power, being given unquestioned power in law to redeem them or protect the Treasury's credit. More than once the point has been raised in Congress that he has no legal right to issue bonds for such purpose, and the same thing was seriously discussed in more than one speech during the last campaign. Upon the one hand, it thus appears that the Government is a bank of issue denied essential powers, while on the other it is, because of the subtreasury, a bank of deposit equally deficient in every necessary essential to such a bank. It takes, through this system, out of the channels of trade and commerce large sums of money every day and locks them up. It does not disburse these sums, as banks of deposit do, and in consequence works a dangerous congestion and contraction of needed funds, which not infrequently must be disbursed at great loss to the Treasury. When the note-issuing functions of the Government are vested in institutions created for the purpose of dealing in debts, lending credit, obtaining credit, maintaining credit, and issuing and redeeming bank notes, much has been accomplished, but the advance can be made still greater by abolishing the subtreasury and having the fiscal operations of the Government conducted in a way that does not arbitrarily take out of the needs of commerce the large sums which it now does.

As it is to-day, I repeat, the Government's Treasury is a bank of note issue without a single element of note-issue power necessary to the maintenance of it, and a bank of deposit without a single essential element to a bank of deposit. As a result of these two features the Government's fiscal operations have become the largest factors in the private fiscal operations of every private individual. No private individual in this country undertakes to conduct large operations until he has tried to ascertain what the Government is going to do in its financial operations. Mr. FOWLER. If you will allow me, I do not think you just answered the point Mr. McCleary wanted to cover, and that is, why can the banks better maintain these redemptions than the Government, and the point, as I understand his question, is this, that if the Government has $100,000,000 of gold to maintain $500,000,000, the banks to maintain the $500,000,000 must have $3,000,000,000 of the assets of the banks? Mr. ECKELS. I think that is embodied in the reply that they have the machinery for doing it and the Government has not.

The CHAIRMAN. It has the wealth.

Mr. ECKELS. Wealth is part of that machinery.

The CHAIRMAN. Wealth is the machinery-the various forms of wealth.

Mr. FOWLER. Machinery produces wealth.

Mr. MCCLEARY. If they did not have the gold they would have to get it.

Mr. ECKELS. They could get it because they have the means which causes those who have the loanable and investable capital to believe and know that that money which they are asked to loan to the banks will be returned to them.

Mr. COOKE. Look at it in this light. Suppose there was a strong tendency of gold to leave the country, can the bank get hold of that gold easier than the Federal Government, assuming that the volume of export is going to be largely of gold?

Mr. ECKELS. Yes; for the reason that the banks can immediately offer to those who are to come into possession of that gold, or who are obtaining it, a rate of interest which makes it more to their advantage to keep the gold here than to send it abroad.

GOLD GOES WHERE IT IS NEEDED.

The CHAIRMAN. I want to call your attention to a fact, in order to base my question upon it, that of the imports and exports of gold, not having the effect to protect the balance of trade, so far as England is concerned, or any foreign country, so far as we know, in 1887 we increased our gold holdings here $66,000,000; in 1888 we increased it by $58,000,000; in 1889 we lost $18,000,000; in 1890 we gained $27,000,000; in 1891, the next year, we lost $34,000,000; in 1892 we gained $33,000,000; in 1893, the year of the panic, we lost $57,000,000, and the next year we gained $35,000,000. In those six years we lost $103,500,000, and we gained $95,500,000, which shows we only lost during those years about $8,000,000 of gold, and we have gained in 1895 and 1896 very many times more. Now, I want to ask if it is not a fact that it certainly will return when there is an economic demand, without any reference whatever to trade or trade balances? Does it not always go to those places where the rates of interest are above the normal and leave those places where the rates are below the normal? Is not that shown by the experience of the Bank of England?

Mr. ECKELS. There may be other circumstances

The CHAIRMAN. I am supposing circumstances to be equal as to confidence.

Mr. ECKELS. Circumstances being equal as to credits.

The CHAIRMAN. As to the confidence in its return and the rate of interest, the rate of interest settles it?

Mr. ECKELS. There may be exceptional cases.

The CHAIRMAN. Did you ever hear of one?

Mr. ECKELS. Where the gold does not go to the place

The CHAIRMAN. Which has the higher rate of interest?

Mr. ECKELS. I suppose there may be cases, but as a general rule it goes to the place where the rate of interest offered is the highest and where the probabilities of its returns are best.

SCARCITY OF CURRENCY IN RURAL SECTIONS.

