Pittsburg dispatch. [volume] (Pittsburg [Pa.]) 1880-1923, 1890-11-06
DECREASE OF BANK CIRCULATION.

The steady decrease of national bank cir
culation which has been going on for some
years past is one of the aspects of the
financial situation. The New York Sun
states the contraction of currency by
the deposit of legal tenders for the
redemption of bank notes, during the
past twelve months, to have been S31, ,433, ,602,
or at the rate of s., $40 800 per month. The
total OF bank notes secured by bonds out
standing, at the close OF last month was
81, 249, 256, ,736. AS compared with the period
not SO many years ago when the volume of
national bank notes equalled that of legal
tenders, this shows a diminution of some
thing like 5000, O00 900 in one part of our
currency.
In other words the retirement of national
bank currency during the past few years has
offset the greater share of the increase in the
volume of circulation by the coinage of silver
and the issue of silver certificates. The ex-
cess in the issue of silver over the retirement
of bank currency has not kept up to the in
crease in the volume of trade. These figures
show that the complaints of insufficient cur
rency have not been altogether unfounded.
At the same time the remarkable dwindling
of this class of circulating medium proves
that, at the present high rates for Govern
ment bonds caused by the steady retirement,
the profits on circulation do not pay for tine
investment necessary to keep it up. The
efforts of Congress to improve this state of
affairs have been of little value.
That class of political opinion which is
inimical to the national banks, and de-
nounces the system as a monopoly will of
course welcome this change. But the fact
is that such views are founded on prejudice
has borne testimony in season and out Of
season against all monopolies; but there is
nothing in the nature of a monopoly about
the national bank system. The rates OF
money and exchange are fixed by the free
competition of thousands of banks, and any
one with the necessary capital can go into
the system. 1t is true that the theory of
permitting circulation to be founded on
Government bonds, was to offer an ad-
vartage 10 banking capital to in
duce it to place itself under the
regulation and restrictions of the
national banking law. When, as in the
early days of the system, the total number
of banks was limited by law, these advan-
tages were somewhat exclusive; but now
anyone with the necessary capital can share
all the advantages that are held out. The
best proof that these advantages are by no
means great is afforded by the fact that
while there are over 500, OOO, 900 OF Govern
ment bonds outstanding, only one-eighth of
the total is used as basis for bank circula-
tion.
Il is we'll to have a clear understanding on
this point, because it is far from certain that
the tendency in which we have been work
ing, of replacing bank circulation BY silver
and certificates, is the best one. Theoretic-
ally the silver circulation has sounder
basis of value than the bank-notes; but,
practically, bank-note founded on Govern
ment bonds, and redeemable in legal ten
ders, furnished a currency which was uni
versaIly acceptable. Its superiority lay in
the fact that while there was full supply
of securities on which the circulation could
be based, its elasticity was perfect and was
| governed solely by the demands of trade.
If there was little demand for circulation it
was retired by the institutions which soon
est became cognizant of that decrease in
demand. If there was an increased demand
more bonds could be promptly deposited
and additional circulation issued. Changes
in the volume of silver circulation have to
be made in accordance with Congressional
enactment and are made wholly without
knowledge of the demands of trade.
Without regard to the silver question it
will soon become an imperative subject to
settle whether or not Congress shall not pro-
vide new class of securities of equal sta
billty with Government bonds, on which
bank circulation can be issued. Such a
step wisely taken would permit the cur
rency to be enlarged, as the requirements of
trade make necessary, and allow the ma
tonal bank system to expand on its present
| free and solvent basis.