agencies for every bank at the cities of Halifax, St. John, and five other places. The banks reissue their notes when redeemed and may take interest not exceeding 7 per cent. The Dominion notes are secured by gold or securities deposited, and $25,000,000 may be issued by the minister of finance, nearly half of their paper money. There are $22,000,000 out now, $15,000,000 of which are held as bank reserves. These notes are legal tender. The bank issues are returned to the central bank for redemption or to authorized agencies. Their stock of money consists of $20,000,000 in gold; silver, $6,500,000; paper, $22,000,000 Dominion notes, and $35,000,000 bank notes with metallic reserve of $17,000,000, which makes the amount of uncovered notes about $18,000,000.

The limited issue of the Canadian banks and the small margin of elasticity are due to the lack of that activity in commerce and trade which prevails in the United States. Business is sluggish in Canada. It keeps an even tenor; it is about the same yesterday, to-day, and forever. Canada started with a population equal to ours a century ago, and she has now about 5,000,000 population while we have 70,000,000. One dry-goods store in New York sells almost as many goods as the whole of the Dominion buys in a year. Business does not become inflated to any extent, and panics do not frequently occur for the same reason, though in a different degree, that they do not in Alaska. It is thus easily seen that in such a country, with such limited banking facilities, with so much capital and so few banks, so little enterprise in business, so little fluctuation in the annual amounts of deposits and discounts, so little inflation of credit, so little exposed to the dangers which beset the banking system in a country like ours, there is comparative safety in the mode of issuing notes now in vogue in Canada.

CONDITIONS IN THE UNITED STATES.

In the United States all the conditions of banking and business are different. Here enterprise is active; business has a pulse which rises and falls. We trade and overtrade. We use credit to a large extent, and at times to great excess, and our business history is characterized by seasons of buoyancy and depression, with marked fluctuations in volume of circulation, amount of deposits and discounts, and an acute sensitiveness to distrust and alarm which are liable when credit is under severe tension to derange our whole system. Credit in the United States has been likened by Mr. Harvey to a top which gyrates on a small metallic point sufficient to support it as long as it spins rapidly, but inadequate when the rotary force is relaxed. Credit is the rotary force of our financial system. So long as this force is unimpaired the system spins merrily on, but when it fails, the top wabbles and falls. These were the conditions in both our ante-war and our post-war periods. In the former circulation was issued by banks almost without limit, and it was fully demonstrated that a free paper currency was not a safe one and that the severest limitations upon issues known to that period did not achieve safety. From 1814 to 1815 bank circulation increased from $5,200,000 to $10,000,000, and by 1819 it had fallen to $3,000,000. The Bank of the United States increased its circulation from $5,400,000 in 1822 to $13,000,000 in 1828. From 1837 to 1843 the bank circulation was reduced from $149,000,000 to $58,000,000. The number of banks fell from 901 in 1840 to 691 in 1843, and rose again to 751 in 1848, and the paper circulation rose from $58,000,000 to $128,000,000 in 1849, and by 1857 had reached $214,000,000 while the

number of banks had increased to 1,416. In nine years our paper circulation doubled, and in 1857 the crash came.

The balance sheets of the banks register in cold figures the undulations in business and currency which mark the periods of prosperity and depression and show the fluctuations in the volume of money and the extent that credit is used and abused.

Discounts rose to $525,000,000 in 1837 and fell to $254,000,000 in 1843, and by 1857 they had swelled to $684,000,000.

The state of our currency in our post-war period is familiar to all, but let us look at the unerring record of the banks' discounts and deposits. Our national-bank discounts rose from $166,000,000 in 1865 to $944,000,000 in 1873. We were ready then for the panic. By the end of that year they had fallen to $846,000,000, and by 1879 to $814,000,000, when prices were lowest and the depression greatest. Then the tide began its flood again, and by 1884, when the next disturbance arrived, the discounts reached $1,300,000,000. In one year they fell to $1,200,000,000, then rose to $1,470,000,000 in 1886, and to $1,587,000,000 in 1887, and to $1,684,000,000 in 1888, and then we were in the midst of a period of development, prosperity, and high prices.

The record of deposits tells the same story. From 1865 to 1873 they rose from $183,000,000 to $656,000,000, and then took a downward trend. From 1879 they began to rise again, and by 1888 reached $1,350,000,000. All through our history increased deposits and discounts, extension of credit, rise of prices, inflation of business, and booming prosperity have been the precursors of panic. The ten panics which have come to us since 1813 have visited the great commercial countries about the same time, and were unquestionably due to the same cause-overtrading and inflated credit until business needed more money and credit than were available in the country.

