The Indiana State sentinel. [volume] (Indianapolis) 1868-1895, 1894-12-12
THE sECRETARY,s VIEWS.
His Reasons for Advocating the Pro-
posed Change.

Whatever may be the objections to the
issue and circulation of United States legal
tender paper, upon either constitutional or
financial grounds, it has become so incor-
porated into our currency system and con-
stitutes so large a part Of our active circu-
la,ion that it could not be suddenly with
drawn without producing. in the present
state Of our laws considerable disturbance
in the fiscal operations of the government,
as well as the business of the people, and
therefore, the plan now suggested provides
for its gradual retirement by the use of
surplus revenues hereafter received
q process which win probably require sew
eral years for its completion. As these notes
can not be retired until other forms Of cur
rency to an equal amount have taken their
place. there would be neither a forced con
traction nor expansion of the circulation on
account of the change,
As the plan suggested proposes to ex-
enpt the government Of the United States
from all liability for the redemption of ma
uondl bank notes, and place the sole re-
SpOnsibility upon the banks themselves, a
guarantee fund Of not less than 80 per
centum upon the outstanding circulation is
regarded as a very proper and necessary
feature of the system. In nv opinion the
imposition of a tax by the federal govern
ment upon the use Of circulating notes law
fully issued by state banks is an unjus,ifi-
| able. if not an unconstitutional, interfer-
| ence with the authority of the several states;
but its validity has been judicially
sustained and as ii does not appear TO be
| practicable TO repeal it absolutely at this
| time it is proposed TO avoid its prohibitory
| effect by eXempting from taxation the
| notes of such banking institutions as may
/ be organized and conducted under cOndl-
| lions which will amply protect the holders
| of their paper. While direct governmental
! supervision is not, and ought not to be,
provided for, the requirement that a bank,
1 i'm order 90 secure exemption from taxation,
must satisfy the secretary of the treasury
and the comptroller of the currency that 1t
has complied with all the conditions i'm
] posed, will enable these officials to adopt
| such measures as may be necessary in each
case to secure every material fact involved
I in the inquiry.
It win be observed that the plan sub
miLled proposes the repeal Of all pro-
/ visions of existing laws which require
| national banks to hold a fixed reserve
| against deposits, and as this IS q de-
parture from the practice which has pre-
( vailed continuously for more than thirty
! wears. il is proper TO state, briefly the
| reaso which have prompted me TO
make this suggestion. When the ma
/ ti0nal banking system Was originally au-
| thorized. it was regarded by many as a
/ doubtful experiment at first and various
/ precautionary restrictions We're imposed
! for the security OF the nOte-hOlders and
| dep0sitors, which practical experience
| mas since shown TO be unnecessary, and
| sometimes harmful Among these are the
| reduiremnts that bonds shall be deposited
| TO secure 90 per cent. of their par value in
! circulating notes, and that a fixed reserve,
/ which cannot be lawfully diminished,
/ shall be held on account of deposits.
| The consequence of this last requirement.
| is that when Il bank stands in need of all
/ its resources, ii cannot use them without
| violating the law.
| The necessity for holding sufficient
| reserve against deposits is not ques-
| toned. and, in fact. the business of re
/ ceiving deposits and discounting paper
! ought never to be conducted without ii,
| bat it should he held for actual use
! when the occasion arises, and then not
| made legally Inaccessible at the very
| time when it was theoretically supposed
/ to be beneficial in sustaining the credit
! Of the bank and aif0rding relief to its
| customers Under the present law, when
| q bank finds It's reserve IL danger Of re-
! ductiOn below the legal requirements, on
! account of The demands of its depositors.
! it is compelled at once to call in its
| loans, thereby increasing the distrust
| and acgrayating the situation, which
! iudicious use OF the reserve would have
| relieved, and, besides, at such times, in
| order to protect the reserve, which is
| then practically useless for all practical
! purposes. clearing house certificates, va
| li0us forms Of time checks and bills
| and other devices OF doubtful legality
! are habitually Tes1rted to for the purpose
! Of supplying circulation to take the place
| Of the lawful money lying idle in the
| vaults of the banks.
To provide for reserve which cannot
! be utilized at a time Of the greatest stTin-
| gency and distrust without mourning the
| penalties OF forfeiture affords most
/ striking ustratlOn of the impOlcy of
! legislative Interference with the natural
| laws Of trade and finance. 1t IS not the
| duty or province Of the government to
| control or regulate the private affairs Of
| the people, except for certain well defined
! purposes. and as the custody and use OF
| funds belonging to deposit0rs are matters
| which affect only the interests Of the i'm
| mediate parties they should be left to
| their own judgment and discretion. The
! duty Of the government. 50 far as it has
| any duty in the premises, IS simply TO
! provide that all the currency issued I'M
| der authority is sufficiently secured 70 pre-
vent its loss or depreciation in the hands
! OF the people who are compelled 10 re-
! ceive and pay IL out IN the transaction Of
| business; but o bank Is not dependent upon
I the government for authority to receive
| deposits and its use for that purpose by
| the public is IS purely voluntary as the
| credit extended to any other corporation
! or to a private individual.
! Every prudeltly managed bank, IL leN
! free to conduct its own deposit and dis
| count business in the manner most ad-
| interests of It's depOsitOrs, will keep on
hand reasonlble reserve to meet not only
| all the ordinary demands upon 1T, but to
| provide for such emergencies as are liable
| 70 occur IN the community whore it Is
! located; but IL ought not to be prohibited
| by law from using such reserve for the
only purposes It was designed to acc0mp-
| lish. The requirement that the banks shall
| pay thsir own obligations imposes upon
them no greater hardship than is imposed
| by law upon every other business and
! financial institution In the country, and
the only argument that can be plausibly
| urged against it in the case Of the banks
! Is that as the government has undertaken
| through their agency to secure a sound
! circulating medium. it should pledge its
credit to keep ii good under all circum-
| stances. The conclusive answer to this is
/ that the government has discharged Its
whole duty in the matter when 1t has, by
It's legislation. provided such safeguards
as will, with honest and competent man
agemeat, guarantee the sSfetv Of the notes