The Birmingham age-herald. [volume] (Birmingham, Ala.) 1902-1950, 1902-12-21
Badly in Need Of an Element
Of Elasticity
SPEAKS TO A BANKERS CLUB
He Thinks the Issuance of Currency
Based Upon Deposits of State and
Municipal Bonds Would
Not Solve Problem.

Chicago December 20.-Two hundred OF
Chicago's most prominent business men
were at the banquet of the Chicago Bank
ers' club at Kingsley tonight. The chief
speaker of the evening was Secretary OF
the Treasury Shaw, who addressed the
| club on possible Financial Legislation"
p His remarks were we'll received by his
hearers. Secretary Shaw said IN part:
''I want to emphasize the necessity for
an element of elasticity in our system.
It has been said that our present system
Is non-elastic. This Is true in the sense
in which the term is employed, but in
another sense 1t is mistake. Unfortun-
ately. however, the volume contracts just
needed as there is for expansion when
II should contract. This is not captious
criticism It is the naked truth.
There is just as much need for con-
traction when money is not legitimately
needed as there Is for expensian Wnen
more money is required And unless con-
traction can be induced, expansion Is I'M
possible.
'fWhat, then, are the essentials of an
elastic currency? First, its prompt retire.
ment when not needed; second, its equally
prompt resistance when needed Ana
unless you have the one you cannot nave
the other The one is an essential protec-
tion against initiation. The other Is the
best safeguard against stringency. Cur
rency sufficient to do the business of the
country Is not inflated. A redundant cur
rency, be that much or little, is always
dangerous.
State Bond Scheme lmpracticable.
Some have suggested the issuance Of
currency based upon deposits of state
and municipal bonds, instead of govern
Ineut bonds. but this would leave the
system as inelastic as at present. What
is needed Is the right to issue limited
amount OF currency without encroachtng
upon the available funds or the assets
already In the bank, but with such safe
guards as will insure its absolute safety
and it's prompt retirement when the de-
mand ceases.
"This cannot be accomplished under
J the present system of national bank/c-ri
culation Bonds are too scarce and the
price too high, and there is no way to
either induce additional circulation when
the demand increases or Its retirement
when interest rates are TOW. The grad
ual liquidation of the government debt
Is reducing the amount of bonds avail
able for circulation. 1t therefore follows
either the idea of having an elastic cur
lrency must be abandoned-and in order
to maintain that we have the government
debt must be perpetuated ana more bonds
issued as needed-or some new scheme
must be evolved. If the banks are to
issue any circulation whatever, it must
be secured either by specific assets, like
government bonds deposited with the
treasury, or by general assets in the
vaults deposited with the treasury,
or by general assets in the vaults OF
the banks, with an ever-increasing fund
derived from tax upon circulation suffi-
cient to cover all possible loss.
Feels Encouraged.
"It is gratifying to know that both
houses of congress are giving the ques-
ton very careful consideration and that
the prospect of some relief in the near IL
not immediate future Is promising. When
the recommendations in the Presidents
message shall be fulfilled, and all our
forms of money are exchangable at par
for the established standard, 25.S grains
of gold for every dollar, our financial GEN.
ters will be able to compete successfully
with those of foreign countries as inter-
national clearing houses. And If in adj
dition United States currency shall follow
the flag, the time Is not far distant when
the prices current of all Asia will be writ
ten in United States money Let United
| States money be made as secure as the
| British pound, and It's employment in
! the commerce of the world will become
| as universal as the use OF the English
| language"