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AUGUST 3, 1906
The Commorisr.
EVILS OF THE NATIONAL BANKING LAWS
Referring to the provisions of the national
banking law which require national banks to
maintain a reserve and the clause which permits
banks in certain cities to count "balances due to
an association" as a part of their reserve and
that each bank in designated cities shall select
an association in New York where one-half of its
reserve may be deposited, Mr. O. H. Schreiner
of Brooklyn, N". Y., in an article published in The
Commoner said, that the concentration at New
York of the reserves has been the nourishing
mother of trusts and their great water capital
izations. He contended that the plain intent of
the law is that the reserves should be kept sacred
and unimpared, but that New York bankers, loan
them to stock exchange gamblers for speculative
purposes. This lopsided distribution of the re
serves, lie said, constitutes a preference in law
or its admlnistrati&n, but that even a gradual cor
rection of the law would probably distress Wall
Street.
A reader of The Commoner, who has had ex
cellent opportunities for observing the practical
operation of the national banking law, makes
interesting comment upon Mr. Schrelner's arti
cle. This reader says:
"In the October 1905 number of the Interna
tional Quarterly, Mr. C. A. Conant says that the
funds required to finance the gigantic combina
tions, trusts and mergers, flow to New York be
cause that city is the center of American financial
'operations, and particularly because national
banks are permitted to count money deposited
with New York banks as a part of their reserves.
"Mr. Frederick W. Gookin says, in a letter
published In The Nation, January 18, 1906 that the
stringency of the New York money market -during
the autumn of 1905 was due to the locking
up in New York stock exchange speculations of
the free loanable capital of the country which
accumulates at New York because the country
banks can not loan it at home.
"There is a natural tendency for money to
accumulate at the centers of population and
wealth but local development demands that this
inclination be curbed as much as possible. The
laws governing national bank reserves, however,
not only stimulate it but actually force money
to concentrate at these points, especially at New
York, and as "demand" and short time loans are
very profitable to New York bankers, this parti
cular provision appears to have been dictated by
them. They accept and pay interest on all money
temporarily out of use during the dull season of
the year, and loan it to speculators at high
rates. When crop moving time comes the coun-r
try banks call In their New York deposits, and
this cuts off the supply for speculative purposes.
Then New York bankers come forward with their
asset currency schemes and point to the strin
gency in the speculative money market as in
dicating the necessity of such a law. The secre
tary of the treasury is also importuned to de-
posit public funds with them, for which they
would pay nothing, to loan at -high rates of in
terest to the stock gamblers who at such times
are making desperate efforts to stave' off disaster
as long as possible.
"The establishment of postal savings banks
by the government would be a blessing to the
thrifty but would prove disastrous to the bank
ing Interests and the speculators whom they sup
ply with funds at usurious rates, hence the postal
savings banks are not established. The national
banking law is utterly without a commendable
feature, but if national banks were permitted to
loan money on real estate security the concen
tration at New York of enormous sums of money
would be materially lessened. But such loans
would not be as profitable as those to stock
gamblers because home-builders could not af
ford to pay exorbitant rates of interest, hence
there is no likelihood of the law being amended
in this respect.
"JJut the reserve clause of the law is not
worse than its other provisions, and to propose
amendments thereto Is to give tacit indorsement
of the law and the principles upon which it is
based. The law should not be amended, but re
pealed. When it was enacted in 1863 the very
life of the government was threatened by war.
Funds were necessary to prosecute the war but
the "defenders of national honor" who had mon
ey to loan would not loan it to the government
without special inducements and special privi
leges, and the national banking law gave them
what .they wanted. It provided that those who
would loan the government money by buying its
bonds, If they would organize a national' bank,
should have the privilege of issuing money (the
bank to deposit boivla U secure lte circulation
but to receive interest oa them rtm the govern
ment) which thoy could loan at fnterost, or dis
count notes, checks and other negotiable paper.
"A public law which confers special privi
leges is not a law In substance, bat a privilego
and therefore an exception to the rule of law.
