Mr. CONANT. Yes, sir; I should say it would be completely adequate. Mr. LOVERING. That is the same question I asked Mr. Gage, and I thought I would like to have your answer on record.

Mr. CONANT. My answer is based on figures I have often made. Mr. LOVERING. It has been frequently urged that in the case of the New York safety fund it was insufficient. Was that the case, and why was it insufficient?

Mr. CONANT. Primarily because the fund was used to pay all claims against the bank, depositors as well as note holders.

Mr. LOVERING. The tax was 1 per cent?

Mr. CONANT. One-half of 1 per cent. But there was not the preliminary deposit of 5 per cent required as under your bill. I was looking at that the other night. I think it came up here. At any rate, I was interested in it, and perhaps the facts which I found I might just as well put into the record. They related to the earlier years of the system, when the largest failures occurred. They do not cover the final settlements, which were perhaps a little more favorable than these figures, but I took the capital of all the banks chartered under the safety-fund law, which stood in 1841 at about $33,000,000. Now, if they had put up the 5 per cent required by your bill and had taken out a circulation to the full amount of their capital, instead of only 10 per cent, they would have put up in that way alone $1,600,000. They would have paid, on the averag, efrom 1829 to 1841, when the worst failures occurred, about a million dollars. That is found on examining the list of incorporations. I found the average, on the whole, about so many each year up to 1841. So I took half the period and computed the tax on all of them, instead of computing it for the whole period on all of them, thinking that that would give about the amount they would have paid into the fund. They would have paid a little over $1,000,000, so that under the terms of your bill up to 1841 it would have been $2,784,116, while the amount they actually had was $914,000, or about one-third, because they had not made the preliminary deposit. That fund was compelled to meet the claims of all the banks, and then there were a great many other elements at that time that would not enter into the situation now.

Mr. LOVERING. Do you think there is sufficient homing quality in this currency?

Mr. CONANT. Yes, sir; I think there is, because it is to the vital interests of the banks to send the notes of other banks in for redemption. They are in their hands, and good for nothing. Of course they can be paid out, but they are not good for lawful reserves, and I assume that a bank finding itself with a considerable number of these credit notes would send them in for redemption in order to get lawful money, and this money would not only strengthen their reserves, but it would enable them, if it was necessary, to increase their deposits and their loans practically four times as much as if they merely held the notes for cash. For instance, a bank has a certain amount of lawful reserve in lawful money and a corresponding amount of deposits, and it has $100,000 in notes of other banks. While it might loan those notes it would be able, by exchanging them for lawful money, to create reserves, which in the case of city banks would enable them to make loans of $400,000, and in the case of country banks, $600,000. So their interest would be very strongly to exchange their notes for lawful money, and thereby, of course, reduce the circulation if it was

not profitable for the bank which had issued the note to reissue it in its own locality.

Mr. LOVERING. On the other hand, do you believe there would be inflation quality enough in this issue to send gold abroad?

Mr. CONANT. No; not to a dangerous extent. If the law requires the reserve to be in lawful money or gold, I do not think there is danger of any excessive exportation. Of course, if notes were the main form of issuing credit to-day, I do not know but that I would favor the reserve being as large as that held against deposits. The law requires so much against deposits-25 per cent in the cities and 15 per cent in the country-and I think that is sufficient.

Mr. LOVERING. I asked Mr. Breckenridge this question: Is it not true that the Canadian banks are not allowed to pay out notes of other banks?

Mr. CONANT. I do not understand that to be a fact. They pay out the notes of other banks and require the banks to pay them a commission for doing so. They divide the profits. If a Canadian bank obtains notes from other banks, it pays a commission to the bank for the issuing of them. I do not understand there is any lawful prohibition on paying out the notes of other banks in Canada.

Mr. FOWLER. Would the 2 per cent Government bonds in the United States, in your judgment, fall if we should remove the requirement that now exists for holding them as a part of the assets of every national bank?

Mr. CONANT. Do you mean remove it optionally?

Mr. FOWLER. Remove it to-day and say that no bank shall be compelled to hold any Government bonds. Under those circumstances do you believe that the 2 per cent Government bonds would fall perceptibly?

