HEARINGS BEFORE SUBCOMMITTEE NO. 2 OF THE COMMITTEE ON BANKING AND CURRENCY, HOUSE OF REPRESENTATIVES, SECOND SESSION. SUBCOMMITTEE No. 2. CHARLES N. FOWLER, New Jersey, Chairman. WILLIAM C. LOVERING, Massachusetts. JESSE F. STALLINGS, Alabama. ELIJAH B. LEWIS, Georgia. WASHINGTON, D. C., Thursday, January 31, 1901. The subcommittee of the Committee on Banking and Currency, having under consideration the bill (H. R. 13303) "to make the currency responsive to the varying needs of business at all seasons and in all sections," met at 10.30 o'clock a. m. Present: Representatives Fowler (chairman of the subcommittee, presiding), Brosius, Hill, Capron, Calderhead, Lovering, Shattuc, Cox, Stallings, Driggs, Rhea, Thayer, and Lewis. STATEMENT OF HON. LYMAN J. GAGE, SECRETARY OF THE TREASURY. Mr. FOWLER. Mr. Secretary, we have invited you here to express your views in such way as you deem proper, reserving in the outset the right to ask any questions after you have expressed your views with regard to the measure before you or in general, as you see fit. I may say that we desire you to have the license of addressing yourself to the subject in general first and the bill afterwards, or to the bill first and the subject in general afterwards, according to your own pleasure. Mr. LOVERING. Or to the subject only, if he chooses. Mr. FOWLER. Yes, sir. Secretary GAGE. Mr. Chairman, I have read over the bill to which you have referred, and which is before your subcommittee. I think the design and purpose of the bill are in the direction which legislation should take. It is my belief that our present system of currency is awkward, stiff, irresponsive to public requirements, and unscientific in theory. It seems to me fundamental that a properly constituted currency must be issued by some agency (a banking agency, so far as we are now equipped with the proper agencies) which, while furnishing a medium of circulation, can also endow that medium with the elements of credit. That credit must be extended by some well-known agency, so that when its notes are issued they may serve to meet the needs of the commercial community for instruments of credit, effective in the exchange of property, as well as a mere medium or instrument of circulation. Our present system of currency fails absolutely to meet these requirements. The greenback is a good instrument of exchange. The silver certificate is a good instrument of exchange. The gold coin or gold certificates are equally good; and the bank note differs in no particular, as a medium of exchange, from the others. The greenback represents a contribution of capital from someone to the Government. The gold coin or the gold certificate, or the silver or silver certificate, represent capital invested in the gold or the gold certificate, or the silver or the silver certificate. The bank note represents capital to an equal or a larger amount invested in a public security. Of course it would take a great many words to cover fully this theoretical branch of the subject; and I hardly need do that at this time. But as I said in the beginning, the bank is the true agency from which should emanate the paper representatives of actual money, because they can be made the instruments by which the credit (not the capital, but the credit) of the strong and the powerful can be extended on cheap terms to those persons carrying on industry and enterprise who can employ credit in the field of production-persons whose individual credit is not well enough known, generally and publicly, to be effective for their business affairs, but who can make it effective by exchanging it with some strong, powerful, and well-known agency, such as a bank. If I have made myself even tolerably clear so far, it is plain that my conviction is that some modification in our present system should take place, which will enable a bank to more perfectly discharge its office as an agency for making credit effective in the transactions of life. This bill looks to that end. It provides, speaking generally, a modification of our present system; and under certain conditions therein named and imposed, it allows banking institutions to issue notes based upon their credit and responsibility, to a limited extent. That extent is in the beginning very limited, and from year to year becomes operative in an increased degree in that direction. In other words, it aims at a consummation, in my opinion, devoutly to be wished-not by the banking interest as a class, but by the country as a whole, if the country as a whole were able to intelligently grasp all the elements entering into the question and could see that which is for its highest interest. My only doubt about the bill is whether, in the first, place, it is timely, and whether, in the second, place it is comprehensive enough, and covers all of the questions which must be considered in bringing the matter to a true and final solution. I have a theory that if a measure valuable as this is in its spirit and essence were adopted, it might postpone until a later date than that to which it ought to be postponed, that further and deeper consideration which I have just