Mr. COOKE. There is another element-they pay an income? Mr. ECKELS (continuing). To meet the bonds payable at that time and whether it can to-morrow, with $100,000,000 of gold in the Treasury, redeem more than $480,000,000 of demand obligations if they were all presented. This difference is accentuated by the knowledge that the payment of a bond means payment and cancellation, while the payment of a demand obligation of the Government under the law means but the necessary preparation to start it out again to be returned for repayment, and so on indefinitely.

Mr. BLACK. You make a distinction between demand and bond obligations?

Mr. ECKELS. As affecting the credit of the Government, yes.

SILVER REDEEMABLE IN GOLD.

Mr. BLACK. After you had retired the greenbacks, would you make the silver we now have-I am not speaking now of any further coinage of silver, but would you make the silver we now have redeemable in gold?

Mr. ECKELS. I do not see how the Government could do anything different as long as it declares through legislative enactment it is the policy of the Government to maintain the parity of the two metals.

Mr. BLACK. Then you would make the silver they now have redeemable in gold?

Mr. ECKELS. I think it is incumbent upon our Government to maintain the parity of the two metals.

Mr. COOKE. If the impairment of the confidence of the country and of the world in our currency brought about or started the working of this endless chain, why did not that occur during the fourteen years from 1878 on, when we were buying this enormous quantity of silver? Mr. ECKELS. For the simple reason, Mr. Cooke, that at that time there were but $346,000,000 of demand obligations of the Government which in the public mind were redeemable upon demand in gold, while by 1893 there had been added $152,000,000 more, without any increase in the means or improvements in methods of meeting the increased liabilities.

Mr. COOKE. Your idea is that there was a culmination of the conditions which is applicable to it?

Mr. JOHNSON. And the act of 1890 had been passed.

Mr. ECKELS. Yes; but it is known that from the passage of the Bland-Allison act there had been more or less discussion of the ability of the Government to maintain itself and to maintain its silver at a parity with gold.

Mr. FOWLER. The terms of that act did not provide they should be redeemed in coin.

Mr. JOHNSON. The gold in the Treasury fell off perceptibly after the passage of the act of 1890; that is, receipts of gold for duties on imports?

HOARDING GOLD.

Mr. ECKELS. For the reason, among other things, that people preferred to hold or hoard their gold.

Mr. COOKE. Why did they prefer that?

Mr. ECKELS. For the simple reason that they knew if they had a gold dollar it was a gold dollar, and if they had a paper demand for a dollar in coin they did not know, in the first instance, whether the Government would have the gold with which to redeem it, and in the

second instance they did not know but that it might be redeemed in silver worth, without a gold support, but 50 cents.

Mr. JOHNSON. The demand for the redemption of notes by the Treasury commenced during the last year and a half of Mr. Harrison's Administration, did it not?

Mr. ECKELS. It commenced immediately after the passage of the Sherman silver act. But, Mr. Chairman, the fact is, when that bill was under discussion there was not a prominent financier in Europe and scarcely one in this country who did not discuss the question and point out how disastrous the outcome would be. Some of the foreign correspondents, particularly one of the German correspondents for one of the leading papers in Berlin, pointed out to a certainty the thing which actually came to pass, namely, that within three years the law would so work as to produce a fall in the price of silver, an impairment of American credit, and a widespread panic. The actual fact is that at the time of the contract with the syndicate for a bond issue-a bond issue which has been more criticised than any other made by this Administration-there was but $8,000,000 of gold coin at the command of the Treasury. With such an extreme state of affairs it was no wonder the people thought the Government was not going to be able to maintain the parity of the two metals.

Mr. SPALDING. There was no raid the next day after the contract was made?

Mr. ECKELS. No, for it was known the preventive measure had been taken.

FISCAL OPERATIONS CAN NOT BE CONDUCTED ON SENTIMENT.