Mr. CONANT. I am inclined to think they would.

Mr. FOWLER. How much?

Mr. CONANT. It is impossible to say.

Mr. FOWLER. How much, in your judgment?

Mr. CONANT. I think the time might come when they would fall to par, although that would depend upon the demand and the quantity. Mr. FOWLER. I would like to get your judgment as a student upon the question of whether the 2 per cent gold bonds of the United States would fall perceptibly if we removed the condition requiring national banks to hold Government bonds. If so, to what point would they fall?

Mr. CONANT. It is impossible to say to what point they would fall; it would depend very much upon whether the banks were largely owning them.

Mr. FOWLER. Do you think they would fall to 90?

Mr. CONANT. No, sir.

Mr. FOWLER. Do you think they would fall to 95?

Mr. CONANT. No, sir.

Mr. FOWLER. Do you think they would fall to 97?

Mr. CONANT. With the present quantity, I should say no.

Mr. FOWLER. Assuming the conditions?

Mr. CONANT. No, sir; I do not think so.

Mr. FOWLER. In other words, I want to have your opinion upon the question of whether it is at all necessary to link any system of credit currency with a secured currency, because, forsooth, we have so hinged the two together.

Mr. CONANT. Under the present conditions I do not think the price. of the bonds would fall below par.

Mr. FOWLER. In 1891 the price level was about what it was on the 1st of January, 1901.

Mr. CONANT. The price of bonds or commodities?

Mr. FOWLER. No; the price level of commodities. The circulation at that time was about $21 per capita. On the 1st day of January, 1901, when the price level was the same as in 1891, we had about $28 per capita. Will you tell me whether or not in your judgment there is such a condition of things in the United States as to require $7 per capita more now, with the price level the same, than we had in 1891? Mr. CONANT. That is a difficult question to answer. The probability is that money is better diffused now; that is, there is not any more per capita in the custody of people at present who then had all they needed, but there is more money in the hands of those who did not have any then.

Mr. LEWIS. Do you think this is about the best bill we can prepare to carry out your views?

Mr. CONANT. Yes, sir; there are a great many propositions that could be presented that would carry out the main principle, but I think this bill carries it out in a modest way. It will probably need exten

sions later.

Mr. FOWLER. Do you or do you not anticipate a retirement of a portion of the national-bank notes that are now outstanding as a result of the experience on the part of the banks that they have been unable to keep out the circulation just now?

Mr. CONANT. I think it is quite probable, although, owning the bonds, they are likely to force the notes back into circulation.

Mr. FOWLER. But will not the average length of time that the notes are in the bank reduce the profit so as to compel them, out of selfinterest, to retire a portion of the circulation?

Mr. CONANT. Yes, sir; it is useless, comparatively, to them.

Mr. FOWLER. It is a loss?

Mr. CONANT. If they own the bonds, it is a loss. A man can not recover his capital if he does not sell the bonds.

Mr. FOWLER. Suppose the national banks shall find at the end of a period when they balance their books that they have been unable to keep their notes out half the time?

Mr. CONANT. There then would be a tendency to sell the bonds if they could do so profitably.

Mr. FOWLER. Suppose they should find that one-half of the capital has been idle, they would loan it if one-half of the notes had been lying idle in the bank all the time?

Mr. CONANT. That would depend on the price of the bonds; they might hold the bonds to draw the interest.

Mr. FOWLER. It is a current loss?

Mr. CONANT. Yes, sir.

Mr. FOWLER. And the bank would be inclined to get rid of the bonds and reduce its circulation?

Mr. CONANT. Yes, sir. You can not rely on the bonds to stimulate the circulation.

Mr. LOVERING. I want to ask a question, which I think Mr. Fowler has asked a good many times, whether an issue of these bonds will tend to increase the burden upon the gold of the Treasury?

