method of redemption is adopted, and when the Government in some form is made sponsor to the promise-a situation which, if created, will ever after prevent the note from being in touch with commerce, that is, from going into and out of the issuer's vaults in response to the varying degrees of commercial activity, such as call for an increase or decrease of the volume of currency afloat. "If we were to subject the Baltimore plan and Mr. Carlisle's plan to this test we should say that neither of them was satisfactory; in one feature Mr. Carlisle's plan is the better though not perfect, but in the other the two are alike lacking. The point in which the Secretary's arrangement is preferable is with respect to the Government indorsement; his scheme does not provide any such liability. On the other hand, the Baltimore plan states that "the notes of insolvent banks shall be redeemed by the Treasurer of the United States out of the guaranty fund if it shall be sufficient, and if not sufficient then out of any money in the Treasury, the same to be reimbursed to the Treasury out of the guaranty fund when replenished either from the assets of the failed banks or from the tax aforesaid." This provision we consider is objectionable, both because it puts the Government into the banking business, and also because no currency can be responsive to commerce which circulates on and enjoys the credit of the Government. * "No matter in what way the Government responsibility may be attached to the promise, it takes from the mobility of the note. That, of course, is the more obvious when the method of securing this responsibility is by the use of a United States bond, as is the case at present with our national-bank notes. Mr. Hepburn remarked upon this point at the bankers' convention when the Baltimore plan was under discussion. He stated that no bank-note device secured by stocks or bonds could possess elasticity. "A currency to be elastic must be issued against credit." "In no other way can it meet the wants of commerce." Mr. Homer on the same occasion said: "Our currency must be supplied by the banks, not by the Government. The banks are the arteries of commerce, feeling instantly the changes of commercial activity and intimately acquainted with its volume and requirements. Hence the currency must be elastic, stretching out over the broad expanse of business activity, able to supply its fullest wants, and contracting again as the strain of commercial vitality relaxes." Mr. Carlisle, in his recent report, made much the same assertions, showing how unsuitable the present bank-note device is for meeting great exigencies, that is occasions when commerce needs quick currency expansion, and, he might also have added, when it calls for corresponding tem porary retirement. We have ourselves several times referred to the same defect; the last two occasions were about two months ago (October 13, p. 622, and October 27, p. 719), when we specified some of the difficulties interposed to the automatic expansion and contraction of a bank currency based upon stocks or bonds or the credit of the Government. "Both of these plans are also defective in the matter of redeeming agencies for the note. The Baltimore scheme, instead of providing a method with as little friction and as much within the lines of commerce as possible, makes the redemption the same as now exists under the national banking law. Consequently Washington, the capital of the country, and in no sense a commercial center, becomes the axis around which this "flexible currency, responsive to the demands of commerce," must revolve. We can do no better than to quote the words of Mr. George A. Butler, of New Haven, on this point, who gave his views the current week to Chairman Springer and the members of the Banking and Currency Committee: "One thing [he said] he would insist upon, and that was that a central redemption bureau should be maintained in New York, since banking, being a purely commercial and not a political business, should be centered in the commercial rather than the political capital of the country. By having redemption conducted at the point to which nearly all the notes of banks all over the country were attracted, the redemption process would be made quick and easy and tue profit and the security of the circulation of all the banks thereby promoted.' "This feature of quick, easy, and natural redemption in place of the artificial and circuitous affair maintained at Washington is so essential to the keeping of any bank-note currency subject to and its quantity under the influence of commerce, we should think it would commend itself to every experienced banker desiring to make the new note system safe and to put it beyond the power of deranging our industries. "If, then, the bankers who prepared the Baltimore plan really meant what they said, will it not be necessary for them before they can attain the ends they are seeking (1) to take out the clause which makes the Government sponsor for the note and (2) to change the method of redemption?” ADDENDUM. On page 49 of the hearings, at the close of the second paragraph, the Secretary of the Treasury submitted a table showing the comparative profits of circulation under the proposed plan and under the existing law. This table was prepared in the office of the Comptroller of the Currency, and is as follows: Statement showing profit accruing to a bank issuing circulation upon the plan proposed by the Secretary of the Treasury. [Prepared by the Comptroller of the Currency.] Under plan proposed by the Secretary: A bank with $100,000 capital could receive $75,000 in notes, but must deposit $22,500 in legal tenders. $75,000 loaned at 6 per cent would yield....... Deduct expenses, etc., viz: $4,500.00 Loss of interest on $22,500 investedin "legal tenders" depos ited (at 6 per cent). $1,350.00 Annual cost redemption of $75,000 circulation. 37.50 Express charges on $75,000 circulation.. 2.50 Cost of plates for $75,000 circulation... 6.25 Agents' fees on $75,000 circulation 5.82 One-fourth of 1 per cent tax on $75,000 for “safety fund".. (This charge is based on cost of present plan of redemp- 187.50 1, 777.07 1 per cent tax on $75,000 for “safety fund," first year.................. 750.00 2, 527.07 Net profit on $75,000 first year 1,972.93 Net profit on $75,000 after first year. 2,722.93 Statement showing profit accruing to a bank issuing circulation based upon a deposit of United States 2 per cent bonds, October 31, 1894. Amount of bonds necessary to secure $75,000 circulation.... Interest on $86,805.55 bonds (costing, at 96 per cent, $83,333.33), at 2 per cent Statement showing profit accruing to a bank issuing circulation based upon a deposit of United States 4 per cent bonds, October 31, 1894. Interest on $83,333.33 bonds (worth, a t115, $95,833.33), at 4 per cent..... $3,333.33 Interest on $75,000 circulation, at 6 per cent.. 4,500.00 7,833.33 $750.00 Annual cost of redemption.... 37.50 Express charges.. 2.50 Cost of plates for circulation 6.00 Agent's fees 5.83 Sinking fund (reinvested quarterly) to liquidate premium. 670.00 1, 471.83 Net profits.... $95,833.33 (cost of bonds) would yield, at 6 per cent Net profit in favor of circulation.... 6, 361.50 5,750.00 611.50 Statement showing profit accruing to a bank issuing circulation based upon a deposit of United States 5 per cent bonds, October 31, 1894. Interest on $83,333.33 bonds (worth at 119 $99,166.66) at 5 per cent. Sinking fund (reinvested quarterly) to liquidate premium... 1, 355.00 Net profits.... $99,166.66 (cost of bonds) would yield, at 6 per cent.. Net profit in favor of circulation... Statement showing profit accruing to a bank issuing circulation based upon a deposit of United States 6 per cent bonds, October 31, 1894. Interest on $83,333.33 bonds (worth at 108 $90,000) at 6 per cent.. Sinking fund (reinvested quarterly) to liquidate premium....... 1,650.00 BANKING AND CURRENCY HEARINGS, 1894. FIFTY-THIRD CONGRESS, THIRD SESSION. INDEX. Butler, George A.. Cannon, H. W. Homer, Charles C Jackson, C. C Pratt, Enoch Pruyn, Robert C St. John, William H............. Williams, George G |