Chapter XV: Foreword (15)

Will any one deny that the same power that passed the "food and drugs act," giving the Government power to stop the use of poisons in medicines and food; the "insecticide act," giving the Government power to prescribe the character of poison to be used to kill bad bugs; the "plant quarantine act," giving the Government the right to stop lice from traveling across a State line; the "meat inspection act," giving the Government power to insist upon decent meat; the "live stock quarantine act," giving the Government the right to prevent a man from driving his cattle under certain conditions over a State line; the "twenty-eight hour law," requiring shippers to treat cattle humanely; the "employers' liability act," the "safety appliance act," the "white slave act," the "hours of service act," the act regulating the transportation of explosives; will any one deny, I say, that the same power that passed all these acts cannot be exercised to protect forty-seven States in the Union against such bank practices in the forty-eighth State, as will at any moment throw the entire country into a panic and destroy all public confidence in our banks and bring in its wake the destruction of credit and consequently the destruction of vast property values?

Certainly no one will deny that any State has the power, and that it is its duty to compel every person, firm or corporation using the word "banker" or "bank" to submit themselves to jurisdiction, supervision and control of that State. Every State has the power to protect any of its citizens against the wrongdoings of other citizens, and one bank or banker against the evil practices of other banks or bankers.

In eighteen States no bank reserves are now required by law, and in many States there is no supervision whatever of State banking institutions by the State. Is it possible that the National Government has no power to act in the light of these facts when the banking business of the country is essentially not only one kind of a business, but, indeed, one single business, each one being a wheel in the great credit machine?

_It is so interlaced, and so interwoven that one rotten spot map prove as dangerous to the whole fabric of credit as a box of dynamite under one's chair. Is it possible, I say, in the light of all these facts, that there is no redress, no protection to our vast commerce, and to labor through the National Government? Is it possible that we could be compelled to continue for a thousand years in the midst of our present terrors from bad supervision and want of adequate reserves?_

The manufacturers, the merchants, the farmers, the laboring men, and business interests of every kind have a right to demand and undoubtedly will demand protection, and demand it now. Unless I misunderstand the present temper of the American people, they will now demand that their interests be safeguarded, and that they be protected against the always impending dangers growing out of the present conglomerate condition of the banking business.

I assert that this end can only be achieved by extending the same organization which many of the larger cities have already adopted to all the natural, financial centres of the country and include with them all the territory naturally tributary to such centres; in other words, that we should now extend the same organization to every commercial zone of the country of which these natural financial centres are the dominating commercial cities. This diagram will indicate more forcibly just what I mean than words can convey.

The straight lines are drawn from some centre in a city arbitrarily, and purposely so, in order to eliminate all political machinations and gerrymandering in forming the districts for any reason that may arise from time to time. They are so drawn as to divide the whole number of banks in the entire commercial zone into seven equal districts. That is, if there should be seven hundred banks in the commercial zone there would be one hundred banks in each district.

The one hundred banks in each district organize in precisely the same way, and as follows:

_First_: Upon coming together the one hundred banks of District No. 1 proceed to organize formally by electing a president and secretary. Then they select and elect their portion of the "bankers' council" of the whole zone, which corresponds exactly to the Clearing House Committee of the financial centre.

The one hundred bankers of each district elect one banker and one business man from the respective districts, or seven bankers and seven business men, or fourteen in all, and the fourteen so selected then proceed to select and elect their president, who shall not be one of the fourteen so selected by the bankers of the several districts.

These fifteen men so selected constitute the "bankers' council," and bear identically the same relation to the whole commercial zone as the Clearing House Committee bears to the banks which constitute the Clearing House.

_Second_: The one hundred bankers of each district then proceed to select and elect a banker as a member of the board of control, or seven in all, whose duty will be, among other things, to examine the banks of the entire zone precisely as the Clearing House bank examiner examines the banks of the Clearing House of the financial centre; provided, however, that the district from which the bankers' council have selected their president shall accept such president as their member of the board of control.

Will any one say that with such supervision as this board of control will give to the banks of the commercial zone, each bank having been compelled to qualify in the outset--will any one say, I repeat, that such supervision will not absolutely prevent bank failures?

