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OCTOBER 27, 1S11
no intimation that the interest rate will be
lower than other banks, on the contrary compe
tition with them is distinctly disclaimed. But
the privilege of borrowing money from the re
serve bank la not given to all members, only to
those who are depositors and upon these deposits
no interest will be paid". If anything more could
be needed to discourage membership in the
association on the part of the great body of
banks in the country it will be found in the
classification of loans which the reserve banks
may make. All loans are to be confined to
those arising from commercial transactions,
generally called commercial paper, and theso
bills must not have more than twenty-eight days
to run.
"It may also purchase from depositor mem
bers a limited amount when conditions will war
rant it of acceptances of other banks or houses
of unquestioned financial responsibility, which
have a maturity not exceeding ninety days.
"These must also arise from commercial
transactions and be 'generally known in the
market as prime bills.'
"How many country banks, and for that mat
ter other banks, carry in their assets any con
siderable amount of this kind of paper?
"When a bank wishes to discount paper with
its city correspondent it does not have to search
through its bills for distinctively commercial
paper having only twenty-eight days to run, and
prime bills as described they would not be likely
to possess. Somewhat more liberal terms are
offered when paper is secured by collaterals and
indorsed by the local associations. The local
associations, however, only become active in
times of panics or severe emergencies, and as
these have occurred at intervals of only fifteen
or twenty years and may never occur again if
the preventives supplied are to do their work,
they need not be taken Into consideration. The
clearing house arrangement In the existing
Aldrich-Vreeland bill would be equally as effec
tive as the local association arrangement.
"The terms used in denning paper smack of
the city transactions, and only banks situated
in the large commercial and Industrial sections
of the country could supply the kind of paper
demanded. They only could make effective use
of the reserve bank. The attraction to theso
would not be the promised earnings of the re
serve bank which can not exceed 5 per cent on
the stock subscribed, but it would be the en
larged facilities this bank controlled by them
selves would afford in the operations of their
respective Institutions.
"That there would be a sufficient number of
these banks who would be Interested in taking
over the reserve bank, will be seen from the
following figures. The total capital and surplus
of the sixty-seven hundred national banks ex
clusive of the Pacific states Is about $1,500,000,
000. The thirty-nine banks in the city of New
York hold $250,000,000, or one-sixth of the
entire amount. One hundred thirty-nine banks
in the six cities of Boston, New York, Phila
delphia, Pittsburg, Chicago and St. Louis hold
about $500,000,000, or one-third of the total.
Add to these other large banks and trust com
panies t in the same cities and it can be seen
that although the number of banks joining may
not exceed two hundred and may be less the
capital required for the undertaking can easily
be obtained among this number.
"TheBe banks and these banks alone can
supply the class of paper demanded, and they
are the only ones whose interest it would be to
maintain deposits without Interest. No reserve
Is required from the reserve bank against the
deposits. It is required to hold in gold or law
ful money one-third of its circulation, but this
will impose no great hardship as a generous
government will at once deposit with It a sum
of gold and legal tenders more than sufficient
for the purpose. Balances in the reserve bank
will count as part of the cash reserves banks
are now required to keep on hand. The queer
result may follow that member banks will de
posit largely from this reserve and then 'by bor
rowing it from the reserve bank will have the
use of money which they are now compelled
to lock up in their safes and vaults.
"The banks forming the reserve association
would, of course manage and control the bank
the same as if It were a department of their
respective Institutions. Money borrowed from
the bank would not be like loans and discounts
obtained from other institutions who would
have power to call in or decline loans at in
convenient periods, but would be the same as
if borrowed from themselves, with their loan
ing power enormously Increased by the note
Issuing privilege, thereby indirectly conferred
upon them thrdugh the reserve bank. It will
The Commoner.
bo conceded that the powers granted to the re
serve bank Itself aro so limited in thoir scope
that it could not of itself bocomo any dangoroiiB
menace to the public interest, in controlling as
it must the finances and business of tho coun
try. But in the schomo presented which seems
to meet the wildest dreams of flnanco a more
gigantio combination of bank capital will bo
made effective than any Unitod States bank
could ever become.
"Concerning monopolies General Jackson in
one of his messages declared 'that every
monopoly and all exclusive privileges aro
granted at tho expense of tho public, which
ought to receive a fair equivalent.' Ho was not
so much opposed to tho monopoly Involved in
the Unitod States bank as he was to what ho
thought an inadequate return for tho prlvilogo
granted.
