The Indianapolis journal. [volume] (Indianapolis [Ind.]) 1867-1904, 1902-12-04

interest payable on demand. and the hold
ers thereof can no longer dictate prices to
the government. Had the department, how
ever, exercised the discretion with which ii
is clothed by the act referred to, and Of
fered to refund, it is probable that a portion
of the outstanding Indebtedness of the gov
eminent would have been presented and a
slight increase in circulation might have
followed. In view of these considerations, il
has been thought best to defer action that
the current session of the Congress may,
if it shall deem wise, determine by addi-
tional legislation the future policy of the
government.
Additional circulation will be necessary.
Outstanding government bonds are made
quate to secure il even If their market
value would justify their use by the banks.
1t is even doubtful If national bank cur
rency based on government bonds can be
made advantageous to banks. A lower tax
on circulation would be counteracted very
promptly by a corresponding advance in
the price of bonds, and the profit would ac-
crue to the present bondholder.
TAX PROPOSED.
81 see no objection to the issuance of cir
culation based upon general credits, If prop
erly safeguarded. Neither do L believe it
necessary to make currency thus issued a
first lien upon assets. A very small tax
upon circulation would be sufficient TO cover
any possible loss. The government actuary
has demonstrated that a tax of one-eighth
of / per cent. upon circulation would have
covered all loss from the beginning of our
misunderstanding system to the present
| time. had each bank maintained its limit
of circulation. Instead of calling this a tax,
suppose it be called premium on insur-
ance,' and the government the 'underwrit-
| err The banks could be required to redeem
their circulation at reserve cities, and the
| government would never suffer injury or
embarrassment as an insurer against ulti-
mate loss. The lowest tax suggested by any
one would far exceed any possible loss,
and the government could assume RESPONSE
bility to the people and still realize a profit.
When thus guaranteed and primarily re-
deemed by the government at the expense
of the bank of issue currency based on
as secure as the present national bank
notes based on specific assets.
II doubt, however, the wisdom of making
! provision for the issuance Of credit cur
rency TO the limit Of the banks capital.
Not that / would fear unfortunate results.
but in all financial legislation the greatest
caution must be exercised lest the currency
be suddenly and unduly inflated. A grad
ual increase in circmulation is well-nigh i'm
perative, but a sudden and unnecessary in
crease would be most unfortunate. Several
other safeguards will naturally suggest
themselves and need not be considered in
this report.
Il am not prepared at this time to rec
ommend branch banks. Recent events con-
firm a previous opinion that the peculiar
conditions of this country would not be
conserved by such a policy. Greater econ
Oihs III AididStIltnt DldN Dt tOIlCtQtl. II
may be conceded also that the system
works well in some countries, but no other
country has such diversified and widely
separated interests as this. In order that
the parent bank shall be able TO serve wide
ly separated communities. it must first un-
derstand the needs of these communities.
and neither experience nor observation JUS
titles the conclusion that such intimacy is
likely to exist. / think a far better course.
for the present at least. would be TO pro-
VIDE an elastic currency, available in every
banking community and sufficient for the
needs OF that locality. This. / think, can be
accomplished either in the way 1 have init
mated or by several other methods.
THE department no one plan
to the exclusion of all others. 1t is the prov
ince of the department to point out the
weak places that the Congress may
strengthen them; to suggest possible. il not
imminent dangers, that the Congress may
provide against them: but ultimate respon-
sibility does not lie with the department.
PUBLIC DEPOSITS.
AT present the purchase Of outstanding
government bonds for the credit of the
sinking fund affords the only method of re-
turning surplus public revenues TO the
channels of trade after they have been
once covered into the treasury. The depart
ment Is authorized to deposit current inter-
nal-revenue and other receipts. except GUS
toms, with national banks upon satisfac-
tory security. but this method affords very
tdTuy TelleI IN case or monetary S~tringency.
On the other hand. the purchase OF bonds
invites a contraction of national-bank cir
culation for the purpose of disposing OF the
bonds pledged for its security at the ad-
vanced price which usually prevails when
ever the government becomes a purchaser
Thus the object sought to be attained Is
counteracted. IL authority were granted "a
make deposits without security after spe-
cial examination and at such rates OF inter
est as the secretary OF the treasury might
determine, quite an element OF elasticity
would be provided whenever a surplus OF
revenues existed. BY advancing or lowering
the rate of interest an equilibrium could be
maintained throughout the country, and
the interest charge would more than cover
any loss.
But II il should be deemed unwise &c
permit the loaning of public funds with.
out specific security, IL certainly would bs
well to authorize deposits direct from tbs
treasury. and, as now. upon satisfactory
security. IL such authority had existed
during the last few months the something
more than S2O.oo0.0O which was paid 4