This is not only important to the depositors of the country but also to the general business of the country as well.

Thereupon all banks of the zone will transfer to the board of control a part of their required reserves; that is, 7 per cent of their deposits and 7 per cent of their note issues will be deposited with the board of control. Later this should be increased to 10 per cent.

Let us assume that this 7 per cent of their deposits and 7 per cent of the notes issued amount to $100,000,000, which will be the central or economic reserve of the commercial zone and be under the control and management of the board of control.

You will recall that the bankers' council, which bears the same relation to the commercial zone that the Clearing House Committee bears to the financial centre of the zone, was composed of seven business men and seven bankers, who selected their own president. These fifteen men will select a representative from their respective zones. So that we shall have a board of directors representing the thirty or forty commercial zones directly and not indirectly. Each zone will be represented alternately by a business man and a banker, so that the board at Washington would always consist of fifteen or more business men and fifteen or more bankers; the business interests and banking interests equally, the inside and outside of the bank counter; the depositors and the banks or the trustees of the depositors.

The next logical and necessary step is a national central gold reserve if we hope to prevent our gold leaving us at the will of foreigners, and also if we hope to serve the whole nation, just as the Clearing House is serving its members today, and as the commercial zone will be able to serve all of its members, when it has been once organized. Therefore, as a sequel to the organization of the commercial zones, say thirty or forty of them in the United States, they in turn will all unite their gold in one great central gold reserve, which will amount to approximately $1,250,000,000 (one billion two hundred and fifty million dollars). We should then have the "American Reserve Bank." The amount of gold held by this institution would be twice that held by any other in the world, and would be under the control of a board of directors which I have just hastily described; I have used and suggest the name "American Reserve Bank," because we are known the world over as "The Americans," and, therefore, I think it peculiarly fit to use the name "American Reserve Bank."

This institution, with the specific powers granted to the individual banks as outlined, will be able not only to protect each individual bank, but to protect the reserves of all the banks; that is, the reserves of the United States against the drafts of the world, precisely as the Bank of England protects her gold, or adds to it by a rate of discount; that is, by fixing a price for the use of gold.

MR. MANUFACTURER: By the way, before I forget it, I want to make one suggestion right here, because it seems to me as though this was the right place to bring it in, and that is this: I am firmly convinced that a bank like yours, and all commercial banks, should be allowed to write their acceptance across the face of notes or drafts, and so develop what is called a discount market in the United States, such as they have in other countries.

MR. BANKER: Mr. Manufacturer, I am glad that you have spoken of that matter, and here is just the place to discuss it. A great many people are deluding themselves about the matter of acceptances. It must be remembered that the banks are not going to increase their own capital by increasing their liabilities through acceptances. Indeed, this practice would only add fuel to a conflagration of their credits, unless the banks should confine themselves to accepting only such paper as had grown out of actual transactions in which the goods had been sold and delivered, or were actually in transit. Moreover, by way of assurance, every piece of such paper so accepted by a bank should state upon its face that the goods for which it was given had been sold and delivered, or were in transit.

_Such acceptances are absolute agreements to pay a specific sum of money upon a specific day, and therefore are just as much a liability as a deposit subject to check, with this disadvantage, that the property is not within the control of the bank, as the deposits are, against which a check is drawn, and therefore every bank should carry precisely the same reserve against its acceptances that it carries against its deposits._

Acceptances of the approved sort will not necessarily, if at all, greatly increase production; but they will create a new form of investment, that is, a guaranteed commercial paper of which billions of the single name sort are being sold today. Of course, two-name paper with the acceptance of a bank of high standing will soon bring into being here, just as it has in London and other financial centres of Europe, new capital. That is, capital will be attracted to the business of buying and selling such high-class paper. It will be a profitable investment for the idle funds of merchants and manufacturers at those seasons of the year when all of their capital is not occupied in their business, and also for the banks of the country at those times of the year when the local demands are not equal to their supply of funds. It is undoubtedly true that such paper would also soon find a market abroad, as well as at home, and to that extent would facilitate American manufacture and commerce. But we must not deceive ourselves about the fact that the banks will just to that extent increase their liabilities while they have not increased their actual capital to the extent of a single cent.

