ITOVXHBElt 3, 1111
The Commoner.
Mr. Aldrich and His Currency Scheme
Henry W. Yateg, president of the Nebraska
Rational bank, Omaha, ha written the follow
ing criticism et Mr. Aldrich'i amendment to
his currency scheme:
As requested, I am pleased to state through
you to the public the changes recently ottered
ly Senator Aldrich to his original banking and
currency plan.
A careful reading of these amendments will
how that one especially Important arrange
ment has been modified but in tker respect
go far as the public interests are concerned, tho
changes are not for the bettor.
In the writer's address before the Laymen's
club, which wars published in The Commoner of
Oct. 27th, he called attention to the fact, that in
addition to receiving at once a deposit of public
funds to the full extent of tho United States
treasury balance, upon which no interest would
be allowed the reserve bank would receive from
the government 2 per cent interest per annum
upon the $700,000,000 of United States bond
it would take over from the national banks, and
which bonds would cost it absolutely nothing,
being paid for by its simple I. O. U.s or promises
to pay, subject only to the one-half per cent
per annum tax now levied on national bank
circulation.
This was a' glaring situation, which the most
ordinary thinker could easily understand and
it has been deemed advisable to modify it. The
2 per cent bonds received from the national
banks are to be taken up by tho government
and 3 per cent bonds issued in their place. The
reserve bank will pay for fifty years which is
to be the life of the now bonds, an annual fran
chise tax of 1 per cent per annum. This is
what the government now pays the national
banks, being 2 per cent less one-half per cent
tax. nTher-new arrangement is .not entirely a
one sided concession. The 2 per cent bonds
without the circulation privilege would not be
worth anything near par. In the statement it is
said they would "depreciate so as not to be
worth more than seventy cents on the dollar."
Under the original arrangement the reserve
bank would have been obliged to carry these
oonds for ten years or until redeemed by tho
government. The. new suggestion will give the
bank a bond which It may probably be able to
sell at a premium. It is permitted to dispose
of $50,000,000 annually and the government
Itself may purchase them at par for postal sav
ings banks or otherwise.
Practically and in a few words the change
means that for fifty years the reserve bank will
pay a tax to the government of 1 per cent
per annum upon the circulation taken over from
the national banks which is better than paying
nothing at all.
The result of the arrangement, however, will
be that thereafter every loan the government
may find it necessary to place on the market for
needed purposes or in redemption of these
bonds taken over by the reserve bank must
carry an interest rate of at least 3 per cent per
annum, and the increased charge thereby made,
upon the national revenues, must be met by
an increased tax levied upon the public.
The remaining changes that the writer has
noted, will be stated in order:
1. The tax imposed upon excess circulation,
the bank Is permitted to Issue over the initial
$700,000,000 is materially lessened.
As originally suggested tho first $100,000,
000 would be taxed 3 per cent per annum, the
second $100,000,000 at- 4 per cent per annum;
the third $100,000,000 at 5 per cent per annum
and thereafter any sum at 6 per cent per auunm.
As now proposed, the first $200,000,000 over
the $700,000,000 will carry no tax, the second
$300,000,000 being the excess over $900,000,
060 will be taxed 1 per cent per annum except
if said issue should be covered fey an equal amount
of gold or lawful money there will be no tax.
This holding of lawful money may bo obtained
by the bank from the public, the United States
treasury or from other deposits and would not
necessarily entail any hardship upon the bank.
Practically, therefore, it may be said that the
reserve bank can issue untaxed notes to the
extent of $500,000,000 over and above the
total volume of national bank notes now in
circulation.
2. The writer also called attention to the
fact that no reserve whatever was required to
be held by the bank against deposits.
This also glaring fact is to be corrected in a
All demand liabilities of the reserve bank, in
cluding deposits and circulation, must be covered
by a reserve f GO per cont of gold and lawful
money. Thl reserve, however, may be tres
passed upon by the paymont of a cumulative
tax of 1 per cent for every 3 per cent do
creased reserve, but the furthor Ibbuo of bank
notes I proh&ited should the reserve bo reduced
below 3f per cent f the circulation. A further
reserve conce4n is also made the bank.
Under the original plan it wag required to
hold 30 per cent reserve against tho $700,000,
00 circulation taken from the national banks.
This has been reduced to 30 per cent upon
$350,000,00 as It Is stated "on the theory that
$350, 800,300 of the present bank note issue
at least never will he presented for redemption."
This is a surprising statement.
3. State bankg and trust companies instead
of being required to organize under tho na
tional law, may come In as they are but in doing
so, they must conform in all respect to the
refuirements and limitations imposed upon
national bank.
4. As first suggested the balances of national
hanks kept with the reserve bank could be
counted as a part of their lawful monoy resorve.
This reserve privilege is still furthor extended
so that it will include note of the reserve
bank held.
The writer recalls the time when somo of
the men now conspicuous in their support of
credit currency, threw up their hands in holy
horror, when it was suggested at an American
bankers' convention that national bank notes
should be so counted.
5. The classification of paper eligible for
discount with tho reserve bank has beon em
phasized in its exclusion of certain kinds of
loans.
As it is stated "In order to guard against the
use of the association for stock speculation the
definition of commercial paper has been care
fully framed." It may discount such paper
drawn for "agricultural, industrial and com
mercial purposes and not for carrying stocks or
bonds or other investment securities."
This has not heem the first declaration against
stock exchange securities, and it would seem
that they do protect too much. Dealing in
speculative securities is generally reprobated by
all banks. Some few banks among the thous
ands doing business have been exposed In the
practice, but it has been done In defiance of
the present law and tho principles held to indi
cate sound banking. It would seem to be
deemed important on tho part of tho drafters
of this instrument, that the reserve bank
promises to be good in this respect and even to
rear backwards In what Is promised.
