8 'Cbe Conservative *
quantity of money actually circulating
and upon which they are based.
But it may well bo doubted whether
any increased activity in trade can so
increase the demand for money as of
itself to seriously affect even the inter
est rate saying nothing of the effect it
is supposed to have upon the prices of
commodities.
When More Money Is Needed.
But let there be a disturbance in the
security or credit market and there will
at once set in an increased demand for
money which will immediately act upon
the interest rate and this action will
extend all along the line ? of credit to a
degree limited only by the magnitude of
the disturbance.
This increased demand added to that
of the legitimate exchanges may produce
a condition of stringency which at times
will be attended by panicky symptoms-a
condition which , like the sword of
, Damocles , constantly hangs over the
credit world.
The quantity of the money supply
which was ample before is now in
adequate.
Money Value Not Increased.
It is not that the value of money as a
commodity has been increased. The
money is not needed for itself. It is
needed only for the useful service it
performs in facilitating the exchanges of
credits and commodities the number of
which transactions has been increased
as a consequence of the causes noted
acting upon the money market.
In ( hit ion No Benefit.
It is a condition in which more money
is truly demanded than can be supplied
from the current circulation but this
fact does not justify the ridiculous idea
some people hold and maintain vocifer
ously that it evidences the need of a
large volume of the circulating medium
which increased volume they would
supply by an act of legislation , increas
ing the volume of paper currency.
I'aper Money Is Not Elastic.
To call any such increased issue of
paper money "an elastic currency" is a
perversion of the meaning of words , for
in no sense can it be elastic. After the
increased issue has been absorbed the
same non-elastic conditions will again
be in evidence and should the process be
continued it would lead inevitably to
general bankruptcy and financial ruin.
Ell'ect of the Foreign Exchanges.
But neither should the sole relief for
the situation be loft to the slow , although
sure , movement of the foreign ex
changes.
An increased money supply would be
eventually obtained from this source
but it would not be beneficial under the
circumstances. It would only prove , al
its best , a temporary addition and at the
same time it would serve to extend
the perturbation to other countries.
Utility of mi Emergency Currency.
All that is required to offset the dis
turbances described is a supply of some
thing in which people will have
confidence and will pass from hand to
land ( for they do not desire to keep it )
as a medium of exchange.
The credit market will eventually
settle to its usual tranquil condition and
the extra money supply being no longer
required can be withdrawn without
injury to any interest. Its full purpose
and utility will have been demonstrated
} y the manner in which it has influenced
the settling process with the least excite
ment and attendant losses.
HIMV Obtained ?
There are two means available with
us for supplying this currency.
1st. Treasury notes issued by the
government and upon its credit and fiat.
2d. National bank notes issued upon
; he credit of the issuing bank and
secured by its assets.
In either case the notes must be taxed
or interest charged to a degree which
will prohibit their continued circulation
after the necessity for their use has
ceased.
L/e al Tender Notes.
The writer of this paper suggested
during the panic of 1893 an issue of
emergency legal tender notes to be
loaned by the government to the banks
in clearing-house centers upon the
security of clearing-house certificates ,
guaranteed by all the banks in the re
spective associations. This plan was
covered in a bill introduced in the
senate by Senator Maudersou ( S. F. 484 ,
53d Con. , 1st Session ) .
The serious objection to the plan
exists in the fact that it would be a
continuation of the "lawful money"
habit the extension of the policy of
governmental interference in business
affairs.
The government should not engage in
any species of banking or perform any
banking function. It sustains this re
lation when it circulates "promises to
pay" on demand and maintains a reserve
fund for the redemption of these
promises.
No one can more clearly recognize
this objection than the writer or depre
cate more strongly this governmental
interference.
At the time the suggestion was made
it was the only practicable scheme. It
may still be defended as the best , if
there is to be no change in this respecl
if there is to be no abatement of this
governmental policy. If we must have
this interference it should be utilized
and directed in a manner to produce the
best results.
liunk Notes.
The bonk note suggestion , while free
'roni the objections which apply to legal
; euder notes , has the advantage of ex-
ieuding the benefits of the privilege to
all parts of the country. The notes
could not be made so absolutely safe as
; he legal tender plan suggested in the
senate bill referred to , but considering
; he fact of their temporary character
and the possibility of ample restrictions
and safeguards , there can be no doubt
but what they can be authorized with
entire safety. This feature of a taxed
currency the tax being increased in
proportion to the quantity of notes
ssned is embraced in the elaborate
"Currency Bill" recommended by the
[ ndiauapolis monetary conference. This
special feature ought to be considered
separate and apart from the proposition
in the bill for the creation of a perma
nent bank-note circulation , secured
only by the assets and credit of the
issuing banks.
The Comptroller's Plan.
Mr. Dawes , in his report , recommends
ihat the national banks be authorized
to issue notes to the additional amount
of 10 per cent upon the bonds deposited
by them to secure circulation , thus
raising the amount that can be issued to
the par value of the bonds. This addi
tional 10 per cent is to be taxed at the
rate of from 8 per cent to 4 per cent per
annum , and this charge he thinks will
be sufficient to retire the notes when the
emergency issue is no longer required.
The trouble with the comptroller's
plan is that it would bo an inadequate
relief , if it was available , and it is not
available , to accomplish the purpose
contemplated.
Inadequate.
The increased amount of notes per
mitted is only to the extent of 10 per
cent of the bonds deposited. The
comptroller argues that this supply
would be ample and cites in support of
his argument the fact that this 10 per
cent will aggregate as much as the total
average rediscounts shown by the bank
reports.
If , instead of figuring this 10 per cent
upon the total of all bonds deposited ,
he would take it only upon the bonds
deposited by the banks reporting the re
discounts , he would find the result an
insignificant sum. This is certainly the
only proper way of ascertaining the
benefit to accrue to the banks who need
the assistance.
The large majority of the banks
both large and small , but especially the
large banks have on deposit no greater
amount of bonds for circulation than
the minimum required by law. This
minimum is $50,000. Of what value
would this proposition be to a bank ,
say of $1,000,000 capital ; $0,000,000
deposits ; bonds deposited $50,000 ; in
creased circulation $5,000 ? It IB for
