declined from $190,232,405 on June 30, 1890, to $95,485,414 on June 30, 1893.

The Sherman Act was repealed and inflation of the currency stopped, but the phenomena which preceded the repeal-that is to say, payment of customs duties in paper instead of gold and exports of that metalexist to-day simply because the contraction in business resulting from the panic and the foreign doubts about the wisdom of our financial policy has lessened the demand for currency, leaving the volume still redundant.

The remedy is to retire the superfluity. If this were done customs duties would again be paid in gold, and in all probability gold exports would be within very moderate limits, if they would not cease entirely.

INFLATION UNDER THE PROPOSED PLAN.

The possibilities of immediate inflation under Mr. Carlisle's currency plan can be judged from the reports of the national banks to the Comptroller, October 2, 1894.

Thus the cash holdings were 18.4 per cent of the current liabilities. As Mr. Carlisle proposes to abolish the compulsory reserve against deposits 25 per cent, the whole of this 422 millions of cash holdings will be legally released, except a sum equal to 30 per cent upon the new circulation.

The capital stock of the existing national banks aggregates 669 millions. SÜÜNA

The scheme will permit the issue of 75 per cent thereof, being 501 million of notes upon deposit of 30 per cent of these, or 150 millions in legal tenders.

POSSIBILITY OF SYSTEM WITH EXISTING BANKS.

INCREASE OF CIRCULATION BY NATIONAL BANKS.

Bank notes authorized.

$501, 000, 000

deduct:

National-bank notes to-day.

Assuming no reserve were held by the national banks,

30 per cent guarantee fund in legal tenders.

Possible net inflation

It is fair to assume that the banks will use their own notes to meet their depositors' calls, holding specie and legal tenders sufficient only for current redemptions.

The business of the country centers in the banks, enabling them to dictate the character of the circulating medium in daily use. Selfinterest will induce them to keep their own notes out, sending the Government paper to its creator through the custom-house and subtreasury. As the channels of circulation are already full to overflowing, it would be only as the Government paper was forced out of circulation by the banks that the new bank notes would find room to circulate and the banks begin to profit.

The helpless condition of the Treasury under these circumstances is apparent.

LEGAL TENDERS OUTSTANDING SEPTEMBER 30, 1894.

Mr. JOHNSON, of Indiana. That is, you mean after deducting that which Mr. Carlisle provides?

Mr. ROTHWELL. Yes; assuming that the circulation is taken out by the national banks, not State banks, it would deposit $150,000,000 in the Treasury for the security of the circulation of the national banks and would leave $448,000,000 of Government paper afloat.

The possible inflation of national-bank circulation being 179,000,000, the probability is that a large part of these 448,000,000 of legal tenders would in time be forced back into the Treasury, making their cancellation imperative.

The 166,000,000 of legals now held by the national banks will permit the issue immediately of the maximum of authorized circulation.

The foregoing covers only the national banks, while Mr. Carlisle contemplates in addition the issue of notes by State banks.

The "Baltimore plan," if similarly analyzed, will be found to be like wise currency expansion measures, and this at a time when each dollar of new paper money must displace a dollar of the existing Government paper.

To make either system successful the legal tenders must get out of the way.

THE FIELD FOR THE SILVER CERTIFICATE.

Mr. Carlisle provides that no national-bank note shall be of less denomination than $10. If this limitation be also placed on Statebank issues, the field for the silver certificate will be quite broad enough.

Silver certificates outstanding September 30, 1894.
Small denominations of paper money:

One-dollar.

$339, 676, 504

$39, 988, 823

Two-dollar

Five-dollar

Excess....

28, 966, 529 249, 164, 409

317, 119, 461

22, 457, 143

These 223 millions are a very moderate sum that a few years of prosperity will enable the country to absorb, and, once absorbed, would thereafter be always retained in circulation.

The question that arises from this showing is that the banks, under the Baltimore plan, or under Secretary Carlisle's plan, will have an inducement to issue their own notes and keep their own notes in circulation. Otherwise they would gain nothing, if they have no circulation of their own notes. In order to keep them out they will necessarily force the Government paper in. At present there is a superabundance of paper. That is the reason gold has gone out and that we get no gold through the custom-house. The amount of gold is down now to a mere nominal sum, it is all paper that is coming in, and as long as the business of the community does not require so much money as we now have afloat that condition of affairs will continue. The gold will not be deposited, it will be exported, owing largely to the fears of the foreigners that we are going to lose our standard currency and to fears of our general financial schemes, and owing also to the fact that the banks will take in what they deem of least value.

The Treasury is in this position: That it is authorizing an inflation, when its troubles are already due to a superabundance of paper money, and it will either have to make provision in the law allowing banks to issue circulating notes, a provision that would oblige the banks to keep the Government paper out right away-if such a provision can be put in the law-that will oblige the banks to keep Government paper out, which at the present time would mean that they could not issue any of their own; or the Government must fund its paper before the banks can issue any circulating notes at the present time. There does not appear to be any way around it; and, judging from the present condition of things, the surest index which we have of that is the receipts at the custom-house.

There is, of course, the very important question to my mind as to the ultimate redemption of notes. The Government is bound to redeem its notes in gold. We all know that. The banks would have to redeem their notes in gold, either directly or by some roundabout process-better directly-otherwise their notes will be at a disadvantage as compared with Government notes, and they could not get them out until the business of the country grew up to a requirement for a circulating medium better than now exists and which would absorb this superabundance of money that we now have.

Mr. JOHNSON, of Indiana. That is the difference between 75 per cent and 30 per cent?

Mr. ROTHWELL. Yes; that difference is inflation.

Mr. JOHNSON, of Indiana. The point you make is that there is no necessity, no use for that money?

