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The Columbia University Libraries reserve the right to refuse to accept a copying order if, in its judgement, fulfillment of the order would involve violation of the copyright law. Author: Frame, Andrew Jay Title: Address by Andrew Jay Frame [Waukesha? Wis.] Date: [1913] RESTRICTIONS ON USE: FILM SIZE: ^tf^^M C\S'%lA'L^'b, MASTER NEGATIVE # COLUMBIA UNIVERSITY LIBRARIES PRESERVATION DIVISION BIBLIOGRAPHIC MICROFORM TARGET ORIGINAL MATERIAL AS FILMED - EXISTING BIBLIOGRAPHIC RECORD BUStMESS D730.73 F855 Frame, Andrew Jay, 1844- 1S32. ... Address by Andrew Jay Frame ... entitled, Facts vs. fallacies in banking reform, delivered before the State bankers association at Muskogee, Oklahoma, May 9th, 1913. [AVaukesha? Wis., 1913] cover-title, 11, ill p. 2U"". 1. Banks and banking— U. S. 2. Panics. 3. Banks and banking- Canada. 15-23994 Library of Congress Copy 2. HG2481.F76 TECHNICAL MICROFORM DATA REDUCTION RATIO: |2: 1 IMAGE PLACEMENT: lA CHA) IB ilB DATE FILMED: ^/tJ^ /^^ INITIALS: M^E. 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P hs Columbia (Hnitiewttp JntlifCtfpoflmgdrk THE LIBRARIES Graduate SCHOOL OF BUSINESS Library At/ J »!aKrMn«»«>»waKi.9tv9Ki;=^w«)«k:M£3ift« / 3 Columbia ©nibersiit;) LIBRARY THE SELIGMAN LIBRARY OF ECONOMICS PURCHASED BY THE UNIVERSITY 1929 tt^ y T I i e "LET THERE BE MORE LIGHT" '^■Kira'*^'**— ■WP**'^ * '^' =^ 't \L i? .«■ 'A .i^ ADDRESS BY Andife^^v^ Jay JPrame President of the Waukesha National Bank Waukesha, Wisconsin ENTITLED Facts vs. Fallacieis In Banking Ref orat ' h... • », » » Till, ••••»•• 1 .' , t • t • < • , • >. I • > ■ > • » ' » » » •:'■,••«• • • • • • , » • • • i » • •• ... ; • •. • • • • • • a * I • ■ • t . • . • • • • • ■ * ^\ DELIVERED BEFORE * THE STATE BANKERS ASSOCIATION AT MUSKCXIEE. OKLAHOMA MAY 9th. 1913— — - J u n r\ h READ AND PONDER "Truth crushed to earth will rise again." The following are a few pungent comments on the address. The Oklahoma Banker says: "Andrew Jay Frame's address on Friday morning was the great talked of feature of the conviention. His characterisation of the Canadian system as one under which the "cream was skimmed" and sent to the big centers, while the local bankers gave their com- munities no aid or support worth speaking of seemed to aptly fit the case and made a deep impression on the audience. When he ceased to speak the much heralded Canadian and allied systems were m exceeding disrepute with the bankers of this state," etc. The Times Democrat, Muskogee, says: "One of the big features of Friday's convention session of the Oklahoma Bankers' Association was the address of Andrew Jay Frame" etc. Then follows a digest of nearly three columns taken from the address. The Daily Eagle, of Enid, Oklahoma, says: "Mr. Frame was the leading attraction at the convention of the Oklahoma Bankers' Association in Muskogee last week, and delivered an address there which officers and memhers of the Association be- lieve to be the most elucidating and meritorious of any address yet delivered to Oklahoma bankers," etc. The Morning NeVs: .cffT ^ntd; cjnflrm^ in. similar language. The Editor-in-Ch1fei.:o£;.-t!i|.*j\jV)^t..Warld and Chronicle of New York City, wJiich.pubJishpd-atter Jl^e .edi^orial-the address in full as the leading •artif;lQ,.Saysj »: '. J ::.*:: : • »*••*»., i V * • • • • . "I^ my opinion th^ gr^^ter number Vf thinking people who read the address, the betteV/ -li: i^e^m'§rm;b^ ope of the most valuable contributions yet made- to thV SM'blwt; hi -so-called 'banking reform' in this country." Further quotations seem superfluous. /. I I-. o SOME FACTS VS. FALLACIES IN BANKING REFORM (Ireat I5iilaiii. in her campaign of education on currency re- form was agiUitcd l.v widr-sDread discussion for twenty-five years In-Lvious to ISU; when Parliament eiidorsed the celebrated -Bullion RcDort of 1810 to the House of Commons. . . ^, !>,of William Cr. Sumner in his -History of American Currency dubs (his report "The most important document in financial liter- ''^"'as to ameliorating.' panic conditions, the paramount enunciation in that document probably was 'in the presence ot a panic, it ..-, tne luty of he bank to discount freely to all solvent parties. I c^n- o 'find iu searchin.g the records that this document -dvoca t^es he necessity of discounting too freely in normal times. That question must lecessailv be governed automatically by the law of supply an" demand for- luoney. Abnormally high ;"J-.-«t/ates are the true barometer that credit expansion has outstripped capita and n normal times, even in advancing prosperity, ^l^ould be '^^l^^^^ that extra currency issues, which Prot. Suinner , ^j^^,. f,;^' "^ capital', should not be greatly encouraged. ^ The ate J ; "' ^^ ^^f aster is a fair illustration of my meaning. Dr. Adam Smith said. "The cry of all ages is for more age is more speed in every way. a check rein to ensure a conserval prosperity to all, thus limiting npriods as well as their severity. ^. , # ^ * dc«clar^ that no live, progressive nation can be entirely tree from panics Oulv those nations where commerce and progress aie deul can enjoy the doubtful legacy. l>anics will forever be with lose natious'enjoying great progress, expanded ^^J^^.