No body of men could have been more faithful in attendance, nor more sincere in their desire to know the facts, and understand the fundamental principles as they are; nor more determined2 to get to the bottom of things; nor more ready to yield, and renounce3 even hoary-headed fallacies when it was demonstrated that you were wrong, than you have been.
All of you seem to have possessed4 that high moral courage essential to the progress of the world, ready acknowledgment of error, even though the confession5 bore heavily upon the stability of your opinions. You seem to have utterly6 forgotten, if you ever possessed it, that false sense of courage that ever impels7 us to deny that we are wrong, however apparent our error may be. You have pursued the only course that leads on to progress. Your inquiries8 have always been: What are the facts? What are the principles involved? What does experience show? What is it wise to do under the circumstances? What principles, practices and methods will give us the very best financial and banking system in the world?
Mr. Merchant: Uncle Sam, if our work under your tutelage has inspired you with the belief that our aims and purposes have been unselfish and patriotic9, as you have just intimated, the measure of our achievement will be limited only by our capacity for the great task in hand. Certainly without unselfish devotion, and a sin[Pg 369]cere desire to do patriotic service, however great our abilities, our work should, and would in the long run, be a failure; even though it might upon the surface seem to be suited to the ends sought, because ulterior motives10 and selfish purposes, like murder would soon out.
Mr. Banker: It's a source of satisfaction to me to have had a part in this work so far and I shall be content if the public will only accord us their confidence in our good faith, and afterwards show their interest in the public welfare by the same persistent11 study of this question that we have given it.
Two things are perfectly12 clear to my mind. First, this question will never be settled upon right principles until the public takes it up in earnest, and discusses it to a finish, as they did the gold standard in 1896. Congress will never legislate13 upon this question broadly as they should, until they are convinced that the people are practically agreed and are behind some well established principles and at least approve the outline of some well considered plan for a financial and banking system for this country.
Mr. Manufacturer: I believe that is literally14 true, with the exception that if all of us business men and farmers sit idly down until we have another panic, then the men who have been behind Nelson W. Aldrich will take advantage of the opportunity afforded by the conflagration15 of credit and like the looters, human ghouls, jackals and hyenas16 that robbed the dead and dying, after the San Francisco fire, will rush in, and, before the public are aware of it, will put something over, probably the same old scheme, concocted17 in behalf of the special interests of this country, fooling the people by changing its name, and having it introduced by some innocent member of Congress from an out of the way place, and under unsuspected auspices18. Such a possibility makes it our duty to present in concrete form the result of our study.
Mr. Banker: That is a true prophecy; if the people of this country remain indifferent, and allow another[Pg 370] panic to come, without having made a study of this question, these conspirators19 will undoubtedly20 carry out their plot yet. Therefore, I agree with Mr. Manufacturer that it is our duty to start such a discussion, if possible, as will save the people from such a dire21 calamity22.
Mr. Farmer: I suppose that I shall be largely responsible for the measure of interest the farmers take in this subject. I want to tell you now that this band of political pirates, and the secret forces of the special interests, are not going to board this ship, without ample warning, so far as I am personally concerned.
Mr. Banker: Before we get down to business and actually attempt to draw a bill, I think we should review the facts and situation from beginning to end, so that we may have a sort of sky line to guide us in that work.
The banking situation before 1860, the growth of the business of the country since and the development by the slow processes of evolution of that great mass of practices without the aid of law, and to some extent in absolute defiance23 of law, constitute the condition to which we must apply those great fundamental principles of economic law, if we would be wise, and hope to succeed in so great an undertaking24 by convincing the people, not only of our sincerity25, but of our wisdom as well.
It is estimated that there was in the United States in 1860 approximately $300,000,000 of gold, and that our banking resources were approximately three billion dollars ($3,000,000,000); in other words, that the gold represented about 10 per cent of our banking resources. Today we have banking resources in excess of twenty-five billion dollars ($25,000,000,000) and our gold is only one billion eight hundred and fifty million dollars ($1,850,000,000), or our gold represents only about 7 per cent of our banking resources. In other words, our gold reserves today are not as strong as they were in 1860 by at least 33 per cent.
Another matter of importance about which I am sure we all agree is this: that there were in several of the[Pg 371] states in 1860, banking systems which were vastly superior to anything we have today. This was particularly true of the banks of Virginia, Indiana, Iowa, Ohio, Kentucky, Missouri and the Suffolk System of New England. As a proof of this contention26, which no man who knows anything about the subject will attempt to controvert27, I have only to state that identically the same banking principles are in operation in Canada today that were in operation in those states. Canada, you will remember, took her system from the statutes28 of Massachusetts. Will any man in the United States deny that Canada has a vastly superior banking system to anything we have in the United States? Will any man assert that any country in the world has a better banking system than Canada has today? If so, let him name it. All the Canadian people, and all the Canadian bankers, so far as I have been able to learn, are completely satisfied, indeed, proud of their system. Is there one single business man, or one single banker, in the United States, who would have the audacity29 to expose his ignorance by stating upon a public platform that we have any banking system at all in the United States? And if he did, would he not be compelled to admit that it was one of the worst in the world, and as a panic breeder that it easily stands in first place?
