold and silver which should always be of unequal commercial value at home and abroad. The principle of good faith, "the decent respect to the opinions of mankind," with which these men were imbued, fortify, and the words of the provision verify, the former assumption. Starting from this point, it can be seen that had Congress been granted the power " to make coins, regulate the value thereof, and of foreign coin," that would have been granted which Congress would have been absolutely unable to practically exercise. Suppose the Con- stitution read as above and Congress should pass a law to carry out this interpretation of its intent, viz, "to make coins, regulate the value hereof, and of foreign coin." The first section of a bill to carry this interpretation into j)ractical efi'ect would fix a ratio between gold and silver granting free coinage. The second section of the bill would provide that, upon every varia- tion of value between the gold and silver coins, they should all be recoined at a new ratio, and so on, every variation of value meaning recoinage of the lot, which would mean, at the present time, that all our dollars must be recoined about once a day, for between fixed quan- tities of gold and silver there is about one variation in that time, and if Congress is to malce coins and regulate the value thereof, why then they must make coins and change the ratio just as often as there is a fluctuation in value between them. It was never intended that Con- gress should be put into such an absurd position as this, and therefore it was said, wisely and understandingly, not that Congress shall have power to make coins, but that Congress shall have power "to coin money, regulate the value thereof and of foreign coin." The exx^ression "to coin" means to corner, to strike metal with a sharp instrument so as to leave an imprint. To coin money is to make money of metal by stamping it with certain marks converting it into money. The coin marks are a guaranty of the weight and fineness of the metal stami)ed or coined. Among the Welshmen the expression "to coin tin " means to take a bar of tin and stamp upon it marks indica- tive of its weig] it and purity ; likewise the stamp of the silversmiths upon silver plate has been commonly known for hundreds of years as "the coin mark." Observe how closely this interpretation, when com- BANKING AND CURRENCY. 623 pared with the provisions of this bill, fits not only the words of the Constitution, but also the manifest intent of its fi-amers. Under the power granted to Congress by the Constitution in the expression " to coin money," Congress enacts that the Government shall receive fine gold or silver bars and shall coin them into money. Under the power granted to Congress by the Constitution in the expression "to regulate the value thereof," Congress enacts that the Government shall issue representatives of this coined money in par terms of the unit, redeemable in the same terms; thus the value of the representative is constantly regulated at par. Under the power granted to Congress by the Constitution in the expression " to regulate the value thereof," Congress further enacts that under certain conditions a tax shall be imposed upon all notes issued. The effect of this tax is two-fold. First, to regulate the value of the coined money. Second, to regulate the quantity of money so that a normal level of prices will always prevail. Under the power granted to Congress by the Constitution (Section VIII, clause 3), "to regulate commerce with foreign nations," and the additional power granted in the expressiou "to regulate the value of foreign coin," Congress enacts that the Government shall establish agen- cies at the oulyplaces where the value of foreign coins can be regulated, and it also enacts that the value thereof shall there be regulated so that the money of the United States can be converted into that foreign coin without loss, that is, at par. So interpreted^ the provisions of this bill exactly iit the constitu- tional requirements. Nothing more is needed, nothing less will do. CONCLUSION. The principles upon which this bill is based are as follows : (1) That the Government should issue representative money only on the best monev collateral. (2) That gold and silver are the best money collateral. (3) That there can be but one unit of value. (4) That gold is now that unit. . (5) That the amount of known gold in the world is msufiftcient tor the necessities of commerce. i i_ u i, (6) That gold, which is now the first money collateral, should be supplemented with silver, which is now the second money collateral. (7) That silver should be used in constant equal and interchangeable terms of the unit and not in temporary and unequal terms of the unit, as prevails when a fixed ratio is established. These principles, I con- sider, have been established by the argument. It is well to note the correspondence which exists between the finan- cial principles upon which this bill is based and the financial principles held bv the fathers of the Government. This correspondence has already been shown as regards the Constitution. From the coinage scheme proposed by Eobert Morris, superintendent of finance, Janu- ary 15, 1782, the following pertinent sentences are culled: It is not necessary to mention, what is in everybody's mouth that the precious metals were first used as bullion, and that the inoouvenienoe of jeighing and the difficulty of assaying introduced the practice ot coinage, m order that the weight andflneLss might be known at the first view and of «°^/Xr?be .'relt Triv' instantly ascertained. It is equally unnecessary to observe that the great privi lege of declaring this value, by particular marks, has among all ^^^^"^^^^^'f ^iJ^X^^ exclusivelv in the sovereign. Although most nations have coined coppei yet that metal ilso impure that it has never been considered as constituting the money Sandard Th?s^s aifixed to the two precious metals because they alone -will admit of having their intrinsic value precisely ascertained. 524 BANKING AND CURRENCY. (Compare principles 1 aud 2, That the Government shouldissue money only on the best money collateral, and 2, That gold and silver are the best money collateral.) But nations differ very much in the relation they have established betvreen gold and silver. lu some European countries an ounce of pure gold passes for 15 ounces of pure silver, in others for 14. In China it passes for much less. The standard, therefore, "svhicli is affixed to both metals is in reality affixed to neither. The demand vrhich commerce might mate for any one of the precious metals in prefer- ence to the other would vary this real standard from time to time. Arguments are unnecessary to show that the scale by which everything is to be measured ought to be as fixed as the nature of things will permit of. Since, therefore, a money stand- ard affixed to both the precious metals will not give the certain scale, it is better to make use of one only. In the present moment it is by no means of such conse- quence to establish the relative value of different coins as to provide a standard of our own by which in future to estimate them. (Comj^re principle 3, That there can be but one unit of value.) There can l)e no doubt, therefore, that our money standard ought to be affixed to silver. But silver is liable, like everything else, to a change of value. If there is a demand for it to export, the ^'alue will rise ; if the contrary, it will fall, and so far it can not be considered as a fixed measure of value. If this objection can not be removed we must not suffer it to preponderate, because it weighs alike against every other metal. (Compare principles i, 5, 6, and 7.) And in Thomas Jefferson's notes on the establishment of a money unit aud of a coinage for the United States, which it appears were communicated to Congress simultaneously with Mr. Morris's letter, we find not only did he recognize that fixed quantities of gold and silver can never long remain of the same commercial value, but that he gives a rule for equalizing their value from time to time, which rule, before quoted, is followed in the provisions of the bill before set forth. The proportion between the values of gold and silver is a mercantile problem altogether. The legal proportion in Spain is 16 to 1; in England, 15^ for 1; in France, 15 for 1. The Spaniards and English are found in experience to retain an overproportion of gold coin and to lose their silver. The French have a greater proportion of silver. The difference at market has been on the decrease. Just principles will lead us to disregard legal proportions altogether, to inquire into the market price of gold in the several countries with which we shall be principally connected in commerce, aud to take an average from them. (Compare section 7.) Alexander Hamilton also expressed the same view in his report upon the establishment of a mint (1791): There can hardly be a better rule in any country for the legal than the market proportion, if this can be supposed to have been produced by the free and steady course of commercial principles. The presumption in such cas'es is that each metal finds its true level, according to its intrinsic utility, in the general system of money operations. Aud William H. Crawford, in his report upon the currency, February 12, 1820, states these principles: (1) That the power of the Government over the currency be absolutely sovereign. (2) That its stability be above suspicion. (3) That its justice, morality, and intelligence be unquestioned. (4) That the issue of the currency be made not only to depend upon the demand for it, but that an equivalent be actually received. (5) That an equivalent can only be tbund in the delivery of an equal amount of gold and silver, or of public stock. Wiieu the currency is metallic, no addition can be made to it without giving an equivalent. It is indispensable that this condition should be annexed to the acqui- sition of the paper currency, preliminary to its enteruig into circulation. By the exchange of specie for currency the active capital of the country will be increased to the amount of the currency, and the capacity of the nation to redeem it whenever it shall by" any circumstances whatever become expedient, will be unquestionable. BANKING AND CURRENCY. 