The commoner. (Lincoln, Neb.) 1901-1923, September 25, 1903, Image 1

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Vol. 3. No. 36.
Lincoln, Nebraska, September 25, 1903.
Whole No. 140.
To Secretary Shaw: Yor aro reported as ad
vocating the passage of a law that will enable
national banks to Issue emergency currency based
upon their capital or assetsTJ As this would be
an innovation, Jhere are several questions that
ought to be carefully considered before such a
law is enactedj
irst Why let the relief of the public in
money matters be left to the whim, caprice or
interest of those who are in charge o! national
banks? If more money is needed, Is it not safer
and bettor to allow that money to be issued by
the government which acts in the interest of all
thojieople and is directly responsible to the peo
ple? Experience has shown that tho, banks are
governed entirely by their pecuniary interests in
increasing or decreasing their circulation. Dur
ing the panic period following 1893 when more
money was badly needed, the banks defended
their refusal to materially increa-e their circula
tion by saying mat It was not profitable; after
1896 when there was a 1 ge increase in the vol
ume of money from other sources, the banks do
fended a considerable . increase in the bank note
currency by saying that the reduction in the tax
on circulation and the increase in the limit had
made the issue profitable. Today, while you aro
depositing government money with the banks to
relieve a stringency the ban lis are trying to
retire circulation because they think they can
make a profit on their bonds. You are certainly
aware that the banker's speculative Interest in
the market is different from, and often antagon
istic to, his interest in serving his patrons and
Second Why do you single the banks out for
the special and valuable privilege which the is
sue of money confers? Even at present, when
money is issued upou government bonds, the bank
has a great advantage over the ordinary indlvld
uaLJ If a farmer or a merchant or a laboring
man purchases government bonds he is out the
use of the money invested and must b9 content
with the interest, but a bank can purchase the
same bond3 and by depositing them receive the
face value in notes, upon the payment of half of
1 per cent interest. The bank thus has the use
of its money (for this insignificant interest) and
draws interest on the bonds besides. Tnis is a
pecuniary advantage granted to the banking class
and denied to others. Just how much profit there
is in it can be seen from the following statement:
If a bank purchases one hundred thousand dollars'
worth of 2 per cent bonds at $1.09 and deposits
those bonds it receives back ore hundred thousand
in bank, notes and as these bank notes serve the
same purpose as the money paid for the bonds,
tiie bank has Invested in the bonds only $9,000.
The $5,000 retained at Washington, as a reserve
lund for the redemption of the notes, is con
structively in the vaults of the bank and is as
useful to the bank as if it were actually in the
vaults, because that sum can be counted in the
bank's legal reserve and the bank is thus enabled
to use that much more of the money on hand.
Having invested this sum of $9,000 in the bonds
the bank pays half of 1 per cent tax ,to the gov
ernment, or $500 a year. It lays aside, a small
sum to retire the premium, pays another small
sum for tho printing of the currency, and draws
two thousand dollars interest from tho govern
ment After deducting the tax and all other ex
penses, tho bank makes a rot profit of between
10 and 15 per cent on .no money actually in
vested, namely, $9,000.
Statistics si w that tho farmers of tho
United States do not make anything like that in
terest upon the investment which they have in
farm property, and yet they tako risks far greater
than the bank takes, for there is no risk to tho
banker at all in this transaction.
Statistics also show that in banking the per
centage of failures is smaller tnan in merchandis
ing Why this valuable privilege to the banks?
IjThird In whatrespect 'e a bank note better
than a greenbaokjfjDurlng tho war when gold
and silver were at apremium tho bank note and
the greenback kept company because the bank
note was redeemable in lawful money and tho
bankers used the cheapest lawful money they
could find. It is worthy of ncto that tho bankers,
while insisting that other people shall pay them in
tho dearest money, always exercise iho right to
redeem their bank notes in the cheapest money.