Mr. Merchant: I do not see how it could be otherwise, when you recall some of the facts brought to our attention during these talks.
The National Bank Act was passed Feb. 23, 1863, just fifty years ago, and we have literally refused to pass a single paragraph that would enable the bankers of the country to adjust themselves to the vastly changed conditions. Think of it, then we had only three billion of banking resources! Today we have more than twenty-five billion. Then our savings30 were comparatively a mere31 pittance32, while they are today six billion five hundred million dollars ($6,500,000,000). The trust feature of the banking business, as followed today, had not even been heard of. Then by a tax of 10 per cent, we destroyed[Pg 372] the natural note-issuing function of the banks simply because Secretary Chase wanted money to carry on the war. There were no laws to regulate banking in this country, except in a few of the states, where they had developed banking systems as perfect as any that have ever existed anywhere. The United States Government would have been just as much within its rights and power, and just as wise, economically speaking, if it had at the same time, and for the same purposes, imposed a tax upon the deposits that were not made in the national banks. For, as we have seen, there is absolutely no difference between bank book credits and bank note credits. A bank is just as fit to issue a bank note as it is to take a deposit. If a bank is not fit to issue a note, which is nothing but a cashier's check, it is unfit to take a deposit.
Again, however important it may have been to pass suitable banking laws in the past, there has never been a time when action was so necessary as now, because of the almost incomprehensible increase in our banking resources.
The Comptroller of the Currency, you will remember, has just made a report showing that the increase in our banking resources for the four years preceding June 14, 1912, reached the surprising and startling figures of five billion four hundred and three million dollars ($5,403,000,000). The significant meaning of these figures cannot be appreciated without recalling the fact that the Comptroller's office shows that the total banking resources of the United States in 1890 were estimated at only five billion four hundred and fifty million dollars ($5,450,000,000) or only $47,000,000 more. In other words, the increase in our banking resources in four years ending with June 14, 1912, were almost equal to the entire accumulation of our banking resources from the first settlement at Jamestown in 1607, two hundred and eighty-three years ago.
Mulhall, the English statistician, stated that the banking resources of the entire world in 1890, including the[Pg 373] United States, were a little less than seventeen billion dollars ($17,000,000,000), and estimated that our banking resources at that time were a little less than seven billion dollars ($7,000,000,000), or about two-fifths of the total banking power of the world. Today our banking power exceeds twenty-five billion dollars ($25,000,000,000), while that of the entire world is estimated at about fifty-five billion dollars ($55,000,000,000). In other words, we now have more than 45 per cent of the total banking power of the world.
Commercially speaking, the last fifty years has been the most marvelous period in the history of the human race, and the most surprising and most surpassing period of this most marvelous period are the years from 1890 to 1912.
We now have more than twenty-five million toilers. Our productions in 1912 will exceed thirty-five billion dollars ($35,000,000,000). Our foreign trade will reach four billion dollars ($4,000,000,000). Our bank clearings will probably pass the one hundred and seventy billion dollar ($170,000,000,000) mark. Our total transactions (of all kinds) will approximate five hundred billion dollars ($500,000,000,000).
Any business expressed in these stupendous figures, and involving every dollar of our capital, both the commercial and our vast investment funds, and every day's labor33 from ocean to ocean, and from Canada to the Gulf34, ought to be commanding most serious attention on the part of every intelligent and patriotic man. This is more especially so when we look into the present situation, and discover upon what dangerous ground we stand, and how imminent35 a commercial explosion is, and that our very prosperity at the present time is our greatest peril36. Indeed, that as our prosperity comes on apace, with equal certainty are we moving onward37 toward a commercial cataclysm38.
Since we have just passed a more or less critical stage, it may be well to call attention to the fact that[Pg 374] any single, untoward39 incident of any great importance might have produced a business tragedy, even so soon after the commercial earthquake of 1907, which hardly left a single brick undisturbed in the edifice40 of the most prosperous time in the history of this or any other country.
The national banks have been confined from the outset to a single kind or phase of banking, properly known as commercial banking. This was practically all there was in the way of banking in the United States in 1863, except the mutual41 savings banks, of which there are today six hundred and thirty in the whole country. It's a most remarkable42 fact that only thirty-one of these are west of Buffalo43.
There are today one thousand two hundred and ninety-two stock savings banks, with $76,000,000 of capital, owing individual deposits of $842,000,000. There are thirteen thousand three hundred and eighty-one state banks, with $459,000,000 of capital, owing individual deposits of $2,912,000,000, with $250,000,000 additional liabilities. There are one thousand four hundred and ten loan and trust companies, with $419,000,000 capital, owing individual deposits of $3,674,000,000, with $450,000,000 additional liabilities.
Here are sixteen thousand eighty-three stock savings banks, state banks and trust companies, with $904,000,000 capital, owing individual deposits of $7,428,000,000. These do not include one thousand ninety-one private banks reporting to the comptroller of the currency, nor the mutual savings banks, which bring the total number up to seventeen thousand, eight hundred and four and the individual deposits up to $11,198,000,000.
