question of discussion. That there is something wrong in a policy which so results, I think, must be patent to anyone. Nobody is discussing the general organization of the Government, because everybody thinks it is sound. Nobody is discussing our public school system, because everybody accepts it as sound. Nobody is discussing the general soundness of the fundamental laws upon which our institutions are based, because they are accepted as sound. But the very fact that everybody is discussing the question of our monetary system and the question of our banking system and the question whether or not the Government will maintain the payment of gold or silver, or whether the Government will maintain the redemption of its obligations in gold, in and of itself, demonstrates the fact that it is not up to the level of what it ought to be. It all results in doubt, and, rightly or wrongly, the Government in its fiscal operations suffers, and the business interests of the country also do.

Mr. SPALDING. Is not that same thing being discussed in Germany, in England, in France, and in every country on the face of the earth, almost as much as it is here?

Mr. ECKELS. Nobody is discussing the credit of England, or discussing the credit of France, or discussing the credit of Germany, but many have discussed and are discussing the question of whether the United States Government would be able to redeem its obligations in gold, and to that extent the credit of the Government has been injured and the credit of the people as well. This has been manifested in the withdrawal of foreign investments and the failure to make domestic

ones.

NOTES A FIRST LIEN ON ASSETS.

Mr. FOWLER. Can you see any difference between the Government taking possession of a sufficient amount of the assets of the bank to secure the note holder and giving the note holder the first lier on the assets of the bank?

Mr. ECKELS. It amounts to the same thing. I suppose the first lien on the assets of the bank would operate for the note holder by the Government taking possession of the assets for him.

Mr. BROSIUS. I would like to ask you whether you think it would be fair to give the note holder the first lien on the assets. Isn't it just as fair to give the note holder the first lien on the assets as it is under the national banking system for the Government to seize upon about $120,000 of the assets to secure $90,000 of its notes?

Mr. ECKELS. It amounts to about the same thing.

Mr. FOWLER. Is it not a fact, or is not the fact presumed, that when the notes of a bank are issued under the credit system they will bring an equal amount of assets, just the same as if you loaned out a corresponding amount of the deposits of the bank?

Mr. ECKELS. Certainly the notes are not going out except for something in return.

Mr. FOWLER. So that there is absolutely no difference, is there, between a bank loaning its deposits and a bank loaning its notes?

Mr. ECKELS. No. It loans deposits and receives promissory notes of borrowers, against which it issues its bank notes.

Mr. FOWLER. Is it not true that the experience of the national banks since 1863 shows that all those banks which have failed and been closed out have returned 75 per cent of the liabilities?

Mr. ECKELS. Yes; about an average of 75 per cent.

Mr. FOWLER. As between the creation of a safety fund, that is shown

by experience to be adequate to redeem notes, and guaranteeing the notes by the Government, which do you think would be preferable? Mr. ECKELS. The Government would run the less risk with the safety fund.

Mr. FOWLER. In your judgment that is the proper system-to have a safety fund created through a tax; and would 5 per cent be sufficient? Mr. ECKELS. It has worked very successfully wherever that has been tried. It would be an additional safeguard and guaranty to the note holder. Five per cent ought to be sufficient.

CIRCULATION OF SILVER COIN.

Mr. FOWLER. Your idea about the present amount of silver money circulating with safety among the people is based on the fact that people would virtually find use for that much, and that our silver money, in the form of coin instead of certificates, would not be gathered as silver and presented for redemption?

Mr. ECKELS. I do not think they would be.

Mr. FOWLER. It would not facilitate its presentation when it is in the form of silver money?

Mr. ECKELS. It would be rather an expensive luxury to be sending the silver to a redemption point and paying the express on it both

ways.

Mr. FOWLER. That is the point.

Mr. ECKELS. It is not unlikely that the people might be able to use that amount of silver in the country. They would be unable to use any more. The amount which we already undertake to use is a very large amount.

NOTE REDEMPTION.

Mr. FOWLER. In answer to a question by Mr. Brosius, in which he referred to the redemption of notes, you said you thought the redemption of notes ought to be reduced to a minimum-reduced to a minimum in times of redemption, I suppose you meant. Were you then referring to the redemption of national-bank notes or were you referring to a system of credit currency?