525 The similarity of the financial principles upon which this proposed bill is based and the financial principlesheld by the fathers of the Eepublic and those who have succeeded them is apparent. Comment is unnecessary. Consider now the practical and profitableresnlts which would xmdoubt- edly obtain npon the establishment of a sound money system. Con- sider, for a moment, a great railroad trunk-line system starting from New York City, intersecting many rich and populous towns and vil- lages, throwing its feeders to the right and to the left, and extending over many States to its terminal point on the Mississippi. This prop- erty is represented by bonds and stocks which are held by thousands of investors. The interest and dividends which these bonds and stocks produce originated and take their source from the people who live along the route of this railway, who ship freight on and engage passenger traflic over its lines. The receipts of this road necessarily can come from no other source. The argument is this : Unless the people who live alongside this road and are tributary to it are doing a good busi- ness, then the road itself can not do a good business, the returns which it receives are necessarily small, and this unfavorably aft'ects the divi- dend and the interest account of this road. Now, it is a necessary requirement to a permanently good business condition that a good currency system shall precede and accompany it. This proposition is a self-evident one, because of the fact that its nega- tive can not be true. A good money system, then, is what these people want. With it they are enabled to go forward and develop the resources of the land contiguous to the railway without fear or falling back, and when they are developing it they are not only making money for themselves, but, through the necessary use which they must make of this railway in conducting their business operations, they are coin- cidently increasing its earnings and remotely the earnings of its bond and stock holders. And if this is true of one railroad, does not the illustration apply with equal force to all other railroads? Approxi- mately the amount of bonds and stocks representative of the railroad interest in this country aggregates the enormous sum of $7,000,000,000. Coincident with the beneficial effects of a sound currency upon the railways, the holders of their stocks and bonds, and the people along their lines, comes corresponding benefits to all collateral interests— the manufacturers of bridges, rails, locomotives, cars, and the thousand other separate industries that radiate, like the spokes of a wheel, from each one of these latter interests. The locomotive works, for instance, is dependent for its market upon the demand of the railway. The men here employed are salesmen, bookkeepers, draftsmen, fore- men, mechanics, carpenters, blacksmiths, boiler-makers, coppersmiths, foundrymen, electricians, engineers, fiirnacemen, hammermen, painters, and laborers. The single object of this industry is to take the crude materials of the earth and, by manufacture, fashion them into engines; and this again starts activities among the miners of coal and of iron, the makers of steel billets, the lumbermen, and the manufacturers of paints and of varnish, all dependent, mediately or immediately, upon the demand of the railway, and this in turn dependent upon the general state of business among the people who live alongside its lines. The commercial development of America has not yet commenced. It is but a few years since the great transcontinental lines have oeen completed. These lines and systems, with their branches, tap and drain the country's mines of exhaustless mineral resources ; traverse the forest and the plain, the productiveness of which, as yet, has been scarcely exploited; touch with their Briarean arms the region ot the 940 5 526 BANKING AND CURRENCY. prairie and tLe iiioimtains, the Great Lakes and the Gulf, and are tlae instruments by means of which the commercial products of the future shall be collected, separated, mobilized, and distributed from our sea- ports in American ships and scattered over the whole surface of the globe. The men who have built and largely own the railways of this country have never been accused heretofore of lacking that quality of business perspicacity, the aim of which is personal profit, yet, as regards the attitude of some of them towards this money question, they are pursu- ing the very course which is making themselves and everybody else the iioorer; the course which cuts down the earning power of their roads; the course which requires the lowering of the wages or dismissal of their employes; the course which sets labor against, cai^ital; the course which breeds mobs, riot, and bloodshed, and renders the savings of capital insecure ; the coursewhich, if persisted in long enough, means the ruin of the Eepublic and the inauguration of a socialistic des- Ijotism. In holding out firmly for gold and gold alone and in refusing to sup- plement the gold with silver, for they can supplement it with nothing- else without driving the gold out of the country, the owners of these railways are putting themselves in a jjosition, which, from the stand- point of a business man, is ridiculous, and that position is this: "We propose," they say, " to hold things exactly as they are; the volume of money shall not be increased, for if it were increased prices would rise, industry would awaken, the earnings of our railways would increase, and we might become too rich. Go to ! we are looking for pov- erty and trouble, not for wealth and prosperity." Said Senator Howe at the conference of 1881: The demand for circulation grows with the world's increasing trade. We are in no danger of inundation from the precious metals. Enormous lines of railways being unrolled upon both hemispheres, great fleets of steam-driven ships traversing all our seas, reveal a commerce, gigantic to be sure, but it is young. It is substan- tially the growth of but little more than two decades. If statesmen of the present time do not strangle the future, this child of twenty years will x^rove the mother of a commerce which deties calculation and appalls prophecy. The retirement of silver means to double the weight of existing obligations and to compress the world's activ- ities into half their existing scope. It means to consign the nineteenth century to a pauper's grave, and to lay the heavy hand of paralysis on the cradle of the twentieth. Here is an opportunity offered to the American people — an opportu- nity unexcelled in its potentialities for profit. When a business man is about to embark in au industrial enterprise, he first carefully counts the prospects of gain and of loss. If the results of his investigations lead him to exi^ect a profit, greatly in excess of the risks of the loss involved, he moves forward. Otherwise not. Let us look at this proj- ect from the standpoint of a business man. Suppose we adopt this project, what are the prospects of loss, where and how can we lose? In adopting this monetary plan Ave always know exactly what we are doing. In its execution there are some niceties but no difficulties and, above all, there is no guesswork. The gold and silver is received; it is assayed and weighed; in the case of silver a price is set, which price represents the world's valuation of that silver, notes being issued to that amount, which notes are redeemable in the same material and in the same manner as that in which they are issued, which notes when redeemed are destroyed. At the various redemption agencies in this country the process of redemption is the same. At the various foreign redemption agencies BANKING AND CURRENCY. 527 tlie process of redemirtion is the same or an equiTaleut thereof. If any mail can point out any business defect in the bill presented, let him do so. Failing to do this, I command his assent to it. Look at the situa- tion as it exists to-day, a great country filled and overflowing with nat- ural resources; a country which embraces every variety of climate, from the arctic to the tropic zone, a country inhabited by o^ er seventy mil- lions of the most intelligent race on the face of the globe, and yet millions of workers are idle and underfed, and the shii) of State is in irons. Political government can not be carried on without some political system. We have such a system in the Constitution. Commerce can not be carried on without some sound and safe monetary system, upon which it can securely rest. It is this that is here offered. Said William M. Evarts at the conference of 1881: We occupy — quite as mucli in our geograpliical position in this aspect towards the dift'erent forms of wealth, production, and industry — an entirely catholic and free position, having no interest hut the great interest that all nations, as far as money is concerned, should not he emharrassed in trading with us, and that we, as far as money is concerned, should not be obstructed in selling our raw products to the skilled nations of Europe or the products of our industry to the consumers in less developed nations. Besides this efinilibrium of selfishness, which makes the general good our good, we are free from any bias in the matter of the production of the precious metals, trivial as that is in compaiison with the immense and fervid march of commerce. We produce the two metals equally. Out of the same prolific silver mines, even, the same ore gives us .55 per cent of silver and 45 per cent of gold. How could you imagine a nation, in regard to its production of the precious metals, more indifferent as to which is made the master of the world? It is bad tyranny that we resist. It is the possession of freedom and of ])ower in the commerce of the world by the service of both these metals, in place of the mastery of either, that we advocate. What, then, are the functions and service of money, not in the abstract, but m ref- erence to the actual development of the industries and commerce of the world! What in the present, and what in the near future, are the conditions under which this office and service of money are to be performed? What are the impediments that exist, either in the natural properties of the metals, or the habits, the associa- tions, the repugnances, the preferences of mankind ? What in its history— what in its institutions— are the embarrassments in regard to what, as an abstract idea, everyone must applaud and everyone must maintain to be a desideratum— a fixity of the unit of money all over the world? What, in a word, has already been done in the progress of affairs towards this desideratum ? What reiuains to be done '! What is there, within the resources of courage and wisdom, m the voUintary action ot the nations? What is competent, within the courage and wisdom of this couterence, for it to propose that shall accomplish this great result of placing the money ot the world abreast with its burdens and responsibilities, and untrammeled m the dis- charge of them? * * * ^ .1 1 1 „i„ All this vast expanse of credit in the developed commerce of the world rests finally upon the intrinsic money of the world, and if you would have fixity, unity, and permanence in the credit operations of the world, there must be fixity unity and permanence in all the intrinsic money of the world, upon which that credit rests: This credit is, almost without a figure, a vast globe, and this service of the precious metals to sustain it is that of an Atlas, upon whom the whole fabric rests. The strength of both arms, nerved by a united impulse of heart and will, is indis- pensable ; neither can be spared. Said Mr. Pirmez, at the conference of 1881 : The monetarv question is a question which raises numerous problems. They hear upon a situation which not only is not perfect, but which will not be so, unless at a very distant day. Perfection would evidently be the monetary unity of t^« ^^ole world. How far are we from that-how many stages to be made before reaching it ? But, just because we are far from the goal, and because it is difficult to attain it we ought to try and approach it, and every difficulty oj^^o^K'/.