The capital of the national banks is $1,033,570,000; their individual deposits are $5,825,000,000 and the amount due to banks is $2,178,000,000.
These vast banking resources are without any general organization whatever and yet consists of four distinct economic functions, and our great danger lies in the fact[Pg 375] that there is no harmonious44 development and unification that we can call a system under one influence and control. This is absolutely necessary for the safety of banking and commerce at home, and the protection of our reserves, especially against adverse45 influences in unfavorable times from abroad.
Mr. Merchant: To simplify the matter, so that we can follow it through to the end, I suggest that we begin with the unit of a banking system: the bank as we know it today, the individual, independent bank, and note just what changes we should make in the organization of a bank, to make it the perfect and complete machine that the people demand, that they may be served as well today as they were in certain sections of the United States before the war.
Mr. Banker: That's a good idea; indeed, the only way to be thorough, and get results. As was pointed46 out last Wednesday evening, banking today consists of four distinct functions.
A COMMERCIAL BUSINESS
A SAVINGS BUSINESS
A TRUST BUSINESS
A NOTE ISSUE BUSINESS
First: The commercial business: The use of capital in the production and distribution of consumable commodities—food and clothing and all the incidental tools and machinery47.
Second: The savings bank business: The accumulation of the money saved by the working people of the country. This is distinctly a trust fund, and belongs to the investment fund of the country, and should be treated or handled as such.
Third: The trust company business: The execution of wills, and the care of estates; the execution of mortgage trusts, such as railroads or corporations create; the rep[Pg 376]resentation of others in the capacity of agent or attorney in the complicated business affairs of today; all such funds are of a distinctly trust character, and the investment of the money accumulating and growing out of such transactions in many of the states are specifically provided for by statutes. Such business cannot be included in the commercial affairs of the country, economically speaking, because they are essentially48 trust transactions, and the funds, generally, belong to the investment class.
Fourth: The note issue business: The provision of all the currency of the country, except the gold coin and gold certificates, which, while they constitute all of the money of our country, are also used for currency; and except the subsidiary coin and token coins of the country.
True bank credit currency is economically identical with checks upon deposits held by a bank. The bank note is the check of the cashier against the credit of the bank, while the deposit check is the check of the depositor against the credit of the bank. The bank note, for the convenience of the people, is always in even amounts, and passes without indorsement, while the check of the depositor is for any amount, odd or even, that may be involved in a transaction, and almost universally passes only by indorsement.
The people have just as much right to demand that the banks provide them with a true bank currency, as to meet their checks in any other way, by cash payment or by draft on some distant city.
Some people have the very erroneous idea that a bank is creating money when it issues bank notes. It is doing nothing of the kind; on the other hand, it is only doing something for the convenience and accommodation of its customers, and serving the public in the matter of protecting its reserves and so strengthening its credit by increasing its reserves against its deposits.
A bank makes less profit in issuing bank notes than it does in taking deposits and loaning them out. Now,[Pg 377] follow me, gentlemen, and I will demonstrate this to you beyond a doubt. You gentlemen all know that the capital of our bank is one hundred thousand dollars; suppose that I had the right to issue an amount of credit notes equal to my capital and that I had to pay the Government a tax of 2 per cent upon the one hundred thousand dollars of notes that I issue. Now, suppose that I exchange these bank notes for the notes of the farmers and merchants, who are customers of my bank, which bear 6 per cent interest; it is clear that outside of other expenses, my profits will be 4 per cent on one hundred thousand dollars, or four thousand dollars. But, you must remember this, that I will have to pay the Government for engraving49 a bank note plate, $85.00, and will then have to pay the Government in addition for the transmission of the notes about twenty cents per $1,000. Now if I should receive deposits amounting to one hundred thousand dollars and should pay interest on them at the rate of 2 per cent per annum, and should loan them out at the rate of 6 per cent to some of my customers, my profits would be 4 per cent, or four thousand dollars; identically the same profit that I made upon the one hundred thousand dollars of bank notes; but I do not have the extra expense of the engraved50 plate and the cost of the transmission of the notes. Of course, you understand that the reserves that I carry in both cases are identically the same—15 per cent; that is, I am carrying fifteen thousand dollars ($15,000) against the deposits and also fifteen thousand dollars ($15,000) against the one hundred thousand dollars of notes. You will see, therefore, that I will make less on the one hundred thousand dollars of bank credits in the form of bank notes than upon the one hundred thousand dollars bank credits in the form of deposits.