Mr. CONANT. No; I do not think so. As I understand the position which has been taken by some of the critics of the bill, it is that the ability to secure the redemption of notes from the fund in the custody of the Treasury will add to the pressure upon the gold reserve. I can not see that that would be the fact to any perceptible extent, because the volume of Government money is fixed practically under existing law. There are $346,000,000 of greenbacks and $66,000,000 of Treasury notes, and the banks are required by law to hold those notes or gold in their reserves against deposits, and whether they present a few notes for redemption or whether the notes are presented by some gold exchange house or by some individual, does not seem to me material. They are locked up in certain contingencies. More than that: If the bill of Mr. Overstreet or Mr. Hill, making the standard absolutely unquestionable, is passed, you never will have any demand for gold beyond the export demand, because you will never have any question as to the gold standard. If there is credit inflation and currency inflation, you will have an outlet-a sort of blood-letting-in the form of exports, but your demand for gold will be limited to the export demand, and your system of redemption will not go any further than the requirements of the international markets demand.

Mr. LOVERING. The demand for gold ultimately falls upon the Treasury?

Mr. CONANT. It may be put there by the banks under existing law, and there is no way to remedy that until you retire Government obligations.

Mr. LOVERING. Why does business exact that demand or promote that demand? In other words, is it a condition of business that promotes that demand for gold-I mean international business-or is it a matter of distrust?

Mr. CONANT. International exchanges call for certain movements of gold, but they regulate themselves.

Mr. LOVERING. That is by business?

Mr. CONANT. Yes, sir.

Mr. LOVERING. What I want to know is whether it is a distrust or a business demand for gold that taxes the Treasury?

Mr. CONANT. There would be no demand, from distrust, so long as there is perfect confidence in the standard, as I think there would be under a law providing for the interchangeability of money. So long as there is perfect confidence, the banks will furnish voluntarily a considerable part of the gold. They have been doing so. They have been redeeming gold certificates instead of Treasury notes or greenbacks, and in the New York clearing house the banks have some one hundred and sixty millions of gold. They will furnish that freely so long as there is no distrust, and probably they would not turn to the Treasury to any considerable extent under a pretty strong international gold movement, because of its effect in the New York money market.

Mr. LOVERING. May not the gold in the Treasury be depleted by legitimate business demands to a point that would engender distrust? Mr. CONANT. Not if the Secretary of the Treasury acted with a particle of judgment and discretion, because he has a variety of ways of obtaining gold, and should not permit it to be depleted to such an extent as to promote distrust.

Mr. LOVERING. And there is no fear that that will set in?

Mr. CONANT. No, sir; not so long as we are on the gold standard.

House Report No. 2955, Fifty-sixth Congress, second session.

CURRENCY RESPONSIVE TO THE NEEDS OF BUSINESS.

FEBRUARY 25, 1901.-Committed to the Committee of the Whole House on the state of the Union and ordered to be printed.

Mr. LOVERING, from the Committee on Banking and Currency, submitted the following

REPORT.

[To accompany H. R. 13303.]

The Committee on Banking and Currency, to whom was referred the bill (H. R. 13303) to make the currency responsive to the varying needs of business at all seasons and in all sections, reports the same back with sundry amendments.

To carry on the business of a country requires money. If there be little business, little money will be required. If there be a large business, a great deal of money will be required. In the popular use of the word, money includes all forms of circulating currency. Therefore, that business may have the fullest opportunity to develop, it must be allowed to determine in some measure the volume of circulating currency that is necessary.

The responsibility of maintaining the integrity of circulating currency should, as far as possible, be laid upon the banks issuing the

currency.

A circulating bank note dependent upon Government bonds is probably as safe and stable as the Government itself, but not safer nor more stable than a circulating note based on many billions of assets in the possession of the banks. A system of security based upon the great law of general average concentrates the power of its protection upon the smallest note of the smallest bank.

Every bank note issued under such a system has practically the assets of all the banks behind it.

The purpose of this act is to provide for a currency which shall have some degree of flexibility, expanding to meet the demand wherever and whenever business requires more money, and contracting wherever and whenever business falls off and requires less money.

It is expected that the operation of this law will afford relief to all parts of the country, and especially to those sections where a large volume of currency is necessary to move the crops during the harvesting, and a smaller volume at other seasons of the year, after the crops have gone forward.