balances with price of exchange above the shipping point produced a gold stringency, what a rush there might be upon the banks for gold redemption of notes; and who will risk his reputation for financial acumen and foresight by asserting that the banks would be equal to such an emergency?

In my poor judgment the danger that such a state of things would lead to gold suspension with all that that implies is so imminent that it ought to admonish us against the experiment. I think it would ultimately drive the banks out of the issuing business, for may bankers would hold the view expressed by Mr. Spaulding the other day when, speaking as a banker, he said: "If the banks had to redeem in gold alone he would not issue a note or take a dollar of deposits."

In 1836 imports exceeded exports by $50,000,000, which had to be paid in gold. This outflow of gold produced a draft which could not be met by the banks, and they suspended specie payment. The English export houses lost from $25,000,000 to $30,000,000 and the disturbance was accomplished by great losses in America. So in December, 1861, the banks suspended specie payments because they could not meet the drafts upon their gold. The Government was compelled to follow suit, and in January, 1862, ceased paying coin and gold went at once to a premium.

We must not forget that if we should adopt this ostrich method of getting out of sight of danger by putting our head in the sand, we do not relieve the main difficulty. The body of our trouble remains exposed. A demand for gold for export must be met whether the metal is in the vaults of the Treasury or those of the banks, and the Treasury with an accumulation of gold is a more suitable agency to meet such an exigency than the banks, upon which the draft might come with such inequality that while some could meet it others could not and would have to suspend. It must be apparent to the least observing that a given amount of gold in a consolidated fund is more effective as a reserve than it could possibly be if divided into 4,000 parcels, each bank having a share. John Stuart Mill argues with great force and commanding reason that there ought to be a central establishment alone required to pay gold, the others being at liberty to pay their notes with those of the central establishment. The object of this is that there may be one body responsible for maintaining a reserve of the precious metals sufficient to meet any demand that could reasonably be expected to be made. This is the system of the United States, though it was not in existence when Mill wrote his great work on the principles of political economy.

It is on the same principle that the clearing house is able to render such effective service if not in averting at least in avoiding the worst consequences of bank suspensions. The demands of depositors sometimes exhaust the weaker banks and compel suspension of payment. If this occurs in one bank it is likely to lead to excessive demands on other banks. Illustrations of this are found in the crises of 1873, 1884, 1890, and 1893. By combining, or "pooling," the reserves of all the banks and making a common fund all the weaker ones were saved by the strength of the stronger ones and the panic at least mitigated.

The suggestion that a business man having outstanding demand obligations would fund them or pay them off with funds in hand is a truism, but has no utility in this discussion, for the situations are too dissimilar to admit of reasoning from one to the other. The so-called demand obligations of the Government are not intended to be paid. They carry no interest; they are a part of the volume of our money, an

annex to our circulation. Their redemption is only their exchange for gold, and when exchanged they do not relinquish their character as money, but are equivalent to gold in the payment of the expenses of the Government. What business man having obligations out in the form of notes that are noninterest bearing, and can be utilized in the payment of his expenses as so much gold, would borrow an equivalent sum and pay interest on it to liquidate the noninterest-bearing obligation? Certainly no man would do so in his lucid intervals.

THE ENDLESS CHAIN.

That the retirement of these notes is necessary to break the so-called endless chain which drains the gold reserve I do not believe. Preliminary, however, to my observations on that point I should like to try to remove some obscurity in our minds about the notes of the Bank of England. There can be no endless chain of paper draining the reserve of the Bank of England, because there is radical difference between a note of the Bank of England and a United States legal-tender note. The former is distinctly representative money. It stands for an equiv alent amount of gold. The principal and the representative are never in circulation coincidently. When the gold comes in the paper goes out to take its place, and when the paper comes back and the gold goes out the paper is destroyed, because the two are not intended to be in circulation at the same time. The £16,500,000 out on securities are treated in the same way, the presumption being that at least that sum must always be in circulation and can not come in for redemption, so that taking into view the entire volume of their money, every bank note that can by any possibility come in is covered by coin, and when the latter goes out the former goes into the fire; while with us the paper dollar which comes in in exchange for gold may go out instantly and come back for another dollar in gold.