^"^ onofjrv The«e reign here. I plead tor conservatism as a saiei> alve to trie permanent progress and relief when panic- threatens. ITiidei Sir Robert Peel's Act of 1844, Great Britain has a very limited per apita circulation, and it is far moiv rigid than ouis. Never?he^^^ in 1S47, 1S.57 and 18.;r,, when panics were raging and .u ks md hus ness houses were falling like snow in a winters sun^. 'Im gol'l'n^ilr assurance that the ^^^^^^J^^IZ unuld not be enforced, the Governor ot the Bank ot bngiana .»iu) X arou.K-ed"hat ail good, solvent bankers -^^ merchants cojUd obtain, at high rates, discounts tor cash or ^-^'^^Ij^ at the B^nk t e Banking Department, merely obtaining extra cash tiom the ihsne money." The cry of the present The overbuoyant American needs ism which gives more permanent the evils of too frequent panic i t >' INTENTIONAL SECOND EXPOSURE L'».V'- ' v'. f" -4 I 4 /-^' READ AND PONDER — "Truth crushed to earth will rise again." The following are a few pungent commits on the address. The Oklahoma Banker says: "Andrew Jay Frame's address on Friday morning was the great talked of feature of the conviention. His characterization of the Canadian system as one under which the "cream was skimmed" and sent to the big centers, while the local bankers gave their com- munlties no aid or support worth speaking of seemed to aptly fit the case and made a deep impression on the audience. When he ceased to speak the much heralded Canadian and allied systems were in exceeding disrepute with the bankers of this state," etc. The Times Democrat, Muiskogee, says: "One of the big features of Friday's convention session of the Oklahoma Bankers' Association was the address of Andrew Jay Frame" etc. Then follows a digest of nearly three columns taken from the address. The Daily Eagle, of Enid, Oklahoma, says: "Mr. Frame was the leading attraction at the convention of the Oklahoma Bankers' Association in Muskogee last week, and delivered an address there which officers and members of the Association be- lieve to be the most elucidating and meritorious of any address yet delivered to Oklahoma bankers," etc. The Morning NeVs: f« ?Dtd: cenflf m^ in. similar language. The EditoT-in.C1flfeLifi;:tlie -J^^JJ^t.-WQ^ld and Chronicle of New York City, wJilch.pubJished— atter. fl^e .edit^orial— the address in full as the leading -Artlpl^, . Say g; •.* '. .* : :.': : : "In( my opinion th^ gr^^ter number of thinking people who read the address, the betteV." hc tf^m*§rta:b^ ope of the most valuable contributions yet made** to* the* siibseot: hi .^called 'banking reform' in this country." Further quotations seem superfluous. / lI "^'* _--___. k h !i I I St i 1' m CO (T) I— CD O « SOME FACTS VS. FALLACIES IN BANKING REFORM Great Britain in her cami)algn of education on currency re- form w is agitated by wide-spread discussion for twenty-five years preTior?o Tsle when Parliament endorsed the celebrated "Bullion Rpnnrt of 1810 to the House of Commons." ^Prot William G-. Sumner in his "History of American Currency dubs this report "The most important document in financial liter- ^^"'as to ameliorating panic conditions, the Pa^'%"^^"^* f.^^.f .^'^^J2^ in that document probably was "In the P^^^^JJ,*?^^^^. ^Jf.^^^/' i%an- duty of the bank to discount freely to all solvent parties. i caji no^find in searching the records that this document ^f ^<^^t^^«^^ ^^^ necessity of discounting too freely in normal times. That question must necessadly be governed automatically by the law of supply and demand tor money. Abnormally high interest rates are the true ba?omeTeT'tha[ credit expansion has outstripped capital ^nd in normal times, even in advancing prosperity, should be a jva mng that extra currency issues, which Prof. Suniner . ^.^"%..f^^j^.^^X capital", should not be greatly encouraged. The late Jitani. d^s aster is a fair illustration of my meaning. Dr^ Adam S^jth said "The crv of all ages is for more money. The ciy ot ine preseu.. ale is mo?e speed in every way. The overbuoyant American needs fchLck re?n t^ ensure a /onservatism which f v- m.