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The Commoner
VOjL. 13, NO. 32
B
The Work of the President's Cabinet
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IX
TREASURY DEPARTMENT
Tn his annual report, submitted to congress
December 3rd, Socrotary McAcloo presents the
urgent need for currency reform, and sounds a
.note of assurance and promise to the public and
business world that the great and powerful arm
of the treasury department is, and will continue
to be, extended in safeguarding the rights of the
people and the legitimate business interests of
the country. The secretary recites in chrono
logical order the steps takon by the treasury
department during tbo past recent months to
assist the orderly progress of business and to
allay apprehension at times when fears, largely
imaginary, pervaded business circles. From the
efllcacy of theso measures which temporarily dis
sipated feelings of unrest and restored confi
donco, tho secretary points out tho abiding bene
fit which would follow the enactment of a law
containing tho fundamentals of tho administra
tion currency bill, by permanently establishing
confidence throughout the financial fabric of tho
nation.
To demonstrate the instantaneous practical
valuo of government intervention and aid in
times of stress, the report first recalls the effoct
of tho treasury's quick response to the appeal
of Dayton, Ohio, last spring, for immediate as
sistance to its financial institutions to recover
from tho losses incident to the floods that de
vastated that city. Every national bank in
Dayton was designated as a government deposi
tary, and the treasury department offered to de
posit $2,000,000 of federal funds. The mere
announcement of this -relief restored confidence
at once and instead of the anticipated need of
$2,000,000 the treasury was called on for only
$182,000.
Continuing, the report says:
"A special session of congress convened on
April 7, 1913, and immediately began to con
sider the important questions of tariff and cur
rency reform. The vast economic changes in
volved in these two important questions had the
natural effect of causing in many quarters ap
prehension as to the possible effects of the an
ticipated legislation. A feeling of unrest began
Id pervade business circles. This was accentu
ated by a certain, propaganda of pessimism
which, whether designedly or not, produced a
condition of extreme nevousness and tension.
In the early part of June this assumed a serious
aspect. Complaints began to reach the depart
ment from, many parts of the country that
credits were being restricted, and that it was
increasingly difficult to secure funds for the
normal needs of legitimate business. To what
extent these reports., were justified there was no
exact means of ascertaining, but the general
conditions indicate a more or less acute state of
tiff airs.. In order to relieve anxiety and to let
the business interests of the country understand
that therewas no occasion for unreasonable re
striction of credits, and to destroy apprehension
based upon unjustifiable fears, and to assure the
country that tho means wore at hand to cope
successfully with any situation that might arise,
the secretary announced that there was actually
, on hand in the treasury and ready for immediate
delivery to any and every bank complying with
tho requirements of the law, five hundred million
dollars ($500,000,000) in new national-bank
note currency, which the secretary said ho would
not hesitate to issue under the provisions of the
Aldrich-Vreoland act of May 30, 1908, to banks
making application therefor in accordance with
tho terms of that act. Tho relief occasioned by
this announcement was i .t itanoous. Confi
dence of tho banks in their ability to meet the
demands of their customors was largely restored
and the unfavorable symptoms promptly disap
peared. So completely effective was this action
that none of the five hundred million dollars
($500,000,000) of currency was applied for by
tho banks.
CROP-MOVING DEPOSITS
"Toward the latter part of July symptoms of
uneasiness began to reappear. There was much
talk about the difficulty of moving the fall crops
and the annual apprehension on this score began
to stalk about the country with more than usual
vigor. It is a characteristic of our imperfect
and unsatisfactory banking system that the very
prosperity of the country becomes, at times, a
menace, because of the apprehended inability of
tho banks to meet the seasonal demand toy the
largo amounts of money required to move a
bounteous harvest. Conditions were again be
coming acute when the secretary determined to
deposit from twenty-five millions to fifty millions
of dollars of government funds in the national
banks in those parts of the country where the
necessity for funds to move the crops existed.
The secretary announced that, as security for
such deposits, high-class commercial paper
would be accepted at 05 per cent of its face
value, bearing the indorsement of the depository
bank. This was an unprecedented step, because v
commercial paper had never before been ac
cepted as security for government deposits. It
was, however, a necessary and highly beneficial
step, because it enabled the banks to obtain the
required funds upon the pledge of available
paper already in their vaults. If the banks had
been obliged to securo these deposits with gov
ernment bonds or other fixed investments, the
relief would not have been effective, because
many of the banks would havo been compelled
to use the deposits for the purchase of the bonds
required by tho government as security.
"In order to distribute intelligently the crop
moving deposits, three conventions of bankers
were held at the treasury department in Wash
ington during August, 1913, the first composed of
bankers from the south and southwest states; the
second composed of bankers from the middle
western and northwestern states; the third com
posed of bankers from the Pacific coast and
Rocky mountain states. It was not necessary
to extend aid to the eastern states, although the
department was ready to do so if it had been
required.
