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VOLUME 6, NUMBER
50
50MJ? MORE LIGHT ON ASSET CURRENCY
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, The, second of the series of articles relating
to. asset currency written for The Commoner by'
a gentleman who has made a careful study of
finance and of the banking business generally
Is as follows:
During the months of November and Decem
ber, 1905, the stock gamblers of Wall Street
had to pay as high as 125 per cent for call loans,
.and they straightway made complaint about it.
.The hankers, too, raised a great howl about it,
but for different reasons. Their supply of loan
able funds being limited, and not being permitted
by law to increase this supply by issuing credit
bank notes based upon their assets, they were
unable to loan as much to the gamblers at usuri
ous rates as they would have liked to.
Mr. J. H. Schiff, head of the banking firm of
Kuhn, Loeb & Co., in an address to the New
York Chamber of Commerce on January 4, 1906,
said that "we have witnessed during the last
sixty days conditions in the New York money
market which are nothing less than a disgrace ,to
any civilized country. There must be a cause for
such conditions. It can not be the condition of
the country itself, for everywhere you look there
Is prosperity, The cause is the insuffi
cient elasticity of our circulating medium."
The "disgrace" about the matter was that
such gambling as is done on Wall Street Is per
mitted. But these bankers see nothing wrong
, about the gambling. They only object to the
conditions because of their Inability to loan them
more money. And to remedy this they propose
that the national government shall authorize them
to, issue credit bank notes based upon assets, the
government to guarantee the redemption of such
issues and give them currency by government
stamp and legal tender quality, or its equivalent,
ami ,for these privileges and favors they propose
to pay the government a nominal tax.
The New, York Chamber of Commerce ap
pointed a committee to draft plans for an asset
currency law and present it to Secretary Shaw,
under date of Februarv fi innfi. Rnnmiti Giw
&&VC''i5' letter tJMr- Schiff said that "the 'scarcity
ui. luuuey vynica caned forth the reference of the
question to the committee of. the Chamber of
Commerce was confined to New York City and
therefore local." Indeed there was no stringency
rVe3jn F6 York City 'cept in Wall Street.
Legitimate business Interests had no trouble
borrowing money at four and five per cent.
The agitation for an asset currency law is
based entirely upon the occasional demands of
- the stock gamblers In Wall street and elsewhere
because it can be proven that there is abundant
money now in circulation to meet the demands
of commerce and to maintain the general price
level. Even the committee appointed recently by
the American Bankers' association to draft an
XmTSff biUi f Presentati0 to congress
admitted this fact in its report. We quote:
I T,3eiarSuUnan,im0UB,y of the opinion that ,
' ?mnogoH in, the ex,istinff bank note Wstem are
. imperatively required. We find that the ores-
V' sinvJ?iU?he banknotes is wholly unrespon
sive to the demands of commerce. It does
.not expand with the need for currency in
v ysF-wvniB period causing stringency
nor cflntract when the uses for currency are
less extensive, causing redundancy."
The main complaint Is that the volume is
pandeSCSiYne'; ?at ls t0 ' does n?t ex"
the OrnniC0!ltract , If ifc would contract when
when Z ZlnS ?eriod ls over Ifc W0W expand
Mltbe and ewh? S?Ued fr lt But U w" d
money t leSthnnt?eCaUBe When the demand for
money out of oZw PurpseB lessens and throws
the shape of denoaks thl and nt ?e banks in
assumes control olh'he PS? of the bankers
York and other eamblw d hey BhIp Ifc to New
borrow it and bSSmi .Lffi"1- The gamblers
"bulls" The prices of stan8""1? ther WDrds
?p far beyond" the r eaSg8 SS$SnSF and
few regain their sense? aJS i5n y' Tben a
then comes a aliehf SSLIX P ,Ces are cheed,
stock gambler like alfotw11 and a decline- The
last cent. He haa to do if e?8,m?leIB, puts UP his
mediate rmn and bankrun m
certain that things win vff HeJ,s absoltely
that if he can onlv wl yet come his War and
tect his inters7 ntn WGn0Uh money to V
cvents. his fortune wm h favoralo turn of
turn does n?t MmoVbit ?nSnSd ThG favoraWe
on. still certain of thl i ?tead JhG decline goes
and more. Th0 banlfPreftUr,h0 bonws ore
not share thfgam?S on?iZ?,ern ,Sbyl0Ck' does
each succeeding ?nmnmistic vIews and wItn
that condltionf SS S t0T more mony knowing
aU10ns aro growing rapidl desperate.