In this connection permit me to say that a great Government's fiscal operations can not be conducted simply upon patriotism. They can not be conducted upon sentiment, either. The Government has no right to put itself in a position where it is either a mendicant asking aid from outsiders, or a weakling at their mercy. You may think and I may think it is a bad thing of those who have demand obligations at home to present them at a time when the Government is embarrassed, yet, from a business point, they are not to be blamed. The Treasury Department ought always to be in such a condition that it would not depend upon sentiment, would not depend upon patriotism, and would not find it necessary for its protection to have the citizen eliminate all the elements of selfishness when he comes to deal with it. It ought to be exactly on the same footing as any other business establishment, ready and willing to pay the Government's debts without asking leniency from any of its creditors. It certainly ought not to insist on furnishing the means for its own destruction voluntarily and then complain if those means are employed and danger is threatened.

Mr. HILL. You were considering the question of a bond guaranty for currency. So far as that guaranty is concerned, which would be the best guaranty, currency or bonds, if such a system is to be adopted?

Mr. ECKELS. Well, I think it amounts to the same thing. There is no difference. Both depend for safety upon the financial ability and willingness of the Government to maintain its obligation.

Mr. HILL. There is a difference between a demand guaranty based on a Government debt, the actual bond of the United States Government

Mr. ECKELS. Only as I have explained, a technical one, so far as security to the note holder is concerned.

THE CANADIAN SYSTEM.

Mr. HILL. There is a guaranty in Canada, is there not?

Mr. ECKELS. The conditions here are different from the conditions in Canada. The Canadian system, while very good in Canada, would require a good many amendments to apply here. Here banking would necessarily deal with a larger territory and a great many more interests.

Mr. SPALDING. Would you deem it advisable, in the event of an extension of circulation to the par value of the bonds under the present banking system, that they should be compelled to keep out a certain amount of circulation?

DETERMINING THE VOLUME OF CURRENCY NEEDED.

Mr. ECKELS. No: I think that is also erroneous. It seems to me it must be recognized that if the banks are to issue the currency they must themselves determine how much of a volume is needed from time to time. The banks can always be depended upon to keep out every dollar they can use profitably. They can only use a dollar profitably when the people want it and have security to give to obtain the loan of it. Thus any law which established a hard and fast line as to how much the banks shall keep out would defeat the very purpose which it is desirable to reach through a banking law. Under the operations of it, it is impossible to have the currency issued to meet the varying wants of trade and commerce from day to day.

Mr. Cox. I want to call your attention to this thought. Now, it is admitted, and there is no way of avoiding it, that the duty of the United States Government under the present system would be to redeem the silver in gold if it is demanded.

Mr. ECKELS. I think so; I do not think there is any question about that.

Mr. Cox. There is no doubt about that?

Mr. ECKELS. No.

Mr. Cox. You issue bonds as you take up these demand notes and cancel them. You think that would obviate the necessity of keeping any reserve for the redemption? Now, let me call attention to this fact, would not you be under the necessity of holding a reserve for the redemption of the silver?

Mr. ECKELS. I would not say it would obviate all the necessity, but I think if you made a beginning, showing that the policy of the Government was to curtail these issues instead of following the policy of increasing them, it would go a long way toward ridding the country of the difficulty.

Mr. Cox. You do not think it would be complete?

LEGAL TENDER RETIREMENT THE FIRST STEP TOWARD RELIEF.

Mr. ECKELS. No; I think it would be simply a step. The country has gotten itself into a very bad situation, and some time it must make a start in the right direction to get out of it. The first step to that end would be to pay, retire, and cancel legal tenders, and then give to the banks the right of issuing all credit currency. The right to issue should carry with it and place upon the banks the duty of redeeming in gold the obligations which they put forth.

Mr. MCCLEARY. I come back, as you have the happy faculty of

expressing things, to the elementary question, and in asking it I put a question which is in the minds of thousands of people who are studying this question and who have not an opportunity to ask it of you themselves, Wherein is the difference between your bank redemption, if it is a demand obligation, and the Government redemption, if it is a demand obligation?

CREDIT CURRENCY.

Mr. ECKELS. The only difference is that it is not the business of the Government, nor is it wise for it, to issue credit currency. No Government has ever yet successfully done so. As stated by Mr. Walker, when there is placed in the hands of the Treasury Department, in a Congressional enactment, the issuance of credit currency it is made a continual subject of Congressional legislation. Through the operation of such a law there is created in the minds of people the idea that somehow the Government can create values. It is made possible to have issued a volume of currency which would be so large in volume that the Government would not be able to redeem it. If it is taken from institutions which are organized with all the machinery for regulating the volume and providing for its redemption, a function which experience has shown they best are able to meet, and given to the Government without such machinery, it becomes a question of doubt whether in the continuing change of political parties there will not always be a change in the amount of currency to be issued or the amount to be retired, and the character and value of the same.