^/^^^^p^/^ J prosperity to all, thus limiting the evils of too frequent panic periods as well as their severity, ,• ^„„ k« ^ntirplv free T declare that no live, progressive nation can be entirely nee from nanks OiiTv those nations where commerce and progress are dea^ can enjoy the doubtful legacy. Panics will forever be with fl^'s'e naUons^enjoying great P-^--- -P^^Xe^'aUsm a^ a"ety ^«o^ v«We io uuepemfanent progress and relief when panic threatens, kderstr R^eil Peers Act of 1844, Great Britain has a very limited per capita circuhu\on, and it is far more rigid than ours Nevertheless in 1847, 1857 and 1866, when panics were laging^ and banks and business houses were falling like snow m a .winters storm on -ovenment assurance that the rigid currency imitation would not be enfo ced the Governor of the Bank of Englaud pub- c'ly anTouncel th"t ail good, solvent bankers ^^^^^ -^ Bank'The obtain at high rates, discounts for cash or credit at the Bank, tne BaSg Department! merely obtaining extra cash from the issue f n, " "■ 4 1 department, on deposit with it of ample securities. The mere knowl- edge that relief was at hand, history says, broke the back of the panic almost in the twinkling of an eye, and little "extra cash" was required to restore confidence. Mark the fact, relief came with "extra cash" at high interest rates, and such cash was almost im- mediately retired and normal conditions prevailed thereafter. As our general banking functions in most material respects under the beneficent, independent banking systems of the United States, barring a few states without good laws, now fulfill their true mis- sion toward the people in our phenomenal progress, it seems the only needful requirement is some flexibility to our currency issues when panic threatens, to the end that general paralysis of trade and commerce may be avoided. To accomplish this great end, we need no monopolistic, branch banking system thai even threatens to revolutionize present con- ditions; we need in normal times no further inflation of our present excessive currency issues; we need no additional easy methods of expanding credit by acceptances or otherwise, but as I have often said before, we do need some method of obtaining rediscounts in abnormal periods from some reservoir of extra cash, at high interest rates, purely as a relief maeasure to prevent the calamitous condi- tions of general cash suspension by banks. The citation froni ex- perience, not theory, of the Bank of England covers the point at issue, except that the barometer of a high interest rate for extra cash should be an automatic regulator of flexibility, and the bank should not bo obliged to ask the Government not to prosecute for infringement of law for relief in time of trouble. The Chairman of the Monetarv Commission told me he asked the Governor of the Bank of England why the government did not give this extraordinary power to the Bank for relief in troublous times, and his answer was, "We fear over-expansion of credit." My study of the subject, how- ever, convinces me that a middle ground between the Currency system on one hand and on the other hand of the banking reform ^advocates for almost unlimited, rency issues, even in normal times; also for monopolistic, revolution- ary, complex and compound remedies at all times which are not germane to relief under pressure, holds the true solution for our troubles. Doping patients with sweetened quack medicine, when they are not ill, undermines a sound constitution. Encouraging pyramid- ing of crerlit by opening up easy methods for expansion leads to bubble Mowing. It is a, panic breeder and not a preventer. The — ThTpenal Bank of Germany comes closer to covering the correct method of relief, as it can issue but 130 millions of uncovered cur- rency, and all in excess thereof must pay a tax of the government. This penalizes over-expansion of is the safety valve which has kept her over-strained exploding. Even this method has taxed her utmost vent a cataclysm there, as is evidenced by the German banks bor- rowing money of the United States banks on good collateral at rates running from 5 to (5% clear through 1911-11)12 and even up to date. The banks of Germany even bid 20% for money in the New York market in December. 1911, and at several periods since have bid in excess of 6%. Notwithstanding her 5% penalized flexible cur- rency saved hei- from panic, yet (Jermaiiy has bordered thereon for some time, chiefly because of over-indulgence in acceptances, which are more freely granted there than elsewhere, coupled wiMi an enthusiastic industrial development, over-taxing her surplus cai.ital. 2 rigid English the demands untaxed cur- 5% thereof to currency and condition from powers to pre- HANDWRITING UPON THE WALL. Just a few more words of warning on over-expansion of credit ?n'r89o\hr'otarwealth of the U. S^ was about. .. .| 65,000 rnillions In 1913 the total wealth has about doubled, or 130,000 millions The banking power of the United States: ^^^^ millions In 1890 was 2o'oo0 millions In 1913 it is five times as great, or • • • • •/^'""" "l\ *;Vit« therefore, while our wealth doubled, our pyramid of bank ci edits increased five-fold. Aeain the 1912 Report of the Comt)troller of the ^uirency shows^''Toans and discounts" including bonds, of all the banks in the United States about as follows: millions In various classes of bonds (not government) $ 4,500 JJJ|{j!OJJs Loans on real estate, say • c'aaa TniiUnn** General loans, not quickly liquidated 6,000 m ons Prime paper, including bills of lading. • ^'^^^^ mihions Total ^^ .