report within nine months after the passage of this Act that at least
twenty local associations have been organized as in this Act provided,
then and in that event the allotment of the six thousand dollars to pay
the expenses for the organization of at least twenty local associations
in his State may be used proportionately to pay the expenses, if any,
of organizing local associations in any other State or States in excess
of the required number necessary to establish a State association--that
is, the amount remaining unearned by any of the States shall be
apportioned to the several States reporting more than twenty local
associations directly in proportion to the number in excess thereof,
preference, however, always being given to the States whose average
expenses are lowest for the organization of their several associations.
MR. LAWYER: Gentlemen, this concludes the results of our labor and I
want to express the solicitude of your committee in proposing this bill
and the hope that it may in a large measure meet your expectations.
UNCLE SAM: Well, boys, speaking for the crowd, I want to say that I did
not believe that the committee would be able to make its report for
a month. Upon my soul, I did not expect that they would ever make so
satisfactory a report. They seem to have thoroughly comprehended all
the subjects we have discussed and to have produced a Financial and
Banking Bill that will meet every question that can possibly arise; one
that will protect every individual bank in its independence; one that
will protect every commercial zone in its independence; and one that
will protect my reserves against the demands of all the rest of the
world.
MR. LAWYER: Those are precisely the things we have striven to
accomplish, Uncle Sam.
MR. MERCHANT: During the past week I ran into a friend of mine who
is in the banking business and considering that we were practically
through with our work, I told him what I had been doing the past four
months without giving him your names. "Well," he said, "I want to give
you a pointer. If you are following along the trail of the Aldrich
scheme you had better drop it; you had better save your time, because
the people are on to that deal and they won't stand for it. You will
have to make it clear that you are working from an entirely different
point of view."
This remark of his opened my eyes and I am going to suggest that we
spend one night demonstrating the striking, the fundamental points of
difference between our bill and that Aldrich scheme.
MR. MERCHANT: I am convinced that we should do that very thing and I
propose and move that we meet next Wednesday night for that purpose.
MR. BANKER: To make a clean job of our work, I believe that is
essential; because hundreds and hundreds of thousands of dollars have
been expended in promoting that scheme, therefore, I second that motion.
UNCLE SAM: The motion is carried and now good night, all.
* * * * *
To you, UNCLE SAM, we, the representatives of the FARMERS, BANKERS,
LAWYERS, LABORING-MEN, MERCHANTS and MANUFACTURERS, dedicate the result
of our endeavor, our future services, indeed, our lives; and we pledge
our callings, every one of them, to continue the work here begun with
that degree of vigilance and patriotism of which this great cause is
worthy, confident that the result of our efforts will be to safeguard
your honor and establish you upon the solid foundations of a sound
Financial and Banking System.
[Illustration:
WONT YOU WALK INTO MY PARLOR
SAID THE SPIDER
TO THE
FLY
THE ALDRICH PLAN AND PLOT EXPOSED]
SEVENTEENTH NIGHT
ALDRICH PLAN AND PLOT EXPOSED
UNCLE SAM: From what you boys intimated the other night, I got the
impression that the so-called Aldrich scheme demonstrated almost
everything that we should not do in working out a financial and banking
system. It must have been more or less of a warning to you, then, when
you started out.
MR. LAWYER: To tell the truth, I had become so convinced of its
ulterior purposes from the standpoint of management, that I never
studied it seriously from an economic point of view, until this last
week.
MR. BANKER: My position was just the reverse of that of Mr. Lawyer, for
while I had studied it from an economic point of view and that of a
practical banker, and had become so convinced of its utter unsoundness
on the one hand, and unfitness for use to ninety-nine out of every
hundred of American banks, I never dug into the soul of its management,
until the past week. So we compared notes, and found the situation
particularly interesting.
MR. MERCHANT: Before you go any further, I want to read something from
a speech, delivered in Congress March 29, 1910, two years before the
Aldrich plan was born. You are all doubtless aware that the Aldrich
scheme was nothing more nor less than an attempt to transfer to this
country the German scheme of note issue and banking generally.
MR. LABORINGMAN: I heard the other day, that the Aldrich bill was
deader than a door-nail. Why do we want to spend any time on that? Or,
are you fellows like the Irishman, who said that he was kicking a dead
dog to teach him that there was such a thing as punishment after death?
MR. MERCHANT: You must remember, Mr. Laboringman, that error is always
repeating itself, and that sin and iniquity never die; so, the economic
blunders of the Aldrich Bill and its administrative purposes should be
exposed and held up as a lesson and an illustration to guide us in the
future.
What I wanted to read, was a part of Congressman Fowler's speech,
delivered in the House of Representatives. Referring to the German
banking situation, he said:
"The position of both England and France, under present conditions,
would seem sound and impregnable from a governmental as well as a
banking point of view. Each has planted itself upon the gold standard,
with certain precautions peculiar to its circumstances. Germany, on the
other hand, has not pursued the course of England, with its limited
gold reserve, forcing the public into the deposit and check system to
meet the current demands of trade. This would have been impossible
without a long-continued ruinous revolution, considering that there
is a quarterly settlement in Germany that calls for an expansion in
currency amounting to $125,000,000. Nor has Germany pursued the course
of France, which has a gold reserve large enough to meet any test or
burden that either the Government or the commerce of Germany might have
imposed upon it, but has adopted a middle course which has not the
strength of the position of either England or France, nor the credit
facility of France.
"Its gold reserve is of the halfway sort, and its bank note issue is
also of the halfway sort. The result is that the financial and banking
situation of Germany must necessarily prove weak upon the first great
test when the bank notes of the Imperial Bank of Germany must be made a
legal tender.
"Indeed, upon the declaration of war by Germany or against Germany, the
first step taken in a financial way would be for her to declare her
bank notes a legal tender. It is hardly problematical what would soon
happen, with the wide divergence between her gold fund and the amount
of her note issue."
Gentlemen, within eighteen months after he made that statement, when
war seemed probable with France, Germany made her bank notes a legal
tender.
Further along in the same speech, commenting upon the unsoundness of
the German plan, he said:
"Imagine for a moment a central bank in the United States, like the
Imperial Bank of Germany, issuing all our bank note currency and these
notes going into the reserves of our myriad of banks as the basis of
loans which, under our system, in turn become our deposits.
"The natural, first, and immediate effect would be an expansion of
credit, an inflation to just the extent to which the notes were used
for reserves.
"As soon as the situation became obviously dangerous, a halt would be
called and a contraction in loans would follow. But a contraction of
loans calls for liquidation, and liquidation produces an exigent demand
for currency. We all learned that lesson only so short a time ago as
1907.
"But in the very face of the increased demand for more currency the
currency would be contracting, because the loans would be reduced by
calling in bank notes which were being used for reserves; or, in other
words, the loans called would be paid in bank notes.
"For every $100,000 of notes so called in the loans might be reduced to
an average of $500,000, and yet this very process of liquidation would
be concurrently destroying the only instruments of credit that would
adequately meet the demand created by forced contraction. It would
clearly lead to self-destruction, to commercial suicide.
"The best thought of England recognizes this subtle but obviously
destructive contradiction in the use of credit, and therefore opposes
the use of credit notes by the Bank of England."
_Gentlemen, the fact that we can force our banks to carry a specified
amount of reserves and of a specified quality, by the power of
taxation, will preclude the use of bank notes as reserves in the United
States._
Mr. Fowler then concludes as follows:
"There are then, in addition to all of the objections to the Bank of
France, three other unanswerable objections to the establishment in
this country of any central organization approaching in character the
Imperial Bank of Germany:
"_First_: It would give us a financial and banking structure so weak
that it could not stand any great strain such as necessarily comes with
a great war, if, indeed, it were not so weak as to lead to a suspension
of gold payments even in time of peace.
"_Second_: No thought whatever should be given to any suggestion that
makes it possible for one bank credit to be used in the reserves of
another bank and so substitute any form of credit for gold in our bank
reserves.
"Unless gold alone is ultimately recognized as fit for bank reserves,
we shall continue to pay dearly for our mistake until it is corrected.
"_Third_: No proposal whatever should be entertained by us that
involves the possibility of the suspension of gold payments, for no
country can become the clearing house of the world that is not a free
market for gold. The United States and not England ought to be the
clearing house of the world."
These words, as I have said, were spoken about two years before Mr.
Aldrich attempted to import the German Bank into this country.
MR. BANKER: That is very interesting and prophetic, but not more so
than his speech at the Republican Club of New York, January 20, 1912.
Let me read that to you, gentlemen, by way of an exposition of the
economic faults of the so-called Aldrich scheme. He said:
"I wish to speak purely from an economic point of view and to cover
only one single phase of the proposal; its dangerous expansion,
unbounded inflation and certain expulsion of gold from the country.
"'_First_: Nothing should ever go into the reserves of the banks of a
country except what is coined out of its standard of value.
"'_Second_: The poorer money always drives out the better.'
"Every single note of the so-called Reserve Association used in the
reserves of our banks will displace just that much gold and drive it
out of the country.
"Judged, therefore, from a purely economic point of view, I assert that
the Reserve Association plan is the most unsound, the most dangerous;
indeed, it is absolutely the worst proposal that has been brought
forward for serious consideration by any respectable body of men since
the adoption of the Constitution, with the two following exceptions:
First, the issue of legal tender money by the Government such as
greenbacks; second, the free and unlimited coinage of silver at the
ratio of 16 to 1.
"An officer of one of the largest banks of the United States recently
used this language: 'Mr. Fowler, it is incredible that we should be
called upon to consider such a proposition.'
"If this is really true, how does it happen, that so many business men
and so many bankers approve it, is a most natural inquiry. The cause is
not difficult to perceive.
"There is not a business man nor hardly a banker who is not even now
still living in a state of fright from the terror of 1907. One thought
alone seems to have taken possession of the country to the exclusion of
everything else, and that thought is this: That we must hereafter be
able to convert our commercial credits into bank or current credits.
There seems to be something approaching madness; indeed, there seems
to be an insane haste lest they be caught again, possibly tomorrow,
certainly next fall. But they need not worry, for danger is not
imminent; 1907 will not come again right away.
"During the past two years up to the present time the entire thought
of the country has been directed to a mere mechanism to achieve this
result, without any reference to or consideration whatever of those
fundamental, eternal principles of banking economics that demand
recognition and obedience if we are to escape the frightful penalties
which their violation always inflicts.
