and the wide knowledge which he possesses to the task of improving the existing national banking laws, to disarm political criticism by carrying out the recommendations of the Administration for the speedy retirement of the legal tenders, and I am confident that in so doing he will receive the profound thanks and lasting gratitude of every business man and financial institution throughout this land.

I beg pardon of the committee and of the gentlemen named for the freedom of my criticisms, and my only apology is that I am actuated, as all of you are, only by a sense of my duty to my country and my political party.

COMMITTEE ON BANKING AND CURRENCY,

Washington, D. C., Monday, March 30, 1896. The committee met at 10.35 a. m. Members present: Mr. Walker (chairman), and Messrs. Brosius, McCleary, Spalding, Calderhead, Hill, Cobb of Missouri, Cobb of Alabama, Black, Newlands, and Hendrick.

STATEMENT OF HON. MARRIOTT BROSIUS.

Hon. Marriott Brosius, of Pennsylvania, a member of the committee, addressed the committe in advocacy of bill H. R. 7247.

[H. R. 7247, Fifty-fourth Congress, first session.]

A BILL to increase the circulation of national banks and promote the redemption of legal-tender and United States Treasury notes.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That upon deposits by national banking associations of United States bonds, bearing interest as provided by law under the provisions of sections fifty-one hundred and fifty-nine and fifty-one hundred and sixty of the Revised Statutes, such associations shall be entitled to receive from the Comptroller of the Currency circulating notes of different denominations in blank, registered and countersigned as provided by existing law, equal in face value to the full par value of the bonds so deposited; and national banking associations now having bonds on deposit for the security of circulating notes less in face value than the par value of the bonds, or which may hereafter have such bonds on deposit, shall be entitled, upon due application to the Comptroller of the Currency, to receive additional circulating notes in blank to an amount which will increase the aggregate value of the circulating notes held by such associations to the par value of the bonds deposited, such additional notes to be held and treated in the same way as circulating notes of national banking associations heretofore issued, and subject to all the provisions of existing law affecting such notes: Provided, That nothing herein contained shall be construed to modify or repeal the provisions of sections fifty-one hundred and sixty-seven and fiftyone hundred and seventy-one of the Revised Statutes, authorizing the Comptroller of the Currency to require additional deposits of bonds or of lawful money in case the market value of the bonds held to secure the circulating notes shall fall below the par value of the circulating notes outstanding for which such bonds may be deposited as security.

SEC. 2. That every such association having a circulation secured by a deposit of bonds as required by law shall, in lieu of the tax assessed upon the circulation of national banks under existing law, pay to the Treasury of the United States on the first day of January of each year a duty of one-fourth of one per centum upon the average amount of its notes in circulation during the previous year, and in all other respects the said bonds and the circulation secured by them shall be subject to existing law.

SEC. 3. That section fifty-one hundred and thirty-eight of the Revised Statutes is hereby so amended as to read as follows:

"SEC. 5138. No association shall be organized with a less capital than one hundred thousand dollars; except that banks with a capital of not less than fifty thousand dollars may, with the approval of the Secretary of the Treasury, be organized in any place, the population of which does not exceed six thousand inhabitants; and except that banks with a capital of not less than twenty-five thousand dollars may,

with the sanction of the Secretary of the Treasury, be organized in any place, the population of which does not exceed three thousand inhabitants. No association shall be organized in a city, the population of which exceeds fifty thousand persons, with a capital of less than two hundred thousand dollars."

SEC. 4. That the sum of one hundred million dollars in gold coin and one hundred million dollars' worth of silver bullion at its market price on the said first day of July, anno Domini eighteen hundred and ninety-six, shall be set apart by the Secretary of the Treasury and thereafter kept separate and apart, and a separate account kept thereof, as a reserve redemption fund for the exclusive purpose of carrying into effect the provisions of this Act and to be used for no other purpose.