-• $18,500 millions This indicates that only one-fourth of the total is l^^j"]? P^per ^^^^ thP other three-fourths is in other Securities, because all live paper is now )rrmDtlv cared for first. The heretical demand by the banking fZr^Z^c^^t 7,400 national banks ^o be allowed to lo^ credit to their customers on acceptances, which is clearlv a compiica tion and not a relief of banks in panic P^^io^^^^ .^^^^.^^^^'^ned twelve bankers from twelve states in a signed brief which I .ilea at Washington with the Banking and Currency Committee. These twelve bankers declare that if their city correspondents enter the field of accepting customers' drafts, they will transfer their balances ?o more conservative banks. They declare this func ion is the field for acceptance or discount houses, and not for banks of deposit. It is gratifying to note that altho a year ago, when, under the title of "Diagnosis of the Monetary Comlmission Bill" I addressed the Bankers and Business Men's clubs of Memphis. Tenn Little Rock Ark , and elsewhere, and therein condemned general bank ac- ceptances as unsafe, lately the chairman of the "Busmess '.en s I eaeue of the U. S." reiterated my expression that ' it was a daiiger- 01?; proposition". Let there be more light and the whole question may be soundly solved yet without breaking all the crockery, in face of the fact that the world's production ot gold from 490 to 1890-400 years-was 57,3o0 m ons and from 1890 to 1913—23 years— was • • • • '"".'' "^,y'^;^"^ in face of the fact, that the pages of history are strewn with proofs, as recorded by all the great authorities on political economy vvarn- ing us against over-indulgence in credit expansion; in face o. the fart thit Dractically all our conservative banking journals and eco- nomic^Tifers on The great daiilies are continually sounding heir no^s of warning (time forbids quoting from a mass of evidence "n tlce of the fa^ct,\hat the world's greatest ^-^^ll^'K^Z^^^T'.^^^^^ LeRov Beaulieu. of Paris. France, lately declared that the a hole ivnrld'^ nvramid of credit was over-expanded," I ask in all seriousuess Ts not t^'handwrit^fg upon the wall" a sufficient warning to us Iha conservatism-not further easy methods of expanding our cur- rency o" credit-should reign supreme? I challenge any banker or statesman for disproof of these facts. wTthout further pursuit of this subject and as the new political pow- o H ^ I f ,11 h A er is wrestling with the generally supposed knotty problem, let us await the findings in hope of a sound solution. Permit, therefore, a few logical, general statements of fact, good in any event, followed by a few of the many reasons why the independent banking system of the United States is not the worst, but the best in the world, — barring only relief in times of pressure, — in the hope that it may help enlighten our pathway. Panics Abroad and Here. First permit, regretfully, a reference to statements that have per- iodically been sent broadcast throughout the land, which are so ser- iously misleading that they ought not to pass without comment. Within two years I have heard Hon. Robert W. Bonynge, a meniuer of the Monetary Commission, in public addresses reiterate the fol- lowing — "It miay be several years yet before the country will be ready for a full and scientific remodeling of our anti- quated banking system." "Our faulty banking system is responsible for the many bank panics that have disgraced us in the past, and from which all other great commercial nations have been exempt for practically half a century." David R. Forgan, President National City Bank of Chi- cago, before the New York Credit Men's Association, Jan- uary 23rd, 1913, (see page 4, pamphlet "How to Avoid Panics"), said: "I say it is nothing short of a national disgrace that this is the only country in the civilized world that has had panics (and it has had about half a dozen) causing general suspension of the banks, within the memory of living man." The Chamber of Commerce of the U. S. of America, at Washington, D. C, January 21, 22, 23, 1913, adopted the following resolutions: "Our present banking and currency system based upon laws enacted fifty years ago is entirely inadequate for the present needs of the people and the business interests of the country on which the welfare of our people depends." "That there is no necessity for the continuance of this condition in the United States, and for the recurring fi- nancial panics it tends to induce, is evidenced by the ab- sence of such frequent financial disturbances in other countries." These with others of a like character seem to have imbued the masses with the idea that