not general prosperity among the people. There can not be a situation with the people poverty stricken without capital each day lessening its own holdings and thereby impoverishing those who constitute the corporation and lessening the amount of profit which they draw from a use of the general aggregate. Mr. BROSIUS. Recurring to the first item in the general statement, I think I will ask you a question or two, Mr. Comptroller. PRESENT REDEMPTION METHOD SURE AND SAFE. Turning to page 17 of Mr. Walker's argument showing the excellencies of the bill, I want to ask you whether the present mode of redemption, under existing law, is not absolutely sure and absolutely safe, as long as the Government's credit stands. Mr. ECKELS. As long as the Government's credit is of a character that it can obtain an amount of gold necessary to meet these things; but in the maintenance of that credit there is a tremendous expense put upon the people, in the way of taxation upon bonds; and in the way of the daily disturbance of the business of the people, who either wrongly or rightly measure their undertakings by the probability of the Government's maintaining its credit. It seems to me the Government should be put in a position where the necessity did not exist for exerting itself always to maintain its credit. Mr. BROSIUS. You mean to say that the maintenance by the Government of these demand obligations under existing law is liable to bring embarrassment upon the Government? Mr. ECKELS. Yes. Mr. BROSIUS. Of course, you will see that my inquiry did not reach to that. I am only speaking of the question of redemption- Mr. ECKELS (continuing). Because it is in the power, Mr. Brosius, of any set of men in New York City, or any other part of the country, to gather up $100,000,000 of legal tenders and take them suddenly to the Treasury for redemption, and thereby break the Government. SAFE, BUT EXPENSIVE. Mr. BROSIUS. Exactly; but as long as the Government is not broken redemption is sure and safe. Mr. ECKELS. Yes, but it is made more expensive than it ought to be. Mr. BROSIUS. I am only arguing one point. Mr. ECKELS. No; it is sure and it is safe as long as the Government's credit is not broken down. Mr. BROSIUS. That is the point, then Mr. ECKELS. But it is expensive. Mr. BROSIUS. I make the inquiry because the statement in the argument is, first, that this bill provides a surer and safer method for the current redemption, and also the final redemption of such notes, than under existing law. The point is, as you have indicated, that until the Government is broken present redemption is absolutely sure and safe. Mr. ECKELS. But it can not be told from day to day whether the Government is not going to be financially broken. Mr. BROSIUS. Of course, that is so; but I say until it is broken. Mr. ECKELS. Of course if there is in the Treasury of the United States a tremendous surplus of gold which lies there as a fund for some future emergency, which is taken out of the channels of trade and which is a cause of higher rates of interest because of that fact, there is provided a safe method of redemption and a sure method of redemption; but why should we have a thing that entails such expense to accomplish the thing that we desire when we can save that expense? Mr. BROSIUS. That may be so. There may be other reasons for changing the system which do not involve the question of security. SAFER AND BETTER REDEMPTION BY BANKS. Mr. ECKELS. On the other point-the matter of safety-taken from day to day and year to year, I think that with other conditions properly adjusted there would be in a time of emergency a better and a safer redemption by the banks than by the Government. It would come about because the banks have the means, as I have stated before, of obtaining the gold immediately without going through the long process that has to be gone through with by the Government unless there is a syndicate contract. THE SYNDICATE BOND CONTRACT. There could be nothing more in point than that syndicate contract. It was an illustration of what the Treasury could do when it undertook to exercise the legitimate function of a bank to obtain gold to meet an immediate necessity. It did the thing which was designed, but in doing it it created a storm of objections. Every bank can do exactly that thing when the necessity arises, and there would not be any questions raised or issues discussed. Upon the other hand, whenever the Government undertakes to do a thing which a bank does there are protests on every side. If the banks were compelled to do this thing when confronted, as the Treasury was, with all these outstanding obligations, and with but $8,000,000 of coin in the vaults of the Treasury, they could always, within twenty-four hours, make an arrangement with those who could command the gold, to make the situation perfectly safe, and business would go on uninterrupted. Mr. BROSIUS. But up to the limitation of the ability of the Government to provide the