^ ^ Pf o^Jf^"- J*/,?; thirefore, well not to abandon the examination of a matter m w^hich there is so much to he done. 528 BANKING AND CURRENCY. The measure proposed, while providing a world's money, is also prac- tically a declaration of financial independence. Washington Las advised us that harmony and a liberal intercourse with all nations are recommended by policy, humanity, and interest. But even our commercial policy should hold an equal and impartial hand; neither seeking nor granting exclusive favors or preferences; consulting the natural course of things; difl'using and diver- sifying, by gentle means, the streams of commerce, but forcing nothing ; establishing, in. order to give trade a stable course, conventional rules of intercourse, the best that present circumstances and mutual opinion will permit, but temporary, and liable to be from time to time abandoned or varied as experience and circumstances shall dictate; constantly keeping in view that it is. folly in one nation to look for disin- terested favors from another ; that it must pay with a portion of its independence for whatever it may accejit under that character; that, by such acceptance, it may place itself in the condition of having given equivalents for nominal favors, and yet of being reproached with ingratitude for not giving more. There can be no greater error than to expect or calculate upon real favors from nation to nation. It is an illusion which experience must cure, which a just pride ought to discard. But, gentlemen, if you do not make a favorable report upon this bill, now before youcbodyjwhatmeasurewillyoureportfavorably? Assum- ing that you desire to maintain gold as the unit of value in this coun- try, will you make a favorable report upon a proposition to issue green- backs or silver dollars or State bank notes? The effect of any one of these propositions, as you know, would be to drive out gold. Is the proposition to issue bonds, buy gold in Europe and put it in circula- tion here? Do this, and it will flow back again as soon as you get it here. You may as well try to change the level of the ocean by pump- ing water from Liverpool into New York Haibor. Is the proposition one for an international agreement at a fixed ratio? This, also, as you know, is a hopeless desire and, even if accomplished, is a purely specu- lative venture. Or is the proposition to do nothing? This proposition certainly would be a most remarkable one. Already the do-nothing policy has started ominous rumblings in the political body, which pref- ace a coming storm. Herbert Spencer, that great leader of the world's thought, has lately said : My faith in free institutions, originally strong (though always joined with the, belief that the maintenance and success of them is a question of popular character) has, in these later years, been greatly decreased by the conviction that the fit char- acter is not possessed by any people, nor is likely to be possessed for ages to come. A nation in which the legislators vote as they are bid and in which the workers sur- render their rights of selling their labor as they please, has neither the ideas nor the sentiments needed for the maintenance of liberty. Lacking them, we are on the way back to the will of the strong hand in the shape of the bureaucratic despotism of a socialistic organization and then of the military despotism which must follow it ; if, indeed, some social crash does not bring this last upon us more quickly. Given a money power controlling the railways, telegraphs, the pub- lic press — given a sufficient number of pliant legislators, a well-organ- ized detective force, the control of the business agencies when credits are made — add to these a shrinking volume of money, so that the producers are kept poor, and therefore ignorant, and the death of liberty is cer- tain. There is no instrument known to history, no poison known to science, that is so deadly to civilization and progress as a shrinking volume of money. Macanley appealed to the nineteenth century as a test of the success of the Republic. It is my opinion that the action which you may or may not take upon this money question will demonstrate whether he was right or wrong. Once before reference has been made to a remarkable statement made BANKING AND CUERENCi'. 529 by Eobert Morris, when cousicleriug this question of the variability of silver. He says: If this can not be overcome, we must not allow it to preponderate, for it weighs alike against every other metal. At times the fate of men and of nations hang on a single sentence. This is that sentence, and this is that time. The implication of this sentence is that if this variability of silver can be overcome, then it is our duty to overcome it. This variability can be overcome in the man- ner in which I have had the honor of presenting to you, and the time to overcome it has arrived. I firmly believe that if Eobert Morris, Thomas Jefferson , Alexander Hamilton, and those others of glorious memory, were here present, their advice would be, proceed. What we want is a return of prosperity. The great cause of the present business depression, as before stated, lies in the advance in the value of gold. It is proposed to overcome this by increasing the quan- tity of standard money in the world. When we do this we are certain, by reason of our knowledge of the laws of j)rice and the quantitative theory of money, that prices will rise. When prices are rising business becomes active, industry is vivified, commerce is awakened, Mr. Hume says : In every kingdom into which money begins to flow in greater abundance than for- merly, everything takes a new face ; labor and industry gain life ; the merchant becomes more enterprising, the manufacturers more diligent ; and even the farmer follows the plow with more alacrity and attention. Mr. Van Buren Denslow says : It is claimed that a signal service was rendered by the Macedonian Empire to mankind in seizing the collected treasure stores of uncoined gold and silver, which, according to the barbarious customs of an earlier epoch, the monarchs of the east- ern world had massed at Gaza, Perepolis, and other like points, coining it into ■money and issuing it to the world in payment for labor. 'I'he civilization and the emancipation of man under the Eoman Empire were largely due to an increase in the volume of money. It is doubtful if, without money, it is possible to organize labor on any large scale, or bring about the association of men, except by force and slavery. Sir Archibald Alison says : The fall of the Eoman Empire, so long ascribed in ignorance to slavery, heathen- ism, and moral corruption, was in reality, brought about by a decline in the gold and silver mines of Spain and Greece, from which the precious metals for the circulation of the world were drawn, at the very time when the victories of the legions and the wisdom of the Antonines had given peace and security, and with it increase in mem- bers and riches to the Eoman Empire. Commenting on this passage, Gen. F. A. Walker says: Doubtless tills claim is far too large; causes distinctly political and social had to do with the downfall of that mighty fabric of military enterprise, legislative wis- dom, and administrative skill; but it seems to me that there can not be an intelli- gent doubt that the steady rise in the value of money, due to its increasing scarcity, contributed greatly to the impoverishment of the people, the decay of commercial enterprise, and the' abandonment of agricultural labor, which sapped the foundation of the Eoman Empire. Contrariwise, witness the effect upon the condition of Europe upon the distribution of that vast accumulation of silver and gold which those bold soldiers of fortune, Oortez and Pizarro, wrested from the Aztecs and the luoas. When the sun's rays shone upon the treasures of Potosi, Europe awoke from the sleep of the dark ages. She roused herself, and the lethargy of a thousand years, " Like the dewdrop fi-om a lion's mane, was shook to air." Then began the story of modern progress. Learning awoke and science stepped forth. The heavens began to reveal their secrets to the busy searches for truth. Vasco de Gama, Magellan, Hudson, Cook, Frobisher, and Davis showed to man- 530 BANKING AND CriRRENCY. kind tlie shape of tlie seas, the continents, and the islands. Inven- tions, which have liberated man from slavery, follow each other in an orderly and logical sequence. Eeason lights her torch, progTess unfolds her banuei', and civilization marches forward with a firm and buoyant tread. There" can be no advancement but where opportunity precedes it. Opportunity fills the stomach with food; that is the first essential. Opportunity well couserved brings leisure, and thus the development of the mental part of man is made possible. There can be no oppor- timity where prices of products are constautly falling and when that fall is brought about by reason of a constantly shrinking volume of money. Money frees men — without it they are slaves. It is rumored that some of the citizens of the United States have taken advantage of this advance in the value of gold to go into the business of making money on their own account, aud have started what are, by courtesy, called "private mints," where silver dollars, equal in fineness aud of the same design as those manufactured by the Government, are turned out. With silver at 65 cents per ounce, a profit of 50 cents can be made on each of these dollars put in circula- tion. The teiiiptatiou to start these imvate mints, it must be confessed, is a very strong one, aud the eiiect of a large addition to the circula- tion of such dollars, which can not be distinguished by any means known to science from those of Government make, unquestionably will be to drive gold out of the country. Xo one has yet pointed out the reason why any one who desires to do so may not have a private mint on his premises and, in a com- munity favorable to silver money, such mints necessarily must be difiicult of detection. Thus the spirit of injustice and disregard for the Constitution sliown by that portion of the community who desire only gold for money awakens ingenious crime in another portion of the community. In piirsuing the monetary'policy which at present obtains in this country no one is permanently benefited. The public morals are corrupted, and the good name of the Republic is clouded with reproach. The Democratic party in their platform have iwomised to the people 01 the United States a solution of the money problem. The Repub- lican party iu their platform have promised the same thing. The Ijeople of this country iu their imperial will decided that this su.preme hojior should be bestowed upon their servants, tlie Democratic party, and it is manifestly the duty of Cnngress, or the Senate, and of the Executive, to now crystallize into law this tremendous desire. "Where there's a will there's a way.'' I assume that the wdl is not lacking, and I trust that the way may soon be found; if not in the way which I have had the honor of presenting to you, still in some other way, which some other citizen in ay suggest. In presenting this bill to you, I offer it as the best ijroduct of my mind in this direction, and frankly say that I do not see how, under the existing circumstances, we can do anything else, assuming, of course, that gold is to remain the unit of value in this country. The merits of the bill are summarized as follows : 1. Each representative dollar produced, whether of gold or silver, is always tlie commercial equal of every other dollar at home aud abroad. 