"In the outset I want to lay down two fundamental laws that I wish were
burned into the minds of every banker and every business man within the
borders of this republic. They are these:
"One--Nothing should ever be counted as a reserve which is not coined
out of the standard of value. Our standard of value is gold, therefore
nothing should go into the reserves of our banks except gold.
"Two--The poorer money always drives out the better.
"I hope that whoever hears these words will commit these two laws to
memory, for they are as fundamental and eternal in their operation as
the law of gravitation.
"I assert that the plan of the so-called reserve association is in
direct violation of the first of these laws, and will put the second
law into operation to a dangerous and destructive degree.
"Every intelligent student knows that the plan proposes to transport
to this country the German system of banking, which I assert has
completely broken down at home during the past six months. Now, if
this system has broken down in Germany, where there are a few great
banks with hundreds of millions of assets and not more than 500 banks
all told, what can you expect it to do here with more than 25,000
individual, independent banks, directly responsible to their depositors?
"The following letter was given to me by an officer of one of our
largest banks, accompanied with these words:
"'I realize that in giving you this letter I am, in a way, betraying a
business confidence, but I regard it as my patriotic duty to give it to
you, to use in any way you may see fit. For what would happen to this
bank if we should send out such a letter to our depositors? Our doors
would be closed inside of twenty-four hours.'"
The letter referred to was written by the Deutsche Bank of Berlin,
which has assets approximating $500,000,000, and is as follows:
"'In consequence of the restrictions recently made by the Imperial
Bank, with regard to the supply of money at the end of every quarter
of the year, we are, to our regret, compelled to ask you, when drawing
against your account with us upon our head office and our branches
by mail, kindly to advise us by cable of such drafts on them as are
likely to come forward for payment during the last three working days
of the quarter and the following two working days, so as to enable us
to provide from here especially the necessary funds at the office drawn
upon.
"'As to cable transfers which, during the five days in question, you
may have to order on our head office or branches, to the debit of your
account with us, we shall feel obliged by your ordering them only if
you can advise us by cable one day before, the amounts to be placed by
us to your debit on receipt of such advice, or ordering upon us for
mail transfer from here.
"'The foregoing, of course, does not apply to small amounts.'
"As a further proof that the system has broken down at home, let us see
what has been going on in Germany during the past six months to further
demonstrate the weakness of their system.
"The great banks of Germany have been scouring the markets of the
world, going into every nook and corner, hunting for gold. At what
price? Was it at 5 per cent, 6 per cent, 7 per cent, 8 per cent, 9
per cent, 10 per cent? No. The New York _Evening Post_, in its annual
review, says it was from 12 per cent to 20 per cent. I have been
credibly informed that the great banks of Germany, with hundreds of
millions of assets, were borrowing money in our own markets at 7-1/2
per cent and 1-1/2 per cent for three months, or upwards of 13 per cent.
"I was told of one loan to one of the largest banks in Berlin, running
for a whole year at 7 per cent.
"Think of it! What would the condition in our country have to be before
The National City, The Bank of Commerce and the First National of New
York, and the First National and Continental Commercial of Chicago,
were scouring all quarters of the globe for gold and paying from 15 to
20 per cent for the loans?
"The Imperial Bank of Germany could not save the few great banks of
Germany. What would the same kind of an institution in the United
States do for 25,000 independent banks under the same circumstances,
all pulling at the skirts of this proposed financial balloon? The
Imperial Bank could not make real money out of paper credit when the
crisis came.
"Let me ask the 25,000 individual independent banks of America, what
they would do when the day of contraction and refusal came? Where would
you go for gold with your comparatively small capital and limited
credit?
"The financial situation in Germany is by far the weakest of all the
great nations of Europe and the cause is not far to find nor difficult
to detect.
"Their notes, which are based upon only 33 per cent of gold and 66
per cent of commercial credits, are used as reserves and made the
basis of additional credits. Economically speaking, whenever a bank
puts anything into its reserves it makes that thing a legal tender
and exactly to that extent displaces that much gold, if gold is the
standard of value.
"During the ten years from 1900 to 1910 the gold accumulated by Russia
amounted to upward of $200,000,000; that accumulated by France, upward
of $300,000,000; that accumulated by England, where nothing but gold
is treated as reserves and where there has been comparatively little
growth in business, $32,000,000. The United States accumulated
$1,100,000,000, while Germany, with all her development of trade during
the last ten years, accumulated only $40,000,000 of gold when it ought
to have been ten times as much, all things considered, or $400,000,000.
If she had done this she would not have been compelled to send her
great financial institutions all over the globe in search of gold and
been compelled to pay 15 per cent and 20 per cent for it."
Gentlemen, within sixty days after those words were uttered, this
conversation was reported to have taken place. The German Emperor asked
Herr Havenstein, the President of the Imperial Bank of Germany, whether
Germany was prepared, financially, to carry on a war with a first-class
power. Herr Havenstein said: "No." To this the German Emperor replied,
"I do not want that answer to that question when I ask it again."
Herr Havenstein immediately called the managers of the thirty great
banks together, and told them that they must collect at least a
15 per cent reserve. To this they protested, saying that it meant
the accumulation of at least $250,000,000 in gold; but Havenstein
persisted and insisted upon his demand. Now, gentlemen, if you add the
$40,000,000 they had accumulated, to what Havenstein insisted that they
should accumulate, or $250,000,000, you have $300,000,000 as a minimum.
It is altogether probable that $400,000,000 was nearer what they should
have accumulated.
It should be noted in this very connection, that Germany recently
appointed a commission to investigate her banking system, and that
this commission reported that the individual banks of Germany should
carry their own reserves, precisely as Congressman Fowler has always
contended, declaring that it is especially important in the case of our
individual, independent banking system. From what has been said, it has
been demonstrated that every criticism that he has made of the German
system, has been confirmed by their own subsequent action.
The rest of his speech was as follows:
"Mark this: If we did not have the $346,000,000 United States notes or
greenbacks, the $650,000,000 of legal tender silver and a part of the
$750,000,000 national bank notes in the reserves of our banks, we would
now have in the United States $2,500,000,000 of gold instead of only
$1,850,000,000. Does all this prove nothing to us?
"Every intelligent student of economics knows that after Alexander
Hamilton, with the acquiescence and approval of Jefferson, had fixed
the ratio of the gold and silver dollar in 1792, a differential of
only one-half to one per cent drove all the gold out of the country by
1832, and that from 1834 to 1860 the changed ratio drove every dollar
of silver out of circulation. Who does not know that from 1861 to 1865
the issue of fiat Government paper drove every dollar of gold out of
the country; that for seventeen years we were off the gold standard,
resuming specie payments in 1879?
"Has any banker over fifty years of age forgotten the silver struggle
from 1879 to 1894, when, because of the silver purchase act by which we
only added $50,000,000 a year to our reserve money, we came to the very
precipice of repudiation and national dishonor?
"These four great and significant lessons have been taught us--since
the establishment of this Government--the poorer money invariably
drives out the better, and yet we are confronted by such stuff as the
following falling from the lips of the reputed author of the so-called
Reserve Association:
"'The banks will be able to replenish their reserves indefinitely.' The
counterpart of this proposition is that the banks will be able to make
loans indefinitely. Think of such a proposition! And again, he says it
was deemed necessary 'to provide such effective regulation of discounts
and note issues as would enable the organization to respond promptly at
all times to normal or unusual demands for credit or currency without
danger of undue expansion or inflation.' If this proposition survives
at all it will be as the curiosity of the century. I submit that
neither of these propositions could have emanated from a mind capable
of thinking in the terms of economics.
"I assert that if we adopt a sound financial system in the near future
we shall have in the course of ten years upward of $3,000,000,000,
possibly $3,500,000,000, of gold in the United States. I assert further
that if we adopt the proposed so-called reserve association scheme we
shall have at the end of five years thereafter in the neighborhood of
only $1,250,000,000, allowing for a differential of $250,000,000 either
way as a possibility. In other words, we would have as a result not
more than 40 per cent and possibly not more than 30 per cent of the
gold that we shall have if we pursue a wise economic policy.
"The scheme provides that any deposits with the association may count
as reserves; also that any of its notes may be held as reserves.
"Since the average reserve of all national banks is and has been for
many years about 20 per cent, let us assume, first, that a national
bank called 'X' has $5,000,000 of deposits and holds a 20 per cent
reserve, or $1,000,000 of gold; second, that X National Bank deposits
this million of gold with the reserve association; third, that a
national bank called the 'Y National Bank' exchanges $1,000,000
of commercial paper for $1,000,000 of the notes of the reserve
association, which it puts into its reserves.
"In the course of time it will have a million of deposits, largely
in the shape of loans based upon this million of notes; so that the
original $1,000,000 which stood guard over $5,000,000 of debts now is
called upon to protect $12,000,000 of debts, or only about an 8 per
cent reserve as against 20.
"The X National Bank owes $5,000,000 of deposits against $1,000,000
deposited with the association. The association owes the X National
Bank the $1,000,000 deposited with it and $1,000,000 of notes
outstanding which it issued to the Y National Bank. The Y National
Bank has liabilities outstanding of $5,000,000 with the notes as
reserves, or a net expansion and inflation of $7,000,000.
"It has been assumed or claimed by some advocates of the scheme
that probably $1,000,000,000 of gold would be deposited with the
association, in which event there would be an expansion and inflation
of $7,000,000,000, or a total liability of $12,000,000,000 where now
there are only $5,000,000,000.
"While this expansion and this inflation have been going on the notes
have been going into the banks as reserves, and a corresponding amount
of gold has been driven out of the banks and out of the country.
"Now, mark you, I have not pursued this expansion, this inflation,
beyond the 50 per cent gold reserve for all the liabilities of the
reserve association. When you turn your imagination to all the
possibilities remaining in rediscounts, borrowing direct, acceptances
and falling in your reserves, and the credits which grow out of
credits directly and indirectly, the prospect becomes bewildering. The
expansion and inflation becomes a matter of planetary distances and
astronomical figures. The proposal leads into the nebulous somewhere,
into the bottomless nowhere.
"Every student recognizes that the weakest point in our national bank
system is the superimposed credit resulting from the deposits with our
reserve cities and then with our central reserve cities. But in the
very face of that fact here is a proposal that accentuates that fault
one hundred fold.
"The strangest thing about this whole proposal is that it is based
upon the fact that we have not sufficient capacity for expansion and
inflation of credit. Will any one say that what we wanted during the
years of 1913-4-5-6-7 was more inflation? Does not every intelligent
student of banking economics know that what we should have had was some
way of checking the delirium instead of increasing the mad speculation?
"To determine now what we want we must first ascertain with some degree
of accuracy just what happened.
