The Indianapolis journal. [volume] (Indianapolis [Ind.]) 1867-1904, 1888-03-14
INVESTMENT OF IDLE FUNDS
Views of Secretary Fairchild on Bill
Lately introduced by Mr. Sherman.
He Thinks 1t Not Advisable to Use the Ma
tional-Bank Redemption Fund for the Pur-
chase of Unmatured Government Bonds.
pIsAGREEING .FINANcrERs.

Secretary Fairchild Doubts the Wisdom or
the Bill Introduced by MIR. Sherman.
WASHINGTON. March 13 Secretary Fairchild
to-day sent letter TO the Senate finance COM
mittee in regard to the Sherman bill for the in
vestment of the funds for the redemption of
national bank notes. He says in part:
..Your committee, some time since. asked my
opinion upon Senate bill No. 1916, introduced by
Mr.. Sherman. Said bill! directs the Secretary of
the Treasury to invest 80 per cent. of the fund
held by the Treasurer of the United States I'M
der existing statutes. for the redemption OF the
notes of national banks which have reduced
their circulation. by the purchase. in open
market, of United States interest bearing bonds.
The bill is mandatory, and would require the
investment to be made Immediately upon itg
passage The Secretary is further directed TO
sell In the open market many of ths said
bonds as, in his judgment shall be necessary to
redeem the bank notes as they are presented
for redemption, whenever the uninvested portion
of said fund falls below 20 per cent. of the whole.
The bill further declares that its purpose is to
maintain IL the treasury, for such redemption.
not less than 20 per cent. and not more than 80
per cent. Of the money deposited"
The Secretary discusses the question raised
by the bill and says
ssAfter mature consideration, it does not seem
to be we'll thus fOrcibly and suddenly TO expand
the circulating medium, when expansion lnevl-
tably must be followed in short time, and Der
haDS suddenly, by almost equal contraction.
The business of the country has already adapted
itself to whatever diminuton of circulating
medium has been caused through the surrender
of circulation by national banks. The alternate
expansion and contraction resulting from shs
bill would, in my judgment promote only specu-
latlon, not healthful business. On the whole,
it would appear to be better that the time when
this contraction takes place should be deter
mined by the voluntary action of the banks. as
is now the case, than by the compelled action of
the Treasury, would be the if this
bill applied only to future deposits. Banks will
not sell their bonds unless it be profitable to do
so, but the Treasury might be forced to sell
them at a loss under the provisions of such
bill The contraction of the circulating medium
would be the same in amount and it might he
more sudden under such bill than under the
law as II stands.
THE last section of the bill authorizes nation
al banks to issue circulating notes to the par
value of the bonds deposited, instead of 80 per
ceItum, as now. The increased circulation au-
thorized by this bill would probably not exceed
SIG, 000 900. There would not be great profit in
circulation at the present price of bonds even if
this additional circulation authorized, and
any attempt by the banks 20 purchase many
bonds would soon advance their price beyond
the point where circulation could be proftably
issued upon them; this certainly would be the
case If the forced governmental purchase re-
quired by the earlier provisions of this bill was
simultaneous with bank purchases; however,
the ten per centum increase would be, to that
extent, of benefit to the banks and not harmful
to the public, except as it might compel the
government to pay more for the bonds the pur-
chase OF which is directed by this BILL than 9TH
erwlse would be the If the average annu-
al decrease of national bank circulation should
continue to equal that of the average OF the past
five years the whole of such circulation would
have been retired by the end of the fiscal year
1894. The minimum of bonds which the
national banks in existence must
keep deposit is about 100000. 900; it is there
fore not possible that this of decrease of
circulation should continue unless government
purchases of bonds drive their price high that
it is clearly for the interest of the banks to sell
their bonds and retire from the national system;
this might be the result should this bill become
a law But even if the national bank circulation
should be retired in the future at the same
during the past five years. there is reason
to fear that its place would not he supplied by
other forms of circulating medium as rapidly
it has been in the past.
In my judgment. the purchase of bonds with
the surplus revenues of the government is the
only immediate relief from the evils caused by
the accumulation of the circulating medium in
the treasury through excessive and unnecessary
taxation but this relief will be only tenn
porary and partly effective for that purpose.
Repeal of the laws which levy the excessive tax
alton and cause the accu mutation OF the harm
full surplus is the only adequate remedy for this
fiscal disturbance which government now