2. The note-holder is always secure, because of the tact that behind each c'old or silver note is a standard dollar's woitli of gold or silver, payable on demand, and which said gold or silver is held by the Gov- ernment of the United States of America, acting as custodian and trustee. BANKmG AND CURRENCY. 531 3. The Government of the United States can suffer no loss, because it is in a position, when necessary, to protect its trusteeship. 4. The notes arising under the provisions of this act are worth par throughout the biisiness world because they are convertible into the money of foreign countries without loss. 5. This measure recognizes the unfortunate condition of our present currency, and strives, through reorganization, to remedy it as rapidly as possible, so that eventually it may be all simplified, brought up to, and maintained at the world's standard of value. 6. This bill provides the only means by which this country will be enabled to get back the large amounts of gold recently sent from our shores without issuing bonds therefor. 7. Provision is made in the supplemental bill for the free coinage of such gold and silver coins as experience has demonstrated the American people desire to use, and a reasonable and constitutional dis- position is made of the profit therefrom. 8. The plan presented is simple, safe, and honorable, in accord with the financial provisions of the Constitution, the manifest intent of the fathers, the platforms of the Republican and Democratic parties, the rules of business practice, and the dictates of common sense. Face to face with this money question as we now are, we must meet it and overcome it or be overcome by it. Gingerly compromises won't do. To compromise Avith a law of nature is impossible. She speaks and men and nations must obey. We solved the slavery question. Shall we shrink from this? Why not meet this question here and now, and put it out of the way? To let events drift along and to do nothmg is dangerous to the life of the Eepublic and the honor of the glorious flag. Even now, owing in part to the imperfect financial situation, socialism insidiously and unseen creeps along and has gained a foot- hold. Anarchism raises its snake-like head and hisses. This Government, I take it, is a Government for individualism and not for socialism ; a Government for free men and not for slaves ; not an anarchy, but a Government of written law founded upon the Constitu- tion of the United States, that charter of human liberty. Every intelli- gent man who is acquainted with this matter will, 1 beheve, admit that our present monetary system is not in accord with the constitutional provisions relating to that subject. Daniel Webster has truly said : Cona-ress has no power in tliis regard, but to coin money, regulate the value thereof, and of foreign coin. The constitutional, theretore the legal, standard ot Talues is fixed and can not be changed. I am certain y ot the opinion that gold and silver, at rates regulated by Congress, constitute the legal standard of values in this country and that neither Congress nor any State has authority to make any other standard or to displace this. This opinion, so clearly and so forcibly expressed by the greatest constitutional authority which this country has ever produced, has now its application. Will Congress stand by the Constitution or will it depart from it? That is a question, big witli fate, which Congress alone can answer. . , „ , „ , , , In conclusion, I desire to say that I am not unmindful of the tremen- dous influences, commercial, political, and social, which the enactment into law of this bill will awaken, but those iufluences, such as they are and such as they will continue to be, are each and all beneficent ones. well fitted to arouse the noble genius of peace amongst the nations ot the world. Lafayette said to his friend Washington, "In thetuture of America lies the hope of mankind.'' Prophetic words, to which we will do well to listen. 532 BANKING AND CURRENCY. Committee on Banking and Oxjeeency, Washington, D. 0., July 2, 1894. The committee met at 10.30 a. m., Hon. William M. Springer, chair- man, presiding. The Ohaieman (to Mr. Oaruth). You having introduced the bill under consideration, we will ask you to submit any views you may have. Mr. Caetjih. I introduced this bill. It was prepared by Mr. W. T. Grant, of the city of Louisville, a prominent citizen, who has been for many years identified with that city, and who has made a study of this subject. I will be glad if the committee will hear his statement. STATEMENT OF MR. W. T. GRANT, OF LOUISVILLE, KY. Mr. Geant. Mr. Chairman and gentlemen of the committee, I thank you for your courtesy in permitting me to appear before you, and I can assure you that I do not come Avith the intention of enlightening the committee on the subject of banking; but will simply confine my views to that of currency, and as to the necessity of something being done to make oiir present currency stable. I have no set speech, not even any notes, and would be, at any time during my remarks, glad to answer any questions which any member of the committee may choose to ask. I will confine my remarks to one idea, and that is, how to make the present currency good. I do not allow the question of banking to cut any figure in my bill, but confine it to the question of currency. Our currency is being besmirched both at home and abroad. The other day I cut a little squib from one of the Cincinnati papers showing the doubt our people have in our currency, which I will read, as follows: Cincinnati, June W. The banks aud capitalists ou tlie Board of Trade are exercised over a circular letter from D. N, Morgan, U. S. Treasurer, directing the subtreasurer to secure all the gold possible here, and asking the banks and others to exchange gold in sums of $1,000 and multiples for new paper currency. The Ohio Valley Bank had promised the subtreasurer $50,000 of gold to-day, but the prospects of a premium ou gold renders it doubtful whether any coin will be released here. Thomas Emory, one of the largest investors here, has for some time made all his contracts payable in gold, and others to-day state they propose to adopt the same policy. Our own people are in doubt as to the stability of our present cur- rency, by making trade contracts payable in gold; the foreigners are taking our gold out of the country for the same reason, that they doubt the money policy of this country and fear that we are liable to go to a silver monometallic basis, except where contracts are made payable in gold. I think such a country as ours, one of the first in the world, should have a credit to compare with any other first-class nation. I think It is a shame and a disgrace to be in our present dubious finan- cial condition. We would occupy a more manly positiou to even go to silver mouoinetallism than to be doubtful as to what we have. I BANKING AND CURRENCY. 533 think it is now pretty generally recognized by botli gold and silver men tliat there can be only one standard of value. It was that way for two hundred years prior to 1873. We never had a fixed value for both metals, and if we had for a time it would not remain long. My position in regard to the question of the standard of value is this : I do not care whether it is silver or gold. If we had adopted a silver standard after the greenback period, I would have been as much opposed to a transition from silver to a gold standard as I am now to a transition from gold to silver, for the reason that a transition from one to the other is injurious to our people. In one case it would be an injury to the debtor, and in the other case it would be an injury to the creditor. But now that we are on a gold basis the G-ov- ernment should by all means in its power prevent a transition from our gold basis to a silver standard, for the reason I have mentioned — the injury it would do to a large class of our people. The people who would be injured would not be the capitalists or the millionaires, because most of their investments are in gold contracts ; but the i^eople who would suffer most would be the workingmen and the dei)ositors in savings banks and building and loan associations, who would have to take the new depreciated currency at 50 cents on the dollar for their present gold deposits. So that the question is, how can we maintain the pres- ent standard of gold and not have to adopt silver monometallism ! We must do one or the other. I have tried in this bill to meet that point, and to make and keep our present currency as solid and as good as gold in this country or anywhere in the world. The only way that any bank or individual, or any Government (for a government is simply an association of individ- uals) can make its notes as good as gold everywhere all over the world, is to put up collateral to make them good. In banking experience we observe that all firms in good standing are always ready to make good their collateral on loans when called upon; audit is only those of doubt- ful credit who are insulted when they are asked to put up additional collateral. We, as a Government, ought not to be insulted when called upon to put up collateral, but shoiild do so, and save being classed as of doubtful credit. The Bank of England puts up collateral, making its notes good every- where, and our Government should put up sufflcient collateral to make its currency as good as any in the world. I claim that in order to accomphsh this we ought to have created a currency commission, or trustees, if you choose to call them, who should have assets put into their hands by the Government suflioient to make good and finally redeem $1,000,000,000, which, I beheve, is about the amount which the Government is now floating. Those assets should consist of gold and silver at their commercial valne and United States bonds to make up the difference; so that at all times these three assets are equal to the whole of the currency out, whether depreciated silver coin or gold and silver certificates, Treasury notes, or green- backs. With these assets the commission could at any time retire the whole of the circulation, if necessary; but I claim that by the natural increase of circulation, instead of having to retire the whole circula- tion, the Government would by 1907 have little or no debt-bearing inter- est. This commission would be able in course of time to retire the interest-bearing bonds of the United States and substitute currency with bonds put up as collateral, which would be uoninterest bearing. By the year 1907 we would have a floating debt of, say, the same amount as it is at the present day, but it would not be interest bearing. 