Gold can be drawn from the Bank of England at any time by the presentation of notes, but the same note can never take out but one dollar, and every dollar taken out contracts the money volume that much if it is exported. If $1,000,000 of gold is needed for export that amount of notes is drawn out of the banking department and presented to the issue department and an equivalent amount of gold is paid out. One department loses $1,000,000 deposits and the other $1,000,000 of gold. England, it may be said in passing, enjoys two advantages over us in the way of restricting runs upon her reserve. She can raise the rate of discount, and in the second place the contraction of the currency caused by supplying the gold operates automatically to curtail the drain by lowering prices and stimulating exports. Those who insist that the cancellation of the legal-tender notes is the only means of breaking the endless chain must take a melancholy view of the situation and of the character, resources, and statesmanship of the United States. If I believed that existing conditions would not yield to treatment and that there is no curative power in the changed conditions we hope for at an early day; that our revenue is to continue deficient; that we are to have an endless adverse balance of trade and repeated bond issues, I might accede to the proposition that our legal tenders should be canceled, but I would then be willing to accede to many other propositions, for I would expect the United States to give up the ghost at an early day. I need hardly say that I share in no such despairing view of our future.

THE BANKS ALONE CAN NOT MAINTAIN THE PARITY.

But there is an objection of still greater gravity to which I now call your attention, and I am sure you will recognize the extreme urgency of its claim upon your consideration. When we have retired the legal tenders, parted with our gold reserve, gone out of the banking business, restricted the Government to its legitimate functions of collecting the revenues and paying the expenses of the Government, having gone that far, we can not stop. One other step we must take under the compulsion of logic and consistency. We must repeal the provision of the act of 1890 declaring it to be the established policy of the Government to maintain the parity of the two metals. What use would such a law have after the Government had relinquished all control over the redemption of money, surrendered to the banks its agency in keeping all our money equal in purchasing power, and voluntarily abdicated its sovereignty over its own money? It would be a word of promise to the ear to be broken to the hope. It would be a pledge without the power of redemption. What power can it wield, what influence can it exert to maintain the parity of our money and redeem the pledges of the nation after it is deprived of the right to issue and control and redeem; what other possible agencies are there for maintaining the equality of our money? When the Government has washed its hands of this responsibility and turned it over to the banks, are they equal to the task?

When the legal tenders are gone the banks would necessarily redeem their notes in gold or silver or both. To keep up the credit of their notes, issuing banks would have to elect, as the Government now does, to pay in gold. Does anyone believe they could do so? If money is needed to pay foreign balances it must be obtained by exchanging notes for it or it must be bought in the market, and in that event it goes to a premium. Who knows whether the banks with half their reserves in silver will not redeem in white money instead of yellow? And if they do the parity is gone and we are on a silver basis. Who can tell how soon the demand for gold at the counter of any bank may exceed its ability to honor the draft? And in such an event silver redemption and gold suspension must ensue. In such an event, is any man bold enough not to tremble when he contemplates the disaster that must follow in its wake?

With the volume of our money consisting of three nearly equal parts of gold and silver, worth half its face, and paper, worth nothing only as it acquires value by convertibility, how is the equality of all that money to be maintained? Silver is now the equivalent of gold in purchasing power. It is held to that equivalence by the power of a people's faith in a nation's pledges. Could the banks of the United States hold it at that level? We have witnessed how at times the strongest faiths wavered and the stoutest hearts faltered in their belief in the power of the Government to maintain the parity. The overshadowing and paralyzing doubt of this has kept us in a boiling caldron of anxiety and alarm, to the disturbance of business and the confusion of our finances. If great alarm prevails now, when all the wealth of the United States is behind silver to hold it up and maintain it, so that the people hoard gold and greenbacks and hurry silver and silver-paper out of their hands as speedily as possible to the embarrassment of the Government, how much more apprehensive would they be with more than half the coin in the country depreciated 50 per cent, with only the national banks behind it to maintain its parity? It looks

to me as plain as the way to parish church that while we are using silver on a gold basis, with the disparity in value now existing, we must keep the Government in a position to protect it or we are in imminent peril of serious disaster at any time.