Mr. Merchant: Mr. Banker, I want to thank you for this very clear explanation of what a bank note really is and why a bank should have the power to issue it, and more especially for your explanation of the fact that[Pg 378] a bank makes less upon that form of bank credits than upon a corresponding amount of deposits. I do not believe there is one person in a million who understands this question at all. I know we've all had the insane idea that the right of note issue was some kind of a special privilege to the bank out of which it would make some enormous profit; when, as a matter of fact, it is nothing of the kind; but on the contrary, only a great convenience and accommodation to the people themselves. Furthermore, in as much as it will enable the bank to protect its reserves, by paying out its notes, instead of paying out its reserves, it will reduce the expense of the bank to that extent and so reduce the interest rates upon its loans. It will probably at some time or other of great stress save the bank from closing its doors, because it can create or obtain cash to meet the local demand, while otherwise it would have to suspend, although the bank might be absolutely sound. You see, don't you, that the bank in issuing credit currency is doing precisely51 the same thing that the banks did when they issued cashiers' checks, or Clearing House certificates, in 1893 and 1907.
Mr. Manufacturer: Mr. Banker, your explanation has certainly been an eye-opener to me, too. How simple all truth is when you get to it. It is our ignorance and prejudices that are our curse. Just think what the application of this simple principle would mean to the United States as a whole. Every community could be supplied by the local banks with the necessary currency just as well as deposit facilities and at a cost not to exceed one-fifth of what it costs today, and not to exceed one-fifth of what it would cost if the banks had to buy their currency from some central institution.
Mr. Banker: Well, gentlemen, I was just going to state, when Mr. Merchant interrupted me, and I am glad that he did, that while a true bank note and a deposit are economically identical, yet it is a distinct feature or function of banking, nevertheless, and in working out our plan should be treated as such.
[Pg 379]
Mr. Merchant: If I have followed you, Mr. Banker, and grasped the situation at our last Wednesday night meeting, banking in the United States should be carried on in the future like any other business of four distinct departments; that is, a departmental business. The accounts should all be kept separate and apart, so that a bank statement would show the amount of deposits in the commercial department; the amount of deposits in the savings department; the amount of deposits in the trust department; and the amount of notes outstanding at any time.
Mr. Banker: That is it precisely, and the only way that this can be accomplished53 is by granting the specific power to the national banks of the country:
First: To continue to do a commercial business.
Second: To do a savings business.
Third: To do a trust company business.
Fourth: To do a note issue business.
This step taken, no bank in the United States, with the rarest exception, can afford to remain out of the system, and the result will be to bring the banking business of the United States into one harmonious whole. The present conglomerate54 condition will be wiped out. Holding companies, which are probably the most prolific55 source of business iniquity56 and a curse to the country, generally will cease to mark American banking as a game of jugglery57 and sharp practice wherever the managers of double-headed or triple-headed banks are inclined that way. Furthermore, unless this is done, you will in the future as in the past, know little or nothing of the true condition of the banks of this country as a whole. For what can you know about the true inwardness of a bank, which is composed of three distinct institutions: a national bank on one block, with the stock of a trust company located on another block, and the stock of a savings bank located on still another block, and the stock of the two institutions lodged58 in the strong box of the national bank. The managers of the national[Pg 380] bank may be of the very highest character, and of unquestionable and absolute integrity, and they might manage their business just as well as if there were no laws at all. But laws are made for the lawless, not for men of this class. Laws are made to compel the greedy, the over ambitious, the foolish and the unscrupulous to toe the line, and maintain certain standards, which have been established by the highest class of men of the banking world.
You can readily see that a national bank, under national supervision59, with two other institutions under its control, which might be under state supervision, or under no supervision at all, could engage in practices that no upright man would stand for; and practices, too, that usually result in terrific losses, and consequently breed panics.
These powers having been granted to the national banks, the law should then compel the separation and complete segregation60 of all these various accounts, as they are all distinct in their nature or character, economically speaking. Part of them are active capital, and belong to the commercial fund of the country, while the others are passive capital, and belong to the investment fund of the country.
It may be objected by some self-satisfied, selfish, ignorant and unpatriotic banker, who is doing all of these things now in some way with ample or even more than satisfactory profits, that the combination of these different forms of the banking business is theoretically wrong. But let it be distinctly understood and observed, and remembered, that we are not dealing61 with a theory now. Nor are we organizing something new. We are dealing with an actual, serious and most dangerous fact, and that is, that the banks of the country are now doing all these things in a conglomerate way, largely unsupervised and uncontrolled.
Our unit of banking, the individual, independent bank, should have its parts co?rdinated, unified62 and brought[Pg 381] into a system, and under one common supervision and control. That supervision should not be political, but should be a supervision of the banks by the banks in the interest of the people and the banks themselves.
Now we are also dealing with another most dangerous fact. It is this: First, the national banks are carrying cash reserves amounting to 17 per cent. The reserves of all the other banks amount to only 5 per cent; and, excluding the mutual savings banks, the reserves of all the remaining banks amount to only 7 per cent. The cash reserves of the banks of the United States should under no circumstances fall below 15 per cent, and under some circumstances they should amount to at least 30 per cent. Second, the reserves, such as they are, are all broken up into small fragments, and scattered63 broadcast over the land.