534 BANKING AND CUREENUY. At the present time we have about $585,000,000 of interest-bearing- debt, and by that time we would have it all tat en up. These two points I want to elaborate more than any other. Give us a currettcy that ia sound and substitute noninterest-bearing debt for interest bearing. This plan would make it sound, and it would not depreciate the value of our silver. It would put our silver into use and on its own merits. By the various silver-purchasing acts of 1873-'75- 78 and '90 the Gov- ernment bought silver to the amount of 500,000,000 ounces, the value of which to- day probably is 62^- cents per ounce. The price at which it was purchased averaged $1,021 per ounce, and at the present value it would make a net loss to the Government of about 10 cents per ounce. I am not hereto find fault with those purchases of silver. The Gov- ernment has bought it, and has made a loss on it, the same as I might make a loss in the purchase of tobacco or grain. The Government's net loss at 40 cents per ounce would be about $200,000,000. In place of carrying the silver in the Treasury at its cost of $500,000,000, the Treas- ury should carry it ou its books at its real or bullion value, which is only about $300,000,000. Any firm or individual in good standing would not carry it at a greater valuation than it would sell for in the open market. I contend that the Government should acknowledge the loss it has made, and add that much loss to the public debt, by the issue of that amount of bonds. I asked the U. S. Treasurer the other day if he would pay gold for silver certificates, and he told me no; that that was only done in one case, and that the Government did not feel bound to do it. If the Government should determine that it would pay only silver dollars for its currency notes and not receive them as dues, that would put us on a silver monometallic basis. The only thing that keeps the price of the silver dollar at i)ar is that it is received as dues by the Govern- ment. I do not pretend to be making any bill for banking, but only for good United States currency. I think the United States might as well have this interest as for the banks to have it. At the rate of 3 per cent, which the Government is now ])aying, it would result in a saving of about $30,000,(100 a year to the Government by uot ]Daying interest ou that much of its debt by carrying the collaterated bonds in the shape of noninterest-bearing bonds. The Government is now paying 4 per cent on $200,000,000 of bonds which the national banks now own and have deposited against their notes curreut. I have nothing to say against national-bank currency. I think it is the best currency system we have ever had. However, I think if the Government could save $8,000,000 a year ou those bonds it would be a very good thing to do, especially as national banks don't seem to care for their circulation. If it were to put up its own bonds in trust into the hands of a third l^arty, the Government would pay no interest, and the security on its currency would be just as good as our national-bank currency. I think this theory should appeal to the idea advanced by the Populists, with- out being fiat money, viz, that the Government should not pay any interest on its debt. The Chairman. How would you put it into circulation? My. Grant. The bill proposes, as a secondary proposition, to issue one kind of currency only, so that it would he less liable to be counter- feited. The people would become familiar with it, and would know good money when they saw it. It could be issued by degrees in lieu of the present circulation, which would be canceled. That would make as much circulation as we now have. BANKING AND CURRENCY. 535 My proposition also contemplates an increase of the circulation by prac- tically adopting the Tom Johnson plan. He tried to get a bill through, wliich was a good one, providing that all savings banks and other institutions which hold United States bonds, and wishing to increase their holding of currency, could deposit their United States bonds and receive notes in case of an emergency. If there is still further demand for currency, the commission could issue currency and retire its inter- est-bearing bonds, or it could issue notes and buy foreign gold, adding same to the bullion currency reserve. I think we have enough cur- rency now. I do not think we are suffering from the want of currency, but we are suffering from the want of a sound currency. I do not think there would be any difflciilty about issuing notes in other ways when needed. Mr. Hall. What would be the proportion between the silver bullion, the gold, and the bonds under your scheme? What would be the amount of each? Mr. Grant. The amount of gold and silver held now in the Treasury would be sufficient, I believe, to begin with. As a bullion reserve that amount would be ample. This could include the silver that is up against the $333,000,000 silver certiticates, andall the silver bought with Treas- ury notes, and would take in also all the gold, which, I am sorry to say, is very little, but it probably amounts to $64,000,000. The Government has used of currency gold about $86,000,000, and paid its expenses with same, and it ought to reimburse this currency fund; but I am not here to discuss that question. There are $64,000,000 in gold, and say about $500,000,000 in silver, at cost, now on hand. The Chairman. Silver certificates? Mr. Grant. There are about $500,000,000 of silver in the Treasury, estimated at its cost value. The Chairman. Brillion and coin together? Mr. Grant. Yes, sir. I put all that silver down, say, as worth $300,000,000 actual value. Mr. Henderson. I thought there were about six hundred and some odd millions of- silver? Mr. Grant. I put it down at its market value, what the silver could be sold for in the market. It was bought at from VIO cents down to 70 cents per ounce. As soon as it gets inside the Treasury, silver men want it valued at 129 cents per ounce. I wish to get down to hard- pan and to estimate it at its real value— what it can be sold for lu the markets of the world, for otherwise it is not a true asset. I would issue suflflcient bonds to make up the loss incurred m the purchase ot silver, say about $200,000,000. Mr. Hall. Then you have a dollar in bonds or sdver tor every dollar outstanding? -, - „ , i/i Mr Grant. Yes, sir. Also include gold, or, m all, as much as wouia equal the whole amount of the currency and depreciated silver com outstanding, which is, say, a thousand million dollars in round numbers. Mr. Hall. To keep up the greenbacks and gold and silver certih- p o -j" a a "^ Mr 'grant. Yes, sir. There are $347,000,000 in greenbacks, which is now quoted as part of the public debt. By issuing bonds against these greenbacks it would not increase the public debt, but would merely change its form. In the case of the silver, it would increase the public debt by $200,000,000, because of that much oss on silver, and that is why I say the Government ought to acknowledge that debt. The Government went into the busiuess of buying silver, and has lost 636 BANKING AND CUKRENCY. 1200,000,000. Tbis plau does not deterniiue that it shall remain that much of a loss. Of course, taking this silver at $300,000,000 as the real value of the silver as bullion, should silver ajjpreciate in the hands of this commission it would return the amount of such appreciation to the Secretary of the Treasury, in bonds, to be credited to the former loss on silver. That might be done once a month or oftener. I -will to call your attention to that point in the substitute for section 5, which shows that I do not wish to depreciate in any way the value of silver. I would like that this great product of this country could be brought up to $1.29 per ounce, if by any act of legerdemain or other- wise it could be made worth that. Please look at this substitute for section 5, in Hue 38, and it will show you what I mean. It reads: Should silver appreciate in value in tlie hands of the commission, it shall return in United States bonds at par, the amount of such appreciation to the Secretary of the Treasury, once a month or oftener, to be credited to the currency redemption bond account. In other words, the Secretary should issue to the commission $200,000,000 of bonds, being the loss on silver purchased, and if silver appreciated in value to that extent the conindssion would hand him back the $200,000,000 bonds. This lets silver take care of itself. Again, should silver depreciate in value, the commission would draw on the Secretary of the Treasury for more bonds at par to the amount of such depreciation, the i>urpose being to maintain an amount of assets in the hands of the commission, of equal value to the currency out- standing. The commission are merely trustees to hold the bonds. In addition to its own commercial value, they would hold 50 cents in bonds to make each silver dollar good, it being Morth intrinsically about 50 cents now. Mr. Hall. Have you made an estimate as to how much that would increase the debt of the United States? Mr. Grant. I think it would be about $200,000,000. I take it in this rough way, 500,000,000 ounces at 40 cents per ounce makes a loss of $200,000,000. Tlie United States has made that loss. Mr. Hall. I agree with you. Are you going to retire greenbacks ? Mr. Grant. Cireenbacks would stand in the same relation as they do now, only they are now charged in the public debt stateirient as United States currency notes to the amount of $347,000,000. In my plau this amount would be charged to bonded debt. There would be no change in the figures, but only in the description of the debt. This additional bonded debt does not bear any more interest than the old United States notes or greenbacks because the bonds are put up in the 8hai>e of collateral as a trust fund. Mr. Oox. You have got as a basis of circulation bonds, gold, and silver? Mr. Grant. That is the basis. Mr. Oox. That is what the currency is based on, and it is the very life of it ? Mr. (tEAnt. Yes, sir. Mr. Oox. Suppose you have got $200,000,000 of bonds and the cur- rency comes back foi redemption and gold is issued, how are you going to keep the holders of the currency from demanding its redemption in gold ? Mr. Grant. In the first place, I claim they would not demand it if BANKING AND CUREENCY. 