It is a law only In that certain constitutional for
malities were complied with in its passage. Tho
most vicious, indefensible and repulsive charac
teristic of such laws is that thoy invariably dis
criminate in favor of tho strong and against tho
weak. Tho Ideal government is tho one that
protects the weak from the encroachments of
the strong, and it is only necessary to note tho
fact that many of our laws lavish special privi
leges upon the strong to prove that our gov
ernment is not an ideal one in its practical oper
ations. "For the government to discriminate between
its creditors is a crime, yet this is what the na
tional banking law does when it confers upon
national banks tho powor to issue money, secured
by depositing bonds. To say that all owners of
bonds may become bankers and thus secure the
same privilege does not meet the issue. In effect
the government says that to become its creditor
the individual must become a banker, or it will
discriminate against him. This law has practi
cally compelled the private liolders of government
bonds to sell them to national bankers because
tho national banks are, by reason of tho privi
leges they alone enjoy, able to loan money to the
government at a lower rate of interest than pri
vate individuals could afford to .accept. This low
ering of the interest rate is heralded as a great
financial feat, but every decline has been pur
chased at the price of giving privileges which
more than offset the saving In Interest. The
act of March 14, 1900, which republicans point
to as the acme of financial legislation, authorized
the secretary of the treasury to refund into
thirty year two per cent bonds, the outstanding
three per cent bonds due in 1908, the four per
cent bonds due in 1907, and the five per cent
bonds due in 1904, a total of $839,000,000. The
people heard much about the saving in interest,
but little or nothing about the prico paid in sac
rifices and privileges. Tho fact that the banks
exchanged old bonds bearing a higher rate of
interest for the new two per cent bonds is evi
dence enough to convince any intelligent man
that it was a victory, not for the people, but
for the banks. In the first place the public debt
is fastened on our back for thirty years, but
this not being sufficient inducement for the banks
to make the exchange, the secretary of the treas
ury was authorized to pay a premium for the old
bonds, and furthermore those banks exchanging
old bonds for new ones, as a deposit to secure
national bank notes, were relieved of one-half
of the tax on such notes. The premiums paid
and the loss of one-half of the circulation tax
largely offset the saving in interest, and the pub
He debt is tied up for thirty years.
"As the national debt is the basis for national
bank currency the liquidation of the debt would
necessarily be followed by the retirement of
the national bank currency. From an inducement
to loan the government money, as originally in
tended, this law is being used to compel the gov
ernment to borrow money and perpetuate the
national debt.
"The platform of the democratic party in 1900
contained the following clear statement:
"A permanent national bank currency,
secured by government bonds, must have a
permanent debt to rest upon, and if bank cur
rency is to increase with population and
business the debt must also Increase. The
republican currency scheme is therefore a
scheme for fastening upon the taxpayers a
perpetual and growing debt.'
"At this time there are about 5,770 national
banks with over 300,000 shareholders. As a rule
these shareholders are men of wealth and Influ
ence, and their connection with the bank affords
many opportunities to grant or withhold favors
and in this way are able to exert more Influence
than men of equal wealth in other professions.
It is impossible to conceive of a more powerful
engine of Intimidation in political campaigns
than this organization of over 300,000 national
bank stockholders. They not only vote and work
solidly against the party which antagonizes spe
cial privileges, but they contribute money to de
feat it, and if the amount of their contributions
was known the contributions made by the insur
ance companies would appear insignificant in
comparison.
"Tho power to issue money carries with it
tho power to contract or expand tho volumo of
money in circulation and this means that thw
banks can make prices high or low as best suits
their interests. That thoy contract it when mo
tallic money is scarce and expand their issues
when metallic money is plentiful can bo demons
trated by tho fact that national bank notes de
creased from $358,742,000 in 1882 to $1G7,927,000
in 1891, during which time gold production was
stationary. On March 14, 1900, bank note cir
culation amounted to $254,000,000, and on Octo
ber 1, 1904, it was $442,000,000, and during this
time gold production almost doubled.
"To surrender governmental functions to pri
vate corporations is a groat wrong and injustlco
to the people. This powor is exercised to oppress
tho people and oppression and despotism breed
revolution. This is not the time to propose pop
gun amendments to the national banking law.
The disease demands more, radical treatment than
that; the law must bo exterminated and the peo
ple again assume their rights."
HE INVITED PENROSE
In his Fourth of July address at Oyster Bay
President Roosevelt observed that while the prob
lems of today are not the same as in Lincoln's
administration, they must bo mot with tho Lin-
coin spirit and the Lincoln devotion to duty. But
Mr. Roosevelt has not so far invited tho guberna
torial candidate of the Lincoln party of Penn
sylvania to confer with him. Can it bo- that
Mr. Roosevelt is not willing to meet tho situa
tion in Pennsylvania "with tho Lincoln spirit
and the Lincoln devotion to duty?"
JJJ
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