SEC. 5. That on and after the first day of July, anno Domini eighteen hundred and ninety-six, the Secretary of the Treasury shall redeem in gold coin or silver bullion at its market value on the day of redemption at the option of the Secretary, or in silver coin at the option of the holder, any outstanding United States legaltender notes and Treasury notes issued under the act entitled "An act directing the purchase of silver bullion and the issue of Treasury notes thereon, and for other purposes," approved July fourteenth, eighteen hundred and ninety, on their presentation for redemption at the office of the assistant treasurer of the United States in the city of New York in sums of not less than fifty dollars: Provided, That if the Secretary of the Treasury exercise the option to redeem said notes in silver bullion; he shall issue a certificate of deposit for the sum of the notes so presented payable at one of the mints of the United States in an amounts of silver bullion equal in value on the date of said certificate to the number of dollars stated therein at the market price of silver, to be determined by the Secretary of the Treasury under rules and regulations prescribed, based upon the price current in the leading silver markets of the world: Provided, That the Secretary of the Treasury shall coin into standard silver dollars as much of the silver bullion in the reserve redemption fund from time to time as may be necessary to redeem notes which may be presented for silver coin redemption; or, at his discretion, he may use any free silver coin in the Treasury for the purpose of said redemption when the condition of the Treasury will, in his judgment, justify it: And provided further, That when the Treasury notes issued for the purchase of silver under the act of July fourteenth, eighteen hundred and ninety, are redeemed in silver bullion or coin they shall not be reissued, but shall be canceled and retired.

SEC. 6. That to enable the Secretary of the Treasury to maintain the gold portion of the reserve redemption fund required by this act, he is authorized to use any surplus revenue in the Treasury not otherwise appropriated, and to issue, sell, and dispose of, at not less than par, coupon or registered bonds of the United States in such form as he may prescribe and in denominations of fifty dollars or some multiple of that sum, to an amount sufficient for the object stated in this section, bearing not to exceed three per centum interest per annum, payable semiannually, and redeemable at the pleasure of the United States in coin after five years from their date, and payable in twenty years after their date, with like qualities, privileges, and exemptions not inconsistent with the provisions of this act, as are prescribed in act entitled "An act to authorize the refunding of the national debt," approved July fourteenth, eighteen hundred and seventy: Provided, That nothing in this act shall be construed to repeal or modify an act approved May thirty-first, eighteen hundred and seventy-eight, entitled "An act to forbid the further retirement of the United States legal-tender notes." Whenever the Secretary of the Treasury shall offer for sale any of the bonds authorized by this act or by the resumption act of eighteen hundred and seventy-five, he shall advertise the same and authorize subscriptions therefor to be made at the Treasury Department and at the subtreasuries and designated depositories of the United States.

SEC. 7. That to enable the Secretary of the Treasury to maintain the silver portion of the said reserve redemption fund, he is authorized to purchase silver bullion at the market price, not exceeding one dollar for three hundred and seventy-one and twenty-five one-hundredths grains of pure silver, and to pay for the same out of any money in the Treasury not otherwise appropriated, or at his option to issue in payment therefor Treasury notes of the United States of the same form, character, and denominations and with all the rights, qualities, and privileges not inconsistent with the provisions of this act, which are prescribed for Treasury notes of the United States in an act entitled "An act directing the purchase of silver bullion and the issue of Treasury notes thereon, and for other purposes," approved July fourteenth, eighteen hundred and ninety: Provided, That no silver bullion or foreign silver coins imported into this country or bars resulting from melted or refined foreign silver coin shall be purchased under the provisions of this act.

SEC. 8. That a sum sufficient to carry out the provisions of this act is hereby appropriated out of any money in the Treasury not otherwise appropriated.

SEC. 9. That all acts and parts of acts inconsistent with the provisions of this act are hereby repealed.

Mr. Brosius addressed the committee as follows:

MR. CHAIRMAN AND GENTLEMEN OF THE COMMITTEE: It is a safe principle in legislation never to change existing law until it is demonstrably clear that some evil exists which requires a remedy. Purely experimental legislation is always to be deprecated, and in no case should the legislative remedy exceed the evil which calls it forth. That this country is suffering from financial or other ills which need curative legislation may be admitted. If there were any considerable unity among us as to the character and cause of our financial ills, there would be some hope of achieving legislation tending to cure them. In our efforts in this behalf we are severely hampered by a confusion of tongues which is perhaps without a parallel since the lingual curse of Babel. My purpose in the desultory observations I shall be able to submit is to point out the real difficulties which afflict the finances of the country, and the cause of them, and to show, first, how entirely illusory are most of the propositions which have been formulated and submitted to this committee as remedial measures, and, in the second place, that our disease has not become so inveterate as to resist all treatment. Proper remedies will restore the patient; unsuitable ones are likely to prove abortive, and will probably increase the difficulties rather than relieve them.

