Mr. JOHNSON. It is your opinion that the main reason for the drain on the gold reserve which has occurred during the present Administration was a feeling on the part of the people that the Government might not be able to maintain its credit?

Mr. ECKELS. Yes.

Mr. JOHNSON. By keeping its demand obligations at par?

Mr. ECKELS. I think that from the time of the passage of the BlandAllison act it became evident that the Government was coining and stamping a piece of metal, calling it a hundred cents when it was not in and of itself worth one hundred cents. It was dependent upon something to make it of that value, and when to this was added the further tendency to do the same thing through the operation of the Sherman law and the purchase of silver, these acts combined caused doubt in the minds of those who were dealing with us abroad and doubt of people at home as to the ability of the Government, with the limited powers of the Secretary of the Treasury, to maintain, what the Sherman law said was the policy of the Government, the parity of the two metals and to redeem the Government's demand obligations in gold.

Mr. JOHNSON. Another question. What has caused the stoppage of the demand on the Government for redemption; and is it likely to occur, and if so, under what circumstances?

SINGLE GOLD STANDARD.

Mr. ECKELS. It is likely to occur whenever the public mind is again put in a condition which makes it believe that this Government is not going to maintain the single gold standard of value, or is not going to be able to maintain gold payments of its outstanding obligations. Mr. JOHNSON. Do you think it ceased because the public mind was reassured on that point?

ELECTION OF 1896.

Mr. ECKELS. I think it has ceased, because the repeal of the Sherman law has given the public to understand that unless some further legistion is enacted we have gotten to the end of increasing the money of the country with a dollar which in and of itself is not worth a dollar. I also think the fact that the recent election was against those advocating the free and unlimited coinage of silver has done very much toward stopping the presentation of these demand obligations. The situation has further been relieved because, owing to the peculiar condition of affairs abroad, there has been a great demand for our breadstuffs, whereby very much gold has come into the country. A large portion of it has gone into the Treasury. It is safe to say, however, that whenever we come again to the point where, through overspeculation and overtrading, business disasters follow, or because of some bad piece of financial legislation the credit of the Government becomes a matter of public discussion, these demand obligations, unless paid and canceled, give the means to continually embarrass the Treasury Department and create still greater adverse conditions in the country's business world.

Mr. FOWLER. Suppose in the next six months the fortuitous circumstances which are in our favor should turn against us and there should be a natural demand for $100,000,000 of gold; where would they go to get that?

Mr. ECKELS. They would go to the Treasury, because we do as no other country in the world does. The operation of the law makes the Treasury

of the United States the one source of supply not only for all the gold that our own people want but for the people of every country in the world who wish to send here and buy it.

Mr. FOWLER. If they withdrew the $100,000,000 out of the Treasury, what would transpire?

SILVER REDEMPTION, REPUDIATION, OR MORE BONDS.

Mr. ECKELS. We would be compelled to redeem the obligations of the Government either in a depreciated metal or else to repudiate them or else to again do what the present Administration has done, sell more bonds to maintain the gold reserve.

Mr. JOHNSON. If there was any way of getting the Treasury divorced from the banking business and the bank issue was devolved upon the banks, they would go, under this condition, to the banks?

Mr. ECKELS. Yes.

Mr. JOHNSON. And your opinion is that the banks would be as able as the Government to do it?

Mr. ECKELS. Yes, more able. The reason the banks are better able than the Government is simple. The Government has no proper machinery for banking. A bank has all the machinery for obtaining credit and buying gold. It can discount its bills; it has, if well-conducted, all the methods of obtaining gold wherever it is necessary, and at a moment's notice. During the panic of 1893, the banks in Chicago, for instance, were able to send to London and Berlin and get gold, just as the banks of New York last year had the machinery which enabled them to obtain the gold to place in the Treasury in order that it might maintain the necessary gold reserve. All this the Government of the United States could not do unless it issued bonds, not having the machinery which attaches to a bank.

Mr. HILL. The banks in New York have a call loan on $50,000,000 of gold in London.

Mr. FOWLER. In regard to this $100,000,000 of gold in the Treasury, in case you reverse the situation and there was a demand of $100,000,000 made on the banks of New York, they at once would realize they would want to protect this reserve and would put up the rate of interest to hold the gold in this country and it would not go abroad?

