Fort Worth daily gazette. (Fort Worth, Tex.) 1882-1891, 1886-12-13
THE CIRCULATION CRISIS.
A Proposed Solution for tho Problem OF a
Money supply.
Ioulsvilla Courier journal.

currency, produces In his ANIMAL report
superfcial examination OF the national
bank situation and loose statement of
the value and use of the banks His
thesis is not at all creditable to his Office.
As an example Of his logic, one citation
will suffice, viz, he says: "T0e funda-
mental postulates underlying every bank
ing system established by law, whatever
It's form, must necessarily be; l. That
banks promote the general welfare OF the
community; and 2. That the particular
system established by law is the best OBJ
tainable." These postulates are made TO
serve the national bank system only but
the fact appears in his own report that
there are twice as many state banks In
the United States as national banks. The
fact is a test OF popularity among capt.
italsts, and, besides, by the force OF his
second postulate the state banks appear
as the proper kind OF banks. The second
postulate asserts the test to be "the b, st
obtaluab!e under the conditions prevail
ing" and on that reasoning the sense Of
the community might be claimed to be
expressed in favor Of the state banks, by
the fact that they have twice as many
state as national banks.
Mr.. TRENHOLM argues In favor OF circu-
latng notes for any system that may b.
established, but he fails to see exactly
| how this can be retained under the exist
ing status OF Government bonds. He
leaves this whole question open, and
without any suggestion for the consider
alton 4 congress, So his thesis comes
to nAught.
The value and merits of the national
bank system are so fully and generally re-
cognized that any defense Of the system
is uucaled for; but 1t is simply amazing
that the advocates of the system fail to
see an ample remedy right within reach
which would relieve the difficulties of the
situation without resorting to any new or
radical measures. Failing to see this,
they breach many wild and Objectionable
schemes. One New York bank proposes
that silver bullion be adopted as the basis
Of circulation; another New York banker
proposes the issue of an intermediate 2
per cent bond another proposes that
| the banks be allowed to issue notes equal
to double the capital they deposit in cur
rency, etc.
All these schemes are, under existing
circumstances, utterly impracticable.
The true solution is readily found In
the percent bonds. There are more
than 500, 100000 of those bonds, and they
are not to mature until 1907. They
would, therefore, create a circulation
considerably more than double the pres
ent issue, and they are torun for u period
about equal TO the whole past life of the
system. But the bones are worth 1854,
and the banks would lose money by issu-
ing them as basis of circulation under
the present system.
But see the folly of the system. A
bank in buying the As would pay $685..
600 for $4,000 bonds at par value, and
on this outlay 1t would receive 100000 Of
notes. 1t would therefore drop $4,000
out of its use on every 500 600 of bonds
purchased. III 1t We're TO buy $1,000
per cents at their present value, which is
par, it would get 500, 900 IN notes for
500 900 invested in bonds II it would
buy s 100000 a per cents. it would get
800, 900 Of notes for Sill 500 invested in
bonds. So that IL would lose the use OF
an outlay of S2S, 900, or 90 per cent. OF
the par of the bonds by taking As instead
OF 3s, or $4,000, or l6t per cent. by
taking the As instead of the Al per cents
+ L Now the plainest man can see that lthis
} system is unscientitic. Each class Of
, bonds performs exactly the same func
lions, ano the contingencies of the note
issues are exactly the same on the one
, bond basis as on the other; and yet there
are Determinations of 161 and 20 per cent
against the As for no otner reason thar
mere accident, mere lack Of forecast IL
the national legislature.
3 On the assumption that the bank sys-
tenn is to be preserved with its issue
q function, in order to avoid a universal
currency shock, the course to be pursued
y | 10 Q1 ha be ha aIIA
; exactly 100 per cent. OF the par value Of
> the bonds deposited. The full par value
L Of the bonds is, of course, guaranteed, dol
lar for dollar, by the government, and tina
guarantee, which is manifestly complete
would carry specie guarantee of dollar
j for dollar for the bank notes issued
n against them. The As and AIS would per
init an expansion Of the system to four
Iold us present volume, and The IS alone
by 100 per cent, If the condition of trade
should require it,
A This scientific reform would immediate
d ly render it practicable for the banks t
buy the As, and would instantly arres
!. the currency contraction, which other
y wise is likely to amount to $50, O00, 600 t
n n $50, 600, 900 in the current fiscal year.
= Something of the same irregularity o
= cost between clrculations based on the
and AZ per cents would adhere to the sys
y tenn on 100 per cent. Issues as well as OF
y the present 90 per cent. issues--as 500,
= 600 OF notes would cost in As Sl28, 900
= aud in AIS $lll,500; but tn,
- government could not afford t
y permit issues OF notes a dollar IL
xcess OF what 1t will owe on the bonds
pledged, and besides the difference in thi
, case is unworthy of notice, as the shor
iiVe year term OF the AIS would operate Il
y deter banks from preferring them TO tn
IS As on the ground simply of the smalle
l. cost on the original investment II woul,
ir be In immediate effect the result OF thi
lr change to put the bank issue on the sam
o 4 per cent basis and uniformity Of basi
h would be another gain to the service o
IS the system.
1t will be observed that this reforma
ton Of the system. which rpns nrst nrirr