issued by numerous banks, and the goodness of each note shall depend on the soundness of its issuer, is entirely inadmissible. As the business of the country demands numerous banks, the soundness of the currency must depend on collateral security placed in the hands of a trustee. If the security is Government bonds and the trustee the Treasurer of the United States, confidence in currency so issued is immediately established.

GOVERNMENT BONDS AS A BASIS FOR CURRENCY.

But there is a radical difficulty with Government bonds as the basis of currency. They do not represent the business transactions of the country. They do not represent the commodities to move which currency is wanted, and it is therefore inflexible and inelastic. An elastic currency must be issued for the purposes of trade and commerce. When so issued it comes into existence when wanted, and when it has served its purpose it is retired. It is capital created for a temporary purpose. Trade and commerce are represented by the obligations of merchants, therefore the commercial assets of banks are the true bases for the issue of currency, and when so issued the currency is necessarily elastic.

The note holder can not inspect the condition of the bank issuing the notes, nor the character of the commercial assets on which the notes are issued. He must take both on faith or credit. The note holder gives his confidence completely, and he withdraws it in the same way. If there is no trustee to act for him he must act for himself, and this he does in short order by presenting the notes for redemption. But if there is a trustee to act for him and the trustee holds ample security to protect him, and if any possible loss is protected by adequate guaranties, then his mind is at rest and the notes pass as money without question and are received freely. So the services of a trustee to watch the interests of the public is an absolutely essential feature in any system which is to give a sound currency to the people.

The trustee named in this bill who shall hold the collateral security to the notes to be issued is the clearing house of issue. Of this grade there is provided one for each State, and any clearing house effecting annual clearings of $200,000,000 may become such. The confidence of the people of a State would naturally be given to the clearing house of issue of their own State. State pride would be invoked to keep its management and credit good. Each State would thus have the naming of the trustee who should hold the securities collateral to the notes issued in their own borders. No one could call in question the faithfulness of such a trustee. The provision contained in the tenth section that the clearing houses of a State are primarily responsible for any loss from the insufficiency of the collateral pledged would produce such scrutiny and care that it is improbable that there would by any annual crop of insolvent notes, and if any, the amount would be small. The prospect of a contingent liability to loss would be sure to produce caution and conservative action, as was the case with the old State-bank system.

CURRENCY TO BE EVERYWHERE AT PAR.

A currency to be acceptable to the people must be at par in all parts of the country.

This is the third and last article of the short financial creed of the United States. The people demand that the Government shall require that all money which it authorizes to be issued shall be maintained at a parity, to the end that each dollar, whatever may be its composition,

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shall have equal purchasing and debt-paying power with every other dollar, that no currency shall be issued which is not convertible into coin. In section 12 it is provided that the circulating notes issued in accordance with the provisions of this bill shall be received at par at all the clearing houses organized under this act. Other acts and bills provide that notes shall be good at the counter of the bank issuing them, and that if not paid on demand the bank's assets shall be liqui dated and the notes paid out of the proceeds. This would seem to proceed on the assumption that the bank confers a favor on the community by issuing its notes, whereas the fact is that the people confer the favor on the bank by allowing it to issue and circulate its notes as money. If the people give to the banks this opportunity to engage in a productive business, the bank should not only guarantee the public against ultimate loss, but against any delay.

INSOLVENT NOTES.

Time is money. If a man's solvency depends on the payment of a note and he has the bank bills in hand for that purpose, it is no consolation to be told that the bills are not good now, but are sure to be paid in a year or two by means of a sinking fund or a liquidation. It is a contradiction of terms to speak of a currency that is not good at all times and in all places. The banks should pay the currency of defaulted banks and relieve the public of the annual crop of insolvent notes, and repay themselves from the proceeds of the liquidation. If there were any insolvent notes, they would be the result of errors of judgment on the part of the banks. The banks are in a position to carry such notes with ease, whereas they are a grievous burden to the community. The features of a clearing-house currency then are:

First. Selected commercial assets as collateral.

Second. The issue of circulating notes to be at 75 per cent of estimated value.

Third. A pledge with a trustee.

Fourth. Convertibility on demand through all clearing houses in the United States.

If it is said that these provisions are too onerous, the reply is that nothing less secure should be authorized by Congress. A single panic is more onerous than any measure of relief which will ward it off. If "an enlarged accommodation is the true remedy for that occasional failure of confidence to which our system of paper credit is unavoidably exposed," that accommodation must be in the "notes of a bank of issue whose credit can not fail in the wildest panic."

Various objections to this method of issuing currency have been presented and answered, and now let us consider the advantages which the operation of the bill gives both to banks and the community.

IMMUNITY FROM PANICS PROMISED.