The result is that our reserves lack the element of true reserves, and are robbed of their efficiency, which is essential to commercial safety. The highest degree of efficiency and utility of reserves can only be secured by a centralization of 50 or 60 per cent of our cash reserves, or say 10 per cent of our individual deposits, and 5 per cent of our time deposits or savings accounts. In this way, we shall centralize and mobilize about $1,250,000,000 of our gold, which now exceeds $1,850,000,000.
It will be observed that the reform here proposed is in perfect accord with the evolution of all our Anglo-Saxon law. It is merely putting into statutory form the present universal practices of the country which have grown up as a result of those new conditions which are peculiar64 to ourselves, and compelling conformity65 with those great economic laws that cannot be violated or disregarded without suffering the consequent penalty. Again, it is the only way that each bank can be compelled to carry its share of the burden of our commerce, and furnish its share of insurance to the business interests of the country, so far as sufficient and uniform reserves will do it.
The second great reform, then, that is essential is also[Pg 382] in perfect harmony and accord with the most approved practices of the banking world.
It will be noticed that here, too, a method or system from approved practices has grown up, not only without the sanction of law, but in part actually in defiance of law. I refer to the fact:
First: That there is no law in any state authorizing66 the organization of the Clearing House, and yet there are over two hundred and fifty of them in the United States.
Second: That there is no law authorizing any Clearing House Committee to examine the banks composing it. But in twenty cities at least the Clearing Houses are not only examining their own members, but go even further than that and insist that no bank shall clear through any Clearing House bank which does not submit to an examination by the examiner appointed by the Clearing House. This has been found essential to the safety of the banking situation in these cities, but is no more essential in these twenty cities than in five hundred or one thousand other cities; in fact, essential throughout, and all over every state of the union. This has come to be an established practice, and is being taken up rapidly, all over the United States, and yet there is no law whatever that authorizes67 it, suggests it, or by implication justifies68 it.
Third: With the consent and approval of public officials, both State and national, but without authority of law, the banks of many of our Clearing Houses are carrying at all times a large part of their reserves at their Clearing Houses for their convenience and as an aid to commerce. Undoubtedly they are doing just what they should do. It is stated upon high authority that the amount of reserves that are now centralized and mobilized at the Clearing Houses today will exceed $200,000,000. This practice is the result of experience, not only in the times of panic, such as 1893 and 1907, but also for the daily needs of their gigantic transactions.
Fourth: In like manner, not only without law, but ac[Pg 383]tually in defiance of law, these self-contained, self-centred, self-governing Clearing Houses, whenever necessity calls for it, very wisely and properly issue a true credit currency, in principle, at least in the form of Clearing House certificates which serve all the purposes of legal currency itself. They are issued in $1 certificates, $2 certificates, $5 certificates, $10 certificates, $20 certificates, $50 certificates and in denominations69 of $100, $1,000, $10,000, and on up to as many or more millions. All this is done not only without the authority of law, but in the latter case in actual defiance of law.
Here then again we have purely70 as a result of evolution in modern American banking the second naturally developed unit, the Clearing House, by combining, co?rdinating and unifying71 all the banks, or simple units, coming within its jurisdiction72. They exist without law and operate without law, and in one respect, as I have just said, in defiance of law.
This Clearing House unit consists of the following elements:
FINANCIAL CENTRE
(with one hundred banks),
CLEARING HOUSE COMMITTEE
(without law),
CLEARING HOUSE BANK EXAMINER
(without law),
CLEARING HOUSE RESERVES
(without law),
CLEARING HOUSE CERTIFICATES
(in defiance of law).
If this system has been the means of purging73 the banks coming within its influence and jurisdiction and strengthening the situation, wherever adopted, and if no city where it has been in practice, of which there are now more than twenty, would not give it up, let any man[Pg 384] say why this safe principle should not now be extended until every bank in the United States is brought within its beneficial influence. However, this result can only be attained74 by having a uniform and truly national banking system.
As was pointed out only a moment ago, that if the national banking powers mentioned are granted to the national banks, no bank can afford to remain outside of the system, because the advantages gained by going into it are so great.
However, if there are bankers, who by running double-headed or triple-headed institutions believe that they cannot then do some things that they are now doing, and which they, therefore, probably should not do, should undertake to argue that banking cannot be brought under national supervision and control, let them consider the following facts:
First: That the United States Government put a tax of 10 per cent upon all State bank notes and that they died a natural death. Of course, it is true they were suffocated75. But would any one go back to the days when they had to pay exchange upon a bank note every time they crossed a State line? Would anybody take a step that would substitute a local currency for a national currency of uniform character and quality? Let every antagonist76 mark this, and remember it well that the same power that put a tax of 10 per cent upon bank note issues can also put a tax of 10 per cent upon deposits for any one of a number of good reasons; for example, it could and should impose such a tax, if necessary, to compel all the banks of the country to carry their part of the commercial burden in the shape of equal and adequate reserve.
Second: Can any one give a single reason, valid77 reason, why the postal78 savings bank was made a national institution that would not apply with equal, if not greater, force to the $17,000,000,000 individual deposits of which $6,480,000,000 are savings?