Mr. ECKELS. I was referring to the redemption of the currency upon the ground of doubt as to its goodness, which I stated ought on such account to be reduced to a minimum. I coupled with that statement the statement, as I now remember, that of course it would be redeemed whenever business needs did not require it to be outstanding. The point in Mr. Brosius's first question was that the frequency of redemptions would be indicative of the doubt of the holder of the note as to whether or not it was a good note.

Mr. FOWLER. But as to its goodness; would it ever be brought in question if the notes were redeemed by the Government in case the banks failed?

Mr. ECKELS. No; certainly not; if redeemed as at present.

Mr. FOWLER. Therefore the only thing that would send it home would be the self-interest of other banks to get their own notes out? Mr. ECKELS. The wish of the individual note holder, the self-interest of other banks, and the fact that there was need of it in the demands of business.

Mr. FOWLER. That is it. The actual reason that other banks do not want it in their community and the bank itself had no use for it in circulation.

Mr. ECKELS. It is quite impossible to keep a dollar in circulation beyond the needs of business.

Mr. FOWLER. Mr. Brosius made a distinction, or an attempt at a distinction, between the redemption of bank notes and the redemption of the bank deposits. Is it not as essential to redeem its deposits as it is to redeem its notes?

Mr. ECKELS. Unquestionably it must meet its deposits just as much as it does its notes. It would no doubt have to meet its depositors' demands more frequently than the note holders' demands.

Mr. FOWLER. Therefore, the fact that the bank issues notes is no more a strain on its credit than when it takes a deposit and gives a man a pass book; is it?

Mr. ECKLES. It is simply an evidence of indebtedness on the part of the banks, taking the form of a promissory note instead of a book account. That is the only difference.

SPECIAL CHARTERS.

Mr. FOWLER. Mr. Hill asked a question suggesting that it might possibly be safer, when a bank took out its charter, to give it a special charter in which it would be determined how much credit currency that particular bank should issue. Is it not a fact that the amount of credit currency that it ought to have, from the standpoint of its own credit or from the standpoint of its local needs, would change from year to year, and, being under the control of the Government, it would always be determined from year to year? Would not that be the right system? Mr. ECKELS. My theory would be to leave it to the bank itself. Mr. FOWLER. Under the supervision

Mr. ECKELS. Yes, under the supervision of the Government's officers. I understood Mr. Hill to say that there might be in a special charter more safeguards thrown around the currency. I did not understand him to say that it would affect the volume. I think his point related to the safeguards thrown around. I do not myself believe in special charters.

Mr. FOWLER. But he pointed out that when a special charter was granted an examination could be made as to the condition of the bank, and so it could be determined in that special charter how much currency the bank could have.

Mr. HILL. I asked the general question as to whether as liberal provisions could be given under a general law in reference to credit currency as under a system of special charters.

Mr. ECKELS. The amount of credit currency ought to be regulated by the capital of the bank.

Mr. FOWLER. Would it not be better to have that entirely under the supervision of the Comptroller each year? He could pass upon each as it arose.

Mr. ECKELS. The law should be a general one. I understand from Mr. Hill, in regard to special charters, that under that method he believes extra precautions could be taken relative to the note holder.

NOTES REDEEMABLE IN GOLD ONLY.

Mr. HILL. In the bill under discussion to-day the provision for the redemption of credit currency is that it shall be redeemed either at the counters of the banks or at a clearing house city in gold, or 40 per cent thereof may be redeemed in United States Government bond notes or silver.

Mr. FOWLER. No silver in it.

Mr. HILL. No silver in your bill?

Mr. FOWLER. No, sir; and that these Government bond notes are then redeemable upon demand in gold. Now, the object I had in that was that this was a transition period, and so soon as the United States Government bond notes are retired and we have, through evolution, reached a perfect and general credit system, and there will have been no more bond notes, we will have acquired gold enough throughout the country in the banks to have gold redemption alone.

Mr. ECKELS. You would do better, Mr. Fowler, by having all your notes redeemable in gold.

Mr. FOWLER. Is it your opinion that we could start on such a system as that, and if the 10,000 banks in this country would go into it they could all obtain, say in five years, enough gold to maintain such redemption?

Mr. ECKELS. It would depend on the percentage of credit notes which the banks were permitted to issue, and it would also depend on what progress the United States made in its redemption and cancellation.

Mr. FOWLER. It is based on the funding of the debt, and all that, and coming down to a practical situation?