537 they kuew they could get it; but if they should, then those bonds ■would have to be sold to provide the gold. Mr. Cox. In other words, the only way to do would be to create an interest-bearing debt? Mr. Grant. If it came to that, certainly; we could retire the whole currency we have to-day. But there is hardly such a possibility, because what the people want is a sound currency. The Chairman. That is the system we have now. Mr. Cox. That is one of the serious troubles we are in now. Mr. Grant. I contend that if we put up bonds we will have a better security than the present greenback. By the act of May, 1878, the Treasurer is prohibited from canceling any greenbacks. The Govern- ment can only cancel and reissue them. Mr. Cox. Eedeem and reissue*? Mr. Grant. Yes ; that is what I mean. I think that nobody can misapprehend the position I take. It is exceedingly simple, and any fourteen-year-old boy can understand it. It does not call for anything more than the security any other good currency requires. All good bank- ing institutions either put up Government securities or coin and bullion to redeem their pledges, and such currency will circulate all over the world as gold. That is not the case with the United States currency, and the consequence is our currency is questioned and doubted. The Chairman. If you should succeed in the accomplishment of your object, you would simply leave the bonds and bullion up as valuable security for the currency"? Mr. Grant. Yes, sir. The Chairman. Will you please state how we can enlarge or con- tract our volume of currency under your plan ! Mr. Grant. That is provided for in section 4 of the bill. I am not wedded to this idea of a currency commission, composed only of Gov- ernment officials. I simply took Mr. Springer's plan, as, following out the same idea in my original pamphlet, I made the President of the United States and Secretary of the Treasury the commission ; but I approve the policy that some third party, or trustees, ought to be named who would be in touch with the community and who could be able to say when the country needed more or less currency. The Chairman. Some more responsible agent than one individual? Mr. Grant. Yes, sir. I have had some correspondence on this sub- ject with Mr. Warner, of the committee, who objected to putting so much power in the hands of Government offtcials. There is some rea- son in that. Probably, if we were to add to the commission the names of the chairman of this committee and the chairman of the Senate Committee on Finance it would answer better. I merely wish to pre- sent the idea as to the principle on which such a trust should be founded. I will read section 4, because it answers the chairman s question. Mr. Grant read section 4 as follows : Sec. 4 That to increase the circulation of the said United States currency notes, as the business of the country may demand, said currency commissiou may, m their discretion, issue, from time to time, additional United States currency notes by purchasing with said notes gold and silver bullion and United States bonds, also by lending said currency notes against deposits of equal amounts at par, ot United States bonds, interest on said bonds to cease during the term of said deposits : Pro- vided, that no more silver bullion shall be purchased until the chief nations ot the world have agreed to accept it as legal tender, along with gold in settlement of international trade balances at its market value, or at a fixed ratio m relation to gold. 538 BANKING AND CURRENCY. Mr. Grant (coutiuniug). I bold that silver ought to take care of itself. I msb to see it a legal tender tlirougUout the world; and if we can not get it in as such at a higher ratio, I would like to see it started at its commercial value. Every true friend of silver wishes it started as a legal tender on some basis; then the bankers of the world, by buying it, will make an increased demand for it, thus putting up the price. The silver men have tried to do that by getting the Govern- ment to buy silver, but in that they have utterly failed ; it has gone down continually. When we create a demand for silver, it will advance in price. If we could hx a higher ratio, it would be so much the better. Even if we have to take the commercial ratio, and can get it started at that, it would be better than to leave it out altogether. If we could get the ratio fixed at 16 to 1, by this plaa of mine all the bonds put up by the Government for depreciation would be returned. This is an automatic plan. If the silver men succeed in getting a high ratio, so much the better; but let us take things as we find them, and always keep on a commercial ratio. I am a better friend of silver than the silverite who wants to do the impossible. Mr. Spbbky. Your plan contemplates an increase of the national debt in order to increase the circulation? Mr. Grant. It does not increase the debt, the debt already exists— its loss on silver — but not acknowledged by the Government. Mr. Sperry. You can not increase the circulation except by issuing bonds '? Mr. Grant. Yes, sir. This section 4 does not increase the bonds. Suppose we wish to increase the currency $100,000,000. Go into the market and with United States currency notes buy $100,000,000 bonds, and that would cancel that much interest-bearing bonds ; or, if we needed more gold, then with same currency buy foreign gold. Mr. Sperey. With what would you buy foreign gold, with bonds? Mr. Grant. No; with currency notes we would buy foreign exchange, and import gold. Mr. Sperry. Your collateral, as you call it, for the security of the notes, would be the issue of United States bonds'? Mr. Grant. Yes, sir; along with gold and silver bullion. Mr. Sperry. Then you would be on a gold basis. Gold bullion is equal to gold coin. So far as that goes, there is no increase in the cir- culating medium. Mr. Grant. It is just the same. Mr. Sperry. So that all that is left as circulation is predicated on national bonds'? Mr. Grant. On national bonds, and silver and gold. Mr. Sperry. Silver on a gold basis '? Mr. Grant. Yes, silver on a gold basis. Mr. Sperry. There is no increase in the circulating medium beyond that part predicated on national bonds? Mr. Grant. The national bonds merely make up the loss on the sil- ver. For instance, that which would be predicated on silver alone would reduce the currency 1200,000,000. I do not wish to reduce the currency. What I desire to do is to make the Government put up United States bonds for its loss so as to make the silver good and not reduce the volume of currency. Mr. Sperry. You would not have any national bonds as collateral, except enough to make up the depreciation in silver? Mr. Grant. I would also have put up bonds in lieu of the green- backs. BANKING AND CURRENCY. 531) The CiiAiEMAN. Assuuiing tliat M'e are not to increase tlie currency, you Avould Lave the Government put up United States bonds equal m value to the outstanding currency obligations of the Government along with gold and silver at its market value? Mr. Grant. Exactly. My plan does not increase or decrease the present volume of circulation at all. The part which provides for an increase is done only to satisfy the demand of business in case it is necessary. Mr. Sperry. Supi^ose you have your currency system in active oper- ation, and this Commission thinks the country needs $5), 000, 000 more circulation. How are you going to get that increased circulation ? Mr. Grant. By buying United States bonds and foreign gold to that amount. Mr. Sperry. What do you mean ? Mr. Grant. Buy bonds in the open market. Mr. Sperry. Tou have already suggested that the bonds would be out of existence in 1907 ? Mr. Grant. When that time comes we will find something else; but that is a long way off, about thirteen years. Then Mr. SY)ringer's plan of putting up municipal and State bonds could be used. Mr. Cox. In reference to circulation, you have silver bullion, gold coin, and gold bullion, and you have got out under your plan $200,000,000 in bonds for the depreciated silver. Now there comes a crisis, and these commissioners think they want to increase the circulation, say $50,000,000. Now what do they do? Wb at steps do they take? Mr. Grant. They could buy United States bonds and foreign gold. Mr. Cox. What would the commissioners give for those bonds? Mr. Grant. Say they had to pay a small premium. In that case the U. S. Treasury would have to provide the difference above par for canceling the bonds; but it could afford to do that when interest was stopped. Mr. Cox. But if the bonds were above par, the commissioners would have to add the difference between the currency and the bonds. Mr. Grant. The Treasury would, and could they not afford to do that when interest is stopped? Mr. Oo'x. So that every time they increased the circulation of the country, they would increase the bonded indebtedness of the country. Mr. Grant. The bonded indebtedness of the country would remain the same. My plan would be that the Secretary of the Treasury would issue to the commission United States bonds, which would be 3 per cent bonds, to be exchanged for the other United States bonds bought and canceled. There would be no increase of the bonded debt, but a saving of interest. Mr. Cox. In other words, the Secretary of the Treasury would take up $50,000,000 of 4 percents"? He would take the 4 percents in and cancel them, and then would issue $50,000,000 of 3 per cent bonds, ■which would be noniuterest bearing. What would become of that $50,000,000 of bonds which would be reissued? Would they now bear interest ? ,.,,,-, -^ ., Mr. Grant. No; those bonds would be placed m the hands ot the commission. They would not bear interest until they were sold. They are merely trust funds in the hands of the commissioners to protect and finally redeem the same amount of currency notes. Mr. Sperry. Does that constitute the redemption fund? Mr. Grant. Yes, sir; that is a redemption fund. 540 BANKING AND CURRENCY. Mr. Speery. When you wanted to redeem you would have to go on the market and sell those bonds? Mr. Grant. Yes. , ^ . Mr. Spbrry. Suppose you get $.50,000,000 of those bonds up as col-, lateral security, how do you go to work to redeem them! Mr. Grant. To finally redeem the currency the bonds would have to be sold. 1 -, 4-- 1 Mr. Sperry. The existence of your system depends on a national debt "^ Mr. Grant. Yes, along with coin and bullion. The Government could afford to carry a national debt noninterest bearing, if only to provide stable currency to its people; but if it dechned, then Mr. Springer's plan of issuing municipal and State bonds could be adopted as substitutes for United States bonds. Mr. Warner. Then, as long as the present system of Government exists, it would practically make every bondholder his own banker, and confine the control of the currency to the holders of Government bonds? Mr. Grant. I do not understand you. Mr. Warner. You have explained that in a time of stringency the way to add to the currency would be to exchange Government bonds? Mr. Grant. To buy with currency or lend currency on Government bonds is one way. . Mr. Warner. Whether you bought them, or m whatever way you got them, it makes no difference. The party who owns the Govern- ment bonds is the one who controls the Government supply, whoever he is. That is one serious objection. Mr. Grant. To a certain extent it would depend on the premium demanded. There are other ways to do it. The plan proposes to loan currency on deposits of United States bonds. Mr. Warner. The bondholder could get it, but nobody else could. Mr. Grant. Of course the bankers are generally the bondholders. Mr. Warner. I would say any bondholder, whether he is a banker or not. I am not opposed to that. I represent more bondholders per- haps than any man in the room ; but we do not want any plan to give them control. Mr. Grant. I would like to be able to get assistance on that line by the substitution of other bonds, till the maturity in 1907 of United States bonds. Of course, the bondholders could advance the premium and make it prohibitory to purchase United States bonds. Mr. Warner. If there was an attempt by the Government to pur- chase, under circumstances of any urgency, $100,000,000 or $50,000,000 of Government bonds to-day, would not the price go up! Is not the amount of bonds available small as compared with the amount out- standing ? Mr. Grant. There is yet another way. We can buy foreign gold.' Mr. Sperry. With what! Mr. Grant. With United States notes. Mr. Cox. With the notes which would be issued! Mr. Grant. Yes; if we want $50,000,000 increase of currency to-day, I could go to Xew York and buy $50,000,000 worth of foreign exchange with these notes and import gold. Such increase ought to be done monthly or periodically. In place of buying $50,000,000 at one time, we might buy s3,000,000 or so a month. Mr. Sperry. Then, if those trustees wanted $50,000,000 increase in circulation they would go and buy gold? Mr. Grant. They would buy foreign gold. BANKING AND CURRENCY. 