"Tho almost unanimous modern sentiment
concerning monopolies created by legislation
goes much further than Jackson's expression, for
it is opposed to monopolies upon any terms.
"The proposed measure grants a monopoly of
tho broadest character for tho issuance of bank
notes to circulate as money and so far from
receiving's fair equivalent in addition to an
enormous public deposit without interest the
public is actually taxed to launch and main
tain It.
"The simple I. O. U.s of tho reserve bank aro
to replace the national bank notes and tho
United States bonds held by tho banks to secure
the circulation, are to bo taken over from tho
banks at par and hold by tho reserve bank for
a period of ten years. During this period tho
government will continuo to pay interest upon
the bonds aggregating $14,000,000 annually,
the government receiving in roturn only tho
of 1 per cent tax now paid by tho national banks.
At the end of the ton years the government must
pay or redeem tho bonds and therafter tho re
serve bank will hold the $700,000,000 circula
tion to do with it as it pleases, subject only to
the nominal tax.
"Tho resources placed at tho disposal of tho
reserve bank aro practically unlimited.
"The graduated scale of tax is an admission
on the part of tho constructors of tho Aldrich
scheme that a high tax on circulation must bo
imposed to insure tho cancellation of a redun
dant circulation. When the tax Is not Imposed
it will be to the Interest of tho bank to keep it
out, for money can always be loanod at some
rate.
"Our panics have been duo not to our cur
rency but to other clearly discerned causes.
"During a period of easy money banks' aro
induced to make Investments they would not
ordinarily handle. Somo of them havo dealt
in speculative securities upon which they havo
been unable to realize to meet the demands of
legitimate business or the call of their deposi
tors, and having been forced to close their doors
a panic naturally ensues. Under tho same cir
cumstances panics would occur in any country.
"This develops the real weakness In our bank
ing systems. In other countries when banks
reach the end of their own resources they can
have recourse for relief to their great national
banks, and they in turn have the support of their
governments.
"It Is entirely different with us. Our banks
compete with each other In obtaining and hold
ing on to all the currency they can reach, and
when thojr can loan no more and it Is difficult
to meet the demands of depositors they have
been forced to invent expedients which the law
does not tolerate, and which only afford relief
In a clumsy and unsatisfactory manner. The
Aldrich-Vreeland measure, authorizing national
bank notes may hereafter be depended upon to
meet the situation in time of panics and prevent
the use hereafter of any of these clumsy bank
expedients to make something to take tho place
of money. But It will be admitted that some
thing else is necessary for ordinary times which
will steady the money market and prevent
panicky conditions which are to be dreaded al
most as much as panics themselves.
"Hence the clamor for a strong central bank.
"If there was nothing else possible except
a central bank then perhaps it would havo to be
admitted that the Aldrich reserve bank Is the
best suggestion that has been offered. A com
bination of say two hundred strong and Intelli
gently managed banks would be much better
than an aggregation of politicians or a bank
which would be subject to the whims and caprice
of a multitude of distant institutions, whose
managers could not have the experience and
broad mindedness necessary to run a great na
tional bank.
"It Is a question which calls for patient and
patriotic thought and which, If oxorclHcd, may
find some means of mooting tho situation with
out tho necessity of adopting a courso which Is
not in harmony with our past indopondont
policy.
"Tho writer has repeatedly urged as ono of
tho means to nicot the situation tho uso of our
dead bank nonets, composing tho cash reserve
tho law requires every bank to hold on hand. A
fund of many millions could bo put Into the
treasury of tho United States and a part of it
used in loans to banks somewhat in tho same
niannor that tho public funds havo at titnes
been deposited with banks In tho past.
"This cortainly opons a largo Hold for dis
cussion, but until tho great financial lntoreata
of tho country can bo induced to consider some
thing of this kind, instead of tho revolutionary
schemes thoy boliovo thoy will yet succeed In
getting congress to adopt, it is hopeless to pro
pose anything different. It docs not scorn, how
ever, possible that no matter what may bo done
with tho Aldrich bill in othor respocta that con
gress can bo brought to vote tho gigantic cur
rency monopoly tho schema covers as it If
now proaontod."
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