The advocate., 1891-12-02
COLOSSAL CHEEK.
2 al THR AnYOCATR.

American Bankers Association, held at
New Orleans, November II and IL, the
national bankers through their mouth
piece, John Jay Knox, formulated the
following astonishing and impudent pro-
position, or plan for a flexible circulating
medium. Mr.. Knox said:
What we need in q country like this, if We
are to have bank circulation, which hope
We are to have at some time in the future,
is q circulation which is both safe and elias
tic. grant that the national bank circuls-
tion, while it filed all of three requirements
Of safety, COnvertibility and uniformity,
was defective in the principle of elasticity.
The proposition which had the honor to
present to Congress was in brief terms the
following:-That banks organized in this
country should be allowed to issue circula-
tion upon rs per cent. of their capital. A
bank of $4O0,0 capital should. have the right
TO issue circulation to the amount of $500, 900.
Half of that circulation ($150,000) would be
secured by gold or silver coin or bullion, or,
IL you please, by the public debt 80 long Rs
the 4s shall exist, until 1908, by government
bonds. The other portion Of the circulation
would be secured by safety fund. Of course
If circulation was issued on gold or silver
coin or bullion alone there would be no
profit on that circulation; but upon the
other half of the circulation there would be
O profit, as it would be secured by a safety
fund. The principal of the safety fund
rests upon the we'll established fact that at
least three fourths Of the banks are managed
with ability, and under no circumstances
are likely TO become insolvent. We have
experience to guide US in this matter. Dur
ing g quarter of a century, during twenty
Ave years, 100 national banks failed, having
an aggregate circulation of $16,0OO00O.
Under this system one-half that amount
would have been secured by deposit of
ocin or bullion. The other half would have
been secured by a safety fund. This safety
fund would be formed by contribution OF
all the banks of the country of per cent.
upon the amount of circulation issued, the
same amount that is now contributed to the
government of the Unite States as a tax
upon circulation.
Wewould have then loss Of $15, ,OOO, 900 in
in twenty five years, an annual loss $4,000
0ne-half secured by safety fund of $780,
600 and the other half by coin or bullion.
The income, provided that $500, 100000 of
circulation was issued, would be So OO0,O 900
year. The loss would be 100000, or a
loss Of only one-tenth of the amount Of the
income, taking the experience Of the last
twenty-five years as correct data. If the
loss should be Ave times greater or ten
times greater than the experience Of the last
twenty-five years, there would be still
enough in the safety fund, to cover all pos
sible requirements. If the safety fund
should by any possibility be exhausted, the
unsecured solvent notes would be entitled to
preference in payment from the assets Of
the bank and the individual liabilities of the
stockholders. While the total of insolVent
national bank notes during the last twenty
five years has been $15, 5,0O0, 900. the amount
derived from the assets and individual
liabilities of insolvent bands had been more
than $16,OOO.OOO. This is independent of
the bonds. So that such insolvent notes, if
the banking system is conducted as safely
in the future as in the past, would be secure
without "a safety fund. ] But without the
safety fund the amount which would be
taken to pay these notes would be taken
from the fund which properly belongs to
the depositors Of the banks.