Mr. JOHNSON. I want to ask a question on another branch of the subject. There are certain sections of the country known as the rural or agricultural sections where there is a great scarcity of money with which to effect the ordinary exchanges of the people and where at certain seasons of the year known as the "crop moving periods" money can not be obtained for marketing the crops, except with great difficulty and at a very high rate of interest. Now, what I want to ask you is, do you hold the banking and currency system in any degree responsible for this; and if so, what remedy would you suggest?

BRANCH BANKS.

Mr. ECKELS. I do not think that the banking and currency conditions of the country are so much responsible for that, as I believe the people lack credit or the means and channels through which to obtain credit. Mr. Gallatin, Secretary of the Treasury, said, when some one spoke of the lack of money, such persons generally meant that for them there was a lack of credit, or else they had not the thing which entitled them to credit. There are many sections of the country which ought, with that which they have, to obtain credit, but they have not the means of having the fact brought to the attention of those who have loanable

money. I would reach these classes by the branch banks which would do a deposit and discount business. Very many of them can not be reached by independent banks, for many of these communities have not sufficient surplus capital exclusive of the requirements of their ordinary business needs to furnish the capital of a bank, and therefore they must depend upon having that capital brought from the outside. Branch banks would be the means of importing such outside capital and of lowering prevailing exorbitant rates of interest.

Mr. JOHNSON. You know that this scarcity of money prevails in some sections of the country where the people have property to exchange, and where there is a great necessity of effecting the exchanges?

Mr. BLACK. Will you allow me in that connection to state as a fact that I know sections of the country where, if you go to the bank with its own stock, worth on the market from $165 to $170, or with a United States bond, you have got to pay 8 per cent interest for money, when in other sections of the country with the same security you can get it for 4 or 5?

Mr. JOHNSON. I am told that the rates are even higher in some localities than 8 per cent?

Mr. ECKELS. That arises because there is no loanable capital there. Mr. SPALDING. Is it not a fact that in large rural districts where cotton, wool, and all farming products are raised, the farmer wants the currency and he takes the currency and the currency becomes very scarce, and it has to be transported into those places in order to supply their needs?

Mr. ECKELS. There is another reason, I think, that enters into it. Mr. Johnson, or some member of the committee, said that he knew of a condition of affairs where there were people in a community that had very large amounts of money, or individuals had

Mr. BLACK. Had large amounts of security.

Mr. JOHNSON. Had property and security, and wanted to effect exchanges, but there was a scarcity of money-the people could not get it.

Mr. ECKELS. I think the remedy for this condition would be found if in communities where there is a great scarcity of money—that is, no single individual has more than a very little-there were banks established of deposit and discount, and the people of such communities used these banks for the deposit even of the small sums which they have. The aggregate of these would make a large number of dollars, each one being in active use at all times instead of remaining idle. It would soon come about that instead of paying for produce and property by the transfer of currency from hand to hand they would give in lieu checks and credit instruments. In this way every dollar, instead of bearing a single transaction would bear a great many transactions and become an efficient dollar. There are mnay things no banking law, no matter how excellent, can remedy. Every new country has to pass through a period of inconvenience arising from the lack of proper facilities for bringing about the exchange of property. It is beyond the power of the law to do at once that which can only come about in time and favoring physical conditions. There must always be sparsely settled communities which will suffer from the inconveniences which Mr. Black speaks of having seen and of which other members of the committee are cognizant.

Mr. JOHNSON. What I am trying to get at is this. There is undoubtedly a lack of distribution of currency throughout the country, and there are many communities, agricultural communities, in which there

is property which the owners and holders desire to exchange, but they have not the money with which to effect the exchanges, and there are communities in which at certain times they want to use a great deal of money for instance, they want to make improvements out of the usual line or they want to move the crops-and yet they can not get the money except at an extraordinary rate of interest. Now, is not the banking and currency system, as it now exists, responsible for this scarcity of money and this high rate of interest?

Mr. ECKELS. I think not, except that these people, if given banking facilities, which I think can only be given them by branch banks or banks of smaller capital

Mr. JOHNSON. What good would it do to offer such localities a bank or a branch bank if there is not sufficient prospect for profit to induce the people to avail themselves of the offer and establish the bank there? Mr. ECKELS. Because those branches would take from the parent bank the amount of money needed in that community to transact the business. Such a community, it would be found, would not possess capital to establish an independent bank, and therefore if it was not imported it would be obliged to get along without any bank.

Mr. JOHNSON. But if there is no profit on the circulation of the notes they would not

NO PROFIT TO BANKS ON CIRCULATION.