panics do not occur abroad. Some stress is laid upon a fine distinction between the words "bank" and "com- mercial" panic. The Standard dictionary indicates a distinction like unto tweedleum and tweedledee. As to the business men of the Chamber of Commerce falling into error on the subject, it may be excusable, because it is not to be expected that they are familiar with the world's history on banking. As a partial answer to these fallacious statements permit me to quote from my adddress of 1902 before the State Bankers' Associa- tion of Michigan. Panic of 1836 to 1839. Sumner's Hffstory of American (Airrency says. "In 1836, the Agri- cultural Bank of Ireland and the Northern and Central Bank of Man- chester failed." They had 70 or 80 branches. "This was the first blow of the crisis whish convulsed Europe and America." According 4 fi t to McLeod, failures continued through 1839 before equilibrium was restored. Panic of 1847. McLeod, in "The Hjistory of Banking in All Nations." quotes many great bank failures in 1847 all over Britain and sums up by saymg the liabilities were over £15,000,000. Further, it says, "A complete cessation of private discounts followed." Doubtless branch banks went down, but no distinction is noted. Panic of 1857. Again McLeod quotes a long list of terrible bank failures in 1857. and then says, "As the failures in London became more tremendous, discounts became more and more contracted. The stunning news of the stoppage of so many banks created a banking panic. Private banks stopped discounting altogether. When universal rum was at last impending, etc." "This great crisis far exceeded in mtensity that of 1847 " The aggregate liabilities must have been appallmg, but are not stated Mr. Sticknev, in his American Bankers' Association address stated that "In 1837 and 1838, also in 1856, there was a great com- mercial crisis in Great Britain, but not a bank in England or Scot- land failed." As I can find no record of a crisis in 1856, must we not conclude that this date is erroneous and comment as to failures would b0 uncharitable. Panic of 1866. In 1866, according to McLeod, at the time Overend, Gurney & Co failed for £10,000,000, the bank failures of Great Britain aggre- gated the stupendous sum of £50,000,000. This sum exceeds the total liabilities of all the failed National Banks of the United States since their inception forty years ago, to this date, by over £13,000.000. Panic of 1878. In 1878 the West of Eligland and South Wales Banking Co. failed for £5.000,000, with forty or fifty branches. In the same year the City of Glasgow Bank failed for £14,000,000, with 131 branches. These with other bank failures carried the liabilities to over £20,- 000,000. The American Encyclopedia says, "The year 1878 was marked by deepening financial gloom in England, aggravated by disastrous financial failures, and the City of Glasgow Bank failure amounted to almost a national disaster." Panic of 1890. McLeod quotes the failure of the Barings in 1890 for £21,000.000. but for fear of a general upheaval the great banks of Britain joined together and liquidated the Barings, thus limiting the disaster ma- terially, although other failures occurred. Hearers, are you tired? I wonder sometimes what "standard authorities" ' Mr. Stickney studied when, at the American Bankers' Association last fall, he drew such a lovely picture of the magnificent banking system of Great Britain, which we, with "no system," ought to adopt to prevent panics and to become the creditor nation of the world! . Let us look for a moment at the panics in the United States. 5 tv: Q7ftftnnnn 1863 to 1901 of failed national banks was ^.I'Saaa 1863 to 1896 of all other banks in United States 44,000,000 Makinga total of £81,000.000 This is £10,000,000 short of the liabilities of the banks of Great Britain in the panics of 1866, 1878 and 1890 alone, not counting a single intermediate failure in the past forty years. When we come to compare historical facts with unsupported assertion, the bank- ing system of the United States looms up so grandly that every American should feel proud. I know you will pardon me if I refer to one more bit of history, the Australian, which is an offshoot of Great Britain's branch banking system. The American Encyclo- pedia for 1893 says "Out of twenty-eight banks with 1,700 brauches, thirteen of them with 800 or 900 branches failed in six months end- ing May 1893, for the stupendous sum of £90,000,000," which sum in that" single swoop exceeds the total liabilities of all the failed banks in the United States in the past forty yaers. although the banking power of the United States was six times that of Australia at that time. What is the cause of the financial distress in Ger- many for the past few years? She has had a branch banking system, too. I say "Why do these people insist on reiterating such fallacies?" I leave