The sun. [volume] (New York [N.Y.]) 1833-1916, 1906-12-12
SCHIFF on CREDIT CURRENCY.
FAVORS AN ASSOCIATION OF Ma
TIONAL BANKS
70 Manage and Control Note Issues Rather
Than q Central Government BANK
a would Have All Government Money
~, Deposit ed In National Banks Pro RATA.

RI Deposited in National Banks PrO HatA'
RCrr~Aoo, Dec. ~1I.-Jacob Schif OF New
y, rk tonight addressed the Illinois Manu-
Gacturers' Association.
After a brief Introductory compliment
Do his hearers, Mr., SChif said;
There is nothing intricate in the bank note
problem. Let MS take your own case lou
are manufacturers YOU have a certain capital
which is invested in your plants and YOU also
have to a greater or lesser extent a certain
amount of working capital. To make ana
finish your product you frequently neeu
additional capital. which your have TO oorrow
temporarily. for repayment after you nave
marketed your goods.
To obtain this YOU go to your banker
who ia willing to accommodate you ou,
while his capital may be large he has many
dealers 10 whom he must lend and Tor TINS
his own actual resources do not sunlce lie
deals. however. not only in money nut also IN
-. credit. and he will say 10 YOU, or ought 70 ne
In O position 70 say 10 YOU; ! cannot give
Won actual money, gold or legal tender notes
this. "a far as can prudently part from IT.
I hs We already loaned out: but what ! can do
is TO give YOU my own notes. acceptable
everyw here as money, because It IS known
that they will be redeemed by me upon pres
entation."
As this serves your purpose you accept a
IOan oil the banker = nOtt-, uuu v sON
have marketed your goods you pay your
doh, TO the banker. who in turn with the
money received from YOU withdraws his own
circulating not rs and cancels them. TINS -
all there is or should be TO a bank note II
we divest the problem of the economic princl-
pies which underlle il and which IN issuing
notes need to be carefully looked atter' 10
make bank note circulation safe beyond any
peradventure
FoUR DECADES or DRIFTING.
We have. however. in the las. four decades
driftcd far from he simple and straight pa.h,
have rcsorted to every Kind Of Inakeshit ana
heresy. and are calling these dolls money
We heran by permit ing the non-interest
bearing obligat ions of the Government 10 con-
tInue in circulate ion as legal tender long after
the necessity for 80 unjust fable Il circulating
medium had passed.
We enlarged upon this under the stress OF
The civil war by permitting the banks TO buy
the londs Of the Government and on the basis
OF these holding 10 issue IA circulating me-
dium, in it's character of advantage to no one
except to the Government, which does not
need this aid and which ought not by such
means obtain loans az rates of interest not
commensurate with the real value OF money,
and to the banks. who gain the interest upon
the Government bonds they acquire and de-
post ms a basis for their circulation.
Under these circumstances IL Will be well
enough il at least a beginning be- made IN
the right direction. and toward such a oegin-
ming the proposition embraced in the recent
report of a special committee of the New YORK
Chamber of Commerce-and which wouid
commend u your attention and study
point the way.
This PROPOSITION In some essential details
sppears considerably preferable to the pan
framed by the American Bankers Association
committee. recently published Inder the
New York plan We shall obtain a circulating
medium, which because of the graduated
tax upon circulation II embodtes will possess
elements of elasticity which under the Bank
era Association plan will be found wanting
The latter in it, present form simply mounts
Z an expedient by which the banks acquire
me power to secure funds NJ a cost OF about
81 per cent. interest. If YOU leave u 10 the
banks ~ issue circulating notes at a nxeo
tar of -, per cent, which plus the expense
20 maintain a reserve as proposed ana the
cost Of the redemption will make the total
interest coat about a. per cent, YOU VIII
have because Of this fixed cost a circulating
medium which, ! fear, will prove more rigid
and irresponsive than anything we now nave.
Solely through the imposition OF a carefully
graduated tax. not too low in It's minimum
and rapidly advancing upon the issue OF
increasing amounts Of circulating notes.
ean we obtain the elasticity which Is needed
CURRENCY MUST BIZ SAWED,
Iris most regrettablp that the Bankers Asso-
ria tion committee with the New York Cham
her of Commences proposition before "
rel ected the very wise provision Tor a grad
tlated tax, il proves only once more that we
shall never succeed in obtaining practlcaoie
currency reform until the banks learn TO
understand that while no one will beRrudge
them a legitimate, reasonable prott. cur
rencv reform must primarily follow lines
which will be certain 10 meet IN a SOUND
manner the requirements OF the material
interests Of the country, represented In It's
agriculture. its industry and its commerce.
Leaving aside and correcting TINS most
fata defect in the Bankers Association plan
there is much TO II, though per
sonally | hold strongly to the opinion that
n will prove unwise. II not dangerous. "a
clothe 5000 banks or more with the privilege
TO issue Independently n purely credit cur
reocy. no matter how complete the safeguard
NAV appear proposed to be thrown arc und
the exercise Of the privilege. \ single defaull
In prompt redemption will be likely 10 Great
prejudice against The entire volume OF th'
outstanding credit currency, with conse-
ouences so serious that no chance however
remote ought TO he permitted to be taken
In his respect.
This risk can readily become removed
II the national banks. who in the first IN
stsnce will become the beneficiaries of legis
sl9flOn allnOTlElhk Nv lNNu' - " y
,shall. themselves. "a a body, assume an
eventually by becoming Jointly responsible
for all the credit currency which passes int
the hands Of the people. instead OF the latte
assuming a risk TO which. however remote !
may be. they shoIld not be subjected.
ASSOCIATION OF BANKS.
The establishment of a great central bank
which has been suggested, IL with the pas
experience in tho two banks of the Unite'
States still WILDLY in the mind OF the peopl,
not an attainable project. The prejudice
against the concentration OF large fund
with the political and other power this !
certain TO produce has increased and no
diminished. nor would the several thousand
national banks be willing to surrender thei
valuable privileges as Government deposl
taries and bank note issuers to a centra
,anstitution. II should, however, with ap
.propriate legislation for authorizing the crea
ton Of an asset currency upon some sucl
plan as has been proposed. be- PRACTICABLE
TO establish a central association of the ma
tional banks which Is to possess no Othe
function than to issue to the banks in tn
association the circulating notes to whic
under the stipulations and restrictions tn
Law ia rO imDoae thew shall be entitled.