"Until we come to realize that there are two distinct kinds of capital
involved in our banking business, and learn to treat them according
to their peculiarities, we shall continue to have the same kind of
trouble, to a greater or less degree, that we have had in the past.
"There is the trust fund or the savings of the people and money
belonging to estates or the investment fund. Then there is the
commercial fund or that capital engaged in production and trade. The
law should compel the segregation or separation of these two funds, so
that we know with some degree of certainty whether the investment fund
has all been exhausted and our commercial funds or capital are being
encroached upon and absorbed in fixed investments. This is precisely
what happened by 1907.
"To illustrate this thought, let us assume that a railroad needs one
hundred flatcars to carry its peculiar freight and needs one hundred
passenger cars for the accommodation of the people. It is self-evident
that if the road uses all the flatcars and half the passenger cars to
carry its freight, the balance of the passengers will have to make some
other provision for transportation or walk. This is just what occurred
in 1907, and a great many people are still walking as a result of
that misadventure. Liquidation is still going on, with a probability
that we shall be well into 1913 before normal or really good business
conditions will prevail all round.
"Now, it is apparent that if this diagnosis is correct, the bankers
did not cause the panic, as is so frequently charged. Indirectly, the
bankers had a good deal to do with bringing it about, but not in the
manner usually supposed. The way they helped it on was this:
"The great syndicates or underwriting bankers adopted the practice of
simply notifying rich men and bankers all over the country that to them
so much of some issue of bonds had been allotted. Those to whom they
had been allotted, influenced, on the one hand by flattery and on the
other by fear, lest if they refused to absorb what had been set apart
for them they would be ignored in the future, took the allotment at all
hazard.
"This forcing process went on until commerce broke down, because it had
been robbed of its necessary capital and has not been able to replace
it since, out of earnings."
MR. MERCHANT: Mr. Banker, do you believe that to be a correct statement?
MR. BANKER: Believe it! I know it. There is no doubt whatever that the
banks generally are under a kind of duress. They know that if trouble
comes, they must go to the powers that be. When these underwritings are
put out, and we bankers are notified that we are expected to take a
certain amount, we feel compelled, half compelled at least, to respond,
precisely as Mr. Fowler stated, and, as a natural consequence, the
commercial fund of the country is sapped and absorbed, and transferred
to passive investments, which, when the break occurs, become to all
intents and purposes fixed investments because you cannot dispose of
them at all.
What we must do, and what I am sure we have accomplished in the bill we
have prepared, is to set every individual bank free, absolutely free,
from any domination or influence of any kind, direct or indirect. Take
my bank as an illustration of what I mean. Today I am living in a kind
of terror of the possibility of 1907 coming again, because I have no
way of protecting myself, except through my correspondents, and, under
present conditions, that is no guarantee, as the banks may all break
down again as they did then. This, you will remember, is due to the
fact that we have no real economic reserve in the United States today.
All the reserves are loaned out all the time.
Let me call your attention to what my position will be, under the bill
we have prepared.
_First_: I shall be able to furnish all the currency I need, by simply
converting book debts or deposits into note debts or currency, up to
twice the amount of my capital, if necessary. That is, I can regularly
issue $100,000, the amount of my capital, and by going to my Board of
Control, $100,000 additional. But, if I did this, I would not increase
my liabilities a single dollar, but simply change the form of them from
deposits to notes.
MR. MERCHANT: Have you any doubt about the people taking your bank
notes, as you suggest?
MR. BANKER: None, whatever. You see, in the first place, they do not
come to the bank because they fear the bank cannot pay them; but,
because when one of these shocks to credit comes, there is a tremendous
demand for cash of some kind. You will remember, that in 1893 and 1907,
when currency was sold in New York, it did not make any difference
what it was: gold or gold certificates, silver or silver certificates,
United States notes or bank notes--anything that was cash brought the
same premium. But, suppose the question should arise and a man should
ask, are these notes good? He would not hesitate long after I gave him
these facts:
_First_: That they were a first lien upon all my assets.
_Second_: That there was a gold guarantee fund amounting to $60,000,000
in the treasury of the American Reserve Bank, to redeem them if my bank
failed.
_Third_: That the American Reserve Bank with $1,250,000,000 would
redeem the notes in case my bank failed.
MR. LABORINGMAN: Well, Mr. Banker, do you know what I would do, if I
had a deposit in your bank, under those circumstances, and got scared
of you? I would give you a check for my deposit, take your notes, and
hold them until the storm blew over. That's what I would do.
UNCLE SAM: There, can you beat that as a precaution against accidents?
Mr. Laboringman never will get left, if you will give him half a chance.
MR. MANUFACTURER: Under those circumstances, of course, the question of
goodness of the notes would never arise. The people would soon think
only of the great central gold reserve, which would always be before
their eyes.
MR. BANKER: In addition to my note issue, I would have the same
recourse to my bank correspondent in New York that I have today, and
he would then be in a far better position to assist me than he is
now, because of his additional resources. Besides, I could fall in my
required cash reserves, which would be about $100,000 down to $25,000,
without any danger to my bank; because of my greatest, final, and
practically inexhaustible resource, The Board of Control, which has
examined my bank, knows my assets, and will give me any amount of gold
to protect me in case of necessity.
MR. MERCHANT: I see, your exact condition is known to the Board of
Control; and the Board of Control has access to the gold in the
American Reserve Bank, and could get fifty or one hundred million
dollars to protect itself, if necessary.
MR. BANKER: That is so. My last protection is the American Reserve
Bank, which actually holds reserves, real reserves, not United States
bonds, United States notes, silver certificates, chips, and whetstones,
nor any old thing; but gold, in unlimited quantities, to all intents
and purposes.
Now don't you see, gentlemen, that if you will place me in that
position, I will be absolutely free and independent of any bank in the
United States, and of all banking influences of whatever kind--simply
because my final appeal is to a great coöperative fund, in which I
have a common interest with all my fellow-bankers, and I know that my
protection is absolute?
MR. MANUFACTURER: Yes, and I see another very important, all-important
fact growing out of that situation; the complete liberation of every
bank in that zone, as well as your bank; indeed, every bank in every
zone would be absolutely liberated.
MR. MERCHANT: Yes, and I see more than the liberation of all the
individual banks. I see the complete liberation of every commercial
zone or section of the country from every other commercial zone or
section of the country; as each zone will look for its protection to
the American Reserve Bank, the holder of the great coöperative gold
fund, that is more than ample for any emergency that can possibly arise.
MR. LAWYER: Mr. Banker, how would you fare under the Aldrich scheme, if
you wanted $100,000 of currency to use to move the crops in the fall?
MR. BANKER: I am glad that you have asked for a comparison of our plan
with the Aldrich scheme, under the same conditions.
I could not have any accommodation whatever, unless I first subscribed
for an amount of stock in his scheme, equal to 20 per cent of my
capital, and I had paid up 10 per cent, or one-half of it, or $10,000.
Then, I must have a deposit or balance with his institution, possibly
as much as $20,000, if I wanted to borrow as much as $100,000. Even
then, I could not get any accommodation unless I had notes or paper
that had less than twenty-eight days to run. But country bankers such
as I am have no short time paper worth speaking of, and any of the
paper or notes that might happen to be coming due within twenty-eight
days would be the paper of people who do not want it sold and collected
at some remote city. They usually want to pay a part and renew a part,
so that, practically, I could not get any accommodation along that line.
Indeed, I do not believe that there is one bank in a hundred in the
United States that could use the scheme at all directly. Now, if I
should go into that scheme I would have to become a member of what they
call a local association. If I had no twenty-eight day paper, I would
then have to go to my local association with my hat in one hand, and
my grip full of notes in the other, and ask them to guarantee my paper
for me, by paying a commission for such guarantee. Of course, some of
the officers of the local association would be from my particular
neighborhood, and competing with me for business. I would not want to
confess to my local fellow-bankers by asking their help in ordinary
times, and I would not want to put into their hands the paper of my
customers, and so expose their business to their neighbors. The result
would probably be that I would resort to my correspondent banker, just
as I am doing today. Of course, the large banks might have plenty
of twenty-eight day paper, and could turn it over to the branch of
Aldrich's Central Bank, and get some of the notes about which we have
already heard something and supply me.
Now, let me suppose that I could use an average of $100,000 of currency
throughout the year, and that I keep that amount of paper up all the
time, for the purpose of supplying myself with currency of the Aldrich
make; you can see that it would cost me 6 per cent upon $100,000, or
$6,000 per annum.
Mark this, put it in your pipes and smoke it, that under our plan,
allowing for the cost of my reserve of 15 per cent on $100,000 of
notes, or 6 per cent on $15,000, or $900, and allowing my tax of 2 per
cent on $100,000 of notes, or $2,000, it would make a total cost of
only $2,900. My bank would, as you can see, be the loser of $3,100 by
using the Aldrich scheme as against our plan. Do not fail to remember
that the largest part of the 2 per cent tax on the notes under our plan
will go to pay off the greenbacks.
Again, I want you to keep in mind the expense and trouble of shipping
out the commercial paper, and looking after it throughout the year, and
the interminable nuisance of buying just the right amount of currency
every day, as compared with issuing your own notes, precisely as your
customers want currency. You see, I will be getting back some of my
notes every day through the Clearing House, as they will then be sent
to the Clearing House with the checks and drafts, just as they are in
Canada.
MR. MERCHANT: Of course, if you can save $3,100 on your currency every
year, and a large amount of additional expense, as well as an endless
amount of trouble, you can afford to share your gain with us fellows.
MR. BANKER: Most certainly, and you may depend upon it, that all the
extra expense that we incur will come out of our borrowers.
MR. MANUFACTURER: As you say, there cannot be one bank in a hundred
that would ever have what you call twenty-eight day paper. I know I
would not want you, and I am sure that Mr. Merchant there would not
want you, to take our paper to some local association and ask to have
it guaranteed unless there was a panic and everybody was in the same
boat. The whole scheme looks absurd and impractical.
MR. BANKER: Your opinion is confirmed by one of our most prominent
country bankers, who said, "This proposition is impractical,
unparalleled, and useless."
MR. MERCHANT: Mr. Banker, if you should ask your city banker
correspondent from whom you purchased the Central Bank notes, upon what
he relied, when he gave you the notes, what would he say?
MR. BANKER: He would undoubtedly say that he relied upon the credit of
my bank, and upon the paper I turned over to him in exchange for the
Central Bank notes.
MR. MERCHANT: Well, if your credit and the paper with your endorsement
are good enough for that banker, why are they not good enough security
for your own bank notes?
