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UNITED STATES FOURS, 1925, AT 117 PER CENT.

The way profits are made to appear in the figures of the broker.

Same system of figuring applied to the Walker bill, H. R. 171.

[Money at 8 per cent.]

[Money at 8 per cent under Walker bill (H. R. 171).]

$100,000 4 per cent bonds would yield per annum..

$90,000 circulation loaned at 8 per cent would yield per annum .....

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Less tax on circulation, 1 per cent..

$900.00

Less sinking fund to retire premium on bonds, to be set aside each year, and improved at 4 per cent......

Less expenses . .

313.00 100.00

1, 313.00

Net income with circulation, per annum.

Net income without circulation, by loaning net cost of bonds, $116,500 at 8 per cent, per annum..

9,887.00
9, 320.00

Interest on $116,500 at 8 per cent.

Tax on $116,500 reserve notes 1.5 per cent.
Expenses....

Increased net cash income. On an investment of $0,000.00.

$9,320.00 233.00 100.00

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The increased income on an investment of $116,500 by using it to take out circulation would be .486 per cent, or. Providing every dollar of the currency was always in circulation.

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$100,000 4 per cent bonds would yield per annum. $90,000 circulation loaned at 10 per cent would yield per annum......

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Less tax on circulation, 1 per cent.

$900.00

Interest on $116.500 at 10 per cent.

Less sinking fund to retire premium on bonds, to be set aside each year, and improved at 6 per cent.......

226.00

Tax on $116,500 reserve notes, per cent.. Expenses..

$11, 650.00 233.00 100.00

Less expenses

100.00

11,983.00

1, 226.00

Increased net cash income..

12, 482.00

Net income with circulation, per annum.

11, 774.00

On an investment of $0, 000.00.

Net income without circulation, by loaning net cost of bonds, $115,500 at 10 per cent per annum..

11, 650.00

The increased income on an investment of $116,500 by using it to take out circulation, would be 0.106 per cent, or..

124.00

Providing every dollar of the currency was always in circulation.

APPENDIX U.

[The Journal of Commerce and Commercial Bulletin, 19 Beaver street and 64 New street.] NEW YORK, March 31, 1896.

DEAR SIR: Having given public expression to certain views relating > to the origin and remedy of the embarrassments of the United States Treasury, arising from the unusual conversions of notes during the last three years, it has been suggested that I should lay the same before the Committee on Banking and Currency for their consideration.

Accordingly, I beg permission to place in your hands the inclosed manuscript, for such disposal as may seem to you most proper, and have the honor to remain,

Yours, respectfully,

Hon. J. H. WALKER,

W. DODSWORTH.

Chairman Committee on Banking and Currency.

THE TREASURY QUESTION-ITS ORIGIN AND SOLUTION.

The nature of the embarrassments of the United States Treasury in connection with its demand notes is sufficiently understood to need no very extended definition. Briefly stated, it consists in the inability of the Treasury to maintain its gold reserve at an amount large enough to command public confidence in its ability to redeem its outstanding $484,000,000 of legal-tender notes. Failure to maintain such redemption would necessitate the use of silver in payment of the notes; and redemption in silver would involve the depreciation of our entire legal tender and bank currency to the level of the concurrent market value of silver bullion, or to about one-half of the now current value of those notes. The effect of such a depreciation of the paper legal tender would necessarily be to double the prices of commodities and other properties; and, following the universally applicable Gresham law, to drive out of the country the higher valued gold money, estimated at over $600,000,000 in amount. The purchasing power of our legal tenders, bank notes, and silver money, aggregating $1,125,000,000 would thereby be reduced one-half, which, added to the export or withdrawal from circulation of the $600,000,000 stock of gold, would make a reduction of $1,162,000,000 in the effective or purchasing power of our total circulation. We should thus have the gold valuation of our currency reduced by one-half. That 50 per cent depreciation in the value of the circulating medium would call for a duplication in the prices of the property which the money would be used to transfer. In other words, the purchasing power of the currency, as compared with the money amount of exchanges to be effected, would be one-third of what it is at present. At the same time the cash reserves of the national banks, which now range at about $350,000,000, would need to be immensely increased owing to the expansion of the deposits consequent upon the general inflation of prices, which must involve a destructive conflict between the monetary necessities of the banks and those of retail commerce a conflict which would end in an absolute overthrow of credit and of commerce. This diagnosis is an application of the principles commonly recognized among economists as governing currencies.

