them and then put the bonds, if you have no money, in their place, instead of undertaking to issue the whole amount of bonds and redeeming the whole of the notes? Mr. ECKELS. I do not think it would be better, nor do I think it would be as good, but you might be able to have it accepted by Congress. Of course you have to meet prejudice and you have to meet opposition in any measure you may present. A bank bill can not be successfully established, however, on any other than a correct basis. Certainly if this bill should be enacted into law there ought to be a provision that when these legal tenders are deposited to secure circulation they will be at once destroyed, and thus an end made of them. When the bank goes out of business the Government should then return in gold to the bank depositing the amount in dollars of legal tenders theretofore deposited by the bank. The same rule should prevail when it reduces its circulation. It ought to be distinctly understood that when the Treasury issues thus go into the Treasury for the purpose of securing circulation that is the end of them. TAX UPON CIRCULATION. Mr. Cox. I think we have got the germ of that section. The third section fixes the tax upon circulation, and that is all. Mr. ECKELS. It has been found by careful calculation that one-fourth of 1 per cent is a sufficient amount of tax to meet all Mr. Cox. This is one-half of 1 per cent, and it is payable every six months, you see. Mr. ECKELS (continuing). That one-fourth of 1 per cent is sufficient to meet all the necessary expenses. Mr. Cox. Then it might be well provided that on the 1st of January and the 1st of July of each year, instead of paying one-fourth, it is well to put in there one-eighth, of 1 per cent? Mr. ECKELS. Yes; as Mr. Johnson said the other day, it is wise to keep the tax on circulation as low as possible, in order to make bank notes as cheap as possible to the institution which intends taking them out. Mr. NEWLANDS. Is that tax payable in gold, or how? Mr. Cox. No; it is payable in lawful money. You mean in this section of the bill? This bill is based on the idea that anything can be discharged in lawful money. Mr. NEWLANDS. The circulating notes are lawful money? Mr. Cox. Whatever is legal tender by law. That is the idea this bill is based on-that, with whatever is established as legal-tender money by the Government it can redeem the notes and pay the tax; but it does not undertake, of course, to decide what is legal-tender money, and it ought not to be fixed in a bill of this kind, I think. The fourth section Mr. ECKELS. That is the section I have been talking about. It does not make the provision which I think ought to be made, if such a system should be entered upon, of permanently retiring your legal tenders. Mr. Cox. One moment, so as to get it clear to the reporter, here. Your idea about that is, it would be an improvement, whether it would be satisfactory or not, upon this bill, that when those notes are deposited for circulation-I mean Treasury notes, etc.-and the circulation is taken out, there should be distinct and full understanding that it is the last of those notes, as far as disturbing the Treasury is concerned? Mr. ECKELS. Yes; the plan under this bill would be to pay and cancel them gradually, and do it without issuing bonds. Mr. Cox. Let me call your attention to another point in this section This is a broader provision than returning the note: we are on. And thereupon a sum equal to 30 per cent of such canceled notes shall be returned to the association, in lawful money of the United States. It does not make it imperative to return the notes at all, but makes it imperative to return lawful money of the United States. Mr. ECKELS. That gives the Government the discretion to return its legal tenders and Treasury notes. Mr. Cox. Or any other money which is legal tender. The next section requires a safety fund, which I do not think we need to refer to. There is the fifth section. I think I have never heard that the Comptroller objected to that isolated section. Mr. ECKELS. That is a very safe precautionary measure. Mr. Cox. In the discussion we had in the House there was no criticism on that which I heard? Mr. ECKELS. No. INVESTING SAFETY FUND IN BONDS. Mr. Cox. Then the sixth section gives the power to invest the safety fund in bonds, and there can be no objection to that. The interest accumulating upon the bonds so invested goes to increase the safety fund. I should say there can be no serious trouble about that. The seventh section Mr. ECKELS. That is the section covering the discretionary power vested in the banks of going into this system if deemed best on their part to do so. Mr. NEWLANDS. Can it have both kinds of circulation at once under your bill? Mr. Cox. Here is the point, that the banks are not compelled to go in under this system. They may go in under it and it gives them the choice. So far as the circulating notes are concerned there is no distinction. Mr. NEWLANDS. I understand that it contemplates circulating notes issued on bonds and also circulating notes issued under the provision of this act? Mr. Cox. Permit me to say I am discussing the bill from my view of it. The Secretary did not think that way, but I think they should be compelled. Section eight is a repeal