The chief benefit to both banks and the people is in the immunity from monetary panics which it would secure. A monetary panic is not always a failure of confidence in banks or the Government or in the goodness of the currency. It is often simply an awakening to the fact that depositors have withdrawn currency, and banks generally are too near the point of exhaustion and that no relief is in sight. A general withdrawal of 10 per cent would produce this. The incorporation of clearing houses under United States laws, with power to issue a solid currency, would relieve this apprehension. The railway or manufacturing

corporation with their weekly and monthly pay rolls to meet, and the merchant with his bills and notes to pay, would not have to go into the market and buy currency for their wants or pay extravagant rates for money. All necessity for hoarding currency would be removed, for who would hoard that of which there would always be a plentiful supply on good collaterals? The way our banking system is running now may be compared to an engine without a safety valve. If the engineer will only watch closely enough, and if the steam never rises above the danger point, there is no fear of an explosion. It is against common sense to run an engine without a safety valve, and so the law should provide a safety-valve attachment to be put upon banking and commerce, in order that explosions in the form of panics might not be constantly following every increased pressure on the money market. Nor could a farmer successfully cultivate his fields if he were exposed to frequent earthquakes and eruptions. Stability of the earth's surface is not more essential to farming than freedom from the upheavals of financial panics is to trade.

It might be asked why a new method of issuing clearing-house currency should be adopted, when banks of the large money centers now may and do issue their clearing-house certificates when occasion demands? The answer is that the issuing of clearing-house certificates means the paying out of currency to an equal extent; and this is a most dangerous course for interior banks. The currency goes out but never comes back, and serious trouble would thereby be occasioned. But power to issue clearing-house currency has the opposite effect. The gold and legaltender reserve is retained, and the clearing-house currency has a local circulation. If used in the purchase of produce, the notes would not perform their circuit before the proceeds of the produce could be in bank to meet them.

PROFIT ON CIRCULATION.

In section 9, lines 33 and 34, it is provided that the charges for issues of circulating notes shall be regulated by each clearing house of issue. This places the whole matter of profit on circulation under the control of clearing houses. The profit might be divided between the bank receiving the notes and the clearing house of issue, but it is evident that there would be both accommodation and profit from the issues.

A community of interest among banks such as was successfully in operation under the State bank system of Indiana, Ohio, Iowa, and other States, and is provided in our bill, involves a closer relationship than at present exists among banks. If banks receive at par the clearing-house currency issued in other parts of the country from their own, it becomes immediately a practical necessity that representatives of distant banks should meet each other, exchange views, and adopt regulations to govern banking transactions. Also that representatives of banks within clearing-house districts should meet at stated times for the same purpose. There would be a practical object in these meetings. Experience would be exchanged, and a mass of information gathered which would promote conservative management.

STATE AND NATIONAL ASSOCIATIONS.

Provision is therefore made in sections 23 and 24 of this bill for the formation of State and national banking associations. The meetings of State associations and the national convention would give opportunities for accustoming our banks to united action. These unions

would strengthen our national life, and in any occasion of great emergency our banks would be trained to use and exercise their power for the public benefit. If the financial scepter is ever to pass across the Atlantic, our hands must be made ready to hold it.

COMMITTEE ON BANKING AND CURRENCY, Washington, D. C., Monday, March 16, 1896. The committee met at 10.30 a. m. Members present: Mr. Walker (chairman) and Messrs. Brosius, Johnson, Van Voorhis, Fowler, Lefever, Calderhill, Hill, Cox, Cobb of Missouri, Cobb of Alabama, Black, Newlands, and Hendrick.

STATEMENT OF HON. CHARLES N. FOWLER.

Hon. Charles N. Fowler, of New Jersey, a member of the committee, addressed the committee in advocacy of the bill H. R. 6442.

[Mr. Fowler continued his remarks at the following meeting of the committee on March 18, 1896, and concluded his statement at a third meeting on March 23, 1896.]

[H. R. 6442, Fifty-fourth Congress, first session.]

A BILL to take the United States Government out of the banking business, refund the national debt, reform the currency, and to improve and extend our banking system.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That there shall be, and there is hereby, created and established a Department of Finance, which shall have entire and exclusive control and supervision of all national banks, their right to take out secured circulation and issue their notes.

SEC. 2. That there shall be three ministers of finance who shall take the place of the Comptroller of the Currency and constitute a board of finance; and said board of finance shall conduct the said Department of Finance. That said ministers of finance shall be appointed by the President, by and with the advice and consent of the Senate, and the term of office shall be for a period of twelve years at a salary of $10,000 per annum. That the term of the first three ministers shall be for twelve, eight, and four years respectively. The minister being appointed for twelve years and his successors shall be known as First Minister of Finance, and he shall preside at all meetings of the board of finance; and the remaining two ministers shall be known as Associate Ministers of Finance.