The position taken will exclude the safest
and best securities a bank can possess either as
owners or as a basis for loans, such a first
class local municipal securities, city, county,
school and state bonds, certain railroad and
other first class bonds, regarded a good as
government bonds and to cap the climax,
government bonds themselves. The large list
of securities dealt with on the stock exchange
should be distinguished in the manner Presi
dent Roosevelt divided trusts into "good" and
"bad." No bank has ever failed or caused loss
of any kind in any community by reason of
holding good securities of this character.
6. A considerable part of the proposed
changes is devoted to tho personnel of the
hoard of directors of the reserve bank to meet
the objection as the announcement states "that
the control might be centralized or rather
localized and give some particular section domi
nance over the financial affairs of the wholo
country." "Under the revision it i contended
the localization of control ha been rendered
Impossible."
This writer can not understand the force of
the objection stated. if ever made. This Idea
of a sectional prejudice or fear he believes to be
a myth.
Whatever apprehension or ear may and
probably does exist Is against a possible money
. combination: not necessarily from any par
ticular section but from wherever the capital
may be found that can avail itself of tho privi
leges extended. This combination l)y mean
of the enormous power given the bank to inflate
the currency, may enable it to control the
finances and business of the country.
So far as this writer's views are concerned,
he believe that if such a bank must be created
the interests of the country would be better
served, If Its management should be in the
hands of alert and competent bankers, who
would always be "on the spot" and familiar with
every dotail of the buslae, rather thai with
a board membership scattered all ever th
country, who if thoy attonded board meetings
at all would from the vory nature of tho case
be obliged to accept tho conclusions roached by
tho men In activo control.
This writer has asserted hlg belief which re
mains unchangod that sufficient inducements to
justify the tying up of one-fifth of tliolr capital
stock in the stock of the reserve bank are not
offered to tho great volume of banks through
out the country. That raomborship in the
association will be limited to those banks which
can supply tho short tlmo commercial paper de
manded for rediscounts and who, by means of
this membership, will form a community of in
terests which will own and control tho bank
practically as an adjunct of their respective in
stitutions. A tho rato of discount fixed must bo uniform
all over the country there would bo no room
for sectional prejudico or preference. There
would bo monoy onough to go round for all of
thorn. HENRY W. YATES.
Omaha, Neb., Oct. 2G.
WAITING FOR "A DEAD MAN"
Joplin (Mo.) Olobe: A crowd estimated at
from twelvo to fifteen thousand gathered at a
park in Kansas City one night recently to hear
a man speak. The speech was scheduled to be
gin at 9 o'clock. Washouts, however, dolayod
tho spoakor's arrival. Tho clocks pointed to 10
o'clock and still the crowd waitod. Tlmo
dragged slowly. It was almost midnight before
tho speaker appeared. But the crowd remained
to greet him and remained to hear him speak.
It wag a remarkable testimonial to the man,
wasn't it? It was something so out of the
ordinary in this sophisticated day when people
resign themselves to speeches as things to be
endured that it seemingly was a great nowg
item, or, to bo strictly technical, a great feature,
worthy of conspicuous nowspapor placo and
comment.
The newspapers of Kansas City didn't o
interpret it. They didn't give it flrst-pago posi
tion. In fact, tholr reports were merely rou
tine. And a few lines of flippant comment was
tho oxtent of tho editorial attention bestowed.
Yet it was a very signal triumph for the
man. A similar manifestation of popular in
terest, or loyalty, or ovon curiosity toward a
Jpurnallstic favorite in that city would have
called for ardent headline, spirited story and
trundoring, intense interpretation.
Who was tho man? Only ono of our politi
cally vanquished. One who has grown old In
tho public judgment, and satirically familiar to
the paragraphers. A chronic office-seeker, say
some. A party meddler and malcontent, say
others. A haughty, arrogant, presumptuous
dictator, aver these practical politicians under
their breath when thoy whisper in conclave,
though outwardly they profess to him undying
fealty.
The man's name i Bryan.
SPINNING A WEB
June, 1908 Republican national convention,
adopted platform promising to amend tho Sher
man anti-trust law.
September 5, 1008 Governor ITughcs of New
York, in speech delivered at Youngstown, Ohio,
interpreted tho republican platform pledge to
mean that "the rule of reason" must be adopted.
May, 1010 W. E. Hutton & Co., in their
trade letter printed in the Cincinnati Enquirer
May 1, complimented President Taffc on appoint
ing Governor Hughes to succeed Justlco Brewer
in the supreme court and referring to the senti
ment In Wall fitreet, said: "It was felt tliat with
such an addition to tho highest tribunal that
decisions in such cases as tho Standard Oil and
American Tobacco would bo in safe hands."
May, I911-Justlce Hughes and other mem
bers of tho supreme court render, over protest
of Justice John M. Harlan, the famous "rule of
reason" decision which, in effect, destroyed the
Sherman anti-tnit law
September, 1011 George W. Perkins, as
sociated with J. Pierpont Morgan in trnst con
trol, delivered a speech in which lie complained
that republican congressmen had not tried to
redeem tho republican promise to amend the
Sherman anti-trust law but that it had been
redeemed by the supreme court in the recent
trust decision wherein Governor Hughes "rulm
of reason" was applied.
Pass till on to your republican neighbor. Ask
him what ho thinks of the supreme court being
packed with a view of having it redeem
party campaign pledget
.
i
un1irnV. '. Mti) A-ajgy
wmaa
. .A.