In considering a situation as complex in its causes and as hurtful in its consequences as the present monetary situation, it may help us to arrive at a conclusion as to what are the real causes of the difficulty by bringing into distinct view some alleged causes which have in fact had very little, if any, agency in its production.

The chief difficulty which plagues the country and distresses the Secretary of the Treasury is that he can not keep up the gold reserve. Institutions and individuals are constantly presenting paper for gold redemption, and foreign exchange is at a rate which makes it profitable to export gold rather than purchase foreign bills of exchange. In my judgment, the origin of this difficulty is not to be found in any defect in our national banking system, but in a totally different quarter. It is no more involved in the note-issuing function of our national banks than it is in the Turkish massacre of Armenian Christians. What is the trouble with our banking system? For over thirty years that system has been in successful operation. The law has remained substantially the same through all that period. No other system ever in vogue in this country has been comparable with it in subserving successfully the ends of a banking system. The benefits it has conferred, the blessings it has bestowed upon our people, are beyond the power of human calculation. It has supplied us with a currency which meets the requirements of the five points of currency Calvinism, upon which we should insist as the standard of our financial faith, namely, safety, uniformity, convertibility, sufficiency, and elasticity. In latter years it is said that it has failed in the last of the requisites named, and to some extent in the one preceding the last. Its national character made it the pride of our people. Its uniformity promoted their convenience. Its safety made it equally valuable and equally current in all parts of the Union. If it lacked in any respect being as perfect a device for supplying our people with a sound paper currency as the wit and wisdom of man ever conceived, that lack can easily be supplied without destroying the system or superseding it by an inferior one.

ELASTICITY.

The popular complaint against our bank currency-and it is of comparatively recent origin-is its lack of elasticity. It has even been said. by some writers that elasticity is incompatible with absolute safety. If this is true, then we are driver to elect which we will have at the cost of the other. When such an alternative is presented to the American people, they will not be long in pronouncing their preference for safety. The idea, however, that safety and elasticity are incompatible qualities proceeds, in my opinion, from a misconception of what constitutes elasticity. This, indeed, is the very crux of the whole matter. The idea of it is variously stated by different writers, but the substance of it, divested of unnecessary verbiage, is that the amount of circulation adjusts itself to the needs of business, going out when needed and coming in when the need has passed. Now, it is obvious that to put out notes when the need arises requires that they be on hand when no need exists. The bank must be oversupplied when the need is less in order not to be undersupplied when the need is great. This involves keeping notes idle in the vaults at times, and unless the bank can obtain the notes on conditions which will enable them to keep them idle at times without too great loss, elasticity is impossible. The situation is developed in the following examination of Mr. Butler, president of the National Tradesman's Bank of New Haven, before the Banking and Currency Committee of the last Congress, which I take the liberty of reading:

Mr. BROSIUS. I desire to bring into more distinct view your thought upon the real nature of the difficulty of inelasticity in our present banking currency. If I understand you, the chief difficulty is that in order to have an elastic paper currency the banks must be able to keep on hand at times a greater amount than is needed in order to have it to use at other times when the need is greater? Mr. BUTLER. Yes, sir.

Mr. BROSIUS. The portion of the idle must not cost them to much.

currency which the banks are required to hold Under the present system you say it costs the banks too much to hold any amount of idle notes for issue when the need increases. Mr. BUTLER. That is correct.

Mr. BROSIUS. That is the idea, is it?

Mr. BUTLER. Yes, sir.

Mr. BROSIUS. Then in order to have the volume of currency sufficiently elastic the banks must get that currency gratuitously; they can not afford to pay anything for it. Is that the idea?

Mr. BUTLER. They can not afford to pay very much for it.