Mr. MCCLEARY. Then the difference is circumstantial rather than essential?

Mr. ECKELS. The difference is circumstantial, but the circumstances are so strong that the history of all financial operations demonstrates that no Government has ever successfully accomplished it. Whenever Governments have undertaken it the end has always been a loss to the people.

The CHAIRMAN. Let me ask this question. You said this is circumstantial. I want you to elaborate that, because those words alone would be entirely misleading.

Mr. ECKELS. If you will state your question, Mr. Walker?

The CHAIRMAN. Is it not a fact that there is no conceivable way for a Government to issue currency directly except by purchasing things that the Government consumes in some form?

Mr. ECKELS. Yes, that is true.

The CHAIRMAN. Secondly, when a bank issues currency, instead of buying something it sells something, or rather it sells and buys; it sells something-its capital-for a greater sum than it buys the same thing back for at a subsequent period. Is it not a fact that when a bank issues currency it has on the property of the signer and indorser of the note for from $10 to $100, or any sum, a guarantee for the return to it of a larger sum than it sells, and uses the payment directly or indirectly to redeem the very thing, while the Government has nothing to redeem with? The Government has consumed it in salaries, etc.?

Mr. ECKELS. Yes, I think that is so.

The CHAIRMAN. So that the bank has a larger sum to redeem its notes whenever they come to be redeemed than it gave when it gave them out, and the Government has absolutely nothing?

Mr. ECKELS. Yes, I think that is so.

The CHAIRMAN. Those are the circumstances to which you refer?

Mr. ECKELS. And the other circumstance which is a factor is the circumstance of the bank having the machinery.

The CHAIRMAN. The bank has the machinery and has the wealth to redeem the notes.

Mr. ECKELS. There is another point to be considered. With all due deference to the ability of those who have to do either with the making of the laws or those who have to do with the administration of them in the Treasury Department, legislators and Treasury officials have not all the required facilities for knowing the amount of currency needed and the time at which it is needed, that the banking institutions of the country have. These institutions are not massed in a single locality, but are located in every portion of the country.

Mr. MCCLEARY. That is a part of the circumstances?

Mr. ECKELS. That is one of the circumstances and one of the strong facts.

Mr. MCCLEARY. I did not, perhaps, make my question clear to you. Granting the fact that there is a certain issue of demand loans outstanding, granting something arises to call for redemption of those demand notes, where is the redemption by the bank different from and better than the redemption by the Government?

NOTE ISSUING NOT A FUNCTION OF GOVERNMENT.

Mr. ECKELS. Simply this, Mr. McCleary, the banks can better protect themselves than the Government. The Government to protect itself must go through all the details of issuing bonds, the advertising of its impoverished condition, the stirring up of people on the subject of the creation of unnecessary debt, the substituting of an interestbearing debt for what they term a noninterest-bearing one, and the making of a political issue out of a business proposition and necessity. I do not believe note issuing is one of the functions which the Government can, for the best interest of the people, properly exercise. There are many functions of government which State and city corporations deriving their power from the people might rightfully exercise, but which, for purposes of public policy and for the purpose of contributing to the best interest of the individuals, they grant to corporations or individuals who, under the circumstances, can better carry them out. Undoubtedly circumstances might arise where a city could do better if it maintained its own electric-light or gas plant. There are other circumstances which would arise which would make it unprofitable for a city to go into this sort of thing. As a rule, however, it seems to me the business of the Government is to do only those things which can not best be done by the individual, either in his individual capacity or through created corporations.

The CHAIRMAN. Let me ask one question. Is it not a fact that the Government can not successfully issue greenbacks, paper money, unless it does all the other things that banks do and which make it safe for banks to do it?

THE GOVERNMENT AS A BANKER.

Mr. ECKELS. Yes, I do not think there is any question about it. The Government to do these things successfully must have of its Treasury Department a complete bank. See what this Government has. This Government has a Treasury Department issuing its promissory notes like a bank of issue without the Secretary of the Treasury, its governing