[Pg 385]
Third: Can any one deny that it is interstate commerce for note brokers79 to ship millions, yes billions upon billions, of promissory notes, or so-called commercial paper, from one State to another by express, mail or freight? Will any one deny that promissory notes are property? Will any one assert that shipping80 promissory notes differs in the slightest degree from shipping eggs, apples, potatoes, cotton, grain or live stock on the ground that promissory notes are not property, but that eggs, apples, potatoes, cotton, grain and live stock are property?
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 bugs81; the "plant quarantine act," giving the Government the right to stop lice from traveling across a State line; the "meat inspection82 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 humanely83; 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[Pg 386] 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 fabric84 of credit as a box of dynamite85 under one's chair. Is it possible, I say, in the light of all these facts, that there is no redress86, 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 laboring87 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 impending88 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 tributary89 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.[Pg 387] This diagram will indicate more forcibly just what I mean than words can convey.
pic
Diagram Illustrating90 District System of Bank Organization to Give Stability in Commercial Zones.
The straight lines are drawn91 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.
[Pg 388]
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[Pg 389] 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 indirectly92. 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[Pg 390] 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 deluding93 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 transit94. 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 there[Pg 391]fore 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 standing52 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 fixed95 investments, which is always a bane to the commerce of a country.
[Pg 392]
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 impulsiveness96 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 affected97 by the growth and development of their locality and the varied98 interests, and the enthusiasm of the people. The vision of our local banker is largely confined to his immediate99 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 unlimited100, so far as any possible demands[Pg 393] 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[Pg 394] 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 absurdity101 and unthinkable because it would cost too much.
I went home and wrote to the Treasury102 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 astounding103 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.
[Pg 395]
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? 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 compliance104 with your request I take pleasure in furnishing you the following information with respect to aggregate105 deposits of active National banks and the liability of insolvent106 National banks:
The annual deposits for forty-nine years in active National banks average $2,555,700,000. The losses sustained by creditors107 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
——————
Loss to creditors $38,141,274
Creditors, therefore, received an average of 82.50 per cent, the loss averaging 17.41 per cent.
[Pg 396]
There are now (September 30, 1912) 47 insolvent
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 plumb111 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.
[Pg 397]
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 hoarding113 of money, which is a curse to any country where it takes place. I am not sure, gentlemen, but what the adoption114 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 folly115, greedy purpose and unscrupulous methods of some of our fraternity have not only brought misfortune and overwhelming distress116 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 scavenger117 business if left free. Of course, it will be advantageous118 for the upright banker to come into the National System.
Mr. Banker: You will remember that in 1865 Congress passed a law imposing119 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 fully120 the other night, and should put a tax of 10 per cent, or even 20 per cent if necessary, upon all deposits a bank[Pg 398] 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, aggregating121 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 lawful122 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 justification123, 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[Pg 399] 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 nominal124 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 sys[Pg 400]tem 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 varia[Pg 401]tion 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 situated125 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,[Pg 402] 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 preclude126 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 defense127 of the credit of each. Then again,[Pg 403] 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 co?perative 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 contingency128 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 conserve129 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 hoard112 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[Pg 404] 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, thereby130 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[Pg 405] 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 simplicity131 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 elasticity132 and flexibility133 of both; for the permanent organization and organized co?peration 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 co?perative banks—this agency to be securely free from political or trust control, but with the Government having adequate and intimate supervi[Pg 406]sion 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 utilization134 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.
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banking
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| n.银行业，银行学，金融业 | |
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determined
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| adj.坚定的；有决心的 | |
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renounce
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| v.放弃；拒绝承认，宣布与…断绝关系 | |
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4
possessed
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| adj.疯狂的；拥有的，占有的 | |
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5
confession
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| n.自白，供认，承认 | |
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6
utterly
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| adv.完全地，绝对地 | |
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7
impels
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| v.推动、推进或敦促某人做某事( impel的第三人称单数 ) | |
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8
inquiries
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| n.调查( inquiry的名词复数 )；疑问；探究；打听 | |
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9
patriotic
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| adj.爱国的，有爱国心的 | |
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10
motives
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| n.动机，目的( motive的名词复数 ) | |
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11
persistent
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| adj.坚持不懈的，执意的；持续的 | |
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12
perfectly
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| adv.完美地，无可非议地，彻底地 | |
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13
legislate
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| vt.制定法律；n.法规，律例；立法 | |
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14
literally
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| adv.照字面意义，逐字地；确实 | |
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15
conflagration
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| n.建筑物或森林大火 | |
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16
hyenas
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| n.鬣狗( hyena的名词复数 ) | |
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17
