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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
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