MR. BANKER: They certainly would be; especially since I would be under
the supervision of the Board of Control, and my notes would be secured
by being a first lien upon my whole assets; by a guarantee fund, and by
the total amount of gold held by the American Reserve Bank.
MR. MERCHANT: Mr. Banker, you spoke of belonging to a local association
if you should go into the Aldrich scheme. How many of those
associations would there be in the United States?
MR. BANKER: No one could tell until they got through organizing them.
The banks now have about two billion dollars of capital, and two
billion dollars of surplus, or a total of four billion dollars. The
scheme provides that any number of banks representing $5,000,000 of
capital and surplus could form an association. If they succeeded in
driving all the banks of the country into it, as was evidently their
intention, you see there could be about 800 of these local associations
engaged in guaranteeing their associates, if they wanted to, after
prying into their private business.
MR. MERCHANT: That is the worst feature I have heard yet, because it
would let all the cliques and cabals get together and run things by
manipulation. Don't you think so?
MR. BANKER: I certainly do think so. Bankers above all things do not
want to expose their business to their immediate neighbors in the
banking business.
You will remember that in the plan that we have just submitted, we
confined all knowledge to the boards of control, of which there is to
be no more than forty-two, possibly only twenty-eight, and that we
required all members of the Board of Control to disassociate themselves
from all banking connections in their respective zones.
MR. LABORINGMAN: Yes, but you have seven districts in every one of
your zones, don't you? That would make two hundred and ninety-four
districts, if you should have as many as forty-two zones, would it not?
Or one hundred and ninety-six if you have only twenty-eight zones. I am
sure my arithmetic is right, for I am fairly good at figures.
MR. BANKER: Yes, your figures are right, but you must remember
this--that the only purpose for the creation of the districts in our
plan, as we have constituted them, is to prevent combinations and
cabals, and guarantee a fair and evenly distributed representation of
all parts of every zone.
These districts exist only for the single purpose of the organization
of the commercial zones--the election of members to the Board of
the Bankers' Council and to the Board of Control. When this is
accomplished, their work is done.
MR. LABORINGMAN: Oh, I see, you would only have at most forty-two
organizations in the United States that would have any actual business
to do.
MR. BANKER: That is correct. Every zone would be so organized as to
absolutely protect the confidences of the business world and the
banking fraternity.
I think in the organization of the commercial zone, that we have
taken such steps to emphasize and secure publicity of action, and so
much pains to guarantee representation from every section of every
zone, that the people as well as the bankers will be kept advised all
the while of all that is being done. I think that the matter of the
subsequent selection of members, both to the Board of Control and to
the Board of the Bankers' Council, will always be a subject of general
discussion and newspaper comment. This is true more particularly,
because every bank has one vote, and because only one member will be
elected to the Board of Control each year, and only two members will be
elected to the Board of the Bankers' Council each year.
Publicity and direct representation are the two distinct ends sought,
as we believe that in this way alone can a true and proper sense of
responsibility be imposed upon the members of the two boards.
MR. MERCHANT: I agree with you absolutely. It is precisely as
President-elect Wilson said: "Publicity, pitiless publicity, is the
only sure protection to the people."
MR. MANUFACTURER: Just another word upon that point. Samuel J.
Tilden I think it was who said: "Publicity is the only safeguard of
republican institutions." How well we have guaranteed publicity in the
organization of our commercial zone the public will have to judge.
However, if our method for securing publicity can be improved upon, we
will all welcome it.
MR. FARMER: Since we have been discussing this feature of publicity
and independence, I have become so deeply impressed with the fact that
every bank will be set free, will be able to act so independently, and
that every commercial zone will be such a complete, such a perfect
democratic republic in itself, that I have been wondering whether each
zone could not create and carry its own reserve.
Listen! This is my idea. Some one has mentioned St. Louis as a
financial centre. Now, why could not St. Louis carry the central
reserve for that commercial zone, and so each of the forty-two
financial centers of the zones carry their own central reserves,
precisely as we have learned the Clearing Houses are carrying the
reserves of their banks today. You have extended the approved Clearing
House practices to the entire zone--you have complete, absolute, local
self-government; you have your supervision and control of all the banks
in the zone; you have your Central Reserve--you have a free check
zone. Now, what more do you want? Why should not every zone stand upon
its own bottom, just as the banks of Virginia, Louisiana, Kentucky,
Missouri, and Ohio did; and as the Bank of the State of Indiana and the
State Bank of Iowa did? That's what I want to know.
MR. BANKER: I must say that is a very pertinent, a very interesting,
and very important question. There is one point upon which everybody
now agrees, however much they may differ upon other points. That one
point of common agreement is this--that the real source of weakness,
from the standpoint of organization today, is the fact that whenever
there is fear or apprehension in the country, every bank begins to
fight for reserves, fight for some kind of cash; because there is no
actual or real protection as matters now stand, unless a bank has
practically as much cash as its deposits amount to. In other words,
it is really a run of the banks upon the banks. It is "Everyone for
himself, and the devil take the hind-most."
Now, it must be apparent to you that each of your forty-two zones would
be fighting each other for reserves, just as all the individual banks
fight each other today when the danger comes, and the whole situation
proves no stronger than the weakest link; hence, our exchanges break
down.
St. Louis, for instance, might have a Central Reserve of $50,000,000;
but would St. Louis be satisfied that that was enough to protect her
against any accident? She is confident that she has some strength, but
is not sure of unlimited strength and absolute protection. Therefore,
the struggle for reserves would begin between the zones, with the first
appearance of danger, just as it does today between the banks.
On the other hand, if the banks in the St. Louis zone should send
their $50,000,000 to Washington, and send along with it their
representative of that zone, and in like manner every zone should send
its Central Reserve and representative to Washington, it would make
a total reserve of $1,250,000,000 of gold in one mass, and a board
of forty-two members to manage it. The result would be precisely the
same as that now attained by having a Federal army, a Federal navy, a
National Government, for a "Common Defense." If each zone should be
left to stand upon its own bottom, as you say, we would be repeating,
economically, identically the same mistake that we made politically
when we formed the Confederation of States in 1781. The confederation
was too weak to be an efficient government, and so we formed a
"Stronger Union," the present Federal Government in 1789.
It is no more important that the banks in a Clearing House should get
together than that all the banks in any given commercial zone should
get together; and it is no more important that the banks in any given
commercial zone should get together, than that all the zones should
get together for a _common defense_ of all the business interests of
the country, and for the common defense of all the reserves of the
country against all the demands of the rest of the commercial world.
Unless this final union of reserves is made, no discount rate for gold
can be fixed and enforced, and we would find ourselves in the same
helpless, hopeless situation or position that we are in today. But if
all the central reserves of all the zones are united in The American
Reserve Bank, and every commercial zone has its representative upon
the board of directors, you will have in the banking world of the
United States identically the same form of Government we now have in
our National Government. Then when we have converted our United States
notes into gold certificates, and when all our silver certificates
have been reduced to the form of token money, by cutting them up into
pieces of two dollars and less, The American Reserve Bank will be in
identically the same position that the Bank of England is in today,
the most positive and powerful force in the world in controlling and
directing the movement of gold. And yet, like the Bank of England,
The American Reserve Bank would not be a bank of issue. It is not a
question of note issue at all; but it is a question of centralizing
our gold reserves to meet any emergency in the business world, coupled
with the power of fixing and enforcing a price for the use of gold, a
discount rate for gold throughout the United States.
The Financial and Banking system that we have proposed combines the
Bank of England and the Canadian Bank note system--the two highest
and best exemplifications of a central gold reserve and bank credit
currency.
MR. FARMER: Well, Mr. Banker, you are undoubtedly right. I see now that
we would be very little, if any, better off with the individual zone
system than we are today, when you recall the fact that the whole world
now uses one common reserve, gold, and have ways of obtaining it. I
think your argument illustrated by the Army and Navy and the National
Government is absolutely unanswerable. What do you think, Mr. Merchant?
MR. MERCHANT: I have never had any doubt about that question at all.
MR. LABORINGMAN: Abe Lincoln said, you know, "A house divided against
itself cannot stand." I think this thing is just as plain as the nose
on your face. It is Uncle Sam against the world just as much in banking
as in anything else; and a good deal more so in these days of lightning
intelligence and cheap transportation.
With a representative of every commercial zone, say forty-two in all,
sitting at Washington and holding in trust for the protection of
all the people of the United States such a Central Gold Reserve as
you propose to make the banks create, you have a perfect duplicate
of our present National Government, in political matters. These
representatives of the zones are the servants of the zones, just as the
senators are the servants of the states. Another thing, twenty-one of
them will be business men, and twenty-one will be bankers; both sides
of the bank counter, the inside and the outside, will be represented;
and, since you have arranged to have one-seventh of them, or three
business men and three bankers go out every year, your board of
forty-two will always be old, and yet always will be becoming new. The
more I think of it, the more I am for it, because I am for Uncle Sam
against the world.
UNCLE SAM: If you ever want a "B" line on anything, go to Mr.
Laboringman every time.
MR. BANKER: Well, we have considered the economic side of the Aldrich
scheme pretty thoroughly. I think it is about time that we heard
something from Mr. Lawyer about the administrative features of the
scheme.
MR. LAWYER: From a professional point of view, I have been a student
of motives all my life, and as you know, I have been a part of a
powerful, political machine in this state for more than twenty years.
The Aldrich scheme furnished me a rich mine of motives, and a detail
of organization that staggered even an old political stager as I am.
You will remember that when Aldrich made his first announcement
about his plan, he said that we must have a _Central Bank_ and that
immediately President Taft declared at Boston, "Senator Aldrich desires
to round out his career with a financial system for the United States,
and says that we should have a _Central Bank_." I never will forget
what an eminent citizen of this state said when he read that statement.
It was this: "Well, God help the American people if Nelson W. Aldrich
ever rounds out _his career_ with a financial system for the United
States."
You will all of you remember, I am sure, what a cold reception the idea
of a "Central Bank" at the hands of Aldrich received. Does anyone of
common intelligence believe that Aldrich ever changed his scheme below
its throat? It is true he put a mask on its head; but that is all. He
hunted around for an all-concealing name to hide the thing under--"The
National Reserve Association." _I assert that his proposal would mean
the greatest and most centralized Central Bank in the world._
Note these figures and draw your own conclusion:
Nat. Reserve Bank of Bank of Bank of
Assn. France England Germany
Capital
$400,000,000 $36,500,000 $72,000,000 $45,000,000
Deposit
1,500,000,000 100,000,000 250,000,000 200,000,000
Note Issue
2,400,000,000 1,000,000,000 (See Note.) 400,000,000
Possible Note Issue
4,500,000,000 Possible issue
large with tax.