"It was essential that the action of the de
partment should be non-partisan and, non
political; the crops of republicans, democrats,
progressives, and all other classes of the people
had to be moved, and the earnest desire of the
department was to have the benefits of this
action diffused as widely and impartially as pos
sible. The clearing-house associations in each
of the cities invited to participate in the con
ferences were asked, therefore, to name the
delegates. A most interesting and intelligent
bpdy of men assembled in Washington and dis
cussed with the secretary and Assistant Secre
tary Williams (in charge of the fiscal bureaus)
the needs of their several communities and sec
tions. As a result, allotment of these funds was
made upon the basis of the testimony of their
several representatives, as follows:
South and southwest $22,550,000
Middle and northwest 19,000,000
Pacific coast and Rocky mountain. . 4,950,000
Total $40,500,000
"The department, having no machinery for
the investigation of local credits, was obliged to
rely upon the banks in the larger cities as in
strumentalities for the distribution of govern
ment funds to the banks in the smaller com
munities. In the discussions at Washington,
the representatives of the banks were urged to
pass the government funds on to their country
correspondents upon reasonable terms. The
secretary is gratified to be able to say that in
most instances this was done upon a basis that
seemed fair to all concerned.
"The effect of this action was highly bene
ficial. Confidence was restored. The readiness
of the government to meet every reasonable
need of the banks for the legitimate purpose of
crop moving had the happy effect, so the depart
ment is informed, of causing much hoarded
money to be deposited in the banks. This in
creased their ability to take care of their cus
tomers, and caused a decided relaxation in tho
demands of country correspondents for accom
modation, which, prior to tho announcement of
the secretary, had been much greater than usual
because tho small banks were attempting, very
naturally, to impound all the funds they could
get to make them safe against the anticipated
stringency. The moment it became known that
the government stood ready to assist, the tension
was relieved, business resumed a normal aspect
and the fall movement of crops, trade, and com
merce proceeded upon an easier and safer basis
than for many years past.
"It is interesting to note that of the fifty
million dollars which the department offered to
place in the banks for crop-moving purposes,
only $34,661,000 had been called for un to
November 25, 1913, These funds will be grad
ually repaid to the treasury beginn'ng in Jinn
ary, 1914. u"
CURRENCY LEGISLATION
"The psychological and practical value of
these incidents can not be overestimated Thev
demonstrate clearly that any improvement in
our financial system which will permanently
establish confidence will in itself be an immense
gain, and if that improved financial system as
sures the opportunity to secure at all times the
necessary funds and credits to meet the ex
panding and legitimate needs of the commerce
and industry of the Country, it will be an
achievement of enduring benefit.
"These incidents also show conclusively tho
enormous value of an altruistic governmental
agency in the' financial affairs of the country.
So lone; as the government has the power to
intervene in a beneficient and unselfish way, the
danger of panics and of unjust practices will he
largely, if not wholly, destroyed. This is one
of the chief objects sought in the proposed re
formation and reorganization of our banking
and currency system. The people of the country
are to be congratulated uton the early prospect
of sound legislation on this vitally important
subject. Should the congress enact the funda
mentals of the pending measure, it is believed
that permanent protection will be provided
against recurring commercial crises and that
adequate facilities will be created for that legiti
mate i.nd sound expansion of credits so vital to
the prosperity of our great and gro ing country.
"It has been, and will continue to be, the
policy and purpose of the secretary to exercise
all the powers of the department for the protec
tion of the public and the legitimate business
interests of the country.
INTEREST ON GOVERNMENT DEPOSITS
"Prior to 1908 interest had never been re
quired on government deposits. After the act
of 1908 interest at the rate of 1 per cent per
annum was collected on so-called "inactive ac
counts" in national banks. By "inactive ac
counts" is meant a special deposit (usually
$1,000) which remains fixed or stationary in
amount. The aggregate of such accounts on the
first day of June, 1913, was $1,286,500, and the
entire amount of interest collected by the gov
ernment thereon during the preceding period of
about 'five years was approximately $715,000.
"On April 30, 1913, tho secretary announced
that beginning June 1, 1913, all government
depositaries, active as well as inactive, would
be required to pay interest at the rate of 2 per
cent per annum on government funds. Only
nine of the total number of national banks hold
ing government deposits refused to pay interest
under, tho new regulation.
"Hundreds of applications were received from
other banks seeking government deposits on the
new terms, many of which were granted. The
government has not had the slightest difficulty
in placing its deposits at 2 per cent interest.
"On the 1st of November, 1913, the total
amount of government funds on deposit in na
tional banks was reported at $98,334,917.36,
which, if this average balance should be re
tained, would add to the net revenues of the
government approximately two million dollars
($2,000,000) per annum.
"A careful calculation has been made of the
amount of public money on deposit in national
banks throughout the country for the sixteen
years preceding the 4th of March, 1913, namely,
from 1897 to 1913, and it has been found that
if the present policy of charging 2 per cent in
terest on such deposits had been established in
1897, the government would have received dur
ing that sixteen-year period a total of about
$30,610,381."
OPERATION OF NEW INCOME TAX LAW
Concerning the operation of tho new income
tax law, Secretary McAdoo points out that the
law went into effect immediately after its pass
age on October 3rd, with the proviso that collec
tions at the source should begin on the 1st day
of November, 1913. Only twenty-eight days,
therefore, were allowed the department within
which to prepare regulations covering the col
lection of the tax at the source. Many nt.r JSn
and difficult problems are involved in the initia
tion of a new law so far-reaching in " enecis
and so complicated in its operations. The de
partment, however, took vigorous hold of uio
matter, and on October 25 issued the first oi
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