MR. MANUFACTURER: I must confess that I have misapprehended the effect of an acceptance, but you are certainly right with regard to it, and unless we should keep the business of the country in a sound condition, the acceptance business might prove a two-edged sword, and this emphasizes the fact that we must keep a close watch upon what our commercial fund is all the time, and prevent it from being transferred and absorbed in fixed investments, which is always a bane to the commerce of a country.

We must not forget these three important factors which are always present here in the United States: first, the vast, undeveloped resources of our country, and the ever-inviting opportunities; second, the intelligence, the ambition, the impulsiveness and the optimism of our people; third, the peculiar, local relations of our twenty-five thousand, individual, independent banks, which are always in close sympathy with and affected by the growth and development of their locality and the varied interests, and the enthusiasm of the people. The vision of our local banker is largely confined to his immediate vicinity.

MR. FARMER: How absolutely true that is, and therefore how great must be our caution in opening up the flood gates of credit, before we know that we have guarded the situation at every point. I notice that those banks before the war were all so sound and successful because they had to get the coin to make redemption with. Here is something I read in a book yesterday, and it strikes me that it is right in point now: "Redemption is the breath of life to all credit." You bet I have found it's death to a fellow who's got to, and can't pay.

MR. BANKER: Yes, and when you realize that credit is the very soul of trade and commerce, as it is carried on today, how absolutely essential it becomes that credit be kept within the limits of certain coin redemption, if we are to have sound business conditions.

MR. MERCHANT: Well, Mr. Banker, how do you propose to keep credit within safe boundaries, and so insure sound business conditions all the time?

MR. BANKER: In just two ways:

_First_: By having the reserves of gold on hand in the various banks, sufficient at all times to prove all commercial credits, say from 5 to 20 per cent, according to the peculiar business and varying responsibility of the banks to their banking obligations; and in addition, such a central gold reserve as will to all intents and purposes be unlimited, so far as any possible demands may be made upon it--say 10 per cent ultimately of all individual deposits and 5 per cent of savings deposits. This would give us at the present time about one billion dollars ($1,000,000,000) of cash reserve, and about one billion two hundred and fifty million dollars ($1,250,000,000) of gold in a central reserve to meet the emergencies of commerce.

_Second_: Such a supervision of the banks by the banks themselves as will keep their assets in liquid form, at least to the extent that their assets are commercial assets and are liable for individual deposits on demand.

In this connection I want to call your attention to the fact that not a single bank has yet failed which has been under the supervision of a clearing house. You will remember that this principle was adopted in Chicago in 1906, and that today the banks in at least twenty of our leading cities are under clearing house supervision.

Gentlemen, I have been a banker, as you know, for about forty years. I have never been favorably impressed with any of the methods yet proposed for the guarantee of bank deposits, however desirable the end sought is, because they have none of them involved the matter of such supervision as would insure sound banking, and compel every bank to carry its part of the commercial burden in the way of equal and adequate reserves. But I am absolutely convinced that there never need be a bank failure again in this country, if we will only organize ourselves throughout the length and breadth of the land, precisely as the Clearing Houses have to protect themselves against the unsound practices that are always creeping into the banking business particularly.

MR. LABORINGMAN: Well, Mr. Banker, if that is true, if a bank cannot fail under the supervision of your proposed organization it will not cost anything to insure your depositors. Why not relieve the millions of depositors from the anxiety they always feel about their money in the banks? For my part, I cannot see the slightest difference between a workman's compensation act, an employer's liability act and a bank insurance act. To me they are on all fours with each other. The business in each case should bear the burden. This is the settled social policy of the country, and is in perfect harmony with that social and economic philosophy that has been gaining ground so rapidly throughout the world in recent years. I cannot see how you can escape it. I appeal to you men; am I not right about this matter?

MR. MANUFACTURER: That point has never occurred to me in this connection, but I must say I cannot see any difference whatever between my carrying an insurance policy to protect my workmen and Mr. Banker carrying insurance to protect his depositors. Can you, Mr. Banker? Before you answer me, I want you to do two things: I want you to forget for the moment that you are a banker and I want you to think twice before you speak.