NOTE.--_The Bank of England is not in any sense a bank of issue,
because the amount of notes it issues is limited to the amount of gold
coin in the issue department. The notes are gold certificates. There is
an exception to the law, to the extent of the arbitrary amount of notes
issued against the Government debt and securities, held in the issue
department, amounting to $90,000,000._
Now, gentlemen, here you have a proposal to organize in this country
an institution with a capital greater than the combined capital of the
Central Banks of England, France and Germany, because the capital of
all of our banks now exceeds $2,000,000,000, and the subscription to
the National Reserve Association must be 20 per cent of this amount,
to entitle them to participate. Certainly the idea must have been that
they all would participate in so beneficent an institution. "It was to
be a bank of banks for all the banks."
It was the declared purpose of the author of the scheme that the banks
should surrender all their real money, now carried as reserves, to this
central institution in exchange for its notes; or that the banks would
deposit more than $1,500,000,000 with the National Reserve Association.
This would be a deposit nearly three times as great as all the deposits
of the Central Banks of England, France and Germany combined.
The bill provides, Section 51, that the National Reserve Association
can issue $900,000,000 of its notes, _and as many more_ as are covered
"by an equal amount of lawful money" (United States notes, silver, or
silver certificates, and gold in some form), without paying any tax.
But if the banks turned over their present reserves, amounting to
$1,500,000,000, as contemplated by the author of the National Reserve
Association, it could issue $2,400,000,000 before beginning to pay any
tax on circulation. By paying a tax of 1-1/2 per cent per annum, it
could put out $300,000,000 more notes, not covered by lawful money,
or $2,700,000,000; then, by paying a tax of 5 per cent, it could go
any limit until its lawful money reserve was reduced to 33 per cent.
This makes a possible issue of $4,500,000,000, or a possible note
issue today two or three times as great as all the note issues at any
time outstanding of the Central Banks of England, France and Germany
combined. _Every dollar of this vast amount is only the credit of the
so-called National Reserve Association, and yet is a lawful reserve for
over twenty-five thousand banks to hold._
MR. MERCHANT: By the way, Mr. Banker, I would like to ask you what you
think of a tax upon bank notes to be paid by the Central Bank of Issue
as it is practiced in Germany where they got this idea.
MR. BANKER: Economically speaking, a tax paid under such circumstances
is of no more use than your appendix.
MR. MERCHANT: My appendix! I have had my appendix removed.
MR. BANKER: Well, that makes no difference. I still insist that a
tax paid upon bank notes under such circumstances is of no more use,
economically speaking, than your appendix, whether it has been removed
or not.
MR. LAWYER: Section 23 provides, "The National Reserve Association
shall be the principal fiscal agent of the United States. The
Government of the United States shall, upon the organization of the
National Reserve Association, deposit its general funds with said
association and its _branches_, and thereafter all receipts of the
Government, exclusive of trust funds, shall be deposited with said
association and its _branches_, and all disbursements by the Government
shall be made through said association and its _branches_."
The Central Bank of any country may be defined to be the bank at which
the other banks carry their reserves, and at which the Government
carries its balance.
But will some advocate say "it is only the bank of all the other
banks"? This is the very quintessence of a Central Bank.
Upon this evidence will any candid man say that the so-called
National Reserve Association is not a Central Bank? It was to have
fifteen branches. The Bank of England has none. The Bank of Germany
has nineteen main branches. The Bank of France has one hundred and
twenty-seven main branches.
"SECTION 34.--The National Reserve Association shall have power both at
home and _abroad_ to deal in certain things."
SECTION 36.--"The National Reserve Association shall have power to open
and maintain banking accounts in foreign countries, and to _establish
agencies in foreign countries_ for certain purposes."
Have the Central Banks of England, France or Germany any power to
maintain accounts and establish agencies in foreign countries? With
"A baby stare," and under cover of "Sunday-school pretences," we are
told that this all-comprehending scheme is just a simple coöperative
enterprise for the exclusive benefit of the individual American banks.
Indeed, that it is the only truly altruistic banking institution that
was ever conceived.
Now, as the chief argument for the adoption of this scheme, its main
promoters and sponsors have persistently declared that the country
was now being dominated and controlled by certain great banking
interests, and, therefore, that the people should liberate themselves
from these sinister and dangerous banking powers by running into the
warm and enticing embrace of the National Reserve Association. Upon
investigation, we find this anomaly, this surprising, this astounding
fact: that the promoters and advocates of this gigantic machine are
these self-same sinister banking influences who have the country by the
throat today.
Hon. Leslie M. Shaw has pertinently inquired, "Is it not strange that
Nelson W. Aldrich and his affiliations are tired of their great power
and vast opportunities, and are now trying to divest themselves of
them," through the innocent-looking National Reserve Association?
It will be well remembered by all of you, that at the time that the
Aldrich scheme made its first bow to the dear people, the public
discovered that the National City Bank owned bank stock to the amount
of $10,000,000 in other National Banks located throughout the United
States. Possibly the same interests owned several times that amount. I
was informed about that time that they controlled at least one hundred
banks in the leading cities of the United States. Now, let us assume
that to be true, and let us meditate upon what such an organization
could accomplish if they wanted to elect every officer in every local
association, and every officer in charge of every branch, and the board
of directors of the National Reserve Association, and so name the
"_Governor_" and the rest of the executive committee of nine which is
to control this great Central Bank.
To appreciate the power of such an organization, you must keep in
mind the fact that practically every bank in the United States would
be carrying a balance with some one of these banks immediately under
their control. There is your machine. It is a perfect duplicate of the
political machine in this state. The state "Boss," whom you know stands
in precisely the same position as the National City Bank would stand.
As you are fully aware, I am the "Boss" of this county; and I am in
identically the same position that one of these hundred banks would be
that are controlled by the National City Bank. When I get my orders,
I immediately communicate with every so-called local leader in every
township. This political machine works three hundred and sixty-five
days and three hundred and sixty-five nights in the year. In the
sense of an organization, we are working all the time, and it is the
organization work that does the business. All the rest of the people
are unorganized. So it would be with the banks. The men who belong to
the organization or machine "_like it and fear it_"; because as things
have stood, no one could get anywhere without being a part of the
machine. This fact forces acquiescence. It has been, as you know, a
perfect feudalism from top to bottom. We have had a machine government
in this state as perfect as the Manchu Government in China.
Can you imagine anything easier than for the National City Bank with
this complete banking organization all over the United States to name
every man practically that went into this organization from top to
bottom? This would not be done by holding a majority of the stock in
all the twenty-five thousand banks; they don't care about that; because
it is a matter of no consequence to them, and if they attempted to do
anything so crude, it would spoil their whole game. They attain their
ends in more subtle but no less certain and powerful ways. They get
influences to work. They put forces into operation. Their interests are
not limited to the banking business. They have affiliations with great
transportation companies and manufacturing interests, and therefore
control large bank deposits everywhere that the banks want and are
always working to get. Then there are favors to be granted; commissions
to be paid; "melons to be cut." Opportunities are suggested. In one
respect at least they are like the Lord, they "work in a mysterious way
their wonders to perform."
They had established their ramifications throughout the United States
by making the National City Bank a holding company of bank stocks,
and the culmination of their power was to be realized through the
devious methods of organizing the National Reserve Association. The
same money and the same power that filled the columns of the newspapers
of the country with the unqualified praise of the Aldrich scheme for
two years--the same power that rushed resolutions of one uniform
stereotyped kind through twenty or thirty state bank associations, and
steam rollered the same unconsidered declarations through two annual
conventions of the American Bankers' Association, would have made this
so-called _altruistic, benevolent, coöperative association_ the most
powerful machine ever organized; because, it would have absolutely
dominated all the bank credit in the United States, or 45 per cent of
the banking power of the world. You must remember that these interests
are by far the greatest speculators in the United States. Yes, the
greatest in the world.
MR. BANKER: But don't you remember that the bill provided in Section
26 that the paper rediscounted by it must "be issued or drawn for
agricultural, industrial, or commercial purposes," and not "for the
purpose of carrying stocks, bonds, or other investment securities"?
MR. LAWYER: Yes, but that is all folderol. It is the purest kind
of poppycock. If a bank wanted to take on a speculative deal, it
could sell its commercial paper, could it not, and use the money for
speculation just the same? That is on precisely the same level with its
declaration that the institution was not a Central Bank. It is such
subterfuges that disgust every candid man.
Listen to Mr. Aldrich in his report upon the bill upon the selection of
the "Governor" of the National Reserve Association by the President of
the United States. He says, "Further restraint upon the administration
of the association upon narrow or selfish lines, is imposed by the
provision that four of the highest officials of the Government are made
ex officio members of the controlling board, _and by the requirement
that the governor shall be selected by the President of the United
States_. The fear has been expressed that the _selection of the
governor by the President_, and the provisions making the Secretary of
the Treasury, the Secretary of Agriculture, the Secretary of Commerce
and Labor, and the Comptroller of the currency, ex officio members of
the board of directors of the reserve association, _might lead to an
attempt to control the organization for political purposes_."
Please note the sham, fraud and false pretense covered by this comment.
The bill provides that the "Governor" of the association, as they
call him, shall be selected by the President of the United States
_from a list of at least three names, furnished by the directors_.
Will any honest man say that the President of the United States would
have had any more to do with the selection of the "Governor" of the
so-called National Reserve Association than the King of Siam? Again
note this cheap, false pretense, "Fear has been expressed that the
selection of the governor by the President," and the four ex officio
members of the board of directors, "might lead to an attempt to control
the organization for political purposes." These four ex officio
members have just four votes upon a board of forty-six which proceeds
immediately to eliminate all of the ex officio members forever, by
selecting an executive committee consisting of nine members to manage
its affairs, from which all of them are excluded except the Comptroller
of the currency. Can any intelligent man doubt the purpose of all these
sham declarations and false pretenses? If so, let him spend a day or
two trying to find out how the members of the boards of the local
associations are to be chosen; try to unravel the process by which the
members of the boards of the branches are to be evolved; and, having
grown tired and dizzy with his task, let him undertake to prove how
the board of directors of the National Reserve Association are to be
manufactured through the machinations born of ulterior purposes.
