New-York tribune., 1901-12-05
SECRETARY CAGES REPORT.

SECRETARY GiGE'S REPORI.
The annual report of Secretary Gage is par
| ticulary interesting this year because of the
| frank and able manner in which the Secretary
| discusses the weak spots n our national BANK
! ing system and our currency laws. In the
minds of most American citizens the natlonai
banking system is the best system in the world,
and it takes more than ordinary courage for a
! public man to combat that idea. Secretary
Gage however combats it clearly and convinc-
! ingly and the portion OF his report which is de-
voted to banking and currency deserves the
careful study of every voter. His recommends
| tions for reduction of the revenue, disposition
| of the surplus and various Improvements in the
| public service have been and will be discussed
! in connection with the Presidents Message and
the deliberations of Congress. that it is neces-
sary here 10 call attention only TO his suGges-
tions for the strengthening Of the banking sys-
TEN and the reform of the currency.
Touching first upon banking in general the
Secretary lucidly and soundly explains the func-
ton of a modern bank, and points out the nam
weakness in our system, the feature that Justl-
fies his terse criticism that it is a system
adapted for fair weather and not for foul. When
business trouble comes there is no co-ordina-
ton or cooperation between banks except Such
as is voluntary The weakness lies not SO much
i'm the seIishness of each of the four thousand
independent units as in The necessity which
compels individual measures of preserva-
ton on the part of each In union there Is
strength. and the Secretary suggests as q prac-
ticable means of obtaining that strength feder-
alton of existing banks, which should own the
stock of and control a truly national bank, a
bank of the nation, with which only other banks
and the government should deal. The idea may
sound startling at first, but it seems by no
means impracticable. The voluntary union of
the New-York banks, expressed through the
action of the Clearing House in 1898, probably
saved the country from the worst financial crash
in history. union of all the banks OF the
country expressed through a great central
bank. would be a power for safety far greater
than the New-York Clearing House. In ad-
dition 1t might solve the independent Treasury
problem. The hundreds of millions Of dollars
locked up in the Treasury are at all times as
absolutely lost TO the business world as though
, they were at the bottom of the sea. In times
of heavy surplus revenue they become an actual
menace to the country a federated bank could
easily be made the depostary of the govern
ment and the nations money would at last be
placed at the disposal of the nation with abso-
lutte safety to all
Any one who has ever urged currency reform,
abolition of the greenbacks and extension of ma
| tiOI.ai bank circulation upon the average voter
has found the first stumbling block in the stereo-
tyDed objection: The banks issue circulation
! because it is profitable They draw interest
ION the money they invest in the bonds which
'are the security for their notes, and then they
| turn around and lend those notes to the pub
.lc anG get more interest. We want no Shy
"lock notes The government is behind the
'greenbacks. They are good enough for us
Empty this view is to those who know, 1t is
| the prevalent one. No amount of demonstration
| that the money invested in bonds might other
wise be loaned directly TO the banks customers,
that engraving charges express charges, cir
| culation tax, redemption tax and premium on
the bonds must be considered before the profits
| are counted will convince the average Ameri-
| can citizen that banks are not especially fa-
| vored when they permitted to issue cfrcuat-
ing notes. Therefore one great step in currency
| reform ought to be accomplished 10y the official
! declaration of Secretary Gage that, according
! TO the most careful computations of the govern
| ment actuaries. the extreme profit to the most
| favorably situated banks is less than three
| fourths of per cent their note circulation.
And. paradoXical as 1t may seem to those who
have not figured the problem out for them
selves this maximum profit is earned by the
| banks in the big money centres. where cur
| rency is plenty and interest rates are low. Thus.
| in communities where the prevailing rate OF in
terest Is per cent. the profit on circulation Is
seventy hundredths of l per cent. shrinking
| TO thrty-one hundredths of ! per cent when
| interest rates rise 10 per cent. In view of
/ these figures it is easily seen that the main OBJ
| iect of a banknote circulation-to supply cur
rencv where and when ii is most needed-is
actually defeated by present conditions, for
| where the need for currency is greatest the in
| ducement TO issue il is least, and where the
| need is least the inducement is greatest.
The Secretary makes effort TO dogmatZe in
favor of a specific remedy. but puts forth tenta-
/ five suggestion on which he invites criticism and
discussion His plan would not solve the whole
question. for il would cease to work when the
| bonded debt is eXtnguished as it surely will
| be In time. But the adoption of the plan would
| be vast stride in the right direction, and its
| successful operation an object lesson that would
make subsequent advances easy Of accomplish
ment In brief. the proposition is TO abolish the
legal requirement OF dollar for dollar bond
security for banknotes and to permit the Issue
by any national bank OF m amount Of notes
| not 10 exceed it's fully paid Up cnpitni upon the
deposit with the Treasury Department Of United
States bonds equal to so per cent of the issue
and Of greenbaeks equal to 20 per cent, Thus
| so per cent of the Notes would he fully secured
and 50 Der cent would be asset currency" pre-
| teeted by guarantee fund contributed pre- rata
| by all the banks which issued notes. Fram the
| guarantee fund all defaults ~eHid be made coed,
| and the fund wsuid bsesHas a sFeditsF against
| the defaaitiag banks assets Oh an equal fsst-
l ing with its depositors any deficit In the fund