Panic has been well defined as a stoppage of the rise in prices; the period when buyers are not in pursuit of commodities, but the latter are looking for buyers. Thus the three phases of our business life are said to be prosperity, panic, and liquidation. These constitute the business cycle, or circle. Prosperity from five to seven years, panic a few months or years, and liquidation a few years, more or less.

In 1893 it is said there were two panics. The first occurred in May, and was the culmination of a long-continued drain upon the capital of the country by foreign investors who distrusted our ability to maintain gold payments. There was no scarcity of money at that time. The second panic, in July, was caused by the hoarding of paper money, which reduced the quantity in circulation below the needs of business. These are the ups and downs incident to a highly organized, active, enterprising, progressive people like ours. They could not occur to the same extent in a country like Canada under any conceivable banking system.

BANKING SYSTEM OF ENGLAND.

A word as to some other banking systems which some Americans extol without much discrimination. The English system in some respects is similar to our own. The Bank of England can not issue a note unsecured by an equivalent value in gold or the pledge of salable securities.

Robert W. Hughes, in his book on currency, speaking of the Bank of England, says:

"Its notes are not really notes of the bank itself, but of the issue department of the bank, which is virtually a bureau of the British

In

exchequer. Its notes are virtually notes of the British Government, redeemable in specie through the agency of the Bank of England. principle, the system of the United States is the same as that of England. The same three principles lie at the base of the English and American systems. They are, first, Government control over the issues; second, redeemability, directly or indirectly, in specie, and third, the subjection of the paper issues to the action of the efflux and reflux attending bank discounts."

The purpose of the Peele banking act of 1844 was to make the notes of the Bank of England absolutely secure, as we are striving to keep our national-bank notes, and to keep within narrow limits all other bank paper. No banking system in the world makes so little provision for elasticity as the English system. No new banks can be organizednone have been organized since 1844-with the power to issue a note on its assets. Many of the banks in existence in that year have surrendered the right to the Bank of England, so that the limit of unsecured bank notes in England is a receding one. The issues of the jointstock banks are redeemable in the notes of the Bank of England, as our national-bank issues are redeemable in United States legal tenders. The English system has quite enough faults to keep it from perfection, though it has many elements of strength. In 1847, 1857, and 1866, and I think once since the latter date, the banking act had to be suspended to allow the issue to be increased on securities deposited, and Mr. Bagehot said the Bank of England would not have survived without those suspensions.

The joint-stock banks of England can issue about $30,000,000 of unsecured notes, the Scotch banks about $13,000,000, and the Irish banks about $33,000,000. In addition to this they can all issue dollar for dollar on gold deposits. Anybody can turn his gold into money as in our own country.

The members of the banking companies issuing notes in England as well as in Scotland and Ireland are subject to unlimited liability as far as the notes are concerned. The aggregate amount of uncovered notes in England, Scotland, and Ireland is about $76,000,000. Moreover, the Bank of England, because it has the machinery and methods of a bank in contradistinction to a government treasury, has been able to render effective service in moderating the severity of panics. The most memorable instance of this known, perhaps, in the history of that bank occurred in 1890, on the collapse of the Baring Bros. It is so notable in its way that it stands as a landmark in English financial history. The house of Baring Bros. was unable to meet its engagement, amounting to about $140,000,000. The Bank of England received notice on September 7, and by the 15th had secured from a syndicate composed of the great London houses a guaranty that it would be protected from loss to the amount of $20,000,000 if it would liquidate the Barings' business, and from the British Government the right to issue $35,000,000 of notes, provided that sum was used to loan the Barings, and it therefore assumed on that date the task of paying the Barings' acceptances of $105,000,000 and $37,500,000 of other liabilities. This heroic and unprecedented service of a moneyed institution is believed by those most competent to judge to have averted what would have been the greatest financial cataclysm in the world's history.

BANKING SYSTEM OF FRANCE.

The French banking system is perhaps the simplest in the world, but it would be unsuited to our wants and could not be operated in this

country. It makes no provision for the safety of bank issues over and above deposits. All the liabilities of the Bank of France stand upon an equality and all are charges on the general assets. That may do where there is but one bank of issue for a whole nation, but would not do for a country where there are nearly 4,000, and others can be organized ad libitum under a free banking law. There are to-day less than 300 places in all France where banking facilities are found, and all are tributary to the Bank of France. In Pennsylvania alone there are twice that number. The notes of the Bank of France are legal tenders and there are no others. The limit of issues at this time is $800,000,000, or 4,000,000,000 francs, all redeemable in specie. The uncovered notes amount to about $32,800,000.

But the Bank of France is not perfect. Before it had been in existence, under its present organization, fifteen years there were three runs of note holders, which made it necessary to limit the amount of daily redemptions. In 1848 specie payments were suspended, and again in 1870, and were not resumed for seven years. Still, for a country like France, their system operates fairly well. In our country it would be a total failure. The rate of interest is fixed in Paris without much regard, it is said, for the needs of the country, and the managers make money plenty or scarce.

