The midland journal. (Rising Sun, Md.) 1885-1947, 1892-01-29
coLossAL CHEEK.

Been Advanced In All Seriousness.
At the recent annual convention Of
the American Bankers association,
held at New Orleans, November IL and
12, the national bankers through their
mouth-piece, John Jay Knox, formu-
lated the following astonishing and inn
pudent proposition. or plan for q fiex-
ible circulating medium. Mr.. Knox
said:
''What we need in a country like this.
If we are to have bank circulation,
which hope we are to have at some
time in the future, is . circulation
which Is both safe and elastic. grant
that the national bank circulation,
while it filed all of three requirements
ofsafety. .convertibility and uniformity,
was defective in the principle of elas-
ticity.
'eThe proposition which I had the
honor to present to congress was in
brief terms the following: That banks
organized in this country should be al
lowed to issue circulation upon 75 per
cent. of their capital. A bank of $500. :
600 capital should have the right to
issue circulation to the amount of $780,
600 Half Of that circulation ($15O, 00O)
would be secured by gold or silver coin
or bullion, or. If you please, by the
public debt SO long as the As shall ex-
ist 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 circu-
lation, but upon the other half of the
circulation there would be profit, as
it would be secured by . safety fund.
The principle of the safety fund rests
upon the well established fact that at
least three-fourths of the banks are
managed with ability, and under no
circumstances are likely to become in-
solvent We have experience to guide
us in this matter. During quarter of
century, during twenty-five years, 1870
national banks failed, having an aggre-
gate circulation of SIS. O00, 900. Under
this system one-half that amount would
have been secured by a deposit of coin
or bullion. The other half would have
been secured by safety fund. This
safety fund would be formed by con-
tribution of all the banks of the coun-
try of one per cent. upon the amount
of circulation issued, the same amount
that is now contributed to the govern
ment Of the United States as tax up
on circulation.
'We would have then q loss Of S15.-
900, 600 in twenty-five years, an annual
loss of $500, 600. One-half secured by a
safety fund of 100000 and the other
half by coin or bullion. The income,
provided that $500. 600, 900 of circulation
was issued, would be So, 600. 600 a year.
The loss would be $500. 900. or a loss of
only one-tenth of the amount of the in
come, taking the experience Of the last
twenty-five years as correct data. If
the loss should be five 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 possible require
ments. If the safety fund should by
any possibility be exhausted. the un-
secured solvent notes would be enti-
tied 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, 900, 900, the amount de-
rived from the assets and insiiy,drA.
of insolvent banks had been
more than SIG, 900, 600. This is inde-
pendent of the bonds So that such in
solvent notes, if the banking system is
conducted as safely in the future as in
the past, would be secure without
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"
Grand in its audacity and revolution
izing in its ideas. proposing, as it does,
to vest in banking corporations pre-
rogative belonging solely to congress,
the foregoing proposition nevertheless
embodies some concessions and admis-
sions of value and portent to the people
ut large. Stripped of all surperfuouS
verbiage the proposition is as follows:
That for every $2.66 in ostensible cap
ital claimed by bank 1t shall issue
paper bills for two dollars. OF this
amount one dollar is to have behind it
4 dollar in gold or silver coin or bullion
for its redemption in case of the failure
of the bank or its retirement from bus
mess by liquidation. The other dollar
Is to have behind it for its redemption
In case Of the failure of a bank or its
from business the sum of
two cents in coin or bullion. This vir-
tually admits:
First-That so far as its use as money
Or as circulating medium is concerned,
money needs ne specie basis or metal
lie reserve for Its redemption, as Mr..
Knox in his proposition makes no pro-
vision for the redemption of any of this
bank currency. except in case of banks
becoming insolvent or voluntarily re-
tiring from business. And even for
this contingency there Is no provision
for the redemption of more than the
part of the total bank
outstanding. In other
words, Mr.. Knox contemplates that the
average life of a bank and its currency
will be fifty years, ranging from one to
one hundred years II more than one
per cent Of the total outstanding bank
currency should need redemption from
any cause the worth of one-haH of the
excess would be problematicaL
Second-That were it not for the fact
some banks become insalvsnt and 9TH
srs wish to retire from business. no
other money than paper bills would
aver be required
Now let us give Mr.. Knox'a princi-
ples broader applicatieA. The credit
If the whole people is better than that