I have been so deeply impressed with the points that Mr. Laboringman has just made, that to me his arguments are unanswerable.

MR. BANKER: I am ready to answer right now and ready to admit that his arguments are unanswerable.

MR. FARMER: I am glad that you all practically agree upon this very important, all important, point. I want to tell you something that happened during the past week. I tackled Mr. Lawyer about a week ago upon this point and he declared that the guarantee of bank deposits was an absurdity and unthinkable because it would cost too much.

I went home and wrote to the Treasury department to give me the average annual deposits in the National banks since 1863 down to date and also the average annual loss due to bank failures. I have a letter from the Comptroller of the Currency, gentlemen, which shows this astounding fact, that an annual tax of 35/1000 of one per cent upon the average deposits would have paid all the losses due to the failure of National banks. Think of it! Only a little over 3/100 of one per cent.

MR. LABORINGMAN: 3/100 of one per cent. Jehoshophat! Think of the misfortune and suffering that might have been saved by the payment of that mere pittance. _It is an infinitesimal nothing. Think of it: It is only 3-1/2 cents on every $100; only one-third of one cent on $10, and one-third of one mill on $1. You would not believe it. But, as I told you, I am good at figures and you can bet your life that I am right._

MR. FARMER: I want to read the letter of the Comptroller to you men.

TREASURY DEPARTMENT, WASHINGTON, January 25, 1913.

Mr. Joshua Farmer,

Loraine, New York.

DEAR SIR: Your letter of January 22d is received and in compliance with your request I take pleasure in furnishing you the following information with respect to aggregate deposits of active National banks and the liability of insolvent National banks:

The annual deposits for forty-nine years in active National banks average $2,555,700,000. The losses sustained by creditors of failed National banks (actual for closed receivership and estimated for those not closed) will approximate $44,100,000, or an annual average loss of $900,000. The average annual loss is, therefore, 0.0352 per cent of the annual average deposits in active banks.

Of the 525 National banks placed in the charge of receivers, the affairs of 478 have been finally closed and the losses to creditors definitely determined.

The liabilities of 478 insolvent National banks
the affairs of which have been finally closed
amounted to $219,357,100
Creditors received in dividends, offsets, etc. 181,215,826
------------
Loss to creditors $38,141,274

Creditors, therefore, received an average of 82.50 per cent, the loss averaging 17.41 per cent.

There are now (September 30, 1912) 47 insolvent
banks in process of liquidation by
receivers, with liabilities of $34,314,633
Creditors have received (September 30, 1912) 26,750,925
-----------
Balance due creditors $7,563,708

Creditors of these 47 insolvent banks have, therefore, received an average of 77.9 per cent. For these receiverships it can safely be estimated that the loss to creditors will be no greater than in those banks already closed, namely, 17.4 per cent.

During the past ten years 119 National banks have been placed in the charge of receivers. The affairs of 78 of these banks have been finally closed and 41 are yet in the charge of receivers. The liabilities of these 119 banks, as shown by the enclosed statement, aggregate $66,804,214. Creditors have received $56,252,544, or 84.20 per cent. If creditors were, therefore, paid no further dividends, the loss during the ten years mentioned would average only about 15.80 per cent. It cannot at this time be determined what the ultimate loss will be to creditors of the 41 insolvent banks which failed since 1902.

Yours very truly, W.J. Fowler, _Deputy Comptroller_.

MR. LAWYER: Well, here goes another complete knock-out for me, I am plumb out, over the ropes this time. I don't know that I can ever recover from that blow.

MR. BANKER: Just a moment, gentlemen, while I admit that you have won your fight for the depositors, you must remember that although you have an insurance that will cover net losses after you have cleaned up the failures and closed out the assets, you will still have quite a problem to solve to meet the demands of the depositors when the failure takes place.

MR. LABORINGMAN: If the depositors in the National banks had been insured in some way during the past forty-nine years, I do not believe that we would have had one failure in ten that we have had, and if you will now protect the banks, as Mr. Banker proposes, through his supervision by a board of control, I do not believe that we will ever have another; then why not give our 20,000,000 depositors the benefit of it, as it will cost nothing and will absolutely prevent runs on your banks.

