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About The commoner. (Lincoln, Neb.) 1901-1923 | View Entire Issue (Oct. 1, 1913)
i w "ywjw v The Commoner VOL. 13, NO. 30 20 CURRENCY SPEECH OF CARTER GLASS (Continued from Pago 14.) parte of the country to those regions whoro they could bo used to best advantage, and as a result to di minish tho rato of interest prevailing in tho communities which thus re colvo tho additional capital through tho ubo of tho acceptance method. Thoro is no reason why at tho present tlmo thoro should bo varia tions in rates of interest from 3 per cent in New York city to 12 or 15 per cent In small towns in tho cotton-growing regions. If a standard kind of paper wero provided it should command exactly tho samo confidence and bear exactly the same rato of Interest in one part of tho country aa in another. This would mean that acceptances based upon goods protected by cotton in this instance would constitute a stand ard kind of paper which would be available for rediscount at any fed eral reserve bank, aa well as pur chasable by investors and banks everywhere throughout tho country. Tho consequence would be, as al ready stated, a very great reduction in the rato of Interest to the grower or factor who had produced cotton and merely required loanable funds as a basis for business. It is true that the use of the ac ceptance principle is limited in this bill to those commodities and opera tions that aro connected with expor tation and importation. This limi tation has been complained of by many of those who believe that its extension to domestic operations would be highly advantageous to in dustry and would bo free from the dangers which others have predicted. "Whatever opinion may be entertained on this head, however, it is certain that tho cotton grower or the wheat shipper can not share It in any such proportion as can other commercial factors. The fact that so much of our notion Ernnn nbrnnrt nnd thn.fr. "Wo Ws'sljH ship grain in enormous quanti ties means that those who are con cerned in the exportation of these itomB have been exceptionally fav ored through the restriction of the acceptance business to them so that whatever funds are ready to be em ployed In that line of paper will go directly and without Interference into the channels afforded to them by the trade In these commodities. I want to add an emphatic word upon the other phase of the subject to which I have already referred the farmer's in'arest in getting -not only accommodation under the terms of this hill, hut his interest in get ting it in the cheapest possible way. I have already indicated the reasons for thinking that the working of the discount portions of the bill will greatly reduce the farmer's interest burden and supply him with means for marketing his crops to advantage. From the standpoint of the mechan ism employed by the farmer there is, however, much to be said in addition to what I have already pointed out. Today the farmer in many parts of the country wants his accommoda tion in the form of currency. This ho can not get under the existing conditions without involving the hank in heavy expense and conse quently necessitating the payment of a materially higher rate of interest by himself. The reason for the con ditions to which I have thus referred is this: - Under tho national-banking act the hank which wants $100 in notes must buy $100 in bonds and deposit them with the treasury. Assuming that these bonds wore bought at par, It cost $100 in cash to get $100 in notes, and the bank must further more place with the treasury a 5 per 'cent redemption fund for the pur 'pose of bearing the redemption of the noteB when they are brought to- the tails of tho cost of issuing notes further at this point than barely to loier to these matters and to tho additional outlay involved in getting tho piaies and paying the charge for transportation of paper necessitated by tho present note system. The bank gets 2 per cent interest upon its bonds and whatever interest it can secuio horn the community by lend ing the notes. When allowance nas been made tor the expenses already mentioned and for the due share of administiative outlay involved in the process of conducting the bank, and presumably assigned to the loans made by the issue of notes, In pro portion to their amount, as compared with tho total loans of the' bank, it Is clear that the percentage of protit is very small where anything like a reasonable rato of interest to the borrower is charged. Tho borrower uiust therelore, and is in practice, re quired to pay a very high rato of in terest 'to any bank which habitually makes its loans by issuing its own notes. Obviously, therefore,, any thing that will reduce tne cost of this necessary instrument will reduce the charge for loans to the farmer. Under tho proposed bill it is clear that banks may obtain a supply of notes lor customers who want their loans in this form by paying to the federal reserve bank of the district in. which they are situated such rate of rediscount as may be necessary to get the reserve bank to take their paper. As tne reserve bank can then get the notes by segregating the bor rower's paper to protect the accom modation thus secured, it is evident that there is no reason why the notes should cost the farmer anything more than the rate of rediscount fixed by the federal reserve bank plus such commission as the local bank may charge for Indorsing tho borrower's paper and passing it on to the re will not further consider this section of the measure. BANK RESERVES Section 20 of the pending bill, Mr. Chairman, constitutes one of its vital features. It la the real point of at tack by the big bankers of the central reserve cities. Recently at their Chi cago conference and now before a standing committee at the other end of the capitol these gentlemen enum erate various alterations which they would have made in this bill. But In real truth their fundamental and Insuperable objection is to the re serve requirement. All other fault flndintr is simnly strategic. This is no conjecture of my own; I assert it as a fact which has been borne in upon me time and time again since the first print of this bill came from the press. I assert it as a fact and have conclusive proof of its verity. Not one of the bankers who have re cently testified before the senate committee can controvert tho state ment. Tho whole fight of the great hank ers is to drive us from our firm re solve to break down tho artificial con nection between the banking business of this country and the stock specula tive operations at the money centers. The monetary commission, with more discretion than courage, absolutely evaded tho problem; but the banking and currency committee of the house has gone to the very root of this gigantic evil and in this bill proposes to cut the cancer out. Under exist ing law we have permitted banks to pyramid credit upon credit and to call these credits reserves. It is a misnomer; they are not reserves. And when financial troubles come and the country banks call for their money with which to pay their creditors they find it all invested in stock-gambling operations. There is serve bank. This change alone ought suspension of payment and the whole to reduce the cost of getting notes