concocted
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| v.将（尤指通常不相配合的）成分混合成某物( concoct的过去式和过去分词 )；调制；编造；捏造 | |
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18
auspices
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| n.资助，赞助 | |
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19
conspirators
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| n.共谋者，阴谋家( conspirator的名词复数 ) | |
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20
undoubtedly
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| adv.确实地，无疑地 | |
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21
dire
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| adj.可怕的，悲惨的，阴惨的，极端的 | |
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22
calamity
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| n.灾害，祸患，不幸事件 | |
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23
defiance
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| n.挑战，挑衅，蔑视，违抗 | |
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24
undertaking
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| n.保证，许诺，事业 | |
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25
sincerity
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| n.真诚，诚意；真实 | |
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26
contention
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| n.争论，争辩，论战；论点，主张 | |
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27
controvert
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| v.否定；否认 | |
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28
statutes
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| 成文法( statute的名词复数 )； 法令； 法规； 章程 | |
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29
audacity
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| n.大胆，卤莽，无礼 | |
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30
savings
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| n.存款，储蓄 | |
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31
mere
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| adj.纯粹的；仅仅，只不过 | |
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32
pittance
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| n.微薄的薪水，少量 | |
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33
labor
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|
| n.劳动，努力，工作，劳工；分娩；vi.劳动，努力，苦干；vt.详细分析；麻烦 | |
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34
gulf
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| n.海湾；深渊，鸿沟；分歧，隔阂 | |
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35
imminent
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| adj.即将发生的，临近的，逼近的 | |
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36
peril
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| n.(严重的)危险；危险的事物 | |
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37
onward
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|
| adj.向前的，前进的；adv.向前，前进，在先 | |
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38
cataclysm
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| n.洪水，剧变，大灾难 | |
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39
untoward
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|
| adj.不利的，不幸的，困难重重的 | |
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40
edifice
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| n.宏伟的建筑物(如宫殿，教室) | |
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41
mutual
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|
| adj.相互的，彼此的；共同的，共有的 | |
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42
remarkable
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| adj.显著的，异常的，非凡的，值得注意的 | |
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43
buffalo
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| n.(北美)野牛；(亚洲)水牛 | |
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44
harmonious
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|
| adj.和睦的，调和的，和谐的，协调的 | |
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45
adverse
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| adj.不利的；有害的；敌对的，不友好的 | |
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46
pointed
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| adj.尖的，直截了当的 | |
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47
machinery
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| n.(总称)机械，机器；机构 | |
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48
essentially
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| adv.本质上，实质上，基本上 | |
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49
engraving
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| n.版画；雕刻（作品）；雕刻艺术；镌版术v.在（硬物）上雕刻（字，画等）( engrave的现在分词 )；将某事物深深印在（记忆或头脑中） | |
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50
engraved
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|
| v.在（硬物）上雕刻（字，画等）( engrave的过去式和过去分词 )；将某事物深深印在（记忆或头脑中） | |
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51
precisely
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| adv.恰好，正好，精确地，细致地 | |
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52
standing
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| n.持续，地位；adj.永久的，不动的，直立的，不流动的 | |
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53
accomplished
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|
| adj.有才艺的；有造诣的；达到了的 | |
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54
conglomerate
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|
| n.综合商社，多元化集团公司 | |
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55
prolific
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|
| adj.丰富的，大量的；多产的，富有创造力的 | |
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56
iniquity
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|
| n.邪恶；不公正 | |
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57
jugglery
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|
| n.杂耍，把戏 | |
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58
lodged
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|
| v.存放( lodge的过去式和过去分词 )；暂住；埋入；（权利、权威等）归属 | |
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59
supervision
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|
| n.监督，管理 | |
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60
segregation
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| n.隔离，种族隔离 | |
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61
dealing
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| n.经商方法，待人态度 | |
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62
unified
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|
| (unify 的过去式和过去分词)； 统一的； 统一标准的； 一元化的 | |
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63
scattered
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|
| adj.分散的，稀疏的；散步的；疏疏落落的 | |
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64
peculiar
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|
| adj.古怪的，异常的；特殊的，特有的 | |
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65
conformity
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|
| n.一致，遵从，顺从 | |
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66
authorizing
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| 授权，批准，委托( authorize的现在分词 ) | |
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67
authorizes
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| 授权，批准，委托( authorize的名词复数 ) | |
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68
justifies
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|
| 证明…有理( justify的第三人称单数 )； 为…辩护； 对…作出解释； 为…辩解（或辩护） | |
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69
denominations
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|
| n.宗派( denomination的名词复数 )；教派；面额；名称 | |
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70
purely
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|
| adv.纯粹地，完全地 | |
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71
unifying
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| 使联合( unify的现在分词 )； 使相同； 使一致； 统一 | |
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72
jurisdiction
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| n.司法权，审判权，管辖权，控制权 | |
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73
purging
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| 清洗； 清除； 净化； 洗炉 | |
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74
attained
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| （通常经过努力）实现( attain的过去式和过去分词 )； 达到； 获得； 达到（某年龄、水平、状况） | |
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75
suffocated
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| （使某人）窒息而死( suffocate的过去式和过去分词 )； （将某人）闷死； 让人感觉闷热； 憋气 | |
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76
antagonist