Mr. ECKELS. That is the practice of the Bank of England.

Mr. MCCLEARY. Suppose the banks in New York had demand obligations which were payable in gold, how would the rate of discount affect that?

Mr. ECKELS. Of course it would not affect the presentation of its notes.

Mr. MCCLEARY. Would it not put the bank in exactly the same condition as it would put the Government with the notes issued?

The CHAIRMAN. You can not do that; this does not put them in the same position of the banks.

BANKS WOULD MAINTAIN GOLD REDEMPTION.

Mr. ECKELS. I think you would find this: As against their notes of issue the banks would, from their knowledge of the usual amount of current redemption, maintain the necessary amount of gold for the redemption of those notes, just as a bank is now able to know how much of a reserve it is necessary to have in bank as against its deposits. Every prudently conducted bank would be compelled for self-protection to maintain a proper reserve, and the notes issued by the bank would

be redeemed, and they would not be issued, as in the present case, unless there was a demand for them.

Mr. SPALDING. That would contract the currency?

Mr. ECKELS. The banks would contract the currency whenever necessary, and they would enlarge it when necessary. It is a great mistake to think that it is a possible thing for banks to prosper by doing those things which tend to make the general public poverty stricken, and by doing things which tend to make depression everywhere. Mr. MCCLEARY. That is, that there are no adverse relations?

BANKS DEPENDENT ON GENERAL PROSPERITY.

Mr. ECKELS. There can be no adverse relations. The prosperity of the banks depends upon the prosperity of the people, just as the people of one section of the country are dependent for prosperity upon the prosperity of the people of another section of the country. Their rela tions are mutual. Thus it would follow that no bank would ever contract its currency, even though it had the right to do so, if it was apparent that by so doing there would be a general financial derangement of the country and general business confusion. When such a point was reached the banks would have reduced themselves by their own act to a position where they could not collect their assets, where there could be no demand for their money, and consequently no profit in the banking business.

An aggregation of people into a corporation does simply the things which an individual would do in his own private transactions. As an individual he does the thing which will mean prosperity to him, knowing that prosperity can not be possible if those holding his property are unable when he wants that property to return it, and he knows that such debtors are not able if there is a general financial depression.

Mr. Cox. While on that point I want to call your mind to one thing. As stated by you, and has been stated before this committee ever since I have been a member of it, there has been an effort all along the line to control these demand notes in some shape and keep them away from the Treasury?

Mr. ECKELS. Yes.

Mr. Cox. When you come to think of it there is but one of two ways to do that, as I see. First, they have to be retired, and you issue bonds to take them in, or you can use them as the basis of banking. That is the Secretary's idea?

Mr. ECKELS. Yes, and that is to an extent the chairman's idea.
Mr. Cox. I was going to put this question to you-

The CHAIRMAN. I did not hear that question.

Mr. ECKELS. I say that is to some extent your idea.

The CHAIRMAN. Not as a basis for circulation, but to be retired through the banks.

GREENBACKS AS A BASIS FOR BANKING.

Mr. Cox. To bring out my point: Is there any serious objection and can there be any serious objection to using these demand notes as a basis of banking? Now, is there any serious objection-of course always looking to the line of contraction which can be very easily avoided is there any serious objection to using these greenbacks as a basis for banking and holding them away from the Treasury?

Mr. ECKELS. It would simply be imprisonment for life, with the attendant danger to the people of pardon instead of direct execution.

The CHAIRMAN. Is it not a fact that whenever money accumulates in the Treasury for any purpose whatever there is a large section of the country that desires that money should be paid out; and is not there a demand that even silver dollars be paid out? Is not that a very serious objection to holding legal-tender notes in the Treasury-the people's demand that they be paid out?

Mr. ECKELS. Yes. I think this, Mr. Cox, that if in connection with your suggestion there was a law upon the statute books that these demand obligations of the Government could be used as a basis of banking and that when a bank went out of the system the Government should redeem and permanently cancel them, or when there was a reduction of the circulation of the banks that so much of the demand obligations held by that bank as were affected by the reduction could be paid and canceled, the difficulty on the score mentioned by you would be obviated.

Mr. Cox. Of course, the idea is to prevent them from getting back again and going into the Treasury. That is the object.

Mr. ECKELS. That I suppose would be a practical thing, but it is already an admission that the further maintenance of these issues is a wrong thing.

