and thereby save the tax when there is no further use of the money in circulation. Fourth. This system will enable every district of the United States to furnish whatever credit money it needs by sending all credit notes from other districts home and putting out its own, and thereby save all the profit on circulation in each district to the district itself. Fifth. But the most important and far-reaching effect of this provi sion is the advantage and protection it gives to every bank belonging to a clearing-house district. It is important to observe and remember that every bank belonging to a clearing house district is individually as strong as the combined capital of all the banks included in the district; and it is not at all likely that there would be a clearing-house district with a capital less than $25,000,000, and probably none less than $50,000,000, while the large cities would be many times stronger than that, even. This plan would give us all the power of the most perfect centralized system of banking in the world, with all the advantages of individual banking institutions. In fact, I am of the opinion that in power and facility it would surpass any system now in operation. While it would be perfectly independent in its parts and responsive to the demands of every locality, it would be free from the caprice and discrimination of a management hundreds and, perhaps, thousands of miles away. Sixth. If the Scotch banks maintain gold payments by keeping only 5 or 6 per cent gold reserve, can any one doubt for a moment that these clearing house districts and every bank in them would have any difficulty in maintaining gold payments with a gold reserve of 15 per cent? There can be no question about it, for everyone all over the United States would then feel about every bank under this system as the people now do about any of the banks in the New York or Boston clearing houses, viz, that they can not fail. Therefore there will be no such strain brought against the reserves as might otherwise happen. The combined wealth of all the banks in any district is an absolute guaranty of every honestly managed institution within that district. It will be admitted, I think, that any bank belonging to a clearinghouse district will exercise greater caution in loaning its funds, or in issuing its notes, than it would were it not a member of some district, for it must realize that it is in a measure under the surveillance of the associated banks and can not afford to fall under any suspicion on account of poor management; hence the moral effect must necessarily be to improve the character of all our banking, a matter that is always of the very greatest importance to the commercial world. Having discussed somewhat in detail all those sections of the bill that pertain to the organization and operation of the banks under its provisions, it becomes pertinent to inquire what the inducements are for a bank to organize under this act. INDUCEMENTS TO BANKS TO REORGANIZE. First. It will do so because of the protection and moral support of a clearing-house district, which can only be appreciated by institutions which have participated in its benefits in most trying times. Second. The power to issue its circulation without delay or trouble to the extent needed, and at a cost of only 1 or 2 per cent, in normal times when otherwise the money would cost from 6 to 8 per cent, and be accompanied by very great inconvenience and often much annoyance. Third. That while the people will save about one-half their present interest on the national debt, or more than $15,000,000 per annum, the banks will gain in freedom from various burdens now imposed amounting to more than 1 per cent. This reduction will especially benefit the masses, the farmers, and the producers in every department of labor. Indeed, the sooner the American people learn to transfer all taxes from money engaged in banking to other forms of wealth which they can not use, the cheaper will they make the tools with which commerce is carried on and the shops kept in motion. The earning capacity of labor will be just that much greater, for in the last analysis money is the real tool that fells the trees out of which we build our houses and make our furniture, mines the coal, digs the ore, spins the wool, weaves the cotton, makes our garments, and prepares our food, and should be made as cheap as possible, so that labor can continue to get a greater and greater share of its profits until a perfect adjustment of labor and capital is reached. 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 40 per cent thereof shall be receivable in silver coin. The first proposition of this section is the same as that now on the statute books with regard to our present bank notes. The object of making these United States national-bank notes redeemable in the United States Government bond notes, as well as gold and silver, is to protect the metal reserve of the bank; and yet, since the United States Government bond notes are themselves redeemable in gold at the bank of issue, it amounts to a metal redemption. The limitation placed upon the amount of silver anyone presenting notes for redemption must take, is to equalize its distribution and insure a predominance of gold everywhere, as the gold must carry a margin of credit in the silver. SEC. 10. That banks may be organized under this act with a capital of $20,000 or any greater amount in multiples of $10,000; but no bank shall be organized in any reserve city with a less capital than $100,000. There are many localities needing the accommodation and advantages of