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|
| n.敌人，对抗者，对手 | |
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77
valid
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|
| adj.有确实根据的；有效的；正当的，合法的 | |
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78
postal
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|
| adj.邮政的，邮局的 | |
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79
brokers
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|
| n.（股票、外币等）经纪人( broker的名词复数 )；中间人；代理商；（订合同的）中人v.做掮客（或中人等）( broker的第三人称单数 )；作为权力经纪人进行谈判；以中间人等身份安排… | |
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80
shipping
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|
| n.船运（发货，运输，乘船） | |
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81
bugs
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|
| adj.疯狂的，发疯的n.窃听器( bug的名词复数 )；病菌；虫子；[计算机]（制作软件程序所产生的意料不到的）错误 | |
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82
inspection
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|
| n.检查，审查，检阅 | |
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83
humanely
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|
| adv.仁慈地；人道地；富人情地；慈悲地 | |
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84
fabric
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|
| n.织物，织品，布；构造，结构，组织 | |
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85
dynamite
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|
| n./vt.(用)炸药(爆破) | |
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86
redress
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|
| n.赔偿，救济，矫正；v.纠正，匡正，革除 | |
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87
laboring
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|
| n.劳动，操劳v.努力争取(for)( labor的现在分词 )；苦干；详细分析；（指引擎）缓慢而困难地运转 | |
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88
impending
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| a.imminent, about to come or happen | |
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89
tributary
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|
| n.支流；纳贡国；adj.附庸的；辅助的；支流的 | |
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90
illustrating
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| 给…加插图( illustrate的现在分词 )； 说明； 表明； （用示例、图画等）说明 | |
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91
drawn
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| v.拖，拉，拔出；adj.憔悴的，紧张的 | |
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92
indirectly
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|
| adv.间接地，不直接了当地 | |
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93
deluding
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| v.欺骗，哄骗( delude的现在分词 ) | |
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94
transit
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| n.经过，运输；vt.穿越，旋转；vi.越过 | |
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95
fixed
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| adj.固定的，不变的，准备好的；(计算机)固定的 | |
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96
impulsiveness
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| n.冲动 | |
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97
affected
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| adj.不自然的，假装的 | |
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98
varied
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| adj.多样的，多变化的 | |
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99
immediate
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|
| adj.立即的；直接的，最接近的；紧靠的 | |
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100
unlimited
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| adj.无限的，不受控制的，无条件的 | |
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101
absurdity
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| n.荒谬，愚蠢；谬论 | |
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102
treasury
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| n.宝库；国库，金库；文库 | |
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103
astounding
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| adj.使人震惊的vt.使震惊，使大吃一惊astound的现在分词) | |
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104
compliance
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| n.顺从；服从；附和；屈从 | |
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105
aggregate
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| adj.总计的，集合的；n.总数；v.合计；集合 | |
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106
insolvent
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| adj.破产的，无偿还能力的 | |
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107
creditors
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| n.债权人，债主( creditor的名词复数 ) | |
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108
dividends
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| 红利( dividend的名词复数 )； 股息； 被除数； （足球彩票的）彩金 | |
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109
offsets
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| n.开端( offset的名词复数 )；出发v.抵消( offset的第三人称单数 )；补偿；（为了比较的目的而）把…并列（或并置）；为（管道等）装支管 | |
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110
liquidation
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| n.清算，停止营业 | |
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111
plumb
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| adv.精确地，完全地；v.了解意义，测水深 | |
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112
hoard
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| n./v.窖藏，贮存，囤积 | |
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113
hoarding
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| n.贮藏；积蓄；临时围墙；囤积v.积蓄并储藏（某物）( hoard的现在分词 ) | |
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114
adoption
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| n.采用，采纳，通过；收养 | |
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115
folly
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| n.愚笨，愚蠢，蠢事，蠢行，傻话 | |
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116
distress
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| n.苦恼，痛苦，不舒适；不幸；vt.使悲痛 | |
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117
scavenger
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| n.以腐尸为食的动物，清扫工 | |
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118
advantageous
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| adj.有利的；有帮助的 | |
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119
imposing
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| adj.使人难忘的，壮丽的，堂皇的，雄伟的 | |
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120
fully
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| adv.完全地，全部地，彻底地；充分地 | |
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121
aggregating
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| 总计达…( aggregate的现在分词 )； 聚集，集合； （使）聚集 | |
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122
lawful
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| adj.法律许可的，守法的，合法的 | |
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123
justification
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| n.正当的理由；辩解的理由 | |
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124
nominal
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| adj.名义上的；(金额、租金)微不足道的 | |
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125
situated
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| adj.坐落在...的，处于某种境地的 | |
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126
preclude
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| vt.阻止，排除，防止；妨碍 | |
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127
defense
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| n.防御，保卫；[pl.]防务工事；辩护，答辩 | |
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128
contingency
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| n.意外事件，可能性 | |
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129
conserve
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| vt.保存，保护，节约，节省，守恒，不灭 | |
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130
thereby
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| adv.因此，从而 | |
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131
simplicity
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| n.简单，简易；朴素；直率，单纯 | |
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132
elasticity
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| n.弹性，伸缩力 | |
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133
flexibility
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| n.柔韧性，弹性，（光的）折射性，灵活性 | |
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134
utilization
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| n.利用，效用 | |
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