the answer to my hearers. Here is another that makes a country banker smile. An eminent branch bank advocate openly declared in public lately. "It is the country banker that causes a panic, and only the country banker. As an answer I will simply ask: "Did the panic of 1907 crigi- nate in New York City? If not, where did it incubate?" "Did 'the country banker' cause it?" "Would the banks of the country, as a whole, have suspended cash payments if the New York City banks in 1907 had not suddenly wired all banks, city and country alike, that 'No cash will be paid on balances on Monday morning'?" "Are panics bom in the country or in the city where great pro- motions flourish?" "Did not the 'cause' in New York produce the 'effect" through- out the country as to cash that 'You no got 'em, I want 'em'? The effect simply aggravated the cause." One other point and I am> through. Branch Vs. Independent Banking. As Canadian branch banking is so often landed as a mode! for us, permit a brief comparison of the two systems: 1st It requires a capitalization of not less than $500,000 to start a bank in Canada. There are now in the chief cities of Can- ada twenty-seven great central banks. These own and control over 2,500 branches scattered throughout the Dominion. The number of cen- tral banks has been materially reduced in the past thirty years, and it ib a scandalous fact, widely admitted, that the powers con- trolling make it about as difficult to» get into the select cotene as to get into a safe with a jimmie. The system, evidently, borders on a pure monopoly. I il t a ^«i>z^an£KkS ■ ,.;-v A^^-'u. !' VJ" i K .!?■ , t^^^^. ^^ ^^^^^® central banks— no stock being issued by the branches— IS held largely in I^ndon. Liverpool. Quebec Montreal, Toronto etc.. and only a small percentage thrmi^hout dene ™""^"' course dividends follow the stockholders' resi- 3d. I understand the stock is assessed where the holder resides and branches pay a license fee to do business, also taxes on the buildings o^yned by the bank. but the owner of such buildings would likewise pay the tax, if rented by the bank. 4th. The branches in the country towns and smaller cities have no president or cashier and no board of directors, but are managed practically by figureheads. One man has general super- vision over ten to twenty branches in separate localities and " the so-called local managers take orders from him. 5th. They take the deposits from one locality and send to others where interest rates are higher. Canadian banks, I am informed have niillions of dollars invested in Mexican and South American public utilities, to the detriment of home demands. I^t us compare conditions in .Muskogee and the country gen- erally, with like cities in Canada. Muskogee has eleven banks and trust companies with capital and surplus of about $1,500.000— the bulk of which is owned at home. The presidents, cashiers and boards of directors are strong influentia , public spirited citizens. The local stockholders aro all on the alert to upbuild Muskogee and bring profits on their ?tock holdings. Under the Canadian branch banking system the Muskogee presidents and cashiers would be set aside and the dirortors abolished. There would be comparatively no stockholders, even ot the central banks, and assistant cashiers would be the mauiigers of the branches. As self-interest is the first law of nature this wrecking of the powerful influence for good of all these elements would breed indifference. Again, as taxes are paid in Oklahoma on capital and surplus Muskogee would get filched out of over $30,000 per year in bank taxes. If the stock is not all held now in Muskogee, it soon will be under your thrifty conditions; then, if stockholders get but 6% per annum on their investment of $1,500,000, that would mean $90- 000 less per annum for distribution in Muskogee, plus any undivided profits, all of which, if the Canadian system were adopted in the United States, would go to 100 or 200 great central banks of New ^^l^k Boston. Philadelphia, Chicago, etc., which would have the 25,000 present indei>endent banks as tails to their big kites A beautiful and enticing picture for Muskogee and the country gen- erally. I appeal to you, gentlemen, is it not a fact, that those allied to the ownership and management of the independent banks of the country have been wonderfully instrumental in the onward and up- ward progress of your farm sections, your hamlets and your cities'^ If we upbuild these, do we not upbuild the great cities and the nation as a whole? Contrast these facts with the further ones that Canada with splendid resources, has a territory about equal to the United States with a population of but seven and a half millions; that her whole banking power is not equal to that of Massachusetts alone- that the Monetary Commission reports and other authorities show that 8 . n. \ the comparative