The daily morning journal and courier., 1900-04-02
EFFECT OF THE CURRENCY LAW ON UOT TTNTL1 OT CTD CT1T ArTONr

EFFECT OF THE CURRENCY LAW
 ON VOLUME OF CIRCULATION.
 In considering the effects of the new
 currency law a point that is of decid-
 edly the greatest immediate public in-
 terest is in regard to it's influence on
 the volume of circulation. On this point
 Secretary Gage in his article in the cur
 rent issue of Golfers Weekly says: It
 can be generally answered that the law
 will lead to an increase in the supply of
 money in circulation, but it is extreme
 ly difficult to hazard anything like an
 intelligent estimate as to how great
 that volume of increase will be.
 Should the entire $840, 100000 of bonds
 to which the refunding provision ap-
 plies be offered for redemption there will be paid out of the treasury $S6, 000,-
 900 in premiums. The payment of the
 premiums will be in cash, and there
 will be that addition to the circulation.
 It is not to be anticipated however,
 that all of the bonds will be offered for
 exchange into the new per cents.
 Probably large part, at least of the
 holdings of banks, will be offered Ma
 tional banks hold an aggregate of $262,-
 
 able issues. By the way offers are al- ready coming in there is an indication that fair amount of the holdings of individuals will be offered for exchange. While we cannot proba bly, look for the paying out of this entire $S6,000,O00 in premiums, tller may be paid out within the next sixty or ninety days $20000,000 or $30000,000 in thta way. Perhaps $10,- 100000 of that will come direct from the treasury, but there will eventually be withdrawals of deposits now with the national banks to replenish the general fund in the treasury if drafts on it for the payment of these bond premiums are sufficient to make that seem advisa- ble
 The largest increase might come from the additional incentive which the law offers to banks to take out circulatio There Is discrimination in favor of the new 2 per cent. bonds to the extent that the tax which national banks must pay on their circulation will be only one- half as much when the banks deposit the new bonds to secure ther circulat- ing notes as it will be if they keep on deposit the old issues. This offers an incentive to the banks to make the sac rifice that they are asked to make in exchanging the higher rate interest bonds for the new per cent. bonds If the market price of the new bonds had not gone above par there would have been a fair amount of profit in bank buying the new bonds on the market has been circulated by the government oot, +bo+ ho, r. o bonds at par, and taking out circulation, would, were it able to keep all of its circulation, make a profit of about 1 2-5 per cent. more by taking out circula- tion than it would by loaning the money it must originally invest in the bonds Surely, that is not an exorbitant profit, l but it would undoubtedly be sufficient to lead to very large increase in the cr- | culation. As the law permits banks to take out circulation up to the amount of | their capital, there is room, with the | greatest aggregate capital of national | banks, for an increase of substantially | 6O,0O0,0O0 circulation.
 The high premium that has been inn realized in the market for the new 3 per cent. bonds, however, will | certainly check, to a large degree any in the direction of additional and it is quite impossible, with any data at hand, to estimate how great the increase will be.
 That the volume of circulation hinges on the market price of 2 per cent. government bond is one of the best il- lustrations of the fact that our currency system has not been put on an entirely scientific basis by this new legislation The bar1k-note circulation ought to have a direct relation to the commercial needs of the country rather than to the market price of United States bonds and it is in the direction of a scien- Lific law governing by proper economic cultaion that linaneiers and legislators must next turn their attention.
 AS the situation now stands there will be an increase in the national bank that increase may be cons siderable, but as the country develops, Dur needs will soon grow up to that in- creased supply. We will discover that .he volume of circulating paper money Is not regulated by commercial needs, but is wholly regulated by an entirely different principle, the principle of the profit on a circulation that is secured by bond deposits, thta profit depending on the market price of the bonds. There Is entire disocation between cause and effect Scientific principles do not gov ern the volume of money so issued. This new legislation has postponed the time