means of redemption, it is perfectly safe and secure as it is. NOT SAFE IN AN EMERGENCY. Mr. ECKELS. It is safe and sure, but it is expensive. It is safe when everything is all right, but it is not safe when an emergency is to be met. There must be the provision for the emergency as the center of a sound financial system. A system which is good when everybody is well off financially and weak in times of financial difficulty is just the system to be avoided. The test of strength should be applied to its weakest point. Mr. BROSIUS. Given this situation when, by reason of the state of exchange we are called upon for a large export of gold, which is in the best situation, possesses the most power, and the greatest facilities for answering such an unusual demand, the Government of the United States, which has the power to issue bonds and command gold from the four corners of the earth, or the private banking institutions? CIVIL WAR CONDUCTED ON A GOLD BASIS. Mr. ECKELS. The banking institutions. The Government would have been, in more than one instance, financially embarrassed if the banks had not come to its assistance. The civil war in its first inception was carried on on a gold basis through the gold supplied by the banks and would have been carried on to its finish in that way if the Government had not undertaken to introduce a method of obtaining money through the issuance of promises to pay, in the shape of currency notes. Mr. BROSIUS. How would the banks get the gold if the people who have the gold refuse to sell it to the banks. Mr. ECKELS. There never was such a condition if sufficient was offered for it. Mr. BROSIUS. But you said if the banks refused to come to the rescue of the Government by supplying them with gold the Government would be broken; but what bank ever did refuse to come to the assistance of the Government when it could exchange its gold for a bond bearing interest and making it profitable for it to do so? Mr. ECKELS. The Government ought not to be compelled to issue bonds, increasing the taxes of the people, to maintain a Government currency which is unnecessary. Mr. BROSIUS. That raises another question, but your point is that the Government might not be able to get gold from the banks. You say the banks could do this thing better; but the banks must depend upon gold either from the people here or people in other countries, and if you assume that the banks will not let the Government of the United States have its gold-the best purchaser in the world-what becomes of my assumption that other people will not sell their gold to the banks? My point is that the Government of the United States, by reason of its power and facilities, can command gold from the four corners of the earth, and always could do it when it issues bonds, whereas the banks may not be able to find gold anywhere. Mr. ECKELS. The facts are that the Government Mr. BROSIUS. Has always found it when it wanted it. A SELFISH PROPOSITION. Mr. ECKELS. Yes, through the banks. As I said the other day, Mr. Brosius, there must be eliminated from this question the elements of patriotism and the element of sentiment. We are dealing now with a selfish proposition, and a banking system can not be established on any other lines and be perfectly safe. USE OF RESERVES. Mr. BROSIUS. Turning to statement 12, in Mr. Walker's argument, page 18, he says that the present law forbids. under severe penalties, the banks under any circumstances to use their reserves for the very purpose for which the banks are required to keep such reserves. Is it not the law to-day that any bank can use its reserves to any extent it pleases without becoming amenable to any penalties whatever, and not until the Comptroller of the Currency notifies them to make good their reserve, and they fail to do so within thirty days, do they become amenable to any penalties, and the discretion of the Comptroller can be exercised in notifying them to make good their reserve? So, as a matter of fact, under existing law any bank can use its reserves in case of a stringency to their utmost limit without becoming amenable to any penalties until notified by the Comptroller that they must make their reserve good. Mr. ECKELS. If the bank directors willfully insisted on continually violating the provision of the law that they shall not use their reserves except to pay their depositors, or in such way as the law provides, an action might be brought to forfeit the charter of such a bank. Mr. BROSIUS. How could an action be brought to forfeit the charter of a bank when it had been guilty of transgressing no law? Mr. ECKELS. I think that provision of the law Mr. BROSIUS. Let me refresh your recollection, Mr. Comptroller. DISCRETION ALLOWED THE COMPTROLLER. Mr. ECKELS. Yes, I think that provision of the law does not expect that a bank shall continually loan money when its reserve is short and that Mr. BROSIUS. But they are permitted to do so until notified by the Comptroller? Mr. ECKELS. They