Thomas H. Benton tells how the philosophic Voltaire, from his retreat in Ferney, gave a description of the operation of the Bank of France by which he was made a winner without the trouble of playing. "I have a friend," said Voltaire, "who is a director of the Bank of France, who writes to me when they are going to make money plenty and make stocks rise, and then I give orders to my broker to sell; and he writes to me when they are going to make money scarce and make stocks fall, and then I write to my broker to buy; and thus at a hundred leagues from Paris, and without moving from my chair, I make money."

BANKING SYSTEM OF GERMANY.

Their cur

The former

The German system in some points resembles our own. rency consists of imperial treasury notes and bank issues. are limited in amount to, and are secured by, the gold set aside as the war fund. They are legal tender in private transactions, and are receivable at par at all public offices in the Empire, and are redeemed in coin at the imperial treasury. Of these notes there are out now, approximately, $30,000,000. The banking act of 1874 limited the right of issue to the Imperial Bank and thirty-two independent banks, with the right of the Imperial Bank to take up the issue of any bank that surrendered it, as in the English system. The independent banks of issue do not now exceed thirteen in number. There is no limit to the possible issue of those banks, subject to 5 per cent on all in excess of a certain limit. This is the familiar elastic limit which has worked well in Germany, and was adopted to correct the supposed disadvantages of the rigid provisions of the English banking act. The elastic limit has been availed of several times by the smaller banks and by the Reichbank in 1881, 1882, 1883, 1886, three times in 1889, and possibly since that time, but I am not advised. It is believed in those instances to have been beneficial in mitigating the severity of panics. As in France, the law gives note holders no special lein on assets in preference to other creditors. All share alike. The Imperial Bank has 240 branches throughout the Empire-less than half the number of banks in Pennsylvania. The amount of uncovered notes is about $60,400,000.

Those who ridicule our Treasury system of issue and redemption and call it "banking business" seem to forget that some of the foreign systems they extol possess the same feature. In Canada the minister of finance redeems all Dominion notes in gold as presented. In Germany all imperial treasury notes are redeemed in gold at the imperial treasury, and in substance if not in form the same operation takes place in England and France, for the Bank of England and the Bank of France are quasi Government institutions largely controlled by Government agencies, and transact the financial business of their respective Governments.

It is thus easily seen that while these foreign banking systems have special adaptations to the conditions of the countries in which they are operating, and while they have certain features common to our own, they would not suit our country, and could not be operated here as suc cessfully as our banks under our Democratic-Republican-American free banking law.

RETIREMENT OF LEGAL-TENDER NOTES.

I am unalterably opposed to the retirement of the legal-tender notes and relegating the redemption of all paper money to the banks. The suggestion to convert $500,000,000 noninterest-bearing into an equivalent amount of interest-bearing debt would be repelled by the almost united acclaim of the American people.

They are attached to this child of war. Someone has said that for sixteen years our legal tenders were redeemable in patriotism. That is true, and that is a good redeemer. It not only redeemed the legal tenders, but the Union as well. After that memorable redemption, patriotism and faith in the national honor lifted the legal tenders to par in gold the world over. John Sherman's praise of the legal tender is none too lavish, and I quite agree with him that a note issued by the Government redeemable in gold is the best currency we can adopt, at least for the minimum amount, and it will be the currency of the future, not only in the United States, but in England as well.

The few who advocate their retirement are sincere and honest, but, I think, mistaken. The fact that it meets with no general acceptance perhaps supersedes the necessity for further discussion, still it may not be unprofitable to consider the claims advanced in its behalf. However alluring that theory may be to sanguine minds, I doubt if any monetary mechanic is able to make the working drawings for such a plan. It is not practicable, in my judgment it is not possible, in this country, in view of the conditions under which the undertaking would have to be carried into execution for the banks to maintain gold redemp tion of the enormous amount of paper which would be in circulation. Think of the situation with a monetary stock of $600,000,000 of gold, $600,000,000 of silver, and a thousand millions of paper, as might easily be under House bill 171 or House bill 6442, with the Government out of the banking business, whatever that means, issuing no notes and redeeming none, keeping no gold reserve and exercising no control over the money of the country, the entire business being surrendered to the banks with a panic brewing after a season of overtrading and inflated credit. The thought of such a situation appalls me, and I am surprised that it does. not appall every member of this committee. If distrust would arise and a season of anxiety and alarm would prevail, a condition incident to our highly organized and sensitive system of finance and business, and the people doubted the ability of the banks to redeem their paper in gold, or supposing the pressure for gold for the settlement of foreign