MR. MERCHANT: Yes, and also stop the hoarding of money, which is a curse to any country where it takes place. I am not sure, gentlemen, but what the adoption of this principle of deposit insurance will do more to guarantee steady conditions than any other one thing.

MR. BANKER: Well, while the problem has its difficulties, I really think it is up to us to work it out in some way.

The folly, greedy purpose and unscrupulous methods of some of our fraternity have not only brought misfortune and overwhelming distress to their particular neighborhoods but a cataclysm to the whole commercial world because of the shock to banking credit generally.

MR. MERCHANT: Well, Mr. Banker, how are you going to protect yourself against those bankers who think that they can do better by remaining outside of the National Banking System, because they can do a scalping and scavenger business if left free. Of course, it will be advantageous for the upright banker to come into the National System.

MR. BANKER: You will remember that in 1865 Congress passed a law imposing a tax of 10 per cent upon all bank notes, except those based upon Government bonds. You also know from what has been said that the notes of all other banks immediately disappeared from circulation.

Congress has ample power, as was pointed out fully the other night, and should put a tax of 10 per cent, or even 20 per cent if necessary, upon all deposits a bank may have against which it does not hold the reserves prescribed by the National laws.

Congress has other methods it can adopt growing out of its constitutional powers by which every institution in the United States doing a banking business may be compelled to conduct its affairs upon sound principles.

MR. MERCHANT: From some statement we were looking at the other night we learned that the banks of the country were now carrying as a part of their reserves something more than $100,000,000 of National bank notes. The fact is that the amount is probably twice that, as the banks of the country, outside of the National banks, make no distinction in what they hold as reserves, between gold certificates, silver certificates, United States Notes and National bank notes. Of course this is nothing but a scheme of inflation, for there may be other credits based upon these bank notes which are themselves nothing but debts, aggregating all the way from $500,000,000 to $1,000,000,000, or more, according to the percentage of reserves the banks holding them may be carrying.

MR. BANKER: I would impose a tax of 10 per cent per day on every bank note that any bank in the United States holds as a part of its required reserves. It would not take long to force the substitution of gold coin, gold certificates, or other lawful reserves in place of these I.O. U.'s of the National banks.

MR. MANUFACTURER: During our discussions it has been demonstrated to me, at least, and I am sure to all, that there is in fact no more justification, economically speaking, for holding United States notes, or greenbacks, as a part of the reserve of a bank than National bank notes. Do you think it is wise to continue these United States notes indefinitely, as a part of our bank reserves?

MR. BANKER: I certainly do not. They are not only unfit for bank reserves, but are teaching economic lies every day that they remain out.

You are aware, I have no doubt, that the banks of this country, generally, are paying interest upon their deposits; probably as much as 2 per cent upon the average. I would impose a tax of 2 per cent upon our bank note issues, because banking is carried on upon about that basis. If a bank pays 2 per cent upon deposits, and 2 per cent upon its notes outstanding, the burden is precisely the same upon both forms of bank credits.

I would use a part of this 2 per cent tax upon the bank notes, which would amount to approximately $25,000,000, for these purposes:

_First_: To pay the expenses of the several commercial zones and the American Reserve Bank.

_Second: I would pay into the interest department of the United States Treasury an amount equal to 1 per cent per annum upon the $730,000,000 2 per cent United States bonds; so that the Government could convert these 2 per cent bonds into 3 per cent bonds, and return them to the banks to whom they belong._

_Third_: Whatever cash I had left I would use to convert the United States notes into gold certificates.

In the course of fifteen, at the outside twenty years, I figure, we would be able to convert all of the United States notes into gold certificates, and leave our banks with reserves of gold alone, with the exception of the subsidiary coin, which would, of course, be only nominal in amount.

No one will deny that this would be a most desirable thing to accomplish.

MR. FARMER: No, I don't think that anyone would make such a fool of himself as to argue or contend that that would be a bad thing any way, and you seem to have a very simple method of bringing it about.