Such results mean an extent of industrial, commercial, and financial disorganization to which the worst currency panics of history afford

no parallel, not even excepting the experience of France under the assignats, nor that of Russia under her earlier issues of "credit bills," nor the repeated crises of England in the earlier stages of her banking. It might seem extravagant to suggest such possibilities were it not inevitable that all this must be the logical result of a final failure to remedy the recurring dangerous invasions of the Treasury gold redemption fund. These brief explanations may sufficiently indicate the nature of the derangements that now embarrass the Treasury. They at the same time illustrate the extreme gravity of the dangers inseparable from a legal-tender currency issued in large volume by a government.

II.

The remedy of this state of affairs has been greatly obstructed by misconceptions as to the true cause of the difficulty.

1. Both in Congress and out, it has been persistently maintained that the gold reserve has been systematically drained by an excess of ordinary disbursements over receipts, and upon that assumption the remedy has been sought through a bill proposing to materially increase the duties upon imports. The insufficiency of the revenue for many months past is nowhere questioned. The Secretary of the Treasury, in his last annual report (p. LII), states that "the total excess of expenditures over receipts from July 1, 1893, to December 1, 1895, was $130,221,023;" but neither in that document nor in any other financial report is there a word or a figure to show that any part of that deficit was paid in gold. Mr. Carlisle says that toward the liquidation of this debit balance he paid $22,462,290 out of his cash in hand on July 1, 1893, in excess of $100,000,000, and the remainder "by the use of United States notes and Treasury notes presented for redemption, and thus received into the Treasury in exchange for gold coin." True, the Secretary does not here explicitly say that he paid out no gold for ordinary expenditures, but, as he made a reservation of $100,000,000 to keep good the gold reserve and yet had on July 1, 1893, only $95,400,000 of gold, it is strictly reasonable to infer that this $22,462,290 of payments was made entirely in paper. The remaining payments (aggregating $107,758,733), he expressly states, were made in notes. It thus appears that from the beginning of the Treasury troubles gold has not been used to meet the ordinary expenses of the Government, and that the deficiencies of revenue have not caused the drain upon the gold reserve, nor any part of it. Nor is there any assignable reason why gold should have been so paid out, for during the whole period of defi ciency of income there has been no time at which the Secretary did not have paper enough to enable him to pay in that kind rather than with gold; and why should he part with the money it was so imperative he should keep when he had other kinds equally eligible, and which he could better spare?

Two conclusions are thus warranted. First, that other causes than the deficiencies of ordinary income have uniformly produced the drain upon the reserve, and second, that the gold borrowed to maintain the reserve has, from those other causes, been converted into legal tenders, and thereby become available for offsetting the deficits. The deficiencies were not covered by gold in any degree. They were paid from the proceeds of gold loans, it is true, but after the gold had been converted into paper from causes independent of deficits, hereafter to be considered. There was, therefore, no connection between the insufficiency of revenue and the continuous drain upon the reserve-not even the conceivable one that the deficits impaired the public credit and thereby caused

timid holders of legal tenders to convert them into gold. No such distrust has so far shown itself among the public, and even sensitive British investors have never questioned our ability to pay our ordinary obligations. On the contrary, as will be shown later on, all the exchanges of notes for gold can be statistically accounted for upon quite other motives.

2. It has been reasoned that the legal tenders issued under the act of 1890, to the amount of nearly $150,000,000, produced a redundancy of currency which, under the operation of the Gresham law, had the effect of forcing gold out of the Treasury for export. This, at best, is but a theoretic guess, and not a very cogent one at that. The Gresham law needs some discrimination in its application. The principle enunciated by Gresham is that, if in any nation there are two currencies of equal denomination, but whose current market value or purchasing power differ, then in such case the currency of inferior value will supersede that of superior value, and the latter will be hoarded or exported from the country. That is the simple all, but the very potential all, of the Gresham law. But how can this principle be said to apply in the present case? Competition between gold and the Treasury notes of 1890 does not come under this category. The two kinds of money are current at equal market value, and for that reason there has been no ground for such discrimination against or in favor of either the one or the other, as the Gresham law contemplates. It is an unworthy use of a great economic principle to thus pervert its sense to the mystification of a plain question of fact.