Mr. ROTHWELL. There is no use for it now. Paper money is lying idle now, and we have too much for the condition of our business. If business increased and improved we would use the notes that we have, and gold would come into the Treasury through the custom-house. But as long as gold is not coming in there, it is an absolute demonstration that there is more paper than we require in business; and every bank in New York will tell you the same thing, that they are loaded down with paper that they can not use. This measure would simply add to that, and add to the difficulties of the Treasury, provided this money that is proposed to be issued were secured in such a way that it would be equally good with Government money. I take it that the law would require such conditions for security, and that the money

that the banks would be authorized to issue would be as safe money as Government money. In that condition it would aggravate the condition of the Treasury. It would oblige the Treasury to redeem its own paper by loans unless it could force the banks issuing to give precedence, and then the banks would have to wait for their own circulation until the banks of the country grew up to the amount of money we have. The question of the ultimate redemption in gold is becoming a more and more serious question, for the demand for gold is constantly increasing, and it is harder and harder to get.

Mr. WALKER. I understand, then, that you come to this conclusion: That the effect of Mr. Carlisle's scheme, if it works, would be to force the Treasury notes and the legal-tender notes back on the Treasury for redemption, and that it would require the selling of more and more bonds to meet the demand.

Mr. ROTHWELL. It certainly will if the bank notes can be made equal in value as security; that is, if the people would take them, for it is to the interest of a bank to force its own notes into circulation and to send home for redemption the notes of everybody else, and primarily, the Government notes would be sent in for redemption.

There is one question I desire to refer to, and that is the ability to get gold with which to redeem.

Mr. BLACK. Let us hear you on that.

Mr. ROTHWELL. I do not think that it would be possible for the Government to-day to get enough gold to redeem all its outstanding notes. The demand for gold is increasing all over the world. Since the condition amounting to full legal tender silver has been discontinued, the demand for gold has grown and there has been a constantly increasing demand for it. It is true that the increasing demand and the appreciation it has brought have induced a great many to go into the business of gold mining, and that the production of gold is increasing because the value of gold is greater than it was. But there is not nearly enough increase in the production of gold, when counted up for a long time, to compensate for the destruction of so much of the money as was represented by silver when there was a concurrent use of silver and gold.

On the question of the ultimate redemption of our Government obligations, our paper, our notes, as to what can be paid, if we go to work to increase this demand, that has already appreciated the value of gold, by asking for two or three hundred millions more of it, there is no saying where the value of gold will go to. That means that everything else which is now measured by gold as a sole standard will depreciate, and you can have no general prosperity on a constantly falling market.

Mr. WALKER. I submit that this question is not on the question before us.

Mr. ELLIS. He is talking very sensibly.

Mr. ROTHWELL. It is a question of the ultimate redemption of our notes. What are we going to redeem them in?

The CHAIRMAN. The Chair thinks the gentleman is in the line of the statements of the gentlemen who have heretofore spoken to us.

Mr. ROTHWELL. The question then is as to the rehabilitation of silver. I am a bimetallist; I am not a free-coinage advocate. By bimetallism I mean the full interchangeability of the metals. A concurrent circulation of the two metals can only be secured by an international agreement among the principal nations, which would afford a market under that agreement for all the silver and all the gold that

might be offered, at whatever ratio that may be agreed upon among themselves.

This question, of course, brings up the question of bimetallism, which may not be within the domain of your commission, but the question of the ultimate redemption of paper circulation is.

As I have said, I believe in bimetallism, because it is the only means that we have of checking the appreciation of the standard of measurement. But I am thoroughly convinced that bimetallism can not be secured in any other way than by international cooperation, with a ratio to be adopted.

My own suggestion has been to make the ratio flexible, to put it under the control of such a commission as would necessarily have to be brought together under an international agreement-call it the international monetary clearing-house-and put the control of the ratio between the metals in the hands of this commission, which would from time to time, and slowly and by small degrees, so adapt the ratio to the conditions of production as would regulate production; for it is certain that the metal that it pays people the best to produce, people are going to produce most of; and that is, if the value of gold is increasing, the people will go into producing gold, and that is why we see more gold coming out now.

As to the value of silver now, there is no market for it. Its price has gone down so much that the production has enormously decreased. By regulating the ratio you could bring about an absolute stability of production. If there were ultimately too much of one metal produced to make it possible in the future to redeem it by the other, by changing the ratio somewhat, a very little of production would change it, and the more abundant would become less abundant, and the less abundant would become more abundant. So that the control of the ratio is an absolute condition of permanent bimetallism, and with that permanent bimetallism I do not see how we are going to redeem our notes, or how we are going to have a prosperous future with a constantly decreasing value for everything we produce.

Mr. WALKER. You understand that bank notes have a practically instant redemption to-day, so that a bank knows exactly what to do with its bank notes. They are redeemed by the Government, if not redeemed by the bank that issued them. That practically displaces them from circulation.

Mr. ROTHWELL. As long as the Government has something to redeem them with.

Mr. WALKER. That is not my point. The present law requires the bank to have something with which to redeem them, so that is no answer to the question. The point is that bank notes to-day have an instant redemption out of the redemption fund that the bank keeps here at the seat of Government.

Mr. ROTHWELL. Yes.

Mr. WALKER. Your next proposition is that the Government notes, the greenbacks and the Treasury notes, have but one redemption, and that is gold, and then the banker can do nothing practically with that gold but ship it abroad, because the banks all have as much gold as they want?

Mr. ROTHWELL. I do not know that, sir. abroad until it is wanted there.

Mr. WALKER. They will not take it out of

They can not ship it

the Treasury until it is

wanted abroad, because they had as lief hold Government notes upou which they can get the gold ultimately?