losses to depositors and stockholders of Canadian banks, as compared to our national banking system, ig as three to one in our favor; that interest rates are neither uniform, nor are they lower than in the United States; that these same reports, as testified to by the general manager of the Bank of Nova Scotia, showed comparatively five banks failed in Canada to one national bank in the United States since 1880; that according to the same general manager — "In 1880 there were in Canada 41 banks Incorporated since (to 1906) 7 banks Total 48 banks of this number twelve have failed, and some others saved them- selves by amalgamation"; (To-day but twenty-seven are left); that Canada, notwithstanding she is bolstered up with ^reat floods of British capital, invested in her railways, banks, etc.. yet she is practically asleep compared to the wonderful energj^ of our people. — and then ask yourselves if I am not justified in declar- ing "the Canadian branch banking system skims the cream from the country, to enrich the exchequers of the monopolists in the great cities, while the Independent banking system of the United States helps wonderfully to upbuild the nation as a whole." In an address at Wausau, Wis., last March, I made these state- ments, merely in a comparative way, and it seems to have hit the branch bank advocates in the solar plexus, as they grew hysterical over it. If it is a dead, issue, why should they get ex- cited? The country better nail up the coffin if the issue is dead. Perhaps a little Canadian testimony will not detract from my contentions. Therefore, permit a short quotation from a 1912 weekly edition of "The Toronto Star" which has a daily circulation largely in excess of any of the other six dailies there. Preceding a well written, logical four column article, the fol- lowing strong headlines appear in The Star: i =i; -■ r. t , r. li N. 4 ! "MONSTER BANKING MONOPOLY A LEECH AT CANADA'S THROAT, KILLING LOCAL INDUSTRY, DEPOPULATING RURAL DISTRICTS. "Centralization of Almost Entire Financial Power of Dominion In the Hands of a Few Capitalists Has Resulted from Our Much-Vaunted Banking System.— Almost Total Extermination of Local Banks/' I quote but two extracts therefrom, to-wit: "While large capital insures slow, steady transmission of de- posits to 'branches' for control, and use of head offices Tn s rart alien centers, local credit based on local savings is trLns?>^?ed to parasites on whom rests neither responsibility, object nor de sire to exercise banking functions in support of ocal enterprises With such credit basis lost, not only does the collapse ma&rp- t on ot local bank institutions become inevitable, but local asuira- tions and confidence which, had sustained local industry are wiped out or made dependent on the will and nod of competitive enfer- prise. So secretly, so gradually, does this sequestration of savings proceed, so insidiously are local enterprises undermined, that planting ot a /branch' to suck out local earnings, to extirpation of even thi l?^ l?f^al -industry or institution, is embraced by 'slow gofnT pe(^ ? tin'Il" ^^^ '^™^ ^'"^^' innocence as a three-years child fondled "To this accursed system of concentration of credit and de- struction of local industry, the Dominion of Canada stands indebted f,^.^^''''"-/'^''^!^ population of 7,000,000 in place of 25.000,000 right- tully due it under decentralized systems of banks designed to sustain to breathe the breath of economic life through the remotest as well as the most insulated of its parts." remotest, as This indictment from a Canadian rather outstrips mine. Permit one other point not brought out heretofore. f .t^ T^T^.^'^^'o^'*^ banking functions are carried on in the banks of the United States at least as well as in Canada,-! shoulfsay chanered'tanks' do Tnl' ^"^^ '""" .^^ ^'^' '''^'^' ^"^ ^^^^^-^ Chartered banks do not,— I suppose the oft repeated assertion as to the wonderful elasticity of Canadian bank currency ought to hi referred to. It probably is not generally known but the fac^ r^ TnllVll Do^»™ent No. 583 clearly shows tLt a hard money market obtained in Canada in 1907. The Canadian banks with large New York City deposits and demand loans reduced boih and shipped all the cash they could get to Canada, and ^further ag gravate the New York situation, these Canadian banks mns?erred !l •ft-^ large amounts of their New York balances to London. Deposits in Canada declined $30,000,000. and the loans $25,000,000. in the last two months of 1907. The Dominion suspended the limitation on issues of currency and $5,115,000 of "emergency currency" was is- sued. I cite these facts to show that slow-going Canada has her troubles too. Even if her currency system did pull her thro with- out cash suspension by her banks, we cannot adopt that system without adopting her branch system with it. For proof, Mr. J. B. Forgan, who is