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STATE TAXATION OF NATIONAL BANKS.

There has been for some years more or less friction arising out of the mode of assessing and collecting taxes on national-bank shares in some of the States.

The subject has been frequently and fully treated by my predecessors, and therefore in renewing it I need say only that as Congress obviously intended to protect the national banks from discriminative taxation, it would seem proper that force be given to this purpose by its more definite expression in the law.

In consequence of different constructions placed by taxing officers upon the existing statute, litigation of a costly and more or less irritating character has arisen in States which together contain nearly onehalf of all the national-bank capital in the Union.

CONCLUSION.

In selecting the information presented in this report, I have endeavored to exhibit the practical working of the present national currency and bank laws, and I have also had in view the importance of supplying material for a full understanding of the relations between the national banks and the general business of the country, in order to explain the widely prevalent desire among business men for some legislation directed to the establishment of these banks upon a more permanent basis. The national banking system had its origin during the war, and it will always stand splendid in history as an example of financial skill successful under very difficult circumstances.

The problem in 1863 was how to bring the banking capital of the country to the support of the Treasury, and it cannot be doubted that the banks then had it in their power to exact from the Government concessions far more valuable than those granted them. Even these moderate concessions have long since lost all the elements of monopoly, and the act of June 20, 1874, actually took away $55,000,000 of circulation, partly from banks organized during the war, in order to give the privilege of issuing that sum to banks in States that were cut off by the war from access to the national banking system; a measure entitled to honorable consideration, because at that time those States were without sufficient political influence to exact a share in this valuable privilege, and the then existing banks were strong enough to have made a successful resistance if they had been selfishly inclined.

The last vestige of monopoly was swept away by the act of January 14, 1875, which created a free banking system throughout the United •States, and, supplemented by the act of July 12, 1882, brought its benefits within reach of even small communities.

Under the sanction of these laws the national banks have become numerous, widely distributed, and intimately identified with the varied industries by which our entire population literally obtain their daily bread, but during the same time the rapid reduction of the funded debt of the Government has been introducing into the very basis of the system an element of instability which now hampers its extension, impairs its usefulness, and even threatens its continued existence, while there are still great areas of our country in which the natural resources are awaiting development by just such means as these banks might be made to supply.

The present financial prospects of the country induce the expectation that the funded debt will be paid off as fast as the bonds mature, and, in consequence, a question has arisen as to what changes should be

made in the national-bank system in order that it shall not suffer deterioration or destruction upon the withdrawal of the support upon which it is based by the present laws, which require every bank before beginning business to deposit a certain amount in United States bonds.

The payment of the 3 per cent. bonds, the maturity in 1891 of the 44per cent. bonds, amounting to $250,000,000, and in 1907 of the 4-perceut. bonds, amounting to nearly $738,000,000, have combined to produce a prospective scarcity in the securities available to the banks as a basis for their corporate existence, and this is reflected in the advance of these bonds to a premium so high that every day their enforced purchase becomes more and more onerous.

Banks now holding only 3-per cent. bonds, and newly organized national banking associations, are forced into the market as purchasers of the 4 per cent. or the 4 per cent. bonds, and this constant demand, in connection with the prospective scarcity already referred to, sustains and tends still further to elevate the premium on these bonds.

As the time approaches for the payment of the 44-per cent. bonds, it is reasonable to expect a still greater demand for the 4 percents, and it is a question of serious importance whether the banks can afford to hold or to buy 4 per cent. bonds after 1891.

In the present age all business men try to anticipate future conditions and to provide well in advance against foreseen contingencies; hence it is to be expected that the banks will not wait until the approach of 1891 to shape their policy with reference to the continued holding of high-priced bonds. For this reason it is not too early now to consider what legislation may be proper to remove this element of future uncertainty from the national banking system, and looking to the possible consideration of this subject by Congress, I respectfully submit the following statement of the question as it appears from the point of view officially occupied by the Comptroller of the Currency:

The fundamental postulates underlying every banking system established by law, whatever may be its form, must necessarily be:

First. That banks promote the general welfare of the community; and

Secondly. That the particular system established by law is the best obtainable under the conditions prevailing at the time and place.