Even today when there Ib so much talk about
gold and about tho government paying debts
in the best money, the bankers aro not willing to
have a law passed compelling them to redeem
their bank notes in gold.Jjhe bank note Is good
because it has a greenback behind it; why is tno
greenback not gooc" without any bank note in
front of it?J The bank note Is not a legal tendor;
the greenback Is a legal tender. Which is tho
better money? ii you are afraid that the vol
ume of governmen money might be unwisely
increased or decreased, do you not nnd a lesson
in tho fact that lor thirty years tho volume of
greenbacks has remained stationary while tho
volume of bank notes has constantly fluctuated?
Would you not rather risk the decision of con
gress, the secretary of the tr asury or thq presi
dent to determine when the volume of paper
money should- be Increased or decreased, than to
leave that matter to be determined by a coterie of
banners? .
JFoutith If this emergency currency Is a lien
upon the assets of the bank, will not the ibsue of
it be an announcement to the public that the bank
iB in difficulty? Will not the issue of such cur
rency frighten depositors, and malu probable a
run on the bank?7 The rate of interest had not
been decided upon, but it Is evident that tho
scare will be somewhat in oroportion to the rate.
If a bank has to pay 6 per cent interest, the public
will know that it is in greater financial diluculty
than If it issued currency at 3 per cent- If it is
sues at 3 per cent, it will be known to be in
greater financial difficulty than if it issued at 1
per cent.
How can you keep an emergency Issue from
aggravating the very conditions which it is in
tended to relieve? Is there not danger that with
an asset currency, a bank .official may run away
with the assets and leave the currency outstand
ing? If you find any plcasuro In tho contempla
tion of a currency systom under which tho bank
would still owe for tho currency oven when lu
assets had disappeared, you will relish tho story
that is told of a man who c rrlcd 'contentment
so far that when ho traded off his coat for a loaf
of bread, and a dog then snatched tho bread, he
thanked God that ho still had his appetite left,
even though ho no longer had the moans of sat
isfying it.
If emergency curroncy Is issued with the
knowledge of the public it is apt to frighten the
public; if It Is lesued without knowledge of the
public, is it fair to tho depositors? If It Is In
tended to make all of the banks liable for the
emergency currency Issued by each bank, it Im
poses an unjust burden upon the well conducted
banks for the benefit of the poorly conducted ones.
If tho government Is to guarantee this currency,
is it not unfair to give the bankers tho benefit and
make the public pay tho expenses?
Fifth -Does the Issue of an emergency asset
currency contemplate a restriction upon the In
terest to be charged by the banks which issue
if; Will tho government lest at a low rato to
thw banks and then permit them to loan it at a
high rato?7 .. this is solely in the Interest of the
banks, irwould bo naturaJ to allow the bank
to make as much out of the privllego aa possible,
but If it Is done In tho Interest cf tho public, ought
there not to be some relation between tho interest
paid by the bank to the government and tho In
terest charged Ly the bank to tho peoplo? And if
this legislation is intended for tho benefit of the
public, why is the benefit given by indirection? If
a bank in time of emergency Is allowei to Issue
coney on Its assets, why not allow people engaged
in other business to issue on their assets in an
emergency? Most of the banks loan money to
farmers, and the notes given by the farmers are
good because tl.p farmer has land or personal
r perty of value. Now if the government is go
ing into the business of helping people in an
emergency why not loan the money to the farmer
directly, and take a mortgage on his property?
If the government can loan tc the banker because
the farmer's note Is good, why can it not loan to
the fanner and savo him the interest that he
would have to pay to tbe banker? Why help the
banker out of an emergency by loaning him
money at a low rate of interest merely that he may
turn around and help the farmer out of an emerg
ency by loaning him the same money at a high
rate of interest? And what is said of the farmer
may be said of tne merchant, and men engaged
in other occupations. Tho bank's assets are com
posed to a large extent of uie notes of busings
men. Now if tho bank is good It is because the
business men are good. If tho notes of businese
men are good enough to matte the bank good for
a government loan, why are not these notes goo
enough to loan on directly? Why should the
government turn 'the money o t to the banker
and then permit him to profit by the merchant's
embarrassment? It is not contended here that the
government should loan to the farmer or to te
merchant, but attention is called to the dlflcriml-