a bank and where a bank of less capital than $50,000 might do well; but there is not sufficient business for a bank with $50,000 capital, the present minimum limit. INDIVIDUAL AND NOT A CENTRALIZED SYSTEM. Individual banks are recommended instead of branches, since our whole system is an individual and not a centralized one. SEC. 11. That all banks organized and doing business under this act outside of the reserve cities shall keep as a reserve 15 per cent of its deposits, and 60 per cent of said reserve shall be in gold coin, and 40 per cent may be in silver coin: Provided, however, That in lieu of one-half of such coin reserve, deposits in reserve cities subject to check may be held. The amount of the reserve here required is the same as that now provided for in the case of banks outside of clearing house cities, and there is no substantial difference in the amount of cash balances that may be held in reserve cities. CURRENT REDEMPTION. SEC. 12. That each bank organized under this act and doing business outside of a clearing-house city shall select some national bank in the clearing house city of its own district through which it shall redeem its United States national-bank notes in gold, silver, or United States Government-bond notes. This section is to facilitate current redemption and render it certain that any bank will be able to obtain possession of its notes whenever it wishes to retire them or assist a holder who wishes to present them for redemption. FINAL RETIREMENT OF PAPER MONEY. SEC. 13. That the United States Government shall not pay out or reissue any United States legal-tender notes from and after the 1st day of January, 1897, but the same, when received, shall be canceled and destroyed; and further, that the United States Government shall not pay out or reissue any United States Treasury notes or silver certificates from and after the 1st day of July, 1897, but the same shall be canceled and destroyed; and the United States may put out an amount of silver coin equal to the Treasury notes and silver certificates so destroyed. This section provides for the final step in the retirement of all the paper money outstanding, and the dates are postponed in order that a practical adjustment shall have taken place before canceling the remaining legal-tender notes, Treasury notes, and silver certificates not required in providing for the bank reserves. SEC. 14. That in the event of the liquidation of any national bank organized under this act, the United States Government shall undertake as trustee, but shall not be responsible for the redemption of the outstanding notes; and the assets of said bank, including the assessment upon the shareholders, shall be distributed in the following order: First. Sufficient gold coin, or its equivalent, shall be set aside and held by the Government for the redemption of the United States Government bond notes. Second. Sufficient gold, silver, and United States Government bond notes shall be set aside and held by the Government for the redemption of the United States national-bank notes, with interest thereon at the rate of 6 per cent per annum from the date of suspension to the date fixed for the redemption thereof. Third. That out of the proceeds of the United States Government bonds deposited with it, and the guarantee fund credited as aforesaid, the United States Government shall redeem, upon presentation, any of said United States Government bond notes, or said United States national-bank notes, reimbursing itself out of said assets. Fourth. The assets remaining shall be distributed among the depositors and all others having claims in the same manner as now provided by law. SEC. 15. That all acts or parts of acts inconsistent with the foregoing shall be, and the same are hereby, repealed. That the United States Government should not become responsible in any way for the obligations of the several banks there can be no possible doubt. However, as the interests of our country demand uniformity in our banking system, it is highly important that the Government should maintain supervision over them and administer the assets in the event of failure, thus giving assurance to note holders and depositors alike. NOTES A PRIOR LIEN ON ASSETS OF BANK. That the note holders should have a prior lien upon the assets of the bank in accordance with our present law is essential, as the notes leave the immediate neighborhood of the bank issuing them. The fact of their being a prior lien upon the assets of the bank justifies their passing current, because the people know they are safe by experience. Again, the note holder seldom knows the officers of a bank as the depositor does who keeps his account with some particular bank because of his acquaintance with the management. Then the depositors of banks are almost invariably the borrowers of the bank and the very persons who first get the notes. It is therefore of the highest importance that the notes be as good as possible in order that one may borrow money at the lowest rate of interest possible, and the notes remain out until he is ready to pay off his loan, for the better the notes the longer will they remain out and circulate; indeed, if they remain unquestioned the tendency would be to continue to circulate until called in by the bank issuing them. It may be suggested by some that the notes should not be a prior lien upon the assets of the bank, because that gives to the note holder an advantage over the depositor; but the reasons already given justify the principle. However, there is still another reason that forecloses all discussion upon