I have studied puzzles before, but for complications, wheels within
wheels, evident designs upon evident designs, occult purposes under
occult purposes, and a combination of powerful forces, born of sinister
influences, this project will forever stand alone as an illustration of
what the human mind can do to conceal its real object.
There is not one man in a hundred, indeed I do not believe that there
is one man in a thousand, taking the business men, farmers, working
men, and bankers all together, who can solve the riddle, and tell
how it is done. Such a mystery could not have just happened. It must
necessarily have been the product of a purpose.
_Simplicity, publicity and direct methods are the guaranties of common
honesty. Intricacy, secrecy and indirect methods are invariably used
to hide uncommon dishonesty. I do not mean petty larceny, taking a
few pennies, or a loaf of bread; but the absorption of hundreds of
millions, without returning anything to the world in exchange for them._
Should the United States have been so unfortunate as to have been
bound hand and foot for fifty years, the life of the proposed charter,
by the trammels and intricacies of the National Reserve Association
under control of an executive committee, consisting of only nine men
who had been the evolutionary product of a preconceived purpose and
well-defined plan, can anyone doubt what the result would have been?
Can anyone doubt that all of their banks and all of their business
interests would have gotten all the money they wanted all the time?
The advanced information from week to week and, at times, possibly, a
month ahead, of what the discount rate would be--a very natural way for
some member of that executive committee to show his or their proper
appreciation of his or their promotion to their positions--would have
been worth more every year, during the fifty-year grant, than all the
wealth that the American people could produce during any twelve months;
for this advanced information about the discount rate would have made
profits a mathematical certainty upon the billions and billions of
stocks and bonds that are quoted upon the Stock Exchange, the fertile
field of the man who knows that he has a sure thing.
MR. MANUFACTURER: Mr. Lawyer, that smells pretty bad.
MR. LAWYER: Yes, I admit it; but does it smell any worse than oil has
been smelling for more than twenty years? Than certain United States
senators have been made to smell? Than robbing rebates smell? Is it not
the natural sequel to this train of abuses to which the country has
been treated?
This whole situation was so graphically depicted, precisely as it has
developed, two years before Mr. Aldrich gave birth to this conception,
that I want to read it to you:
"A central bank could easily be so organized as to sap the commercial
blood of this country at every turn and direct the silent and unseen
currents of advantage into the channels of favored institutions, and
all these favored institutions might turn out, upon investigation, to
be, in the end, one institution.
"And if, unfortunately, the subterranean connection could not be
detected, and even if detected, could not be broken, what a power for
evil and injustice such an organization would prove in the life of this
Nation.
"This is not only regarded as possible, but as probable; indeed, it is
charged that it is the preconceived, cunning design of the advocates of
a central bank to accomplish this purpose.
"Under these circumstances, with what suspicion and jealousy will every
act of the central bank be watched! Localities will become envious
of localities. Cities will bitterly attack their neighboring cities.
Nine-tenths, if, indeed, not ninety-nine out of every hundred, of the
banks will imagine spears in needlecases, and, right or wrong, fling
their accusations upon the wings of the wind; and we will be living in
a commercial world of unrest and constant controversy surpassing in
suspicion, envy, jealousy and bitterness anything this Republic has
ever witnessed. The consequences no man can prophesy; no imagination
can paint."
These words were spoken by Hon. Charles N. Fowler, March 29, 1908,
just two years before Mr. Aldrich made his report to Congress upon his
National Reserve Association.
MR. LABORINGMAN: You know I said that I had heard that the Aldrich Bill
was dead; for one, I hope so. If the people ever get a lick at it they
will finish it for certain.
MR. FARMER: You are right, and you bet that if they ever get a chance
to discuss this banking bill question, they will come mighty near
settling upon the right proposition in the end.
MR. BANKER: I agree with you, and furthermore I am thoroughly convinced
that we shall never reach a satisfactory conclusion until we have had
just the same kind of a hand-to-hand fight over this question that we
had over the gold standard.
MR. MANUFACTURER: It looks so to me. That gold-standard fight taught
me that you could trust the American people to make a wise decision,
if you would only have a country store, schoolhouse, cornfield debate,
in which every man in the country got into the game--preacher, lawyer,
teacher, farmer, merchant, manufacturer, laboringman, townfolks and
country folks, all alike.
MR. MERCHANT: Nothing more true has been said since we have been
talking about this question than that remark about the importance of a
public discussion of this whole matter. I know any number of men who
when this Aldrich scheme came out were ready to swallow it, but who now
realize what a fatal blunder it would have been. The reason was, that
they knew absolutely nothing about the question and they were living in
such a state of terror on account of the panic, that they were ready to
take anything that would shield them from experiences such as they had
just passed through. The Aldrich scheme was the only thing in sight,
because hundreds of thousands of dollars had been spent in promoting
it. They are just beginning to study and think about the subject. Our
hope of wise action by Congress rests upon a red-hot debate among the
people, exactly as you said.
MR. BANKER: Well, it will be easy enough to show them what the real
reforms demanded are.
_The reforms we demand are these_:
_First: Holding companies in the banking business must be completely
wiped out._
_Second: Every National Bank should be authorized to do_
_(1) A commercial banking business._
_(2) A Savings bank business._
_(3) A Trust company business._
_(4) A note issue business, precisely as the Canadian banks do._
_Third: All the various accounts--commercial, savings, trust and note
issues--should be segregated._
_Fourth: Every bank in the United States should be compelled to carry
the same amount of bank reserves._
_Fifth: All bank reserves should consist of gold or gold certificates,
as soon as the United States notes can be converted into gold
certificates._
_Sixth: Every bank in the United States should be brought under
national control, because banking is essentially Interstate Commerce._
_Seventh: Every natural financial centre in the United States should
become the clearing centre for all the checks, drafts and bank notes
that are payable in the territory that is economically and naturally
tributary to that Financial centre; such territory should constitute a
commercial zone._
_Eighth: There should be organized at each of these financial centres a
Clearing House at which all the checks, drafts and bank notes payable
within the commercial zone shall be at par._
_Ninth: The banks of each commercial zone should elect a board of
control to examine, supervise and control all the banks within such
commercial zone, precisely as the Clearing Home bank examiners are
examining and supervising all banks clearing through them today._
_Tenth: The banks of each commercial zone should also elect a court of
appeals, or a banker's council, composed of an equal number of business
men and bankers, to settle all banking and business questions that
would properly come before them._
_Eleventh: The Board of Control in each commercial zone should be
presided over by a deputy United States Comptroller, for the purpose
of securing immediate and efficient action._
_Twelfth: The banks of the United States should all contribute a
percentage of their deposits to a Central Reserve, which should be
composed of gold, and gold alone. The percentage of deposit should be
7 per cent at the outset, and be gradually increased to 10 per cent,
which would amount, at the present time, to a central gold reserve of
upwards of $1,250,000,000. This reserve would correspond to the reserve
held today by the Clearing Houses for their banks._
_Thirteenth: This central gold reserve should be held in trust by a
body of men composed of one man from each commercial zone, for the
benefit of all the commercial zones._
_Fourteenth: Each Board of Control should have access to this central
gold reserve, and should have power to sell gold to any bank within its
zone and under its supervision, in case it desired it for the purpose
of moving crops or for any other legitimate reason. The practical
result would be, that the gold would be held, to a large extent, at
the financial centres, and under the command of the Board of Control,
precisely as the Clearing House committees today hold the reserves of
the banks constituting their respective Clearing Houses._
_Fifteenth: The use, distribution and control of the central gold
reserve should be under the management of the representatives of all
the commercial zones, who should be composed equally of business men
and bankers._
_Sixteenth: For the purpose of establishing responsibility and securing
efficiency, the representatives of the zones should act through
corporate powers granted by the National Government._
_Seventeenth: The purpose of a national centralization of gold to so
large an extent is two-fold:_
_(1) It brings all the banking power of the United States to the
defense of the commercial interests in every part of the United States
instantaneously._
_(2) It will give to the representatives of the zones the power to
control and direct the movement of gold to and from the United States,
by fixing and enforcing a price for the use of gold, or a discount
rate for gold transactions throughout the United States._
_These reforms are based upon three distinct propositions:_
_First: They incorporate the principles of a central gold reserve, as
illustrated by the Bank of England, where all the transactions are in
gold, and gold alone, without the use or intervention of bank credit in
the form of bank credit notes, which could be used for reserves by the
banks throughout Great Britain._
_Second: They incorporate the principle of bank credit currency, as
illustrated by the bank note system of Canada, which involves daily
redemption in gold coin through the clearing houses._
_Third: They extend to every economic or natural commercial zone the
established and approved practices of the American Clearing Houses,
that is:_
_(1) Bank supervision and control over all members._
_(2) A reserve created by all the members of the Clearing House and
held by the Clearing House Committee for the benefit of all the
members._
_(3) Such a free check system over every commercial zone, precisely as
New England has had since 1899, and as has just been established over
a large territory around New York by the New York Clearing House._
_The result of these reforms would be:_
_(1) To make each individual bank absolutely independent, because it
has an unlimited resource in the coöperative gold reserve._
_(2) To make every commercial zone as free and independent of every
other commercial zone, as England is of France, or France is of
Germany._
_(3) To completely decentralize all bank credit in the United States,
while it centralizes the gold to a degree that would enable us by
raising the discount rate to close the door of our markets against
the demands for gold from abroad._
_(4) To insure all depositors in National banks against loss._
_(5) To liquefy and therefore develop a general market for commercial
paper._
_(6) To save the business interests of this country more than
$200,000,000 every year, to say nothing of the incalculable losses
growing out of our ever-recurring panics._ #/
MR. LAWYER: Mr. Banker, you have stated with great clearness and
precision just what our investigation has demonstrated should be done
to give us a sound and economical financial and banking system.
After a careful consideration of the question, I am prepared to say
that the Aldrich scheme would not accomplish or effect a single one of
these reforms.
On the other hand, I am convinced that, while it would give us
temporary relief, immediately there would follow undue expansion. In
quick succession there would come wild inflation, a vast amount of gold
would be expelled from the country and we would find ourselves in the
end in far greater and more serious difficulties than those from which
we are now suffering.
MR. BANKER: Your conclusion is in perfect keeping with my own. It seems
to me very remarkable how many people were temporarily misled by its
claims, but have since turned from it and are now opposed to it.
MR. LAWYER: I do not think that is either remarkable or strange, when
you recall the mental condition of the whole country, due to the panic;
the vast amount of money poured into its propaganda; the claims made
for it and the fact that it incorporated some things that the public
realized ought to be done.