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Finally the banker's supply of loanable funds is
exhausted and 'notwithstanding"" the tempting offers
of 100 and 125 per cent, is compelled to refuse
further advances of cash, and then comes the
crash which might have been avoided if the gov
ernment would only lend its assistance by pas
sing an asset currency law.
Because he is compelled to quit the game for
lack of more money to loan, just when interest
rates become most tempting, the banker becomes
firmly convinced that the country is in dire need
of an asset currency law to make the volume of
circulating medium more "responsive" and more
'elastic." But the innocent bystander, who has
to give his note and protect it by a mortgage and
pay five, six, seven and eight per cent, wonders
why the banker does not in the same way raise
more money to loan out at the juicy rate of 125
.per cent. Why don't the banker use his credit
the same as other people do to raise money?
Well, the banker is a financier, and he knows that
if he does issue his. note and secure it by a mort
gage on his property, he will have to pay the
prevailing rate of interest, and then his -note
will not circulate from hand to hand except by
individual indorsement and very slowly at that.
If he can only get congress to have the note -engraved
at the government money shop, and enact
a law that will make the note receivable by the
treasury department for all public dues, and when
so received may be paid out again by the govern
ment' to its creditors, the banker's credit is by
this simple trick coined Into money. Then, ,tbo,
the government must guarantee the final redemp
tion of the notes because it has agreed to receive
them in payment of all public dues and to make
Its creditors, except the bondholders, take them.
Then, too, the banker argues that because these
notes, are in, theory based upon his assets, he
should npt be required to pay as much interest
as he would to any other loaner of money. But
here the innocent bystander butts in with some
absurd -questions: He wants to know why the
government won't take his note and engrave it
like money, give it currency by agreeing to re
ceive it for all, public dues and pay it out again
to its creditors, and thus enable him to borrow
money at a lower rate of interest? The banker
gives him the laugh, calls him a "populist" and
proceeds to explain the difference, thus: We
bankers want the government to coin our credit
Into money to 16an to other people, while you want
the government to coin your credit into money for
your own use. We can not afford to pay the gov
ernment the prevailing rate of interest and then
loan it to others at the same rate, for if we did
we would make no profit. You want the govern
ment to loan money to you at the same rate it
loans to us. That would never do; it would not
be conservative" for the government to do that.
But let us see how the bankers will treat
us if we hand oVer to them the whole power to
expand and contract the .currency. They have,
, m part, that power now, and have had it for -forty-three
years.. The records show that they contract
the money volume when it should be expanded
and expand it when it should be contracted. If
there ever was a time when the commercial in
terests of the country needed more money It
was from 1884 to 1897. The present law entitled
the national banks to issue $597,720,000 in na
tional bank currency on October 31, 1895. They
$SpSiTfiR7arnQdn h?d ? ,cIrc1uI1atlon on tbat date but
?2ld,887,630--less than half of the amount. Now
when the unprecedented gold production alone
!:?PdInLtIle, volume f circulating medium
more than the increase of population requires,
the national banks have over $500,000,000 of bond
secured notes out and are trying to make the
people believe that they should be given the addi
tional privilege of Issuing bank notes based upon
their assets.
' Referring to Mr. Schiff's remarks the Globe
Democrat, a republican paper, pointB out in an
editorial that the volume of money in circulation
5a? creased from $1,500,000,000 in 189(T to $2.-
?00iWo00 In 1906-from 21-10 Por capita in IsYb
to $31.88 per capita in 1906 and said that "with
the rapid and continuous increase in the circula
tion which is under way, surpassing, as it does,
I?0 fiin,In P0Pulatln, it seems a little absurd for -Mr.