MR. LAWYER: I noticed that you said that the tax of 2 per cent upon the bank notes would produce about $25,000,000 a year. How do you make that out, when we have only $750,000,000 of bank notes out? That would give us only $15,000,000.

MR. BANKER: I am glad you asked that question. You see that if the banks now outside the National system came into it as they certainly would, because of the very great advantages it would give them, they would have to increase their reserves at least 10 per cent upon their individual or commercial accounts, and 5 per cent upon their savings accounts. This they would do by simply exchanging their bank notes for gold coin and gold certificates, as they came in over the bank counter. The result would be an increase of our bank reserves to about $500,000,000, and of course a corresponding increase of our bank liabilities. No one would deny that this would be a sound banking proposition. For, our individual deposit liabilities, which are now $17,000,000,000, would be increased to only seventeen billion five hundred million dollars ($17,500,000,000), an increase of only 3 per cent, while our reserves, which now amount to about $1,600,000,000, would be increased by $500,000,000, or nearly 33 per cent.

MR. LAWYER: I see, then, that you propose to increase the note issue about $500,000,000. This would give us a note issue of $1,250,000,000, and 2 per cent of this would be $25,000,000.

We had a chart here the other night and some figures, which showed that the increase and decrease of the bank note currency in Canada amounted to $3.80/100 per capita every fall, and that every year, for a number of years, so far as we have the record at least, exactly on the 15th day of October, it was always at its maximum. Since we are now taking back from Canada what Canada originally took from Massachusetts, the principle of a true bank credit currency, we might expect just what they had in New England, before the war, and what Canada now has every year, and every month of the year, and every day of the month. That is, we would have an amount of bank note currency just equal to the demands of trade; no more, no less, but always just what the business of the country requires, dollar for dollar, day in and day out. Am I correct?

MR. BANKER: You are absolutely correct. Our variation in the demands of currency would not differ very much from that of Canada. We might expect a difference between the maximum and minimum issue of about $350,000,000 a year, that is, it ought to range from about one billion dollars to about one billion three hundred and fifty million dollars during each year, as matters now stand.

MR. LAWYER: Well, if that is true, we should never know one season of the year from another, so far as the demands of currency are concerned.

MR. BANKER: No, you never would; and the facilities gained by the banks for adjusting themselves to the changing conditions would enable them to be far more helpful to their customers than they now are, and yet be absolutely safe in doing so. You see, I would not limit a bank to an amount of currency equal to its capital; but subject to the approval of the Board of Control, where the bank was located, it could issue as much more, or a total of 200 per cent of its capital. That is twice as much as its capital; for, there are banks today situated a good deal as the New England banks were before the war, where the people would use more bank notes than deposits, if they were permitted to study their own convenience. This we would find to be true in the newer parts of the cotton growing country in cotton picking times. Can anyone tell why a bank, under such circumstances, should not meet the peculiar demands of its customers, and furnish bank notes at a cost of one-sixth of what it must be, if the bank is compelled, as it is today, to rediscount its promissory notes, and buy gold certificates or United States notes to be used as currency, when its own bank notes would answer every purpose of currency just as well?

MR. LAWYER: Then I understand also from what you said upon another occasion that you would allow a bank to use a part of its reserves during those seasons of the year when the demand for money was particularly strong, and make up its average reserves when the demand was slight.

MR. BANKER: Precisely so. Why should not a bank act just like any other merchant or trader, and adjust its stock of goods to the ever-changing conditions of its business? Of course I am fully aware that there is one element entering into a bank's business that is not common to other mercantile houses, and that is the question of its credit. It must keep itself in such a position at all times as to preclude the chance of suspicion arising about its ability to meet its demand obligations. This point brings me squarely up to the matter of a central reserve.

A bank that is known to be under the supervision of a Board of Control, which can and ought to know its actual condition, and which has the power to compel it to so conduct its business, as to be entitled to consideration and accommodation, whenever it asks for it, and actually needs it, will certainly have the confidence of the public to an unbounded degree. Of course, I am assuming that the public are aware of the fact that the Board of Control in turn has access to the great central reserve of one billion two hundred and fifty million dollars ($1,250,000,000).