541 Mr. Sperry. That $50,000,000 of bonds is noninterest-bearing? Mr, Grant. All the United States bonds deposited with the com- mission in trust are noninterest-beariug. Mr. Sperry. Do you think you could go to London or anywhere else and negotiate them! Mr. G-RANT. United States bonds can be negotiated anywhere, but I would go to New York with currency notes. Mr. Sperry. You would buy foreign gold in New Yorki Mr. Grant. I would bay foreign exchange. Mr. Warner. As a matter of fact, what you would actually buy would be gold bars instead of franc pieces, or anything of that sort, so that when the gold came here it would be in the same shape it was when bought*? Mr. Grant. 1 am treating gold and silver both as bullion. Mr. Warner. Gold bullion, as I understand, is now actually counted and used as currency in all large transactions in the United States to-day? Mr. Grant. I suppose so. Mr. Sperry. Your commission would issue $50,000,000 in circulating notes'? Mr. Grant. Y'es, sir. Mr. Sperry. You would go to New York and buy $50,000,000 worth of gold, and that gold I suppose would come in bars. Mr. Grant. Yes; foreign gold in bars or coin. Mr. Sperry. After you got -$50,000,000 in gold, would you keep that gold? Mr. Grant. The commission would hold it to redeem those notes going out, or buy with it United States bonds, as under section 5 of my bill. Mr. Oox. Suppose you were to purchase from $3,000,000 to $5,000,000 a month for the Government.. Don't you think it would put a premium on gold in less than twenty-four hours? Mr. Grant. No, sir; European nations could not afford to have gold go to a premium. Austria has been buying gold and so has Germany, and neither of those countries could aflord to have gold go to a premium; their purchases have not put a premium on gold. Mr. Warner. Is not Austria the only nation to-day interested in that in a commercial way, and has not her influence proven powerless to affect the price of bullion? Mr. Grant. That is what I believe. She is buying at the market price. Mr. Oox. Some of us silver men think that gold is at an enormous premium now. . . n^. mn • i Mr. Grant. I am a good deal of that opinion myselt. This plan takes" into consideration our present position. I am not trying to make any new position, but I am considering the position as it exists to-day. If silver should become a legal tender in Europe, as gold is— which I hope will soon happen at some ratio— that would prevent any further appreciation in the value of gold. I have been reading late news from England and find that the feeling is changing there in favor of bimet- allism on some basis, even if they have to take silver at its commer- cial value, or at a higher ratio, as a legal tender. Mr. Oox. I recognize that fact. , , -, Mr. Grant. While I am in favor of placing silver as a legal tender on some basis, I prohibit in my bill the further purchase of silver until it becomes a legal tender; and when that is done, the commission can 940 6 542 BANKING AND CURRENCY. again buy silver bullion as well as gold when increase of currency is- needed. . , , , Mr. Cox. Suppose you have your system in operation, but the vol- ume of currency put out is completely under the control of the United States through these commissioners? Mr. Grant. Certainly. This commission is supposed to feel the pulse of the country. It is not too much power, when closely analyzed, for it to have. If this commission should issue too much currency they would have to redeem and take it back; and if too little they would hear a clamor from the banks asking why they did not issue more currency. They would feel the pulse of the country at once. Mr. Cox. It seems to me you are putting the United States Govern- ment right into the banking business. Mr. Grant. Xo, sir; I am keeping clear of banking. That can come in afterward. "What we want to do now is to make good our present currency and let the future take care of all banking schemes. The Chairman. In the event of the success of your measure, what becomes of the present silver dollar which is now coined °? Mr. Grant. It would circulate as at present and be treated as bullion by this plan. The amount, also, which is in theTreasury would be bul- lion. The Chairman. How about that which is in circulation '? Mr. Grant. The commission holds as part of its collateral 50 cents on each dollar in circulation to make it good as gold. The Chairman. Part of it is in the hands of the people, and part of it is in the Treasury, and by means of your bill that currency may be redeemed in gold coin, or in sUver bullion at its market value'? Mr. Grant. .Tes, sir. The Chairman. jSTow, suppose a man should come and ask for a sil- ver dollar 1 Mr. Grant. Let him have it, as that silver doUar is secured to its full value. He would not be apt to ask for it, however, if he knew he could get the weight of two for one, in getting a note calling for the fuU market value in silver bullion or gold. The Chairman. What becomes of the amount which is out ? Mr. Grant. That is considered by the commission as worth only its bullion value, say 50 cents on the dollar. The Chairman. It would cease to have a purchasing power after this measure became a law '? Mr. Grant. Oh, no; it would be made as good as gold, by the deposit of 50 cents additional collateral on each silver dollai'. It is worth 50 cents as bullion, and these two together would make it worth a dollar in gold. The Chairman. Tou have got two values, the bullion value and the dollar, which is legal tender under the present law for its full value. Mr. Grant. I do not disturb it. It circulates among the people just as it did before. Mr. Cox. It is secured to the extent of 50 cents more. Mr. Grant. It gets 50 cents additional security put up in the hands of the commission under my plan. The Chairman. The dollar which is out would circulate for a dollar just as it does now ? Mr. Grant. Yes, sir; and it would be made worth a gold dollar. - The commission has 50 cents in their drawer to redeem each dollar which is now out, and only worth in itself 50 cents as bullion. • BANKING AND CURRENCY ^ 543 Mr. Cox. The Government having another 50 cents against that dol- lar, guarantees it to the full amount and makes it good. Mr. Grant. Under my plan that is what makes it good. There are 58,000,000 of those dollars current to-day, and there are $66,000,000 of subsidiary silver coin. That makes a total of $124,000,000 now in cir- culation. I take it that $62,000,000 is their bullion worth and there is put up $62,000,000 in bonds to make up the difference. The Chairman. Not on that which is outstanding? Mr. Grant. Yes, sir. There is put up collateral also for that which is outstanding, to make up the depreciation of the current silver dollar. Mr. Warner. As I understand you, you propose to apply that to all subsidiary coinage so as to include coins of the denomination of half a dollar. That is practically your plan? Mr. Grant. Yes, sir. Mr. Warner. Why is there any more reason for a special deposit to make good that part of the subsidiary currency which consists of small pieces of the denomination of half a dollar than there is to make good any other part of less than one dollar? Mr. Grant. I treat them all exactly alike. Mr. Warner. In other words, we can rely upon our country using a certain percentage of subsidiary currency, without reference to its intrinsic value. Mr. Grant. Yes, the same as wr do now. I want to makeit better than it is. For every quarter that is out now, I would have put up another quarter. The dollar is worth only 50 cents to the Government and some day the Government will have to redeem them, and it is my plan to provide for this so as to enable the Government to finally redeem them. Mr. Warner. A quarter of a dollar is not worth by any means 12J cents. Mr. Grant. I leave it to the Treasury to say what is its bullion value, whether at the rate of 50 cents or 40 cents on the dollar. Mr. Warner. Y^ou abolish the subsidiary coin, so far as that goes! Mr. Grant. Except as token money. Mr. Warner. You even abolish it to that extent? Mr. Grant. 'So, sir. Mr. Warner. That is to say, you put behind it the full amount in worth of bullion? Mr. Grant. I put up the amount that is lacking. Mr. Warner. Including the money itself? Mr. Grant. Yes, sir. If a dollar is worth 50 cents in bullion, I put up 50 cents more. If it is worth 40 cents in bullion, I put up 60 cents more. Whenever it is found how much the bullion value is, my plan supplies the difference in United States bonds and bullion. Mr. Warner. Do you apply the same principle to the nickels and copper cents 1 Mr. Grant. I do not apply it to the minor coinage, only to the sub- sidiary. Mr. Warner. I understood you to say you applied it to the half dollar? Mr. Grant. It is included in the subsidiary coin. Mr. Henderson (to Mr. Warner). He is not talking about the minor coinage. Mr. Warner. I understand it. When you come to add to the dol- lar the subsidiary coins, and to extend the principle of the subsidiary currency so as to include coin of the denomination of half a dollar, you 544 BANKING AND CURRENCY. , would have three times the coinage of one silver dollar, whi^h, although S Ml weight, is today worth only about 50 cents. Then you will have another seres of coins-the halves and quarters and dimes-which are wortCsay, only about 35 cents on thedollar ; and then you will have another denomination, or a sort of subsidiary coinage, namely, the iiick- els and cents the value of which is so small in comparison with the aLmt they represent as to be practically token money, consider- LTtheir actual value. As I understand Mr. Grant, he proposes to Screase the value of the dollar enough to make it worth its bulhon vaTueTand I also understand that he proposes to include the 50 cents ""^Mf Grant. And dimes; I do not go farther. The other is known ^'Mi"corSuppo8e you take 100 silver dollars now in the hands of thf ieople and you want to make them more valuable. The Govern- menrexecites iti bonds for 50 cents more on each dollar which is put back of these 100 dollars. It is put up to make the full value one dollar"? Mr' C(?x^ Now we have got to a definite understanding Suppose I go to the Treasury and say that I have $100, and I want to settle with the Treasury I say that the silver is worth $50, and the Government has got $50 behind that as a protection. , Mr Grant. Then the representative of the Government will hand you over $100 in gold or its equivalent in silver bullion for your silver dollars, which are worth only $50 intrinsically. Mr Cox. Then in that case silver would be redeemable with goldi Mr Grant. Yes, or its equivalent in silver bullion. ^ Mr. Gox. That is there only as a collateral, or promise of the Gov- ^'^Mj'^Grant!