These postulates, therefore, underlie our national banking laws. The first postulate will not be questioned, since no people in modern times have ever risen to civilization, or maintained their civilization, without banks; and least of all can it be questioned in this country where, besides 2,868 national banks now in operation, we have over 5,000 State banks, savings banks, and private banks and bankers, whose operations extend into the minutest ramifications of the employments and resources of our 60,000,000 of population.

The second postulate involves the question, whether the present national bank system should be preserved, and, if so, whether it is good enough as it is or whether it can be improved.

The National Currency Act of February 12, 1863, was controlled as to its purposes by the paramount necessity of inducing the banks and other capitalists to become purchasers of Government bonds under conditions that would give a basis of solid value to the currency then being paid out in immense volume under the pressure of military exigencies; hence the consolidation of these banks into a national banking system adapted to commercial and industrial needs appears only as a subordinate incident in the general scheme. As early, however, as the year 1864, it was perceived that the general welfare of the people would

be promoted by giving greater cohesiveness and method to the system regarded more especially in its banking than in its currency features, and from that time to this the effort of legislation has been to subordi nate the issuing of currency to the more important functions performed by the banks as institutions of discount and deposit. The effect of this legislation and its wisdom are exemplified in the present high credit and the consequent wide commercial usefulness of national banks.

If the system could be preserved purely as one of deposit and discount, there would probably arise an almost universal sentiment in favor of bestowing upon its preservation immediate and careful attention, but it is doubtful whether the banks would find sufficient inducement to remain in the system without enjoying some privileges as to the issue of currency, and it has been questioned whether there is power under the Constitution for the charter of national banks, except as instrumentalities for a money circulation.

It follows, therefore, that any legislation directed to the improvement and permanent establishment of the national banking system must include some provision for the maintenance of a national-bank circulation, while on the other hand it appears that whatever opposition exists to the national banks attaches to them mainly as banks of issue, and under our system of government nothing can be regarded as permanently established until it has obtained the support of a well-settled public opinion. Hence it is evident that the problem now to be solved is how to remodel the currency features of the national-bank system so as to obtain popular approval of them.

Objections to the present national-bank currency appear to be comprised within three classes, namely:

1. A general objection to paper money in any form.

2. An objection to national-bank notes based upon the assumption that they take the place of an equal amount of paper money that might be issued directly upon the credit of the Government.

3. The objection that a currency determined in volume by a definite percentage upon deposited securities of high value can never possess the flexibility and elasticity of volume which are the chief commercial advantages of a bank currency in any form.

Against these objections it has been answered

1. That the question as to having paper money at all is not at present a practical one, because it is evident that our people will have paper money in one form or another, and that of all forms of paper money of which we have had any experience, the present national-bank currency is the least objectionable, even to those who think that all such money should be avoided.

2. That while a bank currency based on Government bonds and redeemable in greenbacks may be considered as a kind of Government money, on which the banks are getting the profit, yet without this privilege, or some other equivalent to it, the national-bank system could never have been established, nor can it now be maintained, and that this is the cheapest price at which the people or the Government could have got any banking system so good in all respects and so valuable as this has proved to be.

Another argument is that the Government must pay interest upon its bonds whether these are held by the banks or not, hence the profit to the banks on these bonds has been obtained without charge on the Treasury; while, on the other hand, if the banks had not been offered sufficient, inducement to invest in these bonds, many more of them

would have gone abroad at low prices, and the country as a whole would now be so much the worse off.

3. That the want of flexibility in the currency and of elasticity of volume are consequences arising from the scarcity of bonds and the high prices to which they have risen, and that this could not have been foreseen nor provided against in the original acts, but may now be remedied by proper legislation.

These objections and the answers to them are stated without comment. They are gathered from current discussion in the press, and seem worthy of consideration.

Some suggestions have been made to me as to new legislation on this subject, which, together with such conclusions as I have been able to reach, are subject to whatever disposition Congress may be pleased to order. W. L. TRENHOLM, Comptroller of the Currency.

Hon. JOHN G. CARLISLE,

Speaker of the House of Representatives.

REPORT OF THE CHIEF OF THE BUREAU OF ENGRAVING

AND PRINTING.

