The Indianapolis journal. [volume] (Indianapolis [Ind.]) 1867-1904, 1901-02-11
MR.. GAGE ON CURRENCY
HE AMPLIFiES HIS CRITICISM OF
NATIONAL BANK ISSUES.
Tells Why Present Laws Do Not Az
Favors the Lowering Bill.


Special TO the indianapolis Journal.
WASHINGTON, Feb. 1O.-Secretary Gage
having referred In his annual report to the
fact that 'there is under our present sys-
tenn no assurance whatever that the volume
of bank currency will be continuously re-
sponsive to the country's needs, either by
expanding as such needs require or by con-
tracing when superfuous in amount" was
asked yesterday whether the bill recently
introduced in the House by Mr.. lowering.
of Massachusetts,, remedled this defect. The
secretary replied:
Yes" in a moderate degree, the bill OF
MIR. Lowering tends TO meet the possible
future needs Of the country. 1t provides
anteed bank notes secured by a gold guar
anty fund in the treasury. 20 per cent. OF
Its capital. This keeps the currency related
tc bonds in some degree, which Is not alto
gether sound in theory, but II provides a
small margin of elasticity which might be
avaibed of by the banks during the season
of monetary pressure, when the food crops
are being moved in the West or the cotton
crop is being marketed in the South. L
understand hat Mr.. Lowering has inten-
tionally limited his bill to a moderate step
in order to disarm the opposition which
might be made to a more sweeping measure
and to afford the opportunity TO test the
principle before 1t becomes necessary TO
make a great increase in the volume or the
circulation. Ii is not desirable, In my opill-
ION, to take any radical step, Wnlcn Will
violently affect the bond market by Undue
Ing the banks to throw their bonds upon the
market. with the effect of depressing their
prices. This is avoided in Mr.. Lowering 5
bill by requiring a certain percentage or
bonds to be held in order to secure the new
guaranteed notes. The proportion of notes
which may be issued is somewhat Increased
after three years and again after six years,
but within that time the available bondsare
likely to be considerably reduced If We
emain at peace, and the demand for them
10 lfEoIv 70 ho fn0rnaCR6 nv the aXn1nSlOn Df
bank capital"
"But is not the country at present very
well supplied with currency?' was asked.
YES eplied Mr.. a but Its diStrlDu-
ton is uneven and the recent increase under
the refunding awasIsaidin my annual re-
port, has very little relation to the needs OF
business. The repeal of the silver purchase
law in 1892 practically arrested all means
of increasing the currency In gold. The
refunding law relieved this situation by
Offering additional inducement TO the ma
tiOnal banks TO take out circulation. They
increased their circulation about S96, 0O0.GD0
last year as a result of this inducement.
but now that the exchange OF bonds has
been suspended, little further increase can
be locke for from this source. The de-
nan for money is felt from several direc-
lions at the same time when business activ-
ity increases. The increase of bank loans
calls for larger lawful money reserves at
the very moment than increased prosperity,
larger earnings and higher prices call for
more money in the pockets of the people.
Thus the money in national banks outside
their own notes rose from $2S9, 25i $50 on
| June 80. 1893, to S5O4, 194, 652 on June 20. 1900.
This absorbed almost all the increase IF
the money in the country during this period,
without leaving any considerable amount
| for the increase in the pockets of the peo-
pie
do you mean. theny' the secretary was
asked, that we have not at present a SUI
fcient supply of currency?"
THAT is not so much the question" was
the reply, las the lack OF elasticity in the
present system. If business activity should
slacken, we might find that we had a great
deal too much currency and the surplus
would tend to go abroad In the form of
gold. The plan proposed by Mr.. Lowering
has the advantage of other similar plans
| where the currency Is not related entirely
| to the bonds, that the volume of currency
tends to contract when il is not needed,
but affords a means OF increase when il Is
needed. This is a vital requirement of a
sound and safe currency and there can De
no objection to so moderate a step as that
proposed unless 1t be that 1t does not go far
enough. Everything which tends to make
easy the conversion of sound credit into a
transferable form tends to lower the rate
of interest to the borrower and thereby
to benefit American manufacturers in meet
ing the demands of the home market t
cially in meeting upon equal terms in other
markets their foreign competitors, who
have the benefit of the great capital ana
liberal note issuing systems of the great
banks Of continental Europe"