3. Another attempt has been made to throw the blame upon the notes of 1890. It has been urged that those new issues not only inflated the volume of legal-tender paper to the extent of 43 per cent, but at the same time proportionately reduced the ratio of reserve to notes. This is wholly true, and it is not easy to overestimate the economic and practical gravity of the fact. The official reserve against United States notes-viz, $100,000,000, or 29 per cent was none too high for a currency performing such controlling functions as the greenbacks serve. But when the volume of the legal tenders was increased by this new form of note to $495,000,000, while the minimum reserve was kept at $100,000,000, thereby reducing the ratio of the reserve to 20 per cent, a very grave offense against sound monetary principles was committed. The gold basis of our whole paper system was relatively narrowed, and its strength of resistance dangerously impaired. Next after the silver acts, the Sherman law of 1890 is the severest blow our modern currency system has received.

But, while all this must be fully conceded, it is not possible to adduce any clear evidence that this unwise legislation had developed any distinct distrust when the Treasury troubles began, or that it has since evoked any other attitude than a theoretic disapproval of the notes. The greenbacks had to share this taint with the new issues; and as the two classes of notes had the same gold basis of guaranty, and the Shermans were, besides, backed by silver bullion worth half their face value, there was a feeling that the later legal tenders might be as strong if not even a stronger note than the earlier greenback. Considerations of this sort had a certain offsetting effect against the theoretic misgivings with which the new notes were received. Be this as it may, it is a fact susceptible of clear statistical demonstration that through all the excitement of the last three years there has been no distrust against either United States notes or Treasury notes sufficiently pronounced to cause any noteworthy amount of them to be presented for

redemption. They have been redeemed to the very large amount of $310,000,000 within the last four fiscal years; but, excepting probably some three or four millions, the redemptions have been due to quite other causes than want of confidence in the redeemability of the notes. This will be demonstrated later on.

The fact, however, that neither one of the legal tenders has been so distrusted as to cause any observable demand for its exchange for gold, affords no argument whatever in favor of the quality of those notes, nor any assurance against contingencies arising under which their redemption might be demanded to an extent that would bankrupt the Treasury and precipitate our finances upon the silver basis. No such contingency has developed under the existing embarrassments of the Treasury, simply because the people have had confidence that these difficulties will be ultimately surmounted, and because the Government has been able to keep good its gold reserve by the temporary expedient of borrowing. How far this confidence, largely a matter of patriotic sentiment, is legitimately warranted, remains to be shown by the not distant outcome. Two things appear certain: First, that the process of borrowing, on which the reserve is now supported, can not be much longer continued; and, second, that when that expedient fails if no better means is provided for keeping up the guaranty fund to at least $100,000,000, we must face a general failure of confidence in the legal tenders, their wholesale exchange for gold must follow, and nothing can prevent our descent to the debased silver standard.

4. It has been asserted that the withdrawals of gold have been largely made by noteholders who, from doubt that the notes might become irredeemable and that gold might consequently go to a premium, have desired to possess the metal instead of the paper. It is scarcely necessary to correct this misapprehension here, for it has already been quite generally removed by a better knowledge of the facts, and data to be immediately considered will so completely account for the redemptions from other causes as to rule out the possibility of attributing any important withdrawals to this particular motive.

III.

Having shown the unreality of certain imagined causes of the gold drain, the way is prepared for a clearer comprehension of the real cause. The facts to be adduced will show that the disordered condition of the Treasury reserve is due to no mere unhealthy conditions of the currency nor to any disturbance of the Government credit, but primarily and purely to the deranged working of a central and controlling financial mechanism.

The trouble has arisen in New York City, and its focus lies in the exchange relations between the subtreasury and the banks. The subtreasury makes its daily settlements through the clearing house, and up to the middle of 1891 it had been the usage for the Government and the banks to mutually settle their clearing-house balances between each other in gold or gold certificates. During the fiscal year 1889-90 the subtreasury in this way paid gold balances due to the banks amounting to $230,000,000; in 1890-91 its like payments amounted to $212,200,000. These settlements fairly represented the average annual net gold payments made by the Treasury to the New York banks for a series of years. The gold thus received by the banks enabled them to pay out gold for nearly the entire local customs duties, the proportion so liquidated being, in 1889-90, 92.1 per cent of the whole, and in 1890-91, 80 per cent. From the same receipts the banks were accus

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