indicated is in my opinion necessary. I will not take up your time by going into the collateral issues, some of which I have in mind; but I will endeavor to answer any questions which any of you may desire to put to me in regard to the bill or incidentals relating to it. Mr. FOWLER. Mr. Secretary, you have indicated that in your judg ment the adoption of this measure would anticipate a needed reform. Will you kindly outline what that reform would cover and involve, in your judgment? Secretary GAGE. Your question opens a rather wide field, but I will endeavor to answer it as briefly as I can. Mr. LOVERING. May I interject a question at this point? As far as the bill goes, is there anything in it that would interfere with any other or further measures which you have in mind, beyond the mere question of anticipation? Secretary GAGE. I think I will have to answer that question, "Yes; it might interfere, in that it establishes a course of affairs and a relation of things that might stand in the way of the adoption of a more thorough-going measure." That is all. When a measure meeting all scientific or practical requirements is adopted, there must be motive enough in the field (viz, banking), which must cooperate to make measures effective; and if you fix conditions that are tolerably comfortable, you may take away or fail to furnish them motives for the action which will be necessary to be taken by the representatives of the public, the bankers, in making the broader measure promptly operative and thoroughly effective. Mr. LOVERING. Now, Mr. Secretary, if you will kindly go on and answer Mr. Fowler's question, we shall be pleased to have you do so. (The stenographer read the question.) Secretary GAGE. We are in a position-speaking now as to the Government and the people whom the Government represents-which has several sides, and they must all be considered. We have $346,000,000 of immediate demand liabilities existing in the Government, clothed with the power of legal tender, and forming the basis of reserves to banks throughout the country. We have, or soon will have, about $600,000,000 of silver, which is equally clothed with the same power or function, but which, in my opinion, throws upon the Treasury a burden almost as great as the greenback burden in maintaining the parity between gold and silver; and we have a considerable volume about $340,000,000 or $350,000,000-of national-bank notes. The volume of the greenbacks seems to be fixed, or it is the strenuous effort of the Government to keep it fixed. The same thing is true of the silver. The issue of national-bank notes is regulated not at all by a demand for those services which banks perform, but wholly by the price of United States bonds in the market. The absorption of the United States bonds by the national banks, under the provisions of law which we are now considering, has given an artificial price to our securities; and we seem to have reached a point very flattering to us, where the bonds of the United States are sold or are salable at a rate of interest unexampled as to lowness in the history of the world, and unequaled in the experience of any other country. In my opinion we should modify the amount of demand liabilities of the Government of the United States. In any step we may take we must carefully guard against such a radical change as would release too greatly, or to too great an extent, the influence of national banks in the holding of Government bonds; and we must act in such a way that they would have no motive in releasing them to the market in any rapid manner. The national banks hold over 30 per cent (I think over 33 per cent) of the Government debt. The other banks of the United States, outside of the savings banks, do not hold 10 per cent. We must, if we can (having these two things in mind of which I have been speaking), modify existing conditions so as to make the issues of national banks somewhat responsive, if not fully responsive, to the needs of the community in the direction of a medium of exchange between men, and an instrument by which the credit of the bank can be extended to the borrower of credit. It is my belief that with sufficient thought and study, and an earnest desire to cooperate among those who will take a broad view of the whole situation, the present demand liability of the Government, in the shape of the greenbacks, can be retired without any cost at all to the Government in the way of interest-thus saving to the Government the expense, burden, and risk of gold redemption. This would strengthen the Government very much in its ability to maintain the parity between gold and silver, I believe the measure also might be so guarded as to prevent the second contingency from arising to which I have referred, viz, the releasing of Government bonds from national banks into the open market, to the prejudice of the Government standing and credit as to low interest. And in the third place, I believe a measure embodying these features would be perfectly safe as far as concerns the community which would hold the issues of these banks in their possession from time to time, and yet would