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Mr. FOWLER. That particular fellow would not want to fool them but once.

Mr. ROYALL. He would only fool two or three.

The CHAIRMAN. I would like to call your attention to this list of Virginia failed banks, on page 43 of this report.

(Mr. Royall was handed report of the Comptroller of the Currency for 1896, showing a list of Virginia banks which have failed.)

Mr. ROYALL. Well, that may all be so, sir.

The CHAIRMAN. How many are there? I see they involve a capital of $421,000.

Mr. ROYALL. But in how long a time is this? It appears here that this embraces the whole history of the State.

A MEMBER. That is from 1811 to 1830.

Mr. ROYALL. That may be so. We have had our disasters, especially in that early period. What proportion, though, does that bear to the banking we did during that period? I don't believe a man lost a note by them. It is not stated that anyone lost anything by them. They may all have simply discontinued business, paying in full.

[Reading:] In a speech delivered in the House of Representatives on May 31, 1894, by the honorable chairman of this committee (Hon. J. H. Walker), he said that in 1857 he paid 10 per cent for the transmission of money from Illinois to Boston. Those were days when Illinois banks came very near the category of wild-cat banks, and steam and electricity had supplied few of the present methods for communicating intelligence and supplying the demands of travel and traffic. The chairman presented the further idea that interstate notes were indispensable to interstate commerce, and that commodities could not be paid for between States without such currency. But interstate commerce is not transacted with either coin or currency notes. It is conducted through exchange. Separated localities do not buy from each other with coin or currency. They exchange commodities, the transactions being operated and arranged by the exchange of their credit values through the banks. This exchange will always be payable in coin. If a debtor locality has no exchange against its creditor locality, the individual in the debtor locality takes the notes of the bank to it and demands gold for them, and he ships that. Baltimore would never allow Richmond to send her Virginia bank notes. She would require Maryland notes or coin.

BALANCES SETTLED BY EXCHANGE.

This great fact of balances being settled by exchange is the important one that has been overlooked in all the financial discussions we have had; yet it is the key o the case. All interstate commerce is thus.conducted, and all intra-state commerce, in the cities. It is only the country people who need coin or notes, but they need them imperatively and must have them.

As it stands at present, the national-bank act is so entirely unsuited to the people who live in sparsely settled country districts, that they know absolutely nothing about it. The requirement of Government bonds, the limit of $50,000 to start with, and the tax on the circulation remove it from the consideration of the country people. But if it were made far more liberal in these respects it would still utterly fail to meet the needs of these people. They must be permitted to issue as much as or more than their capital in notes to make banking in the country profitable. And our experience before the war proves that this can be done

with safety. The note gets out among the country people, and while the credit of the bank remains good, these never present them for pay. ment in coin. They are at a discount away from their place of issue, but this is all the better, as it sends them back at once for the use of the people they were intended for, just as happens with the notes of the English country banks, or with Mr. Sanchez's coinage.

LOCAL CURRENCY NEEDED.

Again, notes secured by Government credit will never do for the country people, however many of them even their own banks may issue. These, though issued in a backwoods mountain district, are as good in New York or Chicago as any others, and while this is so all of them will certainly go there. The banks are on one side of the street, the exchanges upon the other. The banks bid for all the currency that is good all over the Union, and the speculators borrow it from them to speculate with in the exchanges. The thing is automatic. As the banks get money the speculators increase, and as the speculators increase the banks bid for more money for them. They will draw from the country districts all the currency their banks may issue that is secured by the Government's credit. This is the crucial point. Our currency must be one that is local and not good all over the Union. know the point is made against this argument that contracts of this sort are not operated through coin or currency notes, but by granting credits by the bank with the stuff dealt in as collateral. But whenever a credit is granted there must be a reserve of redemption money. These speculative credits swell out to any amount whatever, and they will call for all the money and currency, good all over the Union, that may be issued to stand as the reserve redemption money required.

NO GOVERNMENT INTERFERENCE.

I

What the people need and what they have a natural and constitutional right to is perfect liberty to make such contracts as they please without interference by the Government, as Herbert Spencer so splendidly argues for in his essay already referred to. They have a right to demand that the Government shall repeal all laws that abridge their natural rights in the matter of banking. Then, with the notes of their local bank, always payable on demand in coin, all the people would have all the currency that they needed and the present discontent would come to an end.

