Evening star. [volume] (Washington, D.C.) 1854-1972, 1903-09-24
BANKERS AT PITTSBURG
THE STATE ASSOCIATION HEARS
CHARLES G. DAWES.

Principles of Sound Finance Ably Pre-
sented-Plans of Secretary Shaw
Dissected and Criticised.
PITTSBURG, Pa. September 24.-The del
egates to the ninth annual convention of
the Pennsylvania Bankers Association
were slow in assembling for the final ses-
sion today. and it was nearly IL o'clock
when the meeting was called to order.
After prayer by Rev. Daniel Dorchester,
jr.. DID. William H. Smith Of Philadelphia,
representing the banking department of
PENNSYLVANIA. delivered an address on
State Supervision" He was followed by
ex-Controller Charles G. Dawes of Illinois
on Proposed Changes in Our Banking
Laws"
MIR. Dawes, in part. said:
Mr. Dawes Remarks.
The address Of Secretary Shaw at Chica-
go 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 the present law, indicates
the new phase which the discussion Of cur
rency reform has recently taken on in the
country. 1t marks the passing from serious
public consideration of the complex and
radical measure advocated by Representa-
tive Fowler and many others. and the in
ception of the discussion of a simple and
sane. remedy for generally recognized de-
feet in our monetary system.
For some years the topic of asset cur
rency has been chiefly discussed by what
may be termed the radical element Of cur
rency refOrmerS. Their work has in a gen.
eral way been most useful in inspiring in
terest In the subject. but has not resulted
in the presentation of any plan which has
secured anything like unanimity Of sup
port even among the radicals themselves.
AS has been ably pointed out by Prof.
Cleveland of the University of Pennsyl-
Fan1a. their mistake has beAn in misunder-
standing the difference in the nature, meth
Cd and history of the growth of the Ameri-
can system of Independent banks and that
OF the continental systems. and in attempt
Ing to devise plans for grating on our diff
ferentiated system methods of issue which
are the result of centuries of evolution in
systems of associated and centralized bank
ing. Their plan for the authorization of
lightly taxed national bank notes unse-
cured by government bonds, If adopted at
this time, would probably precipitate an
early and most calamitOus crisis in the
business of the nation. 1t is matter Of
common knowledge and the aggregate
statements of the national banking system
published by the controller show, that the
aggregated liabilities of the system are at
present In Q well expanded condition. in
other words. these liabilities taken in the
the actual cash reserves that to increase
them much more would result in danger
Gus inadequacy in the proportion borne by
The cash reserves to liabilities.
Expanded Conditions.
Now, in this expanded condition of bank
ing credits and with a well expanded con-
ditiQn of general credits other than bank
ing credts-at period when the financial
history of this country and every other
would indicate that should be prepar-
ing methods for facilitating the future
liquidation of credits rather than methods
for creating additional present credits we
hear the advocates of lightly taxed, asset
currency calmly advocating as a bulwark
of safety to the banking and business in
terests of the country the granting of
authority to the banks to still further in
crease the disproportion between their La
bilities and their cash reserves, by the
issuance of these notes. 1t is a principle
of sound finance, as It is of sound archi-
lecture, that when a high structure seems
a little unstable the situation is de-
handing masonry in the cellar rather than
paint on the roof. Thanks to the law of
March IA, 1900, the nation has builded up
the gold foundation Of the government cur
rency issues and our currency system is
sound. AS gold in the treasury Is to the
credit of the greenbackS, the cash
reserves of banks to the credit of their
liabilities. While at present these cash re-
serves are sufficient to sustain these liza
main at their present amount, we want no
lessening Of the cash and adding to
the liabilities
Let US now take up Secretary Shaw's
| plan for heavily taxed emergency asset
currency, considering further some of the
| dangers Of lightly taxed asset currency
which his plan would avoid. When subject
| to only a small tax asset currency will
be taken out by the banks in normal times
| to secure the profits incident to its issue
| AS it is form Of banking credit, IT will
| form an addition to the already large
amount of banking credits now in exist
| ence. 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 easily
absorb issue amounting to at least %
per cent of the capital of national banks.
| this currency will, a whole, be practi-
| cally inelastic, Its total volume standing at
| about the maximum allowed by the law.
| Therefore, in times of panic 1t will be an
| added burden the banks. and intensity
| rather than alleviate panic conditions.
Secretary Shaws plan, however, for a 8
per cent or 6 per cent restrictive tax upon
| such issues will prevent their present issu
! ance since they cannot be pToftably issued
under that rate of taxation unless interest
| rates 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 by the liquidated
credits. Such process will not, therefore
be one Of imitation. since the notes at such
q time will operate to sustain the level Of
banking credits and not to raise It,
Still Another Danger.
| Let US consider another danger from light
| ly 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 SOL
| vent banks. These deposits, aggregating
| over $4,000. 600 600 are left with banks
| through the confidence Of the depositor
| class. Any step in finance which tends in
| any way to adversely affect confidence in
| bank deposits is without qualification the
| most unwise step possible to be taken.
When deposits commence to be generally
| withdrawn through lack of confidence the
| purchasing power Of the country is de-