You can imagine that the public under such circumstances would have absolute confidence in a bank. Indeed, I am of the opinion that as soon as this organization is effected, bank failures would be a thing of the past, because the public would soon come to appreciate this, and look upon every bank in the system as safe beyond the peradventure of a doubt.

MR. FARMER: There would be every reason for confidence in such an institution because of its great strength; and yet, if I understand your plan, as outlined, every one of these individual zones would be as independent of every other zone as if it were a foreign country. It would be like a great bank standing alone, of which every bank within the zone was an integral part, for the purpose of the defense of the credit of each. Then again, every individual bank would remain just as independent as it is today, while at the same time it enjoyed the full confidence which the larger institution would be naturally entitled to.

MR. BANKER: That is precisely the result this coöperative reserve fund of one billion two hundred and fifty million dollars ($1,250,000,000) would produce.

MR. LAWYER: _Then, as I understand it, beyond the individual independent bank, and beyond and behind the individual independent zone, would be "The American Reserve Bank," standing guard over the commercial interests of the whole United States, ready at any time to meet any possible contingency that might arise in any section of the country, with practically unlimited power to release, hold, or recall gold from the four quarters of the globe, because it can place a price upon the use of gold in the form of interest, and so conserve the general welfare of American commerce and American labor._

MR. BANKER: Now, gentlemen, let me call your attention to five important results we have achieved in the development of this outline of our proposed structure.

_First_: You will observe that every bank in the United States will be completely freed from every dominating influence, because in the last analysis it will have access to a practically inexhaustible hoard or reserve of gold, which belongs to itself as much as to any other bank.

_Second_: You will note that every commercial zone is a perfect and complete self-governing body. Not a single outside person has anything whatever to do with its affairs. Every person who is in any way connected with it, is selected by its members, even including the Deputy United States Comptroller, who will be, as you remember, the Chairman of the Board of Control, and President of the Bankers' Council. In principle and in function this organization is identical with that of the Bank of the State of Indiana, and of the State Bank of Iowa, in which you will remember the parent, or home institution, did no business whatever, except for the branches, which it examined and supervised.

_Third_: You will note that in the matter of issuing currency, it follows the principle of bank credit currency in operation today in Canada, with the added power, subject to the approval of the Board of Control, of doubling the issue to meet unusual demands of trade or in case of an emergency.

_Fourth_: You will observe that we have planned to reach ultimately a system of reserves consisting of gold, exclusively, and also to keep all bank credits, both deposits and note issues, in constant touch with gold by paying gold whenever called for.

_Fifth_: That in the matter of a strong central gold reserve, you will observe that the plan follows the principle in force at the Bank of England where all transactions are in gold, making England the only truly free market for gold in the world.

Gentlemen, I am convinced that it is the natural right and present opportunity of the United States to become the financial centre of the world; but no country can ever become the financial centre of the world, unless it is a free market for gold. No country can be a free market for gold, unless its entire credit system is based upon gold, and gold alone, thereby guaranteeing unquestioned bills of exchange. Such bills would draw a rate as low as the lowest because protected by a gold fund of such magnitude, when considered from the standpoint of its obligations to the commerce of the country, where held, all conditions being considered, as to insure beyond question its ability to take and give gold, as necessity requires in international trade, without endangering its stability, or affecting its credit.

This result can only be achieved by enforcing the discount rate throughout the country involved; and the discount rate can only be enforced throughout the country involved by buying and selling bills of exchange in straight gold transactions. We should not trade one bank credit for another bank credit, and put this bank credit into our bank reserves, as the Aldrich scheme proposed, thereby driving gold out of the banks, and out of the country, and also utterly destroying our power to control and protect the cash gold reserves of our banks, which outside of what may be called subsidiary money (from $2 pieces down), should ultimately and always be _gold and gold alone_.

