The Topeka state journal. [volume] (Topeka, Kansas) 1892-1980, 1903-09-24
Mr.. DAWES TALKS
Former Comptroller Discusses
Banking Law Changes.
Calls Mr.. Shaw's Plan a Simple
and Sane Remedy.
WILL LIMIT THE ISSUE
Under Heavy Tax, Would Be
Used Only in Emergency.
Not Necessary for Government
to Guarantee Notes.

Pittsburg, Pa, Sept 24.-At today s
session of the Pennsylvania Bankers
ASSOCIATE ex-Comptroller Charles g.
Dawes, of Illinois, delivered an adj
dress on Proposed Changes in Our
Banking Laws" Mr.. Dawes said:
The address of Secretary Shaw at
Chicago in favor of the authorization
of a small issue of heavily taxed bank
notes unsecured by the deposit Of the
United States bonds as required under
present law indicates the new phase
which the discussion of currency re-
form has recently taken on in the
country 1t marks, the passing from
serious public consideration of the COM
pick end radical measure advocated by
/ Congressman Fowler and many others.
and the inception of the discussion OF a
simple and sane remedy for a generally
reco snized detet in our monetary syS-
tern
For some years the topic of asset cur
rency has been chiefly discussed by
what may be termed the radical ele-
ment OF currency reformers. Their
work has in q general way been most
useful in inspiring interest in the sub
iect. but has not resulted in the pre-
sentation of any plan which has Sc
cured anything like unanimity of sup
port even among the radicals them
selves
AS has been ably pointed out by Prof.
| Cleveland of the University of Penn
sylvania. their mistake has been in
misunderstanding the difference in the
nature, method and history of the
growth of the American system of in
dependent banks and that of the con-
tinental systems. and in attempting to
devise CLANS for grating on our differ
entiated system methods of issue which
are the results of centuries of evolution
in systems of associated and central
lied banking. Their plan for the au--
thorization of lightly taxed national
/ bank notes unsecured by government
! bonds. If adopted at this time, would
probably 9reciDitate an early and most
calamiteus crisis in the business of the
nation. 1t is matter of common
4 knowledge and the aggregate state
ments OF the national banking system
published by the comptroller show, that
the aggregated liabilities of the system
are at present in a well expanded con-
dltiOn: in other words. these liabilities
taken in the aggregate, bear at present
such ratio to the actual cash reserves
that to increase them much more
would result in a dangerous mad
eQuacy in the proportion borne by the
cash reserves to liabilities. Now, in this
expanded condition of banking credits.
and with well expended condition of
general credits other than banking
creditS-at period when the financial
history of this country and every other
would indicate that we should be pre-
pairing methods for facilitating the flu
ture liquidation of credits rather than
methods for creating additional present
credits, we hear the advocates of light
! ly taxed asset currency calmly advo-
/ eating as a bulwark of safety to the
banking and business interests of the
country the granting of an authority to
the banks to still further increase the
disproportion between their liabilities
and their cash reserves. by the issuance
OF these notes. 1t is a principle of sound
finance. as it is of sound architecture
that when high structure seems a
/ little unstable the situation is one de-
handing masonry in the cellar rather
than paint on the roof. Thanks to the
| law of March Il, 1900 the nation has
governmental currency issues and our
currency system is sound AS gold in
the treasury is to the credit of the
greenbac!<s. so are the cash reserves of
banks to the credit of their liabilities.
While at present these cash reserves
are sufficient to sustain these liabilities
vet so long as these liabilities remain
at their present amount. we want no
the liza bilities
Let us now take up Secretary Shaw's
plan for heavily taxed emergency as
set currency, considering further some
OF the dangers of lightly taxed currency
| winch MS plan would avoid. When sub
! Ject to only small tax, asset currency
| VIII be taken out by the banks in nor
NAL times to secure the profits incident
to its issue. AS ii is a form of bank
ing credit, it will form an addition to
the already large amount of banking
credits now in existence. 1t will still
further increase the burden resting upon
existing cash reserves. Since it can be
profitably issued in normal times, and
since the country can easily absorb an
| issue amounting to at least 25 per cent
of the canital of national banks, this
| currency will, as a whole be practically
inelastic, it's total volume standing at
about the maximum allowed by the
| law. Therefore, in times of panic it will
be an added burden on the banks, and
intensity rather than alleviate panic
| conditions. Secretary Shaw's plan. how
ever, for a 5 ger cent or per cent re-
Strictive tax upon such issues will pre-
vent their present issuance since they
cannot be profitably issued under that
rate of taxation unless interest rates are
at the high point. which they only reach
at times of panic or financial disturb
ance. AS other forms of banking credit
are then in process of liquidation with
resulting high interest rates, these notes
can then be issued and will be great
relief in doing the work formerly done
4 by the liquidated credits. Such a pro-
cess viii not. therefore be one of inf1a-
tiol since the notes at such time will
operate to sustain the level of banking
credits, and not to raise it.
Let us consider another danger from
lightly taxed asset notes in their effect
upon bank deposits and depositors The
bulk of the business of the country is
done in checks and drafts drawn against
deposits in solvent banks. These de-
posits aggregating over 80, 600, 600, 600
are left with banks through the conf
dence of the depositor class. Any steE
in finance which tends in any way te
, | adversely affect confidence in bank de
posits is without qualification. the most
unwise step possible TO be taken When
deposits commence to be generally with
drawn through lack of confidence the
purchasing power of the country is de-
creased, the money actually in circula-
ton is Iessened, prices fall industry
stagnates and commercial depression
ensues. Now these lightly taxed asset
notes are to be issued under an optiona
system. The banks can isyue the notes
: | or not as they please.