TREASURY DEPARTMENT,

BUREAU OF ENGRAVING AND PRINTING,

October 15, 1886.

SIR: I have the honor to submit the following report on the operations of the Bureau of Engraving and Printing for the fiscal year ending June 30, 1886:

SECURITIES PRINTED.

There were finished and delivered during the year 26,655,496 sheets of securities. Of these 4,977,248 were United States notes, certificates, and bonds, and national-bank notes, amounting in value to $563,506,290; 20,891,250 were sheets of internal-revenue and customs stamps, containing 478,624,050 stamps; and 786,998 were drafts, checks, certificates, licenses, and work of similar kinds. A large amount of miscellaneous work, not falling under any of the above heads, was also done for the various Departments of the Government.

The aggregate number of sheets delivered was 1,562,210 less than.in the fiscal year 1885, and the deliveries of notes and securities 2,717,288 less. This falling off was chiefly due to the diminished production of United States notes, caused by the stoppage of the issue of $1 and $2 notes.

Since the close of the year the work of the Bureau has been greatly increased by the preparation of new silver certificates of small denominations, under the act of August 4, 1886, and of the various classes of oleomargarine stamps, under the act of August 2, 1886. As the latter act took effect in ninety days from its passage, it was necessary to engrave the plates in time to have the stamps in the hands of the collectors of internal revenue by the 1st of November. Fourteen different varieties and denominations of stamps being required, all of which had to be prepared from new designs, there was thrown upon the engravers a great amount of work, which somewhat interfered with the preparation of the plates for the new silver certificates. Plates for the one-dollar

certificate were, however, completed on September 6, 1886, and the first delivery of the certificates was made to the Treasurer of the United States on the 20th of that month, less than seven weeks after the passage of the act authorizing their issue. Certificates of this denomina tion are now being printed and delivered at the rate of 28,000 sheets, or $112,000, a day. As the appropriation for this purpose was based upon an estimated demand of only 20,000 sheets of United States notes and certificates of all kinds, this result has been made possible only by carefully husbanding the resources of the Bureau. The plates for the twodollar certificates are nearly finished, and the certificates will be ready for issue during the mouth of November. Work has been begun, also, upon the plates for the five-dollar certificate, the only other denomination authorized. In this and all other new work engraved by the Bureau the use of the so-called patent lettering has been discarded. This change has not only led to better and more artistic results, but has greatly reduced the expenses of the engraving branch. It is the purpose to gradually replace the plates produced by this method with new plates engraved by hand.

The work of sealing and separating the United States notes and certificates has been carried on in the Office of the Treasurer of tho United States during the last year, in pursuance of the arrangement made in July, 1885. A separate appropriation for the persons employed upon this work was made by the appropriation act for the current fiscal year, but the force provided for was found to be insufficient to seal and separate the large quantities of notes and certificates recently delivered. The additional operatives required have accordingly, by direction of the Secretary, been detailed from this Bureau. It is understood that an estimate for the wages of such of these employés as will be permanently required in the Treasurer's Office will be submitted to Congress.

EXPENDITURES.

The expenses of the Bureau for the year, as compared with the fiscal year 1885, were:

For salaries of officers and clerks and wages of employés other than plateprinters and their assistants.....

For plate printing, at piece rates, including the wages of plate-printers' assistants

For materials, tools, and miscellaneous expenses.

For salaries of office of custodian of dies, rolls, and plates

For salaries of employés sealing and separating notes in Office of the
Treasurer of the United States.

For pay of special witness of destruction of securities..

Total....

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The reduction in expenses, as compared with the preceding year, is, therefore, $201,987.63. The cost of maintaining the Bureau was less than in any year since 1878. The lowest expenditure in any year within that period was $814,077.01, in 1879, and the highest $1,104,986.43, in 1883. Of the amount expended last year, $18,296.85 was charged to the appropriation for salaries of the Bureau of Engraving and Printing, and $299,347.78 to the appropriation for labor and expenses of engraving and printing. The remainder, $445,563.21, is the amount charged for work done for the various Departments and for engraving plates for national banks, and transferred to the credit of the appropriation for

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