Mr. ECKELS. The profit of a bank in this country is not on the circulating notes; the profit of a bank is on the discounts and deposits. Mr. JOHNSON. I know, but there must be some profit on the circulation of the note in order to induce the bank to issue them?

Mr. ECKELS. The branch banks would undoubtedly circulate there the notes of the parent bank or gold.

Mr. JOHNSON. It is alleged, and justly alleged, against the existing national-bank law, is it not, that it discourages the issue of circulating notes by not affording sufficient opportunities to the banks for profit on the circulation? What good, then, would it do these communities to which I have referred to establish national banks there, with the provisions for issuing notes as they now are? What I am driving at is this, will not this lack of money in these agricultural communities be much more likely to be supplied if a system of banking and currency is devised whereby the issuing of the circulating notes by the bank is made less expensive to the bank than it is under the existing system? Mr. ECKELS. I think that is so. The fact that there is no profit in circulation is the reason why the banks do not take more out.

Mr. JOHNSON. The more profit on the circulation the more likely that banks will be established in these localities. They are not going to be organized as banks of issue when there is no profit to be made out of circulation.

Mr. ECKELS. But I think if branch banks were established they not only would bring in outside capital, but in every community, no matter how poor it is, a large amount of money would go into these banks as deposits and thereby increase the loanable capital of that community with a corresponding reduction in interest charges to borrowers.

Mr. FOWLER. I would like to put a case which has been brought to my attention. A gentleman who was traveling in Iowa told me this last fall that they had an enormous corn crop, a fabulous crop, but an early frost came on that country, damaging a great portion of that crop, making it what we call soft, and therefore in an unsalable condition

and the only way to save that corn was to buy steers from Idaho and such portions of the country and bring them into Iowa and feed them with this soft corn, and it was absolutely impossible for those men to borrow any money in the State of Iowa with which to buy the cattle and feed them, although it would be the best security in the world, and hence this immense crop of corn, so far, at least, as this soft corn was concerned, is rotting to-day in the cribs of Iowa, very much to the discontent of the people.

Mr. ECKELS. There are things you can not regulate by law and you cannot make people do by law. One of the great troubles of the country to-day is that every man is depending upon the law to lift him out of some difficulty or is asking the law to give him some individual advantage. The result is that he is not dependent upon himself, and thus he fails to make his individual efforts count for very much.

ISSUING NOTES OF PRIVATE BANKS.

Mr. FOWLER. Let me put the question. Suppose a farmer lived in that place, and he had 1,000 or 5,000 bushels of corn, and wanted to buy these steers, and he could not borrow the money from the banks if he were a wealthy man. Would it not have been a good exchange and to the interest of the private banks to have issued their own notes for the notes of the men who were in that kind of business, and would not the notes have been perfectly safe, and would not they thereby have saved this vast corn crop of Iowa?

Mr. ECKELS. Oh, yes; I think that is probably so.

The CHAIRMAN. Is it not a fact that where a bank issues its currency free against its assets, which was done in the Suffolk system of New England, with which you are familiar, the currency earned a rate of interest charged by the bank issuing it upon its loans and discounts, while out?

Mr. ECKELS. Yes.

The CHAIRMAN. Then, is it not true that this interest earned to the banks lessens the rate of interest for loans and discounts that the banks are supposed to charge in order to pay the same dividends on their stock? Mr. ECKELS. That would seem to follow your proposition.

The CHAIRMAN. Let me call your attention to this fact, that in 1856 Vermont issued currency through its banks 103 per cent to its capital stock, and that was part of the Suffolk system. Now, if that was so, maintaining its full rates on loans and discounts it could loan all its other assets for nothing, except to pay its expenses and to pay the rate of interest on its capital stock that it received on its loans and discounts, might it not-that follows?

Mr. ECKELS. Yes, that too follows the statement you have made. The CHAIRMAN. Now, New York city, in that same time, only loaned 11 per cent of currency on its capital, it having that in circulation only because it comes back to banks so quickly in cities. Now, is not that relatively the difference between the ability and probability of banks in agricultural districts being able to keep their currency out, as compared with banks in cities? That is true, is it not ?

Mr. ECKELS. I think that conclusion would follow the premises you have laid down.

The CHAIRMAN. Now, to-day it appears that these same Vermont banks only issued 49 per cent in currency on their capital, and New York only 7 per cent. I want to call your attention to another thing. In Vermont, in 1856, the percentage of loans and discounts through