^': do not want any promises to pay as the basis of our curreiicy. I have got collateral put up in. the shape of bullion and United States bonds as the only sound basis. Mr. Cos. You could take the bond and sell it. Mr Grant. If I have the bullion, I will give you the bullion. Ihere will be a bullion reserve of probably 40 per cent. •, ^^j„i Mr Cox. Then it must result that the man who holds the silver dol- lar, worth intrinsically 50 cents, has the other 50 cents protected either in silver bulb on, gold, or bonds? Mr. Grant. Yes, sir. . I am very much obliged to the gentlemen of this committee for their kindness in granting me this respectful hearing, and appeal to you to hasten forward the legislation needed to remove the stigma resting on our good name, and make good our currency at home and abroad. Our people are now looking to your committee for a speedy solution ot this much vexed currency question. Thereupon the committee rose. BANKING AND CURRENCY HEARINGS, 1893-'94. INDEX. Page. BABCOCK, Hon. J. W., of Wisconsin 194 On H. R. 1951 (supervision of national bants) 194 Text of bill 194 Frequent bank examinations by different examiners 197 National banks to insure each other's deposits 199 BLACK, Hon. J. C. C, of Georgia - 246 On H. E. 256 (national banks loaning on real estate) 246 Text of bill - 246 Explanation of bill. 247 BLANCHABD, Hon, NEWTON C, of Louisiana 205 On H. R. 1814 (repeal tax on State banks) 205 Return to State banks of issue 206 State-bank currency based upon State and municipal bonds 207 Comparative statement of national banks in 1890 and State banks in 1860. 209 Conditions now different from those prior to civil \yar 211 Congestion in money centers 215 BRAWLEY, Hon. WILLIAM H., of South CaroUna 257 On H. R. 3825 (suspend tax on State-bank notes issued between August 1 and October 15, 1893) - 257 Text of bill - 257 Explanation of bill 258 BRYAN, Hon. W. J., of Nehraska 16* On H. R. 3378 (to secure depositors in national banks) 164 Text of bill "164 Loss to depositors - 1°^ Special safety fund 166 Reimbursement - l^JJ CARTJTH, Hon. ASHER G., of Kentucky »^2 On H. R. 5712, to provide for the issue and redemption of U. S. currency notes - 532 COOMBS, Hon. W. J 4bd On H. R. 7133, to authorize the appointment of a currency commission.. 463 COOPER, Hon. GEORGE W., of Indiana - - - 275 On H. R, 4326 (to subject to State taxation national bank and United States notes) 275 Text of bill - -- j^'Jt As to the power of Congress ^ '» Will it contract the currency ^ '| COOPER, Hon. S. B., of Texas 1^° On H. R. 246 ($3,000,000 additional United States notes) 1&8 Text of bill - - 1^8 Purposes of bill Vf Congestion of currency - - ^^ DAVIS, Hon. JOHN, of Kansas - °i On H. R. 3434 (to prevent contraction of the currency) - od How volume of money in circulation may regulate prices o4 Parity between gold and silver.. - &° Value and price „. Maintaining equal prices - °| Redemption of currency ^^ Debtor and creditor relations - J^* Farm mortgages 545 546 INDEX. Page. DAVIS, Hon. JOHN, of Kansas— Continued. x ^ j. „= fiS Legal-tender Treasury notes redeemable m payment of taxes 68 Rising prices preferable ""^ y^ Fiat money ' ..'. 74 Coining paper r^^ Value and volume , ya Additional money gives rising prices ^g How to increase money oq JJational elections of 1852 and 1856 - oi Economy of national-bank and Treasury notes oi- Senator Plumb on contraction of the currency o* Effect of war upon finances „„ Does contraction of currency injure anyone ° ENGLISH, Hon. THOMAS D., of New Jersey.----- |^" On H. R. 3759 (repeal tax on State banks) ^|^ An unconditional repeal unwise ^^2 •^''^J^^I^^nsr^S^fo^'tbeissue-and^^emptiono^United-States ^^^ currency notes opo GEESHAM, Hon. WAITER, of Texas "^ A flexible currency founded on bullion ^°^ A national-bank system - .-- „„„ Broadening and extending the class of securities ^oo An elastic currency qo HABTEE, Hon. MICHAEL D., of Ohio ---- ,- "- V ^^;.^;^ q? On H. E. 64 (national-bank circulation up to par value of bonds) . 9d On H. R. 2 (general exchange of United States bonds for greenbacks) 99 On H. R. 62 (national banks, security of depositors) ------ :LUi On H. R. 66 (national banks, circulation on other security) lUd JORDAN, Hon. C. N., of New York - : - -,- ' On H. R. 7133, to authorize the appointment oi a currency commission ... - 471 XESTEE, Hon. E. E., of Georgia --■ ^„ On H. R. 97 (repeal tax on State banks) j|" Text of H. R. 97 - - \\^ History of national banks ■■"'/:," ', no National-bank circulation insufflcient for needs of the people 119 No Government obligation to supply circulating medium l^^ Veazie case, power to restrict circulation of State banks isr MoLATTEIN, Hon. J. L., of South Carolina -- ^^ On H. Res. 15, to issue $125,000,000 of Treasury notes ^9 Marketing crojis „„ Clearing-house certificates ^" Copy of clearing-house certificate - ?| Present authority to increase the currency ^ Currency lost or destroyed ^' The present situation ^° Present authority to increase the currency *| The best remedy . . Emission of currency : loan to banks ** The present situation - *J? Value and price S^ Appendix - -„ Bank profits ™ Effect of contraction of currency - »^ Clearing-house certificates issued in Columbia, S. C - - - - ^3b On H R. 3825 (suspend tax on State-bank notes issued between August 1 and October 15, 1893) ^^ Text of bill .- - ^l' Explanation of bill ^°^ McEAE, Hon. T. C, of Arkansas ----- r."" -,• V "",""'" "/T \%i On H. E, 127 (to increase Treasury notes and retire national-bank notes). lo^ Taxes already too burdensome 1^5 A flexible currency 1^^ MEIKLEJOHN, Hon. G. D., of Nebraska ^01 On H. R. 1993 (national banks, embezzlement) 201 MEYEE, Hon. ADOLPH, of Louisiana 250 Moving crops in the South -^"O GATES, Hon. WILLIAM C, of Alabama 5 On H. R. 1:M> (repeal tax on State banks) >> INDEX. 547 lOATES, Hon. WILLIAM C, of Alabama— Continued. Page- National bank circulation 67 National banks loaning on real estate (H. E. 135) 7 National banks loaning on real estate, usury 8 State-bank circulation 10 History of State and national bank systems 19 State -bank circulation wanted 23 Views of Francis A. Brooks 24 Banks controlling volume of currency 26 aXTTHWAITE, Hon. J. H., of Ohio .' 190 On H. R. 258 (soiled paper currency) 190 Text of bill 190 Paper money as a carrier of infection 192 SHEARMAN, Mr. THOMAS G., of New York 216 Do we want money or excliange 216 The demand for money 216 What do the people need 217 What is a bank 218 To what extent money is necessary 219 Farmers' banking methods 219 The cost of farmers' banking 220 The true remedy 221 Coin going out ; banks coming in 221 No inflation in bank checks 222 Why remedy is not adopted 223 Taxation destroys banks 223 Branch banks desirable 224 The remedy adequate - 224 SMITH, Mr. EODEEICK H., of New York 475 On H. R. 4232 (to establish a gold and silver currency on a basis of inter- changeable value) 'i'^S What is price ^'^5 The quantitive theory of money 4:81 Theory of foreign exchanges '185 Has gold advanced ^87 Admissions of Mr. Giflfen, especially '191 Prof. Jevons and Mr. Goschen 1^92 Prof. Sogers and Gen. Walker 193 Monetary conferences *98 The remedy - 505 Constitutional provisions 511 Conclusion 523 SNODGEASS, Hon. H. C, of Tennessee 203 On H. E. 292 (national banks, usury) 203 SPEINGEB, Hon. WILLIAM M., of Illinois gol On H. E. 4960 (to provide a national currency) 361 Commission created 361 Security deposited ™^ These notes not subject to tax 363 Elasticity ^°* Eedemption of notes ^o^ A uniform currency ^°° Amount of bonds in existence 369 Capital stock and number of banks 371 Wildcat currency ^]A .Secured State bank circulation ^ '^ Legal tender ^J^ Fiat money : ^ '* Convertibility of bonds ^'» Amount of circulation ' ^ '° A national currency ^'° Power of Congress ^°" Distribution of currency ^°^ Desirability of banks ^°° Volume of currency V ;-■■",: 007 Discount banking and issue of currency are separate functions ^0^ Security for circulation ^°' Assets and capital stock of banks ^°^ Jiauks of discount and deposit - ^^^ 548 INDEX. SPEINGEE, Hon. WILLIAM M., of Illinois— Continued. '^^Se- Eedemption of bank currency ^ Voluntary guaranty ■ ^°^ Broad and permanent system ^°^ TALBEET, Hon. W. J., of South Carolina 1'° On H. E. 384 (loan to States on their bonds) 1^» Text of bill ]'° Depression in agricultural industries |'° Proposed relief - |*^ State-bank circulation |°* Currency per capita |^^ Populiat or Alliance j-°' TEENHOLM, Hon. W. L., of New York ■.■■; 4bd On H. R. 7133, to authorize the appointment of a currency commission .... 4b3 TUENEE, Hon. HENEY G., of Georgia - ^^j Repeal of tax on State banks - "^| Effect of removal of tax- 231 Congress should not interfere in monetary systems - 233 TURPIN, Hon. L. W., of Alal)ama. - ^^^ On H. R. 3438 (national banks loaning on real estate) ^iv Text of bill ^^° Pay less money to foreigners ^*^ Advantages - - - rz^ WALKEE, Hon. JOSEPH H., of Massachusetts. -^'^ On H. E. 171 (to reorganize the national banking system) - j-79 Inadequacv of the present banking system f°^ Te.xt of H.E. 171 -- ^2q Scheme developed in H. R. 171 - ^°° The Government not a banker - - - ^^° The Government's redemption fund ^^^ The bank a conserver of wealth ^^| Bank reserves lie idle under present law .^91 Loss to the people in interest on the gold redemption fund m the U. S. Treasury - - ---- ^^^ 294 295 295 Government supervision Provisions for safety of currency notes Elastic circulation Interest on loans lessened . Net earnings increa.sed to a bank on currency issued by it 296 The system proposed in connection with the bond system 297 Advantages to new communities 298 Encouragement to establish new banks 299 Uniformity of the currency secured 301 Speedy action demanded 302 An epitome of the subject 303 Appendix A — List of insolvent national banks, etc 305 Appendix B — Fioures of the actuary of the U. S. Treasury 306 Appendix C— Bill H. R. 171 in practice 312 Appendix D — Examples of same 317 Appendix E — "Banking" — an address 319 Appendix F — " Banking and currency " — an address 334 Two kinds of issues provided for 343 How to organize a bank under the bill - - - 344 Bill contemplates eventually taking National Government irat of banking business 346 Loaning money on real estate prohibited 347 Effect of hank reserve 348 How to organize a l)ank 351 WAENEE, Hon. JOHN DE WITT, of New York . . . ., 394 On H. R. 5.595 (to provide a safe and elastic currencv ) 394 Text of bill ". 394 National banks allowed to take advantage of facilities offered State Ijanks. 400 Constitutional inhibition on bank issues in several States 400 Premium on one kind of currency over another 402 Gresham's law 403 Guarantee fund, for ultimate redemption of notes 409 Redemption facilities 410 Constitutional inhibitions on bank issues in several States 414 Eedemption facilities 421 INDEX. 649 WAENEE, Hon. JOHN DE WITT, of New York— Continued. I'age- Canadian banking 425 Redemption facilities 427 New York State safety fund system 431,460 Canadian banking 435 Guarantee fund, lor ultimate redemption of notes 451 WILLIAMS, Hon. JOHN S., of Missiasippi 134 On H. R. 2014 (uational-bank system) 135 Security of depositors 136 Repeal of 10 per cent tax 140 ERRATUM. On page 194, near bottom, caption of bill, for 1591 read 1951 .