For example, it proposed to divide the country into districts, an idea
that Congressman Fowler had advocated ever since 1897 or for more than
fifteen years, and had incorporated in his bill of 1908.
The Aldrich scheme provided for a Central Reserve, but composed almost
entirely of United States bonds, United States notes and silver in some
form, a fact that did not attract the attention of the public at the
outset.
It proposed to make an unlimited market for the rediscount of paper,
a most pleasing thought to contemplate until it was discovered that
this was to be done by "replenishing" the reserves of our 25,000 banks
"indefinitely," as Aldrich said, with bank debts in the form of bank
notes issued by the so-called "Reserve Association." It incorporated
the plan proposed by Congressman Fowler in his bill of 1908 for
converting the "_Two per cent United States bonds_" into "_Three per
cent United States bonds_," a fact that impressed the National banks
favorably.
The so-called Association was given an attractive name--"National
Reserve Association," also borrowed from the first draft of Congressman
Fowler's Bill of 1908, with only a slight change. He called his central
reserve, "United States Reserve Association." Finally, owing to the
clever presentation of the scheme, the country took to it at the start,
because they wanted something done and they hoped that the scheme was
what Mr. Aldrich declared it to be, when he said, "The plan we propose
is, essentially, an American system, scientific in its methods and
democratic in its control."
Every intelligent man now knows that the system he proposed was the
German system from top to bottom, which broke down completely under the
first real test, which came in 1911.
Every man who calls himself an economist must admit, instead of its
being scientific in character, it was constructed in absolute defiance
of all economic law, and now the public is convinced that instead of
being democratic in control, it was intended to be a gigantic "_Central
Bank_" with fifteen branches over which a "_Governor_," a name wholly
foreign to American banking institutions, and his seven associates were
to rule, the "_Governor_" appointing his assistant managers over the
fifteen branches as if it were a Manchu dynasty and not a democracy at
all.
Thus one by one the economic blunders have been pointed out; one by one
the sinister motives have been exposed; one by one the false pretenses
have been unmasked, until there is left only a recollection of the
impression made by the expenditure of hundreds of thousands of dollars
in this futile attempt to enslave all American bank credit and the
lesson of extreme caution and a most urgent need on the part of every
citizen in every walk of life, of study, diligent study, if he desires
to perform a truly patriotic duty and be of some real service to his
country in this hour of peril, inspired only by unselfish motives and a
sincere devotion to the welfare of the whole people.
MR. MERCHANT: Mr. Lawyer has certainly succeeded in pointing out very
clearly the things that _must be excluded_ from our bill.
MR. MANUFACTURER: And Mr. Banker has certainly succeeded in pointing
out very clearly the things that _must be included_ in our bill.
MR. LABORINGMAN: Well, then, if we are all sure that we are right, let
us go ahead.
MR. FARMER: We will; and as our forefathers fought for the birth of
this nation we will fight for its life.
UNCLE SAM: Boys, I shall live only through your intelligence, your
courage, your justice, your honor, your patriotism, your service, your
sacrifice; and I shall be immortal only if all those who come after you
shall possess these same virtues.
FAREWELL.
APPENDIX A
UNITED STATES CIRCULATION STATEMENT--January 2, 1913.
=======================+================+=================+=============
|General Stock |Held in Treasury,| Money in
|of Money in the |as Assets of the |Circulation.
|United States. | Government. |
+----------------+-----------------+---------------
|January 2, 1913.|January 2, 1913. |January 2,1913.
-----------------------+----------------+-----------------+---------------
Gold coin (including | | |
bullion in Treasury) | $1,878,57,122| $170,983,732 | $623,159,221
Gold Certificates[2] | | 128,747,19 | 955,686,972
Standard Silver Dollars| 565,481,020| 165,022 | 74,528,998
Silver Certificates[2] | | 12,814,458 | 477,972,542
Subsidiary Silver | 174,538,163| 17,814,855 | 156,723,308
Treasury Notes of 1890 | 2,797,000| 10,115 | 2,786,885
United States Notes | 346,681,016| 6,995,837 | 339,685,179
National Bank Notes | 750,972,246| 30,787,771 | 720,184,475
+----------------+-----------------+--------------
Total | $3,719,046,567| $368,318,987 |$3,350,727,580
-----------------------+----------------+-----------------+--------------
Population of continental United States January 2, 1913, estimated at
96,496,000; circulation per capita, $34.72.
FOOTNOTES:
[Footnote 2: For redemption of outstanding certificates an exact
equivalent in amount of the appropriate kinds of money is held in the
Treasury, and is not included in the account of money held as assets of
the Government.]
APPENDIX B
CLASSIFICATION OF CASH IN BANKS--June 14, 1912.
===========================+=================+============+=============
Classification. |National Banks. |All Other |All Reporting
| | Banks. | Banks.
---------------------------+-----------------+------------+--------------
Gold Coin | $149,294,417 | 88,210,552 | 237,504,970
Gold Certificates | 437,081,380 |204,494,410 | 641,575,790
Silver Dollars | 12,637,221 | 10,230,733 | 22,867,954
Silver Certificates | 138,569,628 | 55,248,220 | 193,817,848
Subsidiary and Minor Coins| 22,555,692 | 15,026,738 | 37,582,430
Legal-tender Notes | 188,440,207 | 63,576,675 | 252,016,882
National Bank Notes | { 47,564,277 }| 58,037,130 | 105,601,407
Cash not Classified | {of other banks}| 82,302,986 | 82,302,986
---------------------------+-----------------+------------+--------------
Total | $996,142,823 |$577,127,445|$1,573,270,268
---------------------------+-----------------+------------+--------------
Amount of money held by United States Treasury, $368,318,987.
Amount of money held by all banks, $1,573,270,268.
Amount of money held by the people, $1,777,457,312.
Total amount of money in the United States, $3,719,046,567.
APPENDIX C
Assuming that the plan should be adopted within the year 1913, and
taking round but approximate figures, the amount of reserves required
to put the plan into operation would be as follows:
Individual deposits, commercial $11,000,000,000
Due to banks 1,000,000,000
Band credit currency, notes 1,250,000,000
---------------
_Total demand liabilities_ $13,250,000,000
Central reserves against this amount at 10% $1,325,000,000
Cash reserves on this amount at an average
of 8% 1,060,000,000
Cash reserves against savings held amounting
to $3,000,000,000 at 5% 150,000,000
--------------
_Total reserves required under our plan_ $2,535,000,000
_Amount of circulation in the United States
that may be used as reserves_:
Gold coin in the United States $1,900,000,000
Standard silver dollars 565,000,000
Subsidiary coin 175,000,000
Treasury notes, 1890 2,797,000
United States notes 346,681,000
--------------
$2,989,478,000
Less gold held in the U.S. Treasury as a
Reserve Fund 150,000,000
--------------
_Total possible reserves_ $2,839,478,000
Amount of reserves required by our plan $2,535,000,000
--------------
Leaving a net amount of lawful reserves
for circulation among the people of $304,478,000
Amount of subsidiary coin $175,000,000
Amount of silver dollars out 75,000,000
Amount of $1 and $2 bills out 225,000,000
------------
$475,000,000
This amount is probably about equally divided between the banks and the
people.
Amount of circulation now outside of the
U.S. Treasury and the banks and, therefore,
in the hands of the people $1,780,000,000
If we deduct the amount of lawful reserves
left for circulation among the people $304,478,000
--------------
_We have the total amount of bank note
circulation_ $1,475,522,000
Amount of circulation provided for 1,250,000,000
--------------
Additional amount of bank credit currency
to be provided $225,522,000
_But this increased amount of bank notes, amounting to $225,522,000,
will not take any additional reserves because the deposits which will
be converted into these notes are now covered by reserves. It is plain
that, thereafter, book credits and note credits will be currently
interchangeable._
_Thus every demand for currency will be met automatically and
perfectly, every day, everywhere, throughout the United States, day in
and day out; month in and month out; year in and year out._
INDEX
Appendix A, United States circulation, 501
Appendix B, amount of money held by banks, 502
Appendix C, reserves required under proposed plan, 503
Acceptance, what is an, 87
desirability of, 90
liability of, same as deposit, 93, 390
reserves against, should be same as against deposits, 96
Acceptance should be allowed only on goods in transit, 96
would develop a general market for commercial paper, 91
Acceptances, 428
Agriculture produced its money, 9
Aldrich, Nelson W, 60, 369
Aldrich, Wilbur, 30
American Reserve Bank, formation of, 389
duties of board of, 415
fund of, 433
how reserve is created, 422
government balance carried with, 434, 435
shall maintain parity of silver and gold, 439
Aldrich Plan and Plot, exposed, 459, 484
cost of currency of, 476
branches and foreign agencies, 487
economic objections to, 462
expansion and inflation of, 469
inconvenience and uselessness of, 475
loss of gold by, 469
800 associations possible, 478
was central bank, 484
possible capital and issue, 485
why public favored at first, 494, 499
would not effect reforms demanded, 498
reasons for its rejection, 500
Aristotle, 29
Bagehot, 202, 226
Bank, what is a, 225
credits of equivalent to gold, 234
failures of, 198
deposit, system of, 228
holding companies in, 237
at Hamburg, 226
number of, in United States, 235, 236
number and resources of, 374
independence of individual, 474
penalty for not carrying reserves, 431
repression in development of, 238
Bank, description of, by MacLeod, 226
by Bagehot, 226
United States, 71
at Venice, 226
Banks, no change in National, 239
increase in business of, 239
various kinds and business of, 375
Banker, is what, 224
Banking is Interstate Commerce, 216
is kind of insurance, 230
bank deposits and bank notes identical in, 231
necessary reforms in, 245
resources of, in 1860, 370
amount of, in 1890, 372
amount of, in 1912, 372
amount of, in world in 1890, 373
Bancroft, George, 165, 166
Bank credit currency, definition of, 67
first lien on assets, 69
additional amount permitted, 424
cost of transmission, how paid, 425
facility of supplying currency, 360