for bank loans by a very material pro portion of its present amount. While no one can calculate the exact saving which will thus be made with pre cision, I should he inclined to estimate that through the elimination of bond security and the substitution of the new plan of issue there should be no good reason why the note loans made by banks In agricultural regions should run 'to a higher figure than perhaps 6 or 7 per cent as against system breaks down under the strain, causing widespread confusion and al most inconceivable damage. THE REAL FIGHT The avowed purpose of this bill is to cure this evil; to withdraw the re serve funds of the country from the congested money centers and to make them readily available for business uses in the various sections of tho country to which they belong. This We propose to do cautiously, without the charge of 12 to 15 per cent that any shock to .the existing arrange- may now be found in many of the ment, graduating the operation to small towns of the west and south during the height of tho season. As previously stated, Mr. Chair man, we have not sought in this bill to help the farmer because he is a farmer, but help the community .which resorts to the banks for loans prevalent conditions and extending it over a period of 36 months. This affords ample time to the reserve and central reserve city banks to adoust themselves to the reserve require ments of the new system. Out of abundant precaution we have actual- and to help the farmer as a neces- ly given them a longer time than the 4 A treasury. I will not go into the do- sary and important figure in that community. We have helped him as wo have helped the merchant and manufacturer and other members of the body politic, by enabling him to secure, as we think, better and more abundant bank accommodation. But in addition to this, we have removed the exceptional burdens which rest upon the rural borrower under the system of national bank-note Issue which now prevails, and we have thereby placed him upon a footing of greater equality and of equity of treatment by making his credit in struments as reasonable in theft ex pense to him as are those employed by the merchant and, manufacturer. Wo have not attempted to exalt him and his interests above those of other elements in tho community, but wo have sought to give him what we be lieve he wanted an open and fair sharo upon equal terms in tho com mercial credit of the country. Exactly the same advantage, and in like degree, that will be -afforded the farmers of the country under the rediscount provision of this bill will extend to every description of legiti mate business aud industry; hence I best practical bankers of the coun try have said was needed. But, Mr. Chairman, the plaint of these gentle men is not as to time but as to fact. They do not want existing arrange ments disturbed; they desire to per petuate a fictitious, unscientific sys tem, sanctioned by law, but con demned by experience and bitterly offensive to the American people a Bystem which everybody knows en courages and promotes the worst description of stock gambling. .The real opposition to this bill is not as to government control, upon which we shall never yield; it is not as to the capital subscription renuired. which Is precisely that of the Aldrlch scheme unanimously indorsed by the American Bankers' association; It is not as to the 5 per cent dividend allowed member banks, the exact limit prescribed in the Aldrich bill; It Is not as to1 compulsory member ship, which was provided in another way In the Aldrlch scheme; It Is not as to tho "bond-Tefundine: nronnnl- tlon, infinitely simpler and less ex pensive than the Aldrich device. It is none of these things, Mr. Chair man, that vexes the big bankers. It fs n. Innn nf nrnflto lnt.tnn.i r system which makes them the legal custodians of all the reserve funds of the country, $240,000,000 of which funds on the 24th day of No vember, 1912, they had put into the maelstrom i f Wall street stock opera tions, DISAGREEING CRITICS I distinctly am not apepaling to the prejudice against great bankers. No man worthy to be a representative of the American people ought to deal with a problem of such magnitude without feeling profoundly the obli gation to be fair and just to every interest involved. But so should the big bankers deal with us. They have assured us that the bill is workable; yet in another place they say it is not. The critics are not agreed among themselves even as to what the bill provides or as to what it means. Mr. James B. Forgan, the nestor o American bankers, testified before the senate committee last Fri day that this measure would contract credits to the extent of $1,800,000, 000, whereas Mr. Chas. G. Dawes, an ex-comptroller of tho currency, now president of a large bank in Mr. For gan's own city, publicly asserted a week ago that the bill involves an enormous inflation. So in tho east recently an eminent banker of New York city declared that under this bill there would be a frightful con traction of credit, whereas in the same city the foreign exchange ex pert of one of the biggest banks there figured out for the president of the institution that possible expansion under the bill would reach the ag gregate amount of nearly $2,000, 000,000. And thus the conflict of opinion runs. As a matter of fact, Mr. Chair man, neither of these postulates is true. Certainly it is impossible that both of them can be true. It may be confidently asserted that there will not be one dollar of harmful contrac tion under this bill; and those who undertake to figure otherwise con veniently ignore the fact that we have released a considerable portion of existing bank reserve. Frankly, there can be expansion under the bill; and, according to Mr. Frank Vanderlip, of the National City Bank of New York, the country just now greatly needs credit expansion. He figures that $2,000,000,000 can be used within the next five years in de veloping a single industry in Amer ica. But the committee has care fully provided against dangerous or undue expansion. If. the banks of the country will not exercise common prudence in the matter, it is within the power of the federal reserve board to compel them to do so by lay ing a firm hand upon the rate of dis count. Moreover, the gold-reserve requirement and the redemption facilities afforded by tho bill will have a powerful tendency toward nhonlHnf ftvnnnslnn. But I Will not longer claim the attention of the house upon this particular phase oi the subject. I desire briefly to demonstrate the entire feasibility oi the scheme provided by this bill tor shifting the reserves without con tracting credit. The matter has been figured out by the best experts in tne country. It- has been gone over witu extreme care and we confidently chal lenge criticism, of the facts ana figures presented. PRESENT RESERVE REQUIRK-MENTS Section 22 of the bill provides for a revision- of the existing reserves ot national banking associations, wunu, under the present reserve system, , aie divided into three classes, (a) cou try banks, (b) reserve city banks. (c) .central reserve city hanks, coun try banks are required to hold0 P cent of their deposit llabl llties in lawful money and 9 per cent in Dai ances with other banks; resene cuy V - 'hnm it