Mr. BROSIUS. When the banks themselves issue the notes, as proposed in your plan, that costs them nothing?

Mr. BUTLER. No.

Mr. BROSIUS. And when the notes are required to lie idle in the bank, there is no expenditure to the bank?

Mr. BUTLER. That is correct.

Mr. BROSIUS. But they have to spend a part of their capital for the bonds to secure their notes, and that costs them too much. Is that the idea?

Mr. BUTLER. That is correct.

Mr. BROSIUS. Now, suppose the bonds of the Government were sufficiently abundant to be obtainable with ease, and that they paid a sufficient interest, so that the banks could afford to hold in their vaults at all times a sufficient amount of currency to use when the need increased-you understand me?

Mr. BUTLER. Yes, sir.

Mr. BROSIUS (continuing). Without any loss to the bank; then the elasticity would not be diminished, because the currency would be based upon Government bonds as security.

Mr. BUTLER. On the condition that the bonds carried the rate of interest that the bank must make on its loans, and only on that condition.

It is thus evident that elasticity does not concern itself with the source from which the notes emanate, nor the character of the security behind them, but only about the fact of their presence or absence when

needed. The authority to issue notes and the incentive to do so result in the act of issue. From the union of power and profit springs elasticity. Any system of banks, whether national or State, which has authority to issue notes, and there is sufficient incentive in the profits to do so, will supply an elastic currency. The note in bank waiting to be used, whether it is issued on Government bonds or against the credit of the bank, goes out to meet a demand and returns when the demand ceases. If the note is not there, because the bank could not afford to keep it in waiting, or for any other reason, the need goes unmet, and the currency is inelastic because it does not adjust itself to the needs of business.

The conditions of elasticity may be present in a bank without any circulation at all if its deposits supply all the money it can use. The Mechanics' National Bank of New York, with $30,000,000 of deposits, needs no circulation. There is always money on hand to meet any need that arises; and money that costs them nothing they can afford to hold to meet the coming need.

So that, on reason and principle, the conclusion is irresistible that if the cost of carrying a circulation is not too great, and bonds can be supplied that will yield a rate of interest that will make it profitable for banks to issue notes, they will be issued to meet the demands of business, and we will have an elastic currency. But the conclusions of reason, as we would expect, are confirmed by experience and observation, and accordingly we find that during the period when the interest on bonds was high enough to make it profitable to carry sufficient circulation, there was no complaint of lack of elasticity, and circulation steadily increased until it reached the sum of over $360,000,000 in 1882. That it subsequently diminished and became somewhat less elastic was due to the cost of the bonds and their reduced interest, making it expensive to carry more circulation than could be used at all times.

A CLOUD OF WITNESSES.

In support of these views and of the general excellence of our banking system, I take the liberty of reading some extracts from the reports of the Comptrollers of the Currency from 1880 down to the present.

John J. Knox, Comptroller of the Currency in the years 1880 to 1883 inclusive, said:

The political economists of the world regarded the resumption of specie payments with so little gold and so much paper as impossible. No country had ever won such an achievement. They said no nation maintains at par a convertible currency which has not in its banks or among its people an equal amount of coin. From the date of resumption our gold holdings increased, coming in from abroad in payment of exports. It has been the practice for a long time for large sums of money to be annually drawn from the banks of New York by the banks in the interior for the purchase and shipment of grain and other products. The banks in the West and South supply the grain buyers with money, who pay it to the farmers and by them it is disbursed to the country merchants. It then goes to the wholesale merchants in the larger cities of the interior by whom it is deposited in the banks and returned again to the money

centers of the East.

No nation has ever authorized the organization of banks under a general banking law with the right to issue notes proportionate to capital, except under a restriction requiring a deposit with the Government as the basis for the issue of such notes. Banks organized under special charters with large capital might safely issue such notes properly guarded. Under the Suffolk and safety-fund systems, held to be the safest and best next to the national banking system, the annual losses were considerable even in New England. The failure of the bank to pay its notes would throw discredit on the whole volume of the currency. It would be better that the circulation should diminish in volume than that the issue should be increased at the risk of placing in the hands of the poorer classes uncurrent and irredeemable circulation, or