are not permitted to make any loans, but can use the reserve for payment of depositors. Mr. BROSIUS. So the Comptroller will understand that this question has only become important in cases of stringency where it was really necessary for the bank to draw upon its reserves beyond the usual limit, and the discretion of the Comptroller in such a case should be exercised, as he has a knowledge of the situation, and he would exercise a wise discretion in not calling upon a bank The CHAIRMAN. In not enforcing the law? Mr. BROSIUS. That is enforcing the law. The law does not require that notification at any time. The law places it in the discretion of the Comptroller as to when he shall give that notice to the bank. Mr. ECKELS. He is supposed to do it when it comes to his notice. Mr. BROSIUS. It may be so Mr. ECKELS. The Comptroller has a wide discretion, and, generally speaking, I think it is generally exercised wisely. PLACE OF REDEMPTION. Mr. CALDERHEAD. A portion of my question has been answered already in reply to questions asked by other members of the committee, but a paragraph of Mr. Walker's argument states that the bill will give, practically, final gold redemption at the subtreasury in New York and redemption in legal-tender notes and silver at country banks. The CHAIRMAN. No; it says at the national clearing houses, not subtreasury. Mr. CALDERHEAD. He says there that [reading] "under the proposed bill not a dollar of currency notes of any kind will be redeemable at the United States Treasury. It will give, practically, final gold redemption at the national clearing house in New York and redemption in legaltender notes and silver at country banks.” WITHDRAWAL OF GOLD FROM BANKS. How will that prevent the withdrawal of gold for shipment? Mr. ECKELS. It simply would make the withdrawal of gold from the banks instead of from the Treasury. That is the whole object of this bill. One of the principal objects of this bill is to make the banks the source of supply for the gold needed for business purposes, instead of the Treasury. Mr. CALDERHEAD. I understand that. Now, isn't it a fact that from 1878 until the time when the Treasury suspended gold payments of balances at the clearing house in New York the gold withdrawn was practically withdrawn from banks? Mr. ECKELS. Yes. Mr. CALDERHEAD. Since the Government suspended the payment in gold of its balances at the clearing house in New York the gold has been withdrawn from the Treasury? Mr. ECKELS. Yes. Mr. CALDERHEAD. Why would not the gold still be withdrawn from the banks if the Government would resume the payment of its balances at the clearing house in gold? Mr. ECKELS. Because there is not such faith in the credit obligations of the Government now as there was when the amount of them was less and when customs duties were being paid in gold and a very large gold reserve was in evidence in the Treasury. The banks then knew at any time they wanted to take their legal tenders to the Treasury they could get the gold in exchange therefor. Mr. CALDERHEAD. Is it not a fact that from 1878 until the Government suspended payment of its balances in gold the people paid in gold? Mr. ECKELS. Yes; because the individual then was as willing to have his legal-tender obligation, which he felt certain would be redeemed in gold at any time presented. When, however, the conditious changed, he felt it was a good deal better to have his gold, and, as he could pay in something else, he preferred to pay in something else. CAUSE OF SUSPENSION OF GOLD PAYMENTS. Mr. CALDERHEAD. What was the cause of the suspension of the payment in gold? Mr. ECKELS. I think the suspension of the payment of balances in gold arose from the conditions caused by the increase in the credit instruments of the Government without a corresponding increase in the required means of meeting them. The CHAIRMAN. I received a letter from Hon. Charles Foster, exSecretary of the Treasury, which indicated that this ceasing to pay the balances in gold was hardly a matter that came to his or anybody's cognizance. It grew up naturally and without design. CESSATION OF CUSTOMS PAYMENTS IN GOLD. Mr. BROSIUS. Mr. Calderhead, will you allow me to supply the statement of the danger on that point, because I have given that matter some examination. Mr. CALDERHEAD. Certainly. Mr. BROSIUS. The fact is that the cessation of the payment by the Treasury of the balances in gold followed instead of preceded the cessation of the payment of customs in gold. In other words, by reason of the alarm that was aroused in the public mind for reasons we all understand, payments of customs in gold began to fall off, and it became necessary for the Government to cease paying its balances in gold. The point is to get the order of precedence correct. Mr. CALDERHEAD. The alarm appears to have existed in Mr. Foster's mind for a year and a half before there was an alarm in the mind of the public, and he curtailed the payments in gold himself. |