SEC. 3. That any national bank now doing business, or any other financial institution doing a similar business, or any number of persons may, in accordance with existing law, so far as the same is consistent with this act, organize upon the following terms and conditions:

If any corporation described as aforesaid shall deposit with the United States Government any of the United States bonds now outstanding, or any that may be hereafter issued under existing law, which, at their market value, shall exceed the capital of said corporation by five per centum, the United States Government shall issue to said corporation, in lieu of said bonds so deposited, two per centum United States Government bonds equal in amount to such market value, both principal and interest of said new bonds being payable in gold; and said new bonds shall thereupon be deposited with the United States Government, and circulation known as United States Government bond notes shall be issued to said corporation in an amount equal to the paid-up capital of said corporation denominations of ten dollars or multiples thereof.

SEC. 4. That said United States Government bond notes shall be a legal tender between all national banks and be redeemed in gold when presented for payment at the bank of issue; and that from the passage of this act all duties on imports shall be paid in gold coin.

SEC. 5. That at the same time that said corporation shall deposit United States Government bonds as aforesaid it shall also deposit with the United States Government United States legal-tender notes or gold certificates, or both, of such an amount

that it, together with the gold said corporation has on hand, will equal fifteen per centum of its deposits; and the United States Government shall deliver to said corporation gold coin in lieu of said legal-tender notes and said gold certificates. Said corporation shall also deposit at the same time, with the United States, United States Treasury notes or United States silver certificates, or both, which, with the silver coin then held by said corporation, shall amount to ten per centum of its deposits, and the United States Government shall deliver to said corporation in lieu thereof silver coin of an equal amount; and said legal-tender notes, gold certificates, Treasury notes, and silver certificates shall be thereupon canceled. Said corporation shall thereafter keep as a reserve twenty-five per centum of its deposits in the following kinds of money: gold and silver. At least sixty per centum of said reserve shall be in gold coin, and the remaining forty per centum of said reserve may be in silver coin: Provided, however, That in lieu of one half of such coin reserve, cash on deposit in reserve cities, subject to check, may be held.

SEC. 6. That any corporation organized under this act may, with the permission under the supervision and control of the board of finance, issue its own circulation, which shall be furnished by the United States Government, and be known as United States national-bank notes. Said United States national-bank notes shall be issued in denominations of five dollars and multiples thereof, and may be issued only in the following manner and upon the following conditions:

First. Every bank issuing United States national-bank notes shall at all times maintain against the amount of such note outstanding a reserve corresponding to that required against its deposits.

Second. Any bank that has complied with the law may, with the consent and under control of the board of finance, issue an amount of United States nationalbank notes equal to twenty per centum, or one-fifth of its paid-up and unimpaired capital, and shall pay upon such an amount thereof as may be at any time outstanding a tax at the rate of one-half of one per centum per annum.

Third. Said bank may issue a second amount of notes equal to twenty per centum, or one-fifth of its paid-up and unimpaired capital, and shall pay upon such an amount thereof as may be at any time outstanding a tax at the rate of one per centum per annum.

Fourth. Said bank may issue a third amount of notes equal to twenty per centum, or one-fifth of its paid-up and unimpaired capital, and shall pay upon such an amount thereof as may be at any time outstanding a tax at the rate of two per centum per annum.

Fifth. Said bank may issue a fourth amount of notes equal to twenty per centum, or one-fifth of its paid-up and unimpaired capital, and shall pay upon such an amount thereof as may be at any time outstanding a tax at the rate of four per centum per annum.

Sixth. Said bank may issue a fifth amount of notes equal to twenty per centum, or one-fifth of its paid-up and unimpaired capital, and shall pay upon such an amount thereof as may be at any time outstanding a tax at the rate of six per centum per

annum.

SEC. 7. That all taxes so paid to the Government upon said United States nationalbank notes shall be set aside and held by the Government as a guarantee fund exclusively for the redemption, first, of the United States Government bond notes; second, for the United States national-bank notes, in the event of the liquidation of any bank organized under this law: Provided, however, That whenever said "guarantee fund" shall exceed five per centum of both the Unites States Government bond notes and the United States national-bank notes, such excess shall belong to the United States Government and may be used by it to defray its general expenses.

SEC. 8. That the board of finance shall divide the United States into clearinghouse or reserve-city districts, and each corporation shall belong distinctively to some one district, and the number of such district shall be plainly and prominently printed upon the said United States national-bank notes issued by the banks located therein. The several banks of each district, upon receiving United States nationalbank notes belonging to any other district, shall forward the same to a reserve city, which shall return them to the district to which they belong.

SEC. 9. That the United States national-bank notes shall be a legal tender at par between all national banks, and the same shall be redeemed upon presentation at the bank of issue in gold, silver, or United States Government bond notes: Provided, however, That no more than forty per centum thereof shall be receivable in silver coin. SEC. 10. That banks may be organized under this act with a capital of twenty thousand dollars or any greater amount in multiples of ten thousand dollars; but no bank shall be organized in any reserve city with a less capital than one hundred thousand dollars.

SEC. 11. That all banks organized and doing business under this act outside of the reserve cities shall keep as a reserve fifteen per centum of its deposits, and sixty per centum of said reserve shall be in gold coin, and forty per centum may be in