of some sections we are all familiar with, which ought to be repealed to make the bill harmonious. REDUCING CIRCULATION. Mr. ECKELS. As I remember it, the last section mentioned, which it is proposed to repeal, is that section of the banking act in which it is provided that after a bank has reduced its circulation it is not permitted to take out new circulation until the lapse of six months? Mr. Cox. Let me see; that is right. That is the first one. Mr. HILL. And it also requires the total withdrawal of not to exceed $3,000,000 a month. That repeals that provision. Mr. ECKELS. The design being that there should not be a hard-andfast line fixed relative to circulation, but in a large measure it should be left discretionary to the banks to say whether or not they should reduce their circulation, and when. Mr. HILL. Pardon me, this section does not leave it discretionary with the banks. They must have the written consent of the Secretary of the Treasury. Would you approve that? Mr. ECKELS. My own view of the matter is to leave it entirely discretionary with the banks. As I have said a number of times before, I think that the banks are best able to judge in the matter, and that they will not do anything in the way of reducing circulation that is going to injuriously affect communities in whose prosperity they are interested for their own prosperity. COMBINATION BY THE BANKS. Mr. Cox. That is evidently intended to meet the matter of preventing any combinations by the banks. Mr. HILL. Do you believe that such a combination is possible? Mr. Cox. There is more in that section than that. On the top of page 6, that section: As directs the Secretary of the Treasury to receive deposits of gold and to issue certificates thereon. That stops that? Mr. ECKELS. Yes. Mr. Cox. The next is: And section 31 of the act approved June 3, 1864, entitled "An act to provide a national currency secured by a pledge of United States bonds, and to provide for the circulation and the redemption thereof." Of course that is repealed in harmony with the act. And sections 5191 and 5192 of the Revised Statutes of the United States, and all acts and parts of acts amendatory thereof, be, and the same are hereby, repealed. I do not call to mind exactly what those sections are. Mr. ECKELS. I think those are sections relative to any circulation being again taken out after it has been once withdrawn. Mr. Cox. That is it. Now you can see the proviso: That no banking association taking out circulation under this act shall retire or cancel any of its bank notes without the written consent of the Secretary of the Treasury. Mr. ECKELS. As a corollary to that, if you say that a bank shall not withdraw its circulation until consent has been obtained of some official, it would follow naturally that a bank must take out circulation if it was deemed best by some public official. The CHAIRMAN. Do you mean to say it is in the bill, or ought to be? Mr. ECKELS. I say it would follow as a natural corollary. The CHAIRMAN. And therefore ought to be in the bill? Mr. ECKELS. I do not believe either provision ought to be in the bill. Neither would be wise. The CHAIRMAN. But if one is the other ought to be; is that your position? VOLUME OF CURRENCY. Mr. ECKELS. Yes; but I do not believe that either ought to be in the bill. It goes to the same thing. It is undertaking to regulate the volume of the currency by some other means than through the knowledge had through the various banks designed to supply their communities with the necessary amount of circulating medium. Mr. Cox. Pardon me just in that connection. There is the point that is the whole meat of it, about compelling a bank to take out circulation. Suppose we put the proposition in this shape, that when the circulation, as provided for by law, whatever it may be not going back to that, because that is the review of what we have gone overbut suppose we reduce the tax upon circulation to one-fourth of 1 per cent, or reduce it even lower than that, making the tax alone sufficient to pay the expenses of the preparation of the notes, etc. Now, then, you reduce the tax that way; what would be your idea and what would be the serious objection to the bank being compelled to take out circulation whether they wish it or not, and put the responsibility upon them to issue as they see proper, and always have a fund ready to the extent of their circulation provided by law to be put in circulation? Now, pardon me one moment, because we struck that point the other day, and I am sure we did not exactly understand each other. The moment, of course, the circulation is issued in the Treasury Department that is charged to the bank. Now, I think, there could be but one point to which the bank could make serious objection, and that would be the tax that is placed upon the circulation the moment it is issued from the Treasury Department. Reduce that tax to oneeighth of one per cent or to the amount of the expense the Government incurs in the preparation of the notes. They are charged with the full circulation, and the tax, whatever it is fixed at, is a tax on the full circulation. Would not that have the effect of inducing the banks to take out the circulation and hunt for investments for the money? If you make the objection that if you do you