identical with check, 376
increase of, 400
how described and issued, 421
less profitable than deposits, 376
not understood, 378
tax on, how used, 427
strength of, 473
Bankers' Council, formation of, 412
Bank notes, bond-secured, 36
are a first lien, 69
are Government credit, in circulation, 58
bear no relation to business, 58
cost of, as currency, 50
not money, 36
origin of, 57
objections to, as currency, 59
penalty for carrying, as reserves, 428
promise of, to pay money, 36
Bayard, James A., 179
Bill, draft of, 407
Board of Control, compensation of, 413
Boston, country clearing at, 300, 310
Bullion report, 441
California, first use of gold, 14
Canada, bank system of, 79
chart showing movement of currency in, 80
Canada, circulation in 1912, 81
free from panics, 444
Cannon, James G., 291
Capital, what is, 108, 109
active, passive and fixed, 109, 110
active, essential to commerce, 110
conversion of commercial, into fixed, 131, 132
real estate mortgages tie up, 134
Central bank, tax on notes of, 486
Chase, Salmon P., 57, 176
Check, what is a, 86
City bank, National, bank stock holdings of, 488
Boss system established by, 493
Chicago Clearing House examinations, 316, 318
Clearing House, 289
approved practices of, 379, 383
clearings prior to establishment of, 295, 296
country Clearing, established in England, 299
centralizing reserves of, 308
definition of, 290, 291
established in London, 291
first clearing in New York, 298
free zones, 309
functions adopted, 339
for each commercial zone, 419
Clearing House Certificates, issues of, 329, 330
Coins, amount of subsidiary, 43
description of subsidiary, 38
parity of value of, 37
total amount of silver, 43
token, 37
value of, 37
Colonial credit money, 144
depreciation of issues of, 156
effect of issues of, 155
issues by Continental Congress, 157
issue of, in Connecticut, 149
in Massachusetts, 146
in New Hampshire, 151
in New Jersey, 151
in North Carolina, 153
in New York, 153
in Pennsylvania, 152
in Rhode Island, 151
in South Carolina, 153
in Virginia, 152
price of issues fixed, 158
succession of events following issue of, 173
Colwell, Stephen, 290
Congress, will legislate only after discussion, 369
Connecticut, bank commissioners report 1841, 357
Conklin, Roscoe, 180
Coöperative societies, conditions in Germany, 281
conditions in Belgium, 283
extent of business, 279
in United States, not a subject of banking legislation, 285
profits of, 279
main offices described, 281
started in Rochdale, 279
success assured in United States, 286
wholesale houses of, 280
Conant, Charles A. (Scotch currency), 68
Credit, definition of, 114, 124, 125
ample reserves essential to sound, 123
comparative value of, 124
contraction of, by an instrument of, 125
dangers of, 115
expansion as a result of, 121
Germany's abuse of, 124
importance of, 113
our banks should be ready to prove their, 124
per cent, of business done by, 112
production by use of, 119
proper functions of different forms of, 141, 142
use of, in Lancashire, 126
various forms of, 117
Webster on, 111
Crédit Foncier, amortization of mortgages, 266
capital of, 263
can take deposits, 265
formed when, 261
how governed, 262
Currency, definition of, 46, 441
cost of bank credit, 49
definition of bank credit, 67
deposits identical with bank credit, 64, 65
economy of bank credit, 51, 66
consists of, 47
proper system of, 48
right kind of, 55
what it is not, 47
redemption of, 67
Deposits, guarantee of, 393
no difference between currency and, 66
interchangeability of currency into, 64, 65
Depositors, insurance of, 395, 435, 437
cost of insurance of, 395
Depositors, insurance fund, how created, 435
losses of, how paid, 436
Deutsche Bank, 465
Diagrams, zone, subdivisions, 387
Canadian currency chart, 80
Clearing House, 295, 297
course of check, 311-313
Egypt, absorption of gold by, 20
Electricity, importance of, 113
Ellsworth, Oliver, 168
England, Bank of, 206
dissimilarity of, with banks of France and Germany, 443
failure of bank act, 441
resources, when established, 407
not bank of issue, 485
Exchange, what is, 84
Bill of, 87
broad definition of, 96
difference between draft and bill of, 87
is equal to gold in all transactions, 98
Origin, ancient, 94
Farmers, number of, 249
Fessenden, William Pitt, 181
Forgan, James B., 318, 319
Fowler, Charles N., 336, 340, 460
Fowler, W.J., Deputy Comptroller, 395
France, Bank of, founded by Napoleon, 71
land used as basis of money in, 137
Government credit of France used as basis of money, 138
resources of bank, when established, 407
note issue of, 484
Gallatin, Albert, 292
Garfield, James A., 58
Germany, resources of bank, when established, 407
financial situation of bank, weak, 467
failure of bank act, 443
Gold, adopted as standard by United States, 18
by England, 18
amount of, 19
amount in United States in 1860 and 1912, 370
certificate, 28
changing value of, 31
monetary use of, 22
outlook for supply of, 24
production of, 23
United States share of, 22
universal standard of value, 19
Gold, total amount used as reserves, 32
what influences the movement of, 440
Gold reserves, how created, 222
Government, demand liability of, 42
Government issues preceding greenbacks, 174
Hamilton, Alexander, 161, 171
Herrick, Myron T., 249
Hallock, James C., 293, 300
India, absorption of gold by, 20
Indiana, Bank of the State of, 346
State Bank of, 73, 345
statement of bank of, 361
Interest, rate in United States, 249
France, 254
Germany, 249
Iowa, State Bank of, 73, 348
statement of Bank of, 361
Japan, Tried Bond-secured Currency, 59
Jefferson, Thomas, 170
Jevons, Stanley, 203, 291
Kentucky, Bank of, 73, 347
Land Credit Bank, Directors of, 450
dividends of, 454
losses, how borne, 455
put into operation, how, 456
outline of provisions, 268, 269, 270
Landschaften, business of modern, 261
modern, 260
origin of, 252
old, 255
spread of, 258
Law, John, 137
Lee, Richard Henry, 162
Legal tender, what is, 41
Liverpool, Lord, coins of the realm, 39
Loan Certificates, clearing house, 328
amount of, issued, 336
are bank credit currency, 336
denominations of, 329-333
lessons of, 333
London, clearing started in, 291, 302
Los Angeles, Clearing House, 316
Louisiana, bank act of, 343
statement of banks of, 361
Lubbock, Sir John, 299
MacVeagh, Franklin, 240, 405
Madison, James, 164, 165
Maine, Report of Bank Commissioner 1857, 357
and 1865, 358
Marshall, John, 58, 164
Mason, George, 163
Massachusetts, Report of Bank Commissioner, 358
Missouri, Bank of the State of, 73, 351
statement of Bank of, 361
Money, amount held by banks in United States, Appendix B
amount of, in United States, Appendix A
coin and commodity must be of equal value, 44
credit must not be called money, 33
description of, 29
functions of, 30
gold is our, 26
how made, 26
what are the pieces of, 27
"wild cat," "red dog," etc., 348
Morrill, Justin S., 17
Mortgages, amount of, 249
rate of interest on, 249
Mutual Credit Societies, number of, 274
in Massachusetts, 275
resources for short loans, 277
Ohio, Bank of the state of, 73
bank act of, 344
statement of bank of, 361
Paper, accommodation, 128, 131
commercial, 120
difference between commercial and accommodation, 129
Paine, Thomas, 162
Panic of 1907, 471
Pinckney, Charles, 163
Population, shifting of, 32
Price, what is, 104
Prices, causes of higher, 31
Printing, importance of, 112
Promissory note, what is a, 86
note and draft identical, 87
Property, what is, 104
difference between property and wealth, 104
Postal Savings Banks, 384
Raiffeisen, Friedrich Wilhelm, 272
Real estate, unfit as basis for currency, 136
Redemption, in coin essential, 50
Reforms demanded, 494, 495, 496, 497
Reserves, amount of, 200
amount held by national and other banks, Appendix B, 381
amount of central, 222, 381
additional, where obtained, 409
Bagehot, 202
bank notes as, 204
circumstances should control amount of, 200
character of, 201
average, in United States, 208
elasticity of, 208, 219
from what points considered, 199
how increased, 220, 221
Jevons on, 202
legal tender quality unnecessary to, 188
national banks, 207
promises to pay as, 204
present, inefficient, 218
penalty for not maintaining, 423, 431, 432
present method of, useless, 218
are measure of value, therefore must be coin, 205
state or city debts as, 204
silver, not used in Bank of England, 206
should be national, 211
superimposed, 218
State bank, 207
taxation to compel equal, 212
unfair to permit unequal, 209
United States notes not actual, 206
what constitutes proper, 203
Ricardo, 441
Root, L. Carroll, 334
Ruggles, Charles A., 301, 310
Scotland, description of, currency by Conant, 68
currency by White, 68
effect of bank credit in, 67
Schulze, Francis Frederick, 272
Shaw, Leslie M., 487
Shaw, William A., 17
Sherman, John, 183
Sherman, Roger, 150, 166
Silver certificate, a warehouse receipt, 40
Silver dollars, amount of, Appendix A, 36, 43
a government debt, 40
a subsidiary coin, 39
a demand for gold, 38
not money, 38, 40
weight of, 36
Spaulding, E.G., 183
Stevens, Thaddeus, 183
Steam, importance of, 113
Standard of value, 9
changes in ratio of gold and silver as, 17
gold, the natural selection of, as the, 24
qualities of gold as, 17
Sub-Treasury, deposits in, 243
Suffolk Bank system, 73, 353, 354, 355, 361
achievements of, 334, 335
Bank was first clearing house in United States, 337, 338
commissioner's reports on, 357, 358
description of, 75
destroyed by 10 per cent tax, 74
Sumner, Charles, 179
Talbot, Joseph T., 205, 231
Uap, money of, 15
United States, bank clearings of, 373
financial center of world, 404
foreign trade of, 373
important interests of, 409
production of 1912, 373
size of, compared with Europe, 409
total business transactions of, 373
United States Government, nature of, 410
taxing power, only resource, 189, 191
time obligations only should be incurred, 192, 410
unfit to meet demand debts, 189
United States notes or greenbacks, additional cost of war due to, 185
agreement to pay gold, 34
amount of, Appendix A and 35
bonds issued for, 52
constitutionality of, 185-187
cost of, as currency, 50, 56
cost of, since 1879, 53
depreciation of, 184
drive gold out, 206
how converted into gold certificates, 427, 438
issues of, 183
lowest value of, 35
not money, 35
price of, a quotation of government credit, 41
resumption of payment of, 53
suspended payment of, 34
unfit for currency, 55
Walsh, John R., failure of, 314
War, Civil, first loan for, 177
Washington, George, 162, 165
Wealth, what is, 104
difference between property and, 107
Webster, Daniel, 111, 170
White, Horace, 30, 155
Wilson, John W., clearing house examiner, Los Angeles, 316
Zone, credit bureau of, 323
organization of, 338, 411
organization, repetition of National Government, 483
places of, discount limited to, 479
publicity of organization, 476
should not stand alone, 480
state lines do not conform to economic, 419