Schiff and the other inflationists to ask for
more; currency." Continuing the editor said that
"Messrs. Peffer, Simpson, Allen, Butler and I ttXr
associates of 1896 were far more reasonable in
S Sooow thASe ?GW Yorlc PPul!st
f t V N w that tho American Bankers' asso-
weatIlhaflSJ0 totapgt. in6 a body:
not follow them" "looe-Democrat does
Representative Prince of Illinois, second man, '
her of the hnnno i-niHT, o,i -..-' bLWMl(1 em.
tee in an interview wficf aeaSd TtL
on January 8, 1906, said there was enough XE
In the country, and that with a mSS .ney
$400 000,000 aV in sfghl ther'e S
hood of worry about getting too great 8 i
of the basic money metal than about aciai to n
by expanding national bank circular 2
Prince was reported as disapproving tho' asset
currency schemes and "maintained that if thl
government waa going into the-banking business
It would as well do it directly as by guiranteSin?
in consideration of a small tax, an immoTO
volume of bank credit notes."
But the Issue of legal tender money doos not
pertain to banking as Mr. Prince seems to think.
nor is the issue of asset currency by the bunks
populism, as the Globe-Demdcrat says, if the
issue of bank notes is a function for the ban s
to perform, why don't they issue them? There is
n tcL Prevent tho banks from using their
credit by borrowing money on it. They have the
JSTif1??' it0 m that M any other-corporation
or individual. Their scheme Involves more than
the issuance of notes against their assets, other
wise it would not be necessary for them to ask
congress They want the government to surrender
to them the power to give currency to their notes
and guarantee their redemption, in addition to
tnis they want the government to deposit with
tnem all its revenues above a reasonable cash
balance. This would make the various sub-treasuries
scattered over the country useless. They
would have nothing to do and would be abolished.
The reasons which led to the foundation of the
sub-treasury system were to compel the banks to
do business on their own capital. The banks
not only wish to do business on the government's
credit, but they want the government to furnish
the capital.
The asset currency scheme must be defeated.
i: iSt ass tesMatio-n of the most vicious sort.
It will give to the wealthy privileges and advan
tages which should not be In private hands. It
will bring upon us a rule of tyranny and greed
more rapacious-than any Industrial combination
which now holds the nation by the throat. It
- will enable the banks to squeeze value out of
property and into money when they want to do
so. It will bring the banks Into politics as they
were before Jackson put an end to bank rule.
The only good in the scheme is for the bankers.
The .democrats in congress should defeat it at
any cost. B R v
JJJ
ROOT ON FUNDAMENTALS
Secretary of State Root made a speech at
Rio de Janeiro which speech contains many good
things. For'instance, he says: "Yet no student of
our times can fail to see that not America alone
but the whole civilized world is swinging away
from its old governmental moorings and entrusting
tbQ fate of its civilization to the capacity of tho
popular mass to govern. By this pathway mankind
Is to travel, whithersoever it leads. Upon the
success of this our undertaking, 'the hope of hu
manity depends."
'This is a correct description of present ten
dencies, and it is creditable to Secretary Root
tnat he sees it and understands it.
In another part of the speech he says, speak-
inSJ,r UnIted staies: "We wish for no
victories but those ( of peace; for no territory ex
cept our own; for no sovereignty except the
sovereignty over ourselves. We deem the inde
pendence and equal rights of the smallest and
weakest member of the family of nations entitled
to as much respect as those of the greatest eni
?lT0' vnd we deem the observance of that respect
the chief guaranty of the weak against the op
pression of the strong. We neither claim nor
desire any rights, or privileges, or powers that
?ubHc"n 7 concede t0 wery American re-
t, Tl3u Is, alB0 sound doctrine, and it is well
tnat it be kept before the world, although the
speedy recognition of Panama may be recalled as
Inconsistent with it and our refusal to promise
Independence to the Filipinos may seem to con
tradict it, but the doctrine Is good even if we
nave not always lived up to It, and we can rejoice
that Secretary Root has taken occasion to give
emphasis to the doctrine.
- But Secretary Root did not confine himself
to statements that are sound. He says: "Ca-
paclty for self-government does not" come to man
by nature. It is an art to be learned,, and it' la
also an expression of character to be developed
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