In conclusion, I submit that the whole plan as we've worked it out does not introduce a single foreign element but creates out of our own practices, which have developed out of our own peculiar conditions, a financial and banking system, founded upon sound economic principles. It gradually eliminates those errors that have crept into our financial and banking practices, possibly through supposed necessity, but certainly through ignorance; and yet, the present incoherent conglomerate condition is brought to a simplicity and strength that may safely challenge any country in the world to institute a comparison for economy, efficiency, strength and safety.

MR. MERCHANT: Gentlemen, if you will achieve the results that you have outlined in the course of this evening's talk, you will accomplish all and precisely what Mr. MacVeagh, Secretary of the Treasury, recently described as the ends that must be attained if we are to bring about a complete financial and banking reform. These are his words:

"A relief measure reforming the banking and currency system must include, among its necessary features, provisions for never-failing reserves and never-failing currency, and for the perfect elasticity and flexibility of both; for the permanent organization and organized coöperation of the banks, which are now suffering and causing the nation to suffer by reason of their unorganized state; for a central agency, to represent and act for the organized and coöperative banks--this agency to be securely free from political or trust control, but with the Government having adequate and intimate supervision of it; for independent banking units--so independent that no one bank can be owned, controlled, or shared in in any degree, directly or indirectly, by any other bank; for the equality of all banks, National or State, both as to standards and as to functions--so that every requirement made of a National bank must be complied with equally by a State bank, and every function or privilege enjoyed by a State bank shall be enjoyed by a National bank; for the utilization and the fluidity of bank assets; for the scientific development of exchanges--domestic and foreign; for foreign banking as an adjunct of our foreign commerce, and for taking the Treasury Department out of the banking business."

MR. FARMER: Well, you have forgotten the thing that interests me more, generally speaking, than all else, and that is the Land Credit Bank, which we went into last Wednesday night. Of course you intend to include this when you prepare your bill.

UNCLE SAM: You bet they will, for I think it's about time that the corn raiser, cotton planter and grain producer and all the rest of the toilers of the turf, should be getting their money at as low rates as anybody else on first-class security for a long period of time, and I am determined to give the farmers of the country the benefit of my good name to aid them in this matter.

MR. BANKER: Of course we had all agreed to that, and shall include it in the draft of the bill.

MR. MANUFACTURER: Uncle Sam, I move that Mr. Banker, Mr. Lawyer, and Mr. Farmer be a committee of three to prepare a bill to be submitted to us next Wednesday evening.

MR. MERCHANT: I second the motion.

UNCLE SAM: It's a go.

Good Night.

SIXTEENTH NIGHT

DRAFT OF BILL

UNCLE SAM: Well, boys, here we are ready for the report of the committee on legislation, I suppose you would call it. Are you ready to report now?

MR. FARMER: Yes, Mr. Lawyer will make our report and speak for the committee.

MR. LAWYER: Uncle Sam, your committee has been deeply impressed with the duty you have imposed upon it.

That the solution and settlement of our financial and banking problem is the most important economic question that has ever confronted the civilized world must be admitted by all who will take the trouble to investigate it and institute a comparison between our conditions and those of any other country at the time when it adopted its financial and banking system.

In 1803, when the Bank of France was established, the financial resources of France were without official record, but comparatively nominal.

In 1844, when the bank act under which the Bank of England is conducted was enacted, the banking resources of that country were probably in the neighborhood of $500,000,000. The total note issue of England, Scotland, and Ireland was less than $200,000,000; the public and private deposits in the Bank of England were less than $75,000,000; and the gold in the Bank of England was less than $75,000,000.

In 1873, when the Imperial Bank of Germany took its present form, industrial Germany was still slumbering; and the bank resources probably did not exceed $1,000,000,000. The capital of the incorporated banks was about $425,000,000, the notes were about $325,000,000, and the reserves held about $30,000,000.

The banking resources of the United States are today more than ($25,000,000,000) twenty-five thousand million dollars and our foreign trade more than ($4,000,000,000) four thousand million dollars. The question we are dealing with, therefore, is not only the most stupendous of its kind, but it must be considered both from a domestic and foreign point of view. It is from both these points of view that we have approached the preparation of this measure.

As I proceed to read the bill I shall make some comment by way of explanation in order that our purpose may be understood.

A bill to establish a complete Financial and Banking system for the United States of America.