an ardent advocate of the Canadian system, in 1902 declared in an address "To me the simple statement that about 10,- 000 (now double that number) banks with capitals running all the way from $25,000 to $25,000,000 would have the privilege of issue, settles it as Impractical and impossible." Query — Do we wish to surrender our independent system and adopt the monopolistic, "cream skimming" Canadian system? Friends, draw your own conclusions. I refrain from wasting any more powder, altho there is abundance left. As a constructive policy is the real issue, I respectfully close with the following: Condemning the best banking system the world ever knew, with a small "mote" in it, and glorifying the monopolistic branch banking systems of other nations with big "beams" in them, will not eradi- cate our single defect. We can only ameliorate panic conditions, but not through a big bank with many branches which will enter into severe competition with existing banks; not through accept- ance privileges to 7,400 national banks which would only aggrga- vate our already overstrained credit; not by additions to our pres- ent inflated currency. These simply spell monopoly, inflation of currency and credit. They are panic breeders and not preventers. On the other hand, we can if we will prevent cash suspensions by banks and thereby ameliorate panic conditions through either of these simple methods. 1 care not for the method, if results are obtained, barring objec- tions stated. As the political party in power has turned down the Monetary Commission Bill I respectfully offer under first a new sug- gestion for earnest consideration and then mention two others well understood. 1st — Permit the banks of the country to deposit in the Treas- ury Department at Washington or other depository out of present reserves, as follows: (estimated) 5% of deposits from the three central reserve cities; 2% of deposits' from the three general reserve cities; 1% of deiKJsits from the country banks. This would mobilize say $300,000,000 in cash now held as reserve and therefore would oc- casion no loss to any bank. In ordinary times country banks can obtain rediscounts as they do now — thro their city correspondents. When trouble threatens in any section, this vast reservoir of ready cash will be open to "discount freely to all solvent parties" at high rates, and the mere knowledge that relief can be had will impart general confidence. Its operation should be like unto a water res- ervoir, to put out a fire in its incipiency and refill again ready for future troubles — not a money maker. A servant, not a master. 2d — Extend the privileges of the Aldrich-Vreeland Act to all banks on a uniform form of currency. There are 1,200 millions of dollars of bonds now in the banks of the United States, eligible for use to obtain extra cash in troublous times, and the Treasury department holds 500 millions of national bank notes for this purpose. 11 li \ i !; b h 3d— Legalize clearing house certificates on which extra uniform currency can be had when panic threatens. unitorm aic^^^^^w ^^ ^^®^® ^^" ^"^® °"^ s^^Sle material defect. We will h rn T^^'^T ""''l '?i^"^^^ independent system intact. We m^st turn a deaf ear to the siren song of those who argue so loudly disease™ compound remedies. They are worse than the Brother Bankers, why should we not get together by elimiMating y ew'"" ani'^'.PH.^ compound matters, not germane to^he end "n trouble? That is all we need, as banks which cannot take care who^'e^Th^Sln'a rXn.""^^^ ^^^ """^^^^ '^ "^ ^^ ^« '^" Waukesha, Wis., May, 1913. ^'''''''''^ '^"^ ^^^^^- QUERY It is a maxim that currency is not capital. In developing days the special privilege of issuing currency by banks as a substitute for capital seemed justifiable. To-day that function by banks gen- erally is unjustifiable, because great accumulations of surplus capi- tal have cut interest rates to less than one-half of those of fifty years ago; because our per capita circulation— mostly gold or gold certificates-more than doubled in that period, and because our credit is over expanded now, therefore, in^nfol^^''^ extends its loans to the limit of its assets (total oans are now over nine times the capital of all banks) then swans Its printed I. O U.s without interest, in exchange for is cuLSs spin tizreiLzr""' ''''''''' ^"^ "^-^''^^' ^-^ -^ ^^^^-t goverLr^on^ aT Sc'^Ll"^ n^?^ '^^ ^^ ^^^"^^^' ''^^ ^^^ ^ I n ^^^s^i!maD^S9mK9mmii % ' I-L ■ > ' i » il O i f COLUMBIA UNIVERSITY LIBRARIES This book is due on the date indicated below, or at the expiration of a definite period after the date of borrowing, as provided by the library rules or by special arrangement with the Librarian in charge. DATE BORROWED DATE DUE DATE BORROWED DATE DUE ^u^ •'■■ ■■■ H: ) f C28(3.52)tOOM 0041427947 D730.73 PS55 7 '3 i'raiiie :855 b AnciT^v: uav i^rame . . f^ A6i^ .8 DEC 2 i W53 END OF TITLE