cover that condition on which I put considerable emphasis, viz, an adequate supply of currency as the needs of the public determine to be needful, and make the form of currency carry with it the element of credit extended to those who use credit. Those are the elements which I think, Mr. Chairman, ought to be embodied in a final measure. This bill goes on that road, but it may be that it goes so far on that road that after you had gone a day's journey upon it, everyone would be inclined to sit down and pitch camp and not march any farther. And while in my opinion it is good as far as it goes-it is in the right direction and recognizes the facts, or most of the facts, to which I have referred-it is probably one of those measures devised by the author of the bill, who, seeing, or thinking that he sees, that at the present time the public mind is not prepared for a more radical and far-reaching measure, seeks to gain the benefit of some advance along the road toward a true financial system. Mr. FOWLER. Mr. Secretary, you coupled with the United States. notes and the silver burden the national-bank notes, which in the aggregate make something over $1,200,000,000. This bill provides for the deposit of a 5 per cent gold-coin fund for the current redemption of the notes issued under it. Where must this gold ultimately come from which is deposited for the current redemption of these notes? Secretary GAGE. It must come either from the present disrtibution among the people or from the United States Treasury. Mr. FOWLER. And in the last analysis? Secretary GAGE. Undoubtedly from the Treasury. And upon that point I think I anticipate your question. I would be in favor of striking out the word "gold." I would not insist upon the deposit in the Treasury of this 5 per cent in gold. I will never admit, as long as I am connected with the Government, that there is anything better than that for which the Government stands responsible, whether it be gold, silver, or any other evidence of money the Government puts out; and I will not by indirection suggest that Government forms of money, which the Government has outstanding, which it clothes with the power of legal tender, and for which it is responsible, are not good enough for all purposes of life. Nor that for this purpose, or any other purpose, gold is better; yet in my opinion the proposition is just as broad as it is long. If you require a deposit of gold for this 5 per cent fund, it probably will come from the Treasury, and in the place of the gold in the open Treasury will be substituted the Government forms of money. It does not make any difference. Mr. FOWLER. Now, by way of illustration, Mr. Secretary, suppose a banker in Des Moines wanted to make good his 5 per cent deposit of gold coin with the United States Treasury. How would he probably do it? Secretary GAGE. It is doubtful what he might do, but it would be quite open to him to send greenbacks, if he had them, and ask for their redemption and the deposit of the gold. Mr. FOWLER. He might send a draft to New York, and have his banker go and get the greenbacks, and therewith procure the gold, might he not? Secretary GAGE. That would be accomplishing the same thing by another road. Mr. Cox. By the way, could he not do the same thing with silver? Secretary GAGE. He could not at the present time. Mr. FOWLER. It is not at all likely that under any circumstances he would ship gold from any interior point, is it? Secretary GAGE. It is not probable; he would do the cheapest thing which would secure the deposit of the gold as required, without doubt. Mr. LOVERING. Then, Mr. Secretary, in place of the words "gold coin" in both the bank-note guarantee fund and the redemption fund, what would you say? Secretary GAGE. I would say, "legal money of the United States." It is more a sentimental point than an important one; but, at the same time, I think it is a proper thing to do. Mr. LOVERING. Mr. Secretary, is it your opinion that the time for the retirement of the greenbacks would be postponed by the enactment of this bill? Secretary GAGE. I am a little afraid so. I am afraid that if this bill were inaugurated, and three years passed by, so that the banks got into the position which you provide they may get into that is, unless you should repeal this bill-you would not be able to induce them to take a burden which in my opinion they must take in order to accomplish one of the objects that I name, to wit, to relieve the Government from the risk and burden of the redemption of the greenbacks and to carry them indefinitely without any cost in the way of interest to the Government. This would save the Government from any burden of interest in taking the greenbacks out of the field where they would threaten the Government Treasury with what used to be called the "endless chain," or the burden of gold redemption. I am afraid you would make the conditions so easy that the banks would be satisfied, and would not take up the additional load which I think they will have to take. Mr. LOVERING. Do you think that the operation of this bill would be to increase what you have termed the "endless chain?" |