A local bank would grow up naturally and by the evolution principle wherever there was business enough to sustain it, and the surrounding country would increase in fertility and productiveness as the bank prospered, and the bank would prosper as the country around it prospered. It would be like a spring in a desert. Everything around it would be green, and where its waters ceased to percolate the face of the desert would appear. What is wanted is that all acts of Congress interfering in any way with perfectly free banking shall be repealed and that the subject shall be relegated to the States for such legislation as they may think proper. This is the idea of the Constitution.

MEDIA OF EXCHANGE LACKING.

The case comes down, then, to this: In a very great part of the country the people are without any media of exchange, and that fact was at the bottom of the prodigious upheaval we have just seen. I

can speak with confidence of Virginia, and it was certainly so there. The country's trouble is not ended. No impression has been made upon it. At least, this is certainly so in my State. It will never be ended until the country people are treated with fairness and justice and relieved from the discrimination now operating against them. The inconvenience which the people of the East and Middle West fear from notes at a discount would really be very trifling, for in this day of electricity and steam a note that was at a discount would be instantly sent scurrying to the State of its home. The question, then, which that part of the country that is satisfied with the national-bank system has before it is this: Will it submit to the slight inconvenience of notes at a discount and restore peace and quiet to the whole country, or will it stand out against any amendment and any relief to the great body of the country people and run the risk, four years from now, of riot, revolution, and possibly bloodshed? The question is a most momentous one, and it becomes you, gentlemen, to give it the gravest consideration.

I thank you for the attention you have given me.

The CHAIRMAN. If any gentlemen of the committee desire to ask any questions of Mr. Royall, we will now have time for them, as we have permission to sit during the session of the House.

Mr. BLACK. I would like to ask Mr. Royall one question. I am very much pleased with your constitutional argument. I believe myself that in all these questions of currency and taxation and everything else of that kind that whenever we get away from that instrument we get on dangerous ground.

Mr. ROYALL. You are dead right, sir.

NOTES REDEEMED IN SILVER.

Mr. BLACK. I would like to ask you if you would have any objections, after the State banks were organized, to going back to what I conceive to be the old constitutional idea of allowing them to redeem their notes in silver as well as gold?

Mr. ROYALL. Now, I am afraid you would reopen the whole silver question, and while I am utterly opposed to free silver, I did not come here to discuss that.

Mr. BLACK. No; I do not mean to bring that up.

Mr. ROYALL. I say that it won't do for us to coin any more silver at present, but I would let the States redeem in the present silver coin if no more is to be coined. If we need more silver later we can coin it. Mr. Cox. I agree with that.

Mr. HILL. If the lack of banking facilities in the country towns of Virginia and the South is due to the defects in the national banking system, why is it that in New England we have a surplus of national banks?

Mr. ROYALL. Because you are all living right together, sir-you have a thickly settled community.

Mr. FOWLER. Will you allow me to answer that?

Mr. HILL. Certainly.

Mr. FOWLER. It is because there is a large amount of accumulated wealth in the form of an investment fund in your country.

Mr. ROYALL. That is one reason, but if you were scattered all the accumulation would not answer the purpose.

Mr. FOWLER. The want of banks South is due to the defects of the system.

Mr. JOHNSON. Suppose that plan were adopted, and suppose provision were made for the establishment of branch national banks, do you think that would have any tendency to obviate this difficulty under which you labor in the sparsely settled section of the country? Mr. ROYALL. That would help.

Mr. JOHNSON. What do you think of the Baltimore plan?

Mr. ROYALL. That plan limits the power of the banks to issue only 50 per cent of their capital. That would not do. Those country people have to be able to put out more notes. They encounter great difficulties. They have to put out more notes than their capital in order to make it pay.

THE BALTIMORE PLAN.

Mr. JOHNSON. Well, with that provision added, what would you say to the Baltimore plan?

Mr. ROYALL. I am not well up on that plan. It has been two or three years since I read that plan, and therefore can not discuss it. I recollect that at the time I read it it did not satisfy me, although I thought there were some good features in it.