would make an iron rule as to the extent of circulation, of course you have got a rule fixed as to the amount of circulation, but as to the use of it you have got no rule fixed. Now, in my locality at certain times we need more circulation than at other times, and the bank getting advantage of this full circulation we are providing for takes it under the reduced tax of oneeighth or one-fourth of 1 per cent. Then we have no trouble, as I see it, in having the amount of circulation which meets any requirement of our people. That is the question my friend, Mr. Johnson, is very much troubled with. If we do that and reduce the tax, say, to one-eighth of 1. per cent, or the cost of what is necessarily expended about it, the bank starts with a full amount of circulation, and they pay that? Mr. SPALDING. Compel them to use it? Mr. Cox. It makes it to their interest to do so, because they are paying that per cent without any profit unless it is issued. That is what we want to get the banks interested in. The gentleman remarks that when the pinch comes they would have no surplus. This present bank law is defective in that when the pinch comes they can not get the money. I want to get that point out there and then pass to another. Mr. ECKELS. Undoubtedly, as you state, Mr. Cox, your people at one time need more money than at another, and for that very reason I should leave it entirely to the banks, knowing these various conditions, to say how much circulation they would keep out. Another thing, if you would keep out this large amount of circulation, although you do reduce the tax you curtail the availability of the banks' funds to a certain extent by an unnecessary amount tied up in a redemption fund. If they are compelled to keep out all the circulation they must always keep a redemption fund of 5 per cent locked up. Mr. Cox. But they do not keep it out. It is a matter of discretion with the banks. Mr. ECKELS. They have it from the Treasury Mr. Cox. And they are charged the per cent. Mr. ECKELS. They are compelled to keep a redemption fund upon the amount of circulation which has been issued to them by the Treasury. Mr. Cox. But you distinctly understand me that, so far as putting it into circulation and using it as money is concerned, it is a matter of discretion, entirely, with the banks. It is not that they shall put it out, because no bank could live under a law which compelled it to put out money. .MONEY ACCUMULATES IN LARGE CENTERS. Now, let me call your attention back to the remaining point, which is to me the most interesting thing in all of these bills, because I am trying to get my bill into the best shape we can. These banks, we assume, have not got that circulation in their banks from the Treasury vaults, but it is charged up to them. They can get it any day they want it. Now, the objection seems to be that you are forcing the banks to take out circulation when the banks decide there is no necessity for it. Let me show you how these things work. I have no doubt you are aware that whenever a crisis comes in our country, when money is needed in the agricultural part of the country, all the banks in the great centers, where they have got abundant money and more money than they need, begin to make overtures to us, and then they begin to try and supply us with the money. Now, then, we have to be governed entirely by the rate of interest which they charge, and I suppose every bank in the United States keeps a deposit in New York and has a correspondent there. Well, then, we are required not only to keep the amount deposited there, but when we undertake to draw on them and get money from them the rate we pay is controlled by the rate they establish in these money centers. Mr. ECKELS. I do not know exactly how you can prevent money from drifting to the large centers. Mr. Cox. There is but one way to do it, and that is the question of interest and money hunting the place where it will pay the best. That is the only rule on earth by which you can work it. Mr. ECKELS. Certainly. RATES OF INTEREST. Mr. Cox. There is but one way you can control money flowing to and fro and hunting the place where it will pay the best. Give it natural course and it will hunt the place where it will pay the best. I do not want to take up much time of the committee, but that point I wanted to elucidate. Let me take a practical illustration of it. We commence, say in October, with demands on the little banks-and most of them in my country are little banks-and the demand for money is such that we can not furnish it and we soon run to our limit and must stop. What is the next step? Why, to protect our customers and hold them in line, we take their notes and indorse the note. Of course the indorsement of a bank is what passes it in the centers; it is not the individual on the note at all. Then we get that money and we bring it back to accommodate our customers the best we can, but we can not do that for nothing. We have got to have something to pay us for the risk incurred, and it has been the result for the last fifteen years that there never has been any money which has gone out of our banks, which are in the central portion of that country, that the man getting it did not pay above 8 per cent for it. Now, if these banks had full circulation—you say |