the question as a matter of actual practice, and that is this: It will be admitted that a bank will not issue any of its bank notes unless its customers need the money. Now, it is certain that if a bank can not issue its notes it will bundle up a good margin of securities and send them to its correspondent in some distant city and get the necessary amount of currency, giving the correspondent bank a first lien upon all the securities turned over; so it will make no difference in the last analysis whether it issues its notes or borrows the money. The currency used will be a first lien upon a sufficient amount of the bank's assets to insure its redemption. The position of the depositor is the same in both cases. The criticism arises from a mere sentiment, and will always be without any foundation in practice. But, as a matter of advantage to the borrowers of a bank, who are almost invariably the depositors, in commercial banks at least, and as a matter of justice, considering the difference in the relation of the note holder and depositor to the bank, the note should be a prior lien upon the assets. MAINTAINING GOLD PAYMENTS. Now, I will reply to the gentleman who inquired how the banks are to maintain gold payments when the Government finds such difficulty in doing so. The difficulty of the Government arises in two ways: First. It has strained its credit and aroused doubts about its ability to redeem its demand obligations in gold, thereby creating a great demand for gold. Second. It can only get the gold from the sale of bonds which are to be paid off by taxing the people. It has no inflowing stream of wealth measured in gold, hence our Government difficulties and dangers. The banks in Scotland, Ireland, England, Germany, and Canada have no difficulty in maintaining gold payments, although their reserve in gold is much less than that provided for in our reserves. Now, why is this? Just because every note, draft, or bill of exchange signed by two or more makers or indorsers are payable in gold or its equivalent on demand, or in thirty, sixty, or ninety days, giving everybody absolute confidence, and no one ever asks for gold unless it is needed for some special purpose. How would it be with our banks? Let us suppose that banks having capital equal to the capital of our national banks were organized under this law, and the act were in force. What would the condition be; what the result? There would be about $600,000,000 of free gold, $600,000,000 of free silver, and $657,000,000 of United States Government bond notes in circulation in this country. The gold and silver would certainly take care of themselves, as they are both legal tender aud perform redemption work. The $657,000,000 United States Government bond notes, being secured by United States Government bonds, themselves payable in gold, would never be presented for redemption unless the holder had some special use for gold, such as shipment abroad. To put the strongest possible case against the banks, let us suppose that they have issued the maximum amount of United States nationalbank notes also, viz, $657,000,000, an amount equal to the capital, in addition to the United States Government bond notes outstanding, would the credit of the banks be strained? Let us see. First. Let us remember that every bank is a member of a clearing house, and, therefore, as long as it remains in good standing, as strong as all the banks of the clearing-house district combined. Second. Let us remember that on September 28, 1895, the capital of all the national banks amounted to $657,135,498.65. For the purpose of a test case, let us suppose that every national bank issued every dollar of secured and credit money this law would allow First. United States Government bond notes. The total paper circulation would be.. Which would be a first lien upon the entire assets the banks would then have, or As the total assets of the banks on September 28, 1895, were...... $657, 135, 498,65 657, 135, 498. 65 1, 314, 270, 997.30 4, 562, 074, 349.76 3, 423, 629, 343. 63 They would be increased by the amount of the proceeds of the bond notes and bank notes issued by all the banks, viz. 1, 138, 445, 006. 13 Let it be here noted that these banks would have, approximately, the following among their assets: Fourth. Stocks, securities, etc... All taken upon a gold basis and measured in gold values, or a total In cash, gold, silver, bank balances, and available assets to guarantee and meet when presented.. Or more than three for one. 162, 508, 689.40 52, 570, 839. 89 215, 079, 529. 29 195, 028, 085. 35 3, 000, 000, 000.00 4, 227, 601, 097. 10 1,314, 270, 997.30 This is the largest possible amount that could ever be issued under any circumstances with our present banking capital, and there is no probability that the circulation would ever reach two-thirds of it. But if the last dollar were issued, everyone must know that these bond notes and bank notes are safe, beyond a peradventure. Compare this situation with that of our Government, which maintains the paltry reserve of $100,000,000 to meet demand obligations amounting to eight times that sum, or $800,000,000, and decide for yourself which is the sounder financial proposition, and whether the banks or the General Government can more easily maintain gold redemption, and in which there is the greater risk to our commercial interests and national honor. The one is a natural and automatic redemption effected by the current exchange of property and titles to property, all measured in gold; while the other is unnatural and mechanical and wholly dependent upon |