Mr. JOHNSON. I find it hard to reconcile myself to the idea that in order to have a reasonable amount of money in any locality it must of necessity be money which is not of uniform value throughout the country.

Mr. ROYALL. We have found by bitter experience that if you put the Government's indorsement on it we can not retain it a moment. It is good then all over the country and everybody wants it. As long as it is backed by our credit only it is good enough for us, but not good enough for you.

In all the acts proposing amendments to our banking system that I have seen the draftsman has had in his mind a supposed necessity for bank notes that will circulate from end to end of our Union. But there is no need for any such, and the idea is wholly foreign to the true idea of a bank currency. Transactions between separated localities are all effected by exchange, and not by coin or currency notes. Currency notes, when their nature is properly considered, are only for the convenience of a locality that is short of methods for transacting business with checks. If the locality can transact its business with checks, it will certainly do so; and it has no use, therefore, for any more bank notes than what it will issue for its own convenience. If it can not transact its business with checks, then it must have bank notes as a substitute for checks, and if those bank notes all cling to that locality, so much the better for all parties concerned. Forcing into circulation bank notes that will go all over the Union is pressing out an issue that is not needed and therefore forcing upon the body politic instruments that will certainly bring about trouble.

GOVERNMENT NOTES SHOULD BE RETIRED.

Almost all of us, except the Populists, are agreed that the Govern ment notes should be withdrawn and canceled. But bank notes backed by the Government credit are the Government notes in effect. If Government notes are to be issued at all, I insist the Government itself had better issue them than that the national-banking act should force a bank in the mountain recesses of Dickenson County, Va., to issue them. When that bank issues notes, they should be for the convenience of the people living around it and not for the convenience of the people in Cayuga County, N. Y. If the people of Cayuga County want notes,

let them issue them, or apply to their State to do so, or else to the General Government. But they have no right to expect the citizens of Dickenson County to do it.

It is a total perversion of the idea of a bank to expect it to issue currency for the whole country. If it issues currency at all, it is for the convenience of the people who live around it. Yet if a county bank issues currency backed by the Government that currency will leave it and the people who really need it, and go to a commercial center where there is no legitimate need for it.

The CHAIRMAN. You have spoken of the first step in this process of giving us such a currency as we ought to have. The Government must go out of the banking business, and we must get the greenbacks and all Treasury notes and legal-tender notes out of the way. Now, my point is, can there be any substantial relief, provided we can not get Congress to issue bonds and take up these notes? Is there any other solution than to have the banks assume what exist, the current redemption of them, and then issue their bills freely for whatever credit they have? Is there any other solution?

Mr. ROYALL. Yes, sir.

The CHAIRMAN. What is it?

STATE BANKS WILL SOLVE THE SILVER QUESTION.

Mr. ROYALL. You will never hear another complaint from the country where free silver has its strength if you will repeal this tax of 10 per cent on State banks. It will end everything. You can go on then and destroy your greenbacks. They ought to be destroyed.

Mr. JOHNSON. How?

Mr. ROYALL. I would take them in by putting out a 2 per cent Government bond.

The CHAIRMAN. You have come to the same point that everybody does who appears before the committee. When you have come to the fact that this currency can not be circulated unless it is kept at par with all our other currency and other coin, and admitting that it can not be done unless there is some provision for keeping it at par while the greenbacks and the Treasury notes exist, you fall right back and say: Issue bonds and take up the greenbacks and Treasury notes, getting away from the idea that that can not be done. Now, if that can not be done, what then?

Mr. ROYALL. Now, you have got me.
The CHAIRMAN. That is the question.

Mr. ROYALL. I must say that I have not thought of that-I mean a way of getting rid of the legal tenders without an issue of bonds. At present the Government is borrowing $345,000,000 and paying no interest. I have always thought if it was an honest Government it ought to pay interest on that money.

The CHAIRMAN. Admitting that every member of this committee, for the purposes of this question, is willing to issue bonds at 2 per cent interest and take up the greenback and Treasury notes

Mr. FOWLER. Why don't you include the certificates?

Mr. WALKER. That is too much. Confronted with the belief on the part of each member of this committee that it can not be done, won't you help us out?

Mr. ROYALL. I haven't thought about it.

The CHAIRMAN. Won't you think about it and include it in your paper?

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