Mr. Cox. I must say, with due respect, I can not see any difference in banking on the promise of the Government to pay in the shape of greenbacks and the promise of the Government to pay in the shape of bonds.

Mr. ECKELS. Except this, a Government bond runs for a definite period of time, payable at such a time, while under the existing law the legal-tender note is a continuing obligation which is never permanently redeemed and canceled.

Mr. Cox. That is true, but it is assumed the bonds will be paid, and that you have then got nothing upon which to base your circulation.

BONDS AS A BASIS FOR CIRCULATING NOTES.

Mr. JOHNSON. What is your opinion of the bond security under the present national banking law? Do you think it ought to be perpetuated in any new system of banking and currency which may be devised, and if not, what would you suggest for a substitute which would give a safe circulating note?

Mr. ECKELS. I think as a correct, scientific banking principle the issuing of bank notes against bonded securities is erroneous. Anything which makes the volume of circulation depend upon reasons other than the needs of business, and which regulates it in any other wise than through the daily needs of business and commerce, is not a true banking principle.

Mr. COOKE. Does not the element of good security come in there, of necessity?

Mr. ECKELS. Of course there is that, but in all the bills which have been given me the fact is recognized that the people of this country are used now only to bank notes issued against securities. Mr. Walker's bill, Mr. Hill's bill, Mr. Cox's bill

The CHAIRMAN. Mine provides a guaranty of the Government.
Mr. HILL. I have an optional feature in the last bill presented.

BANK NOTES ISSUED AGAINST CREDIT.

Mr. ECKELS. Some of the bills have introduced both the element of note issues against security and that of note issues against credits. I

think that as a practical feature of any banking law which is to be presented to Congress you will have to recognize certain conditions and habits of mind which prevail in this country. These conditions will

have to be observed in order to make any bill accepted by the public and the bank notes issued by virtue of it given complete confidence. The majority of men in business now do not know anything about a bank note in this country except as it is a secured bank note. Therefore I think at the outset there will have to be maintained securities against the largest portion of the issue of notes or else a Government guaranty as good as a bonded security. And then, in addition to this, for the purpose of giving play to what is termed the necessary elasticity of the currency, there could be very properly issued a certain percentage of notes, regulated by a tax, against the credit of the bank.

Mr. JOHNSON. Over and above the amount of security?

Mr. ECKELS. Yes; over and above the amount of security.
Mr. MCCLEARY. Án emergency feature?

Mr. ECKELS. It might be taken out at any time the banks would be willing to pay the tax.

Mr. FOWLER. Is it not true, as years come and go, that such notes would normally and naturally be needed for all the more sparsely occupied regions of the country and might not at all be needed where there is a large amount of money deposited"

BANKS ARE CONDUCTED FOR PROFIT.

Mr. ECKELS. In preparing any banking bill I think as a practical thing it must be considered whether or no it will be generally adopted. It would be difficult to have it successful if it is not acceptable to the banking interests which it is proposed shall go into the system. There is, of course, much talk about the prejudice of the people against banks and against banking interests, but the fact is the business of this country is conducted through its banks. These banks are not institutions conducted in whole or in part for philanthropic purposes any more than any other business enterprises. The men who go into the banking business go into it because there is for them a margin of profit in it, and they go out of it whenever there is no margin of profit, just as a man goes into the grocery business when there is profit in so doing, and goes out of it when there is no profit.

Mr. BLACK. I would like to ask this question: As I understand it, in your opinion the impairment of the Government's credit during these periods of agitation has contributed more than any other one cause to the present condition?

Mr. ECKELS. Yes; that, in my view, has been the cause which has brought to a head all these other things.

Mr. BLACK. How does that consist with the fact that whenever the Government has offered its obligations they have been disposed of at very good rates? Is the Government's credit very seriously impaired?

Mr. ECKELS. In the mind of the general public, especially people who are dealing with us abroad, there was seriously a doubt as to whether the Government could maintain the indefinitely repeated payment of gold for its demand obligations.

Mr. BLACK. Has there ever been a period when those people hesitated to take the Government obligations at reasonable rates?

Mr. ECKELS. Oh, no. I think the people generally have been willing to accept the bonded obligations of the Government because they ran for a definite period of time. There is a great difference as to whether the Government twenty years from now can put itself in condition