Mr. ECKELS. Possibly in five years. It did not take much longer than that, as I remember, to prepare for the resumption of specie payments; and when the day to commence the same arrived everybody was satisfied that redemptions could and would be made as promised and nobody wanted redemption.

Mr. FOWLER. If it is clear that in this moment of transition, or hour of transition, or decade of transition, that could, in wisdom, be done, I heartily agree with the single gold redemption, but it was only because of these notes that are of themselves Government bond notes, and redeemable in gold at the counter of the banks, that I made it optional on the part of the banks of redemption or the clearing house to redeem, if they wanted to, 40 per cent of the credit notes in United States Government bond notes.

Mr. ECKELS. More confidence would be established if it was known the notes were redeemable in gold and would not have to go through a transition state.

Mr. FOWLER. Would not that amount to gold redemption, when the other notes are

Mr. ECKELS. But it necessitates an extra step. In this extra step you create a possibility of doubt in the soundness of the note.

Mr. FOWLER. But that steadies the demand for the moment, if there should be an extra demand for gold. That is all.

Mr. ECKELS. The idea would be that the note holder would know his note was as good as any other, based on United States Government bonds.

REDEMPTION OF CREDIT CURRENCY.

Mr. FOWLER. Another question that referred to your idea that the currency of the country should be general, although credit or security. Would not the terms written and printed on the note show that one was secured and the other was purely a credit note? Would not the terms of it show that?

Mr. ECKELS. Not necessarily. A record might be kept of the percentages.

Mr. FOWLER. Do you mean to say that you would make no distinction

whatever if the United States was issuing $500,000,000-we will 'assume that much-secured by bonds, and $500,000,000 of credit notes; that there would be no distinction between the $500,000,000 secured and the $500,000,000 not secured?

Mr. ECKELS. I do not think it would be necessary; no.

Mr. FOWLER. What notes, then, would be paid off when the bonds were retired-any of the $500,000,000 that were presented first?

Mr. ECKELS. Under a general guarantee of the Government that it would redeem all notes of failed banks

Mr. FOWLER. That brings up this question

Mr. ECKELS. The Government might do this. It would have so much security absolutely for such percentage of the notes. It might take possession of such percentage of the assets necessary to reimburse it to redeem the amount issued in the way of credit currency.

Mr. FOWLER. Do I understand you to recommend, then, that the Government should guarantee all this, absolutely, instead of providing a safety fund for its redemption?

Mr. ECKELS. No, I have not recommended that; but I have said that under the guaranty of the Government there would not be any necessity of distinction in the notes. There certainly ought to be a safety fund for the Government's protection on its guarantee.

SAFETY FUND.

Mr. FOWLER. Which do you believe would be the sounder proposi tion in every sense, to provide a guaranty or redemption fund-a safety fund of 5 per cent, which is more than adequate in the light of experience or that the Government should itself directly guarantee all of the notes of the banks of the country?

Mr. ECKELS. A safety fund backed by a Government guaranty would be perfectly safe. The safety fund should be sufficiently large to make the Government's contingent liability on its guaranty as remote as possible. The Government should have as little to do with the matter as it ought, consistent with public safety.

Mr. FOWLER. Is it your opinion that it should rest upon a safety fund of 5 per cent, or that the Government should guarantee the notes? Mr. ECKELS. I should have a safety fund and have the guaranty beyond, although I do not imagine resort to it would ever be necessary. Mr. FOWLER. Because it would amount to nothing. I quite agree with you.

Mr. ECKELS. It would be as it is now. The Government's bonds are deposited by the banks to secure the notes; yet under the law there is provision that they shall also be a lien on the assets. The lien is never resorted to because ample protection is afforded to the note holder in the value of the bonds.

Mr. FOWLER. He has the first lien now, has he not?

Mr. ECKELS. Yes; but it is never looked to. The Government with a safety fund would never be called on because of its guaranty. The safety fund would take the place of the bonds deposited under the present system and the Government's guaranty that of the first lien created on the assets. The Government, however, for its remote responsibility ought to be protected by a safety fund.

Mr. FOWLER. That is it, exactly.

Mr. HILL. Will you pardon me if I ask a question not in relation directly and specifically to this matter? I would like to have the answer for my personal satisfaction, and it is not relating directly to this matter that we have been considering.