Let us not deceive ourselves in this, wherever else we may go astray. The consequences are too grave to admit of experiment. The contention that the undertaking can be entered upon with safety is entirely fallacious, utterly illusory, as unsubstantial as the baseless fabric of a dream, and if I thought there was danger of the Government entering upon so rash a venture I would solicit, entreat, and pray that our hands might be stayed before we put them to the depreciation and degredation of the money of the United States and the infliction upon our people of the loss, the suffering, and misery that must ensue.

BANK COULD NOT KEEP AN ADEQUATE GOLD RESERVE.

Would it not be wise also, in the event supposed, to repeal the act requiring national banks to keep a reserve of lawful money, consisting of 15 per cent and 25 per cent, respectively, of their deposits, for it does not seem to me that this provision could be carried out if the reserves are required to be in specie exclusively. A law that is wholly nugatory and incapable of execution ought to be repealed.

The aggregate reserve required on September 28, 1895, to secure deposits was $406,271,726. There was held at the same time, as a part of the required reserve, specie to the amount of $196,237,310, and legaltender notes to the amount of $94,000,000, in the proportion of 2 of specie to 1 of legal tender notes. If it can be assumed that the banks may at any time need in actual possession the entire amount of their reserve they would have $270,847,800 of specie and $135,423,900 of legal tender paper, adhering to the same ratio. But when you consider that the retirement of the legal tenders and Treasury notes means the lessening of the aggregate of reserve money almost one-third, and when you further consider that the total visible gold in the Treasury and all the banks in the United States in July last, as reported by the Director of the Mint, was only $315,788,039, you can not fail to realize the difficulties the banks will encounter in maintaining the required reserves of lawful money, and it gives some color to the statements of bankers that under the proposed law they would not take a dollar of deposits.

INCREASE THE CIRCULATION OF THE BANKS.

These reflections lead logically to the legislation I propose. I want the nation to retain the means and perform the duty of keeping its money good and maintain gold redemption and the parity of all kinds of money. It can only do this by keeping the control of appropriate agencies to that end. To enable the banks to make their currency more elastic, I would authorize them to issue to the par of the bonds deposited. This would make a possible increase of something over $20,000,000. I would be inexpensive, would indeed cost nothing, and answers the first requirement of an elastic currency. The reduction of the tax on circulation to one-fourth of 1 per cent would add to their interest three-fourths of 1 per cent.

If it is true that under the present law banks receive forty-five onehundredths of 1 per cent or, say, one-half of 1 per cent on their circulation more than they would on the investment of an equivalent amount of capital at 6 per cent-that is to say, an aggregate return of 61⁄2 per

cent-it is obvious that if they were relieved of three-fourths of 1 per cent tax on the circulation and could issue 10 per cent more than they do, which, loaned at 6 per cent, would yield the equivalent of twothirds of 1 per cent on the 90 per cent already out, which would aggregate plus plus, which is twenty-three twelfths, or nearly 2 per cent, so that the total return on capital would be 8 per cent. At that profit banks would put out all the circulation the people need.

With this encouragement they might also convert a portion of the miscellaneous securities they carry and on which they are not realizing more than 4 or 5 per cent, but which they are, for various reasons, reluctant to part with, into Government bonds to increase their circulation. I find, on examination, that the national banks of the United States are carrying $195,000,000 of these miscellaneous securities, with an aggregate circulation of only $220,000,000. In Pennsylvania 411 national banks, with $75,000,000 of capital stock and holding but $27,000,000 of bonds for circulation, carry $31,000,000 of miscellaneous securities.

In Lancaster County, Pa., which I have the honor to represent, embracing a territory of 1,000 square miles, there are 26 national banks with a capital stock of $3,650,000 and a circulation of $1,087,430; yet those banks carry stocks and securities amounting to $731,139, as appears from a tabulated statement I hold in my hand.

Bank statement for Lancaster City and County, September 28, 1895.