Evening star., 1901-12-04
ments, in what way-can the element Of
supply be made adaptable to demand?"
Expansion OF Mgnk Currency.


follows:
by. necessary aInardments to the law
provide
.sThat any national banking association
which shall deposit 30 per cent of its capi-
tai in the form of United States bonds at
their par value. and 20 per cent of its capt.
tai tsa in LIMITED states at a tender notes with
security therefor. shall be entitled to issue
its circulating notes to an amount equal
to it's paid-in and Hninpaired capital In
addition to the deposit of security so re-
above shall pay semi annually to the treas
urer Of the United States in trust an
amount equal to one-eighth of l per cent
on their capital stocks. respectively. such
for the protection of the note OF any bank
which by reason of Insolvency shall become
unable to pay it's notes on demand.
Eject of the Changes.
II venture now to present some estimates
of the effects Of these amendments il in
corporal ed into the law. If am not mis-
taken, it would lead to an important in
crease in the capital of the national banks
Their total capitalization at present Is
1868 900 900. They have surplus and un-
divided earnings fund Of $4,000 900. the
larger part of which could be put into the
form of capital. With the moderate ad-
vantage afforded under the law SO amended
movement toward reorganization under
the national act would take place in banks
now doing business under state laws
ut is safe. think. to estimate that with
in three years the total capital Of the ma
tional banks would increase from the pres
ent amount of $663, ,000, 900 to 81 600 COO, 900.
I'm my opinion, the obligation Of the gov
ernment to pay the notes Of insoivent banks
should be rescinded. Fidelity In the dis
charge Of its duty as trustee should be the
lutte guaranty remains feature of law, the
broad question will again and again recur.
II the government is to take the ultimate
and final risk of bank notes. why should 1t
not enjoy the immediate and continuous
profit arising from the circulation of paper
money issues? There ia a good answer to
this plausible inquiry, but it is not obvious,
quire more extended. treatment than this
opportunity affords. 80
THUS the problem OF national finances
woule be greatly simplihed.
Objections, offered.
Objections of various and vigorous kinds
will be offered to the propositions above
indicated. 1t will be asserted, on the one
hand. that to give banks privileges so great
will induce the creation Of banks organized
for the sole purpose OF note issuing, and
that the consequence win be a repetition of
the former evils of a wild cat currency.
On the other hand, it will be objected that
the inducements to embrace the provisions
contemplated are insufficient, and that the
scheme would fail for that reason. The
frst-named objection will not stand the
test of fair examination. AS to the sec
ond, it will appear that, though the induce
ments are not large, they are sufficient. AS
previously noted the advantage to a bank
to issue circulation under present laws is
equal under the best possible conditions,
to seventy hundredths of per cent on it's
capital stock, and peryersey enough the
present system works to reduce the advan-
tage in those regions where bank notes are
the most useful form In which bank credit
can be extended to ~ borrower Where
vantage or profit is seventy hundredths of
! per cent; where the rate of interest Is
per cent. the profit fails TO thirty-one nun
dredths Of per cent: u
Security of Guaranty Fund.
Again, it will be- alleged that the Sc
curity furnished blythe proposed guaranty
fund would be INADEQUATE; that bank fail
ures would soon exhaust Its supposed pro-
lection, and losses would sooner or later
fall upon bank note holders. This is an
important matter and all reasonable doubts
proposition involves the contribution of
one-eighth OF 1 per cent annually on the
capital of all banks@wiIfch may avail them
selves of it's provisions.F =
I'm order to get some data on this point
and to bring the light 0f1experience to bear
upon 1t, careful aanal ysis of the history
of national bankss foE,athe last thirty-six
years has been made, A hypothetical tax
of one-eighth OF l per cent was charged
against all the national banks from their
organizations to date, and1 the amount so
accruing was passed to the credit of the
imaginary guaranty fund. AS Individual
banks from time to time have actually
failed, it was assumed that had these banks
enjoyed the privileges above proposed they
would at the time of their failure have had
outstanding the full amount Of notes al
lowed. The guaranty fund was then
charged with the difference between the
value Of the securities held by the treas
urer OF the United States in trust and the
face amount of their outstanding notes.
Afterwards the guaranty fund was credited
with the amount which would have been
realized by the treasurer had he received
the same percentage in dividends upon his
claim for the guaranty fund as the final
liquidation OF the banks showed was paid
to depositors The result of this shows
that all note holders would have realized
the face value of such notes without any
delay; that the guaranty fund, instead Of
grown, and that on the 1st OF January of
the present year there would have been an
unused surplus to the credit OF the guar
anty fund of 81, ,421 $50. This demonstra-
ton. drawn from past history. furnishes
better evidence Of the entire sufficiency of
a guaranty fund, to the end designed, than
is usually enjoyed in human affairs when
it is sought in any direction to guard
A Powerful Objection.
There is one more objection which will
be advanced-the only one that in my opin-
ion possesses any real merit. 1t win be af-
firmed that, with our~system as it is-banks
constituted Independent units scattered
over the land with no general effective
control anywhere lodged, with no principle
Of coordination or co-operation-the note
issuing function should be quite prohibited
except upon absolute security. with ample
margin deposited i'm advance. 1t might be
broadly affirmed that while this weakness
continues to exist banks should create no
liability. either to note holders or deposit
ors. and in what Is said under the head of
Banking I have argued that to this general
weakness there should be addressed an ap-
propriate cure.
'"The best that can be said under present
conditions Is that II our system be defective
1t is much better than none. Banks are as
essential in the business affairs of the peo-
pie as railroads and ships are essential in
the transportation of commodities. The
note-issuing function, within the limits of
entire safety is as legitimate and as ser
viceable to the community as is the issuing
of bank credit in any other form. 1t is
question in which the convenience of the
people and the economical use Of bank cred-