Barre evening telegram. (Barre, Vt.) 1898-19??, 1902-12-22
REFORM CURRENCY
10 Says Secretary Shaw at Bankers
Club, Chicago.
NEED MORE ELASTICITY.
EApa and Contraction Of Money
supply - Congressional Commit
tees Considering Measures to
Benedt Financial situation.

Chicago, Dec. GA notable audience
1t the Bankers club listened to COM
prehenslve speech Oh the currency ques-
ton by the Hon. Leslie NJ. Shaw of
Iowa. secretary Of the treasury. Secre-
tary Shaw chose for his topic Possible
Financial Legislation" He said in part
/ want to emphasize the necessity for an
element of elasticity in our currency sys-
tenn. 1t has been said that our present
system is nonelastic. This Is true in the
sense in which the term is employed, but
In another sense 1t is IA mistake. unfortu-
nately however, the volume contracts just
when 1t should expand and expands when
1t should contract. This Is not a captious
criticism. 1t is the naked truth. If the
price of government bonds should remain
as at present quoted, 1t would be quite
profitable for banks to maintain circula-
ton whenever current interest rates do
not exceed per cent. Therefore when
money is plentiful and interest rates low
there exists an inducement for the banks
to increase their circulation. We get a
slight expansion Of circulation whenever
we have an excess, but whenever interest
rates approximate s per cent the banks
maintain their circulation at an actual
financial loss.
In my annual report l have detailed the
measures adopted by the department to
encourage circulation during recent
months and by means Of which an in
crease of SIG. 900 900 was practically pur-
chased In consideration of government de-
posits and the substitution of security
therefor. But during October, when the
department was thus resorting to every
known method to increase the circulation,
the banks that were under no obligation
to the government actually retired within
tl5. 900 Of the limit allowed by law. They
found 1t to their pecuniary advantage to
dispose Of the bonds on deposit as secur-
tty for their circulation and to sell them
ut the prevailing price and to loan the
proceeds at the higher rate.
Contraction and Expa nsion.
There Is just as much need for contrac-
ton when money Is not legitimately need
ed as there is for expansion when more
money is required And unless contraction
can be induced expansion Is impossible.
The farmer requires fewer grain sacks
during the summer months than at har-
vest time. but unless he has some system
for retiring those he does not actually
need during the growing season he will
ind them full of chaff in the autumn or
otherwise unprofitably employed.
l have been gratified recently not only
with words OF Endorsement Of the elastic
currency movement but equally with
words of criticism. for they have nearly
always come from those who recognize
The need of something additional to the
present system.
Permit an illustration. Not long ago
one Of the ablest legislators In the United
States one whose name every man in this
audience would pronounce II should but
mention his state. said to me: II am OPP
posed to all asset or credit currency
What l want Ia currency based upon
gold reserve" Then he unfolded practi-
,ally the same scheme that every credit
man has in mind, but he wanted
he banks to maintain gold reserve
against it, To this no one objects, and for
his most all contend.
Concerning Elastic Currency.
And now what are the essentials of an
Elastic currency? First. its prompt retire.
nent when not needed: second, its equally |
prompt reinsurance when needed. And un-
ess you have the one you cannot have the |
'ther. The one Is an essential protection |
.gainst imitation. The other is the best |
afeguard against stringency. Currency
efficient to do the business Of the ooun- |
ry is not imitation. A redundant curren- |
" be that much or little, is always dan |
erous. Unemployed freight cars are not |
n aid. but an obstruction, to commerce. |
n practice they are retired from circula- |
ion when not in active use. Unemployed |
money is not only an obstruction to COM |
1erce, but an inducement to speculation |
What We want is a side track for unem-
lOyed money.
How shall retirement be secured? I rec
gnize that some careful students of the
ubject think that this will regulate itself |
,hen given free play and that the lower |
he rate of tax the more certainly it will
etire. This would perhaps be true if the
resent system, which must not be dis
lrbed, is to be supplemented by the al
,wance of limited issue available only
l times of stringency. If the issue were
000, 000,000 per cent retirement would
,ean a $50, 900 contraction but if the
sue be limited to from $50. 600. 600 to $780,
70, 900 per cent retirement would not sig
ify much. A reasonably high rate will
artainly afford inducement for the banks
} retire their circulation when not actu-
Ily needed.
Suggestion.
Some have suggested the issuance of
lrrency based upon deposits of state and
unicipal bonds instead of government
onds, but this would leave the system as
elastic as at present Suppose bank
ad 100000 of available cash and there
loud be an unusual demand for money
hat advantage would it be to the com
unity for the bank to buy municipal
I
ice of an equal amount of currency
sainst which it must maintain reserve?
nd when once issued what inducement to |
) retirement? Under the present system
henever a local bank experiences an I'M
'ual demand for money it rediscounts It's
per and thus secures additional circula-
)n but at a. high price and is compelled
return it in ninety days or reborrow,
I'd whenever the strngency becomes |
ute rediscounts are impossible.
This cannot be accomplished under the
esent system of national bank circula-
IN. Bonds are too scarce and the price
o high, and there is no way either to
duce additional circulation when the de-
and increases or it's retirement whe - l.
rest rates are low. The gradual liquida-
IN of the government debt is reducing
e amount of bonds available for circu-
ton. 1t therefore follows either the idea
having an elastic currency must be.