The Birmingham age-herald. [volume] (Birmingham, Ala.) 1902-1950, 1907-02-01
OUR CURRENCY NEED
IS ELASTICITY
Secretary Shaw Speaks at Mis-
souri, Society Banquet
BANK NOTE CIRCULATION
.Favors Issuance In Excess of Par Value
of Bonds eposlted-Guarantee
BY the United States.
Government.

New York. January 31.-The Missouri
society of New York gave its annual
dinner at the WaIdorf-Astoria hotel to-
night. The principal guest of honor was
Secretary of the Treasury, Leslie NJ
Shaw.
Secretary Shaw spoke on Pending FL
nancial Legislation" He spoke in part
as follows:
1.-THE only weakness In our currency is
want of elasticity. The root of the evil
which we experience at frequent intervals
is not an adequate volume of circulation
but a want of responsiveness in the vol
ume Of circulating medium. A currency
which falls to contract when money is
plentiful and cheap will. of course, fail
to expand when money is scarce and
dear.
Credit currency by which mean cur
rency against which no collateral is de-
manded, is the only elastic currency
known to man. Much has been said In
favor of the adoption of a system of
credit currency in this country. If we
were creating a new system, | am in
clined to think it would be the one
adopted.
Naturally, unrestricted credit currency
is elastic. No more is issued than needed
and when 1T is not longer needed 1t re-
tires automatically. There are several
reasons, however, why this system must
not be adopted in it's entirety in this
country, and every reason for safeguard
ing in several ways whatever issue may
be authorized.
Present Bill.
1.-THE bill recently reported from the
committee on banking and currency of
the House authorized a maximum issue
of a fraction over $2OO,000000 II every
national bank in the United States should
avail itself of this new privilege, and
AZ the authorized issue should prove rel
atively as responsive to the changing
needs of business. as does the credit cur
rency of Canada, there would be an an
nual contraction of about s50,WO'OO0 in
bank note currency between the maxi
mum issue In. the fall, and the minimum
issue of midsummer, and a correspond
ing $50, 10000 increase in bank circulation
when the crop moving period arrived
This $50, 100000 increase in national pank
notes would be equivalent to deposit
in national bank repositories OF twelve
and one-half millions from the treasury.
believe the proposed measure wholly
inadequate
Permit me to refer to one other con-
sideration which in my judgment Will
materially affect the element OF elaS-
ITCHY in the proposed new currency. me
bill provides that there shall be kept
against this new issue the same reserve
as is kept against deposits. The avowed
reason for requiring this reserve is the
recognized fact that bank note bears
a very close resemblance to certlhcata
of deposit, payable to bearer. 1t Is, how
ever, renewable at the option of the bank
issuing it. l believe therefore. much
smaller reserve than is required agalnsi
deposits, renewable only with the con'
sent of the depostor, would be suffici'
ent.
1.-THE bill Is recommended, however, as
remedial and its enactment Is urged as
an effectual preventive of the oft recur-
ring monetary strngency, the presence or
which is universally acknowledged to be
most dangerous
Banks Hands Tied.
Suppose this proposed law had been
in effect during December last, and sup
pose the New York banks had been au-
thorlzed to issue fifty millions In this new
currency But they were at the time
below their required reserve, and In or
der to issue this much needed currency
they must first swell their reserve
twelve and one-half millions. Had they
been able to get this reser evthey would
not have needed the currency. Without
this increase in surplus reserve they can
not issue the currency. and with this
surplus they do not need the currency.
Are not their hands effectua1ly tied as
under the present system VIII some one
explain?
1T am strongly in favor of the Issuance
of a volume of bank note circulation I'm
excess of the par value of the bonds de-
posted 7 am not. however, in favor of
a separate and distinctive Kind Of cur
rency In my Judgment this additional
circulation should be guaranteed by the
government and the fact recorded on
the present bank note to the effect that
the same is secured by deposite Of gov
eminent bonrs should be eliminated, and
in lieu thereof the note should contain
the following: This note Is guaranteed
by the United States
THE smallest thinkable tax on this adj
ditional circulation would afford alum
dant protection to the government. The
tax should be treated as premium, ana
the government should be the UNDER
rency would be injected into our present
system, which Is quite diversified enough.
1t would also subject orr entire issue OF
bank note circulation to the element OF
elasticity.
Additional Circulation.
Suppose $500 100000 additional circula-
ton was authorized. identical in form
with the bond-secured notes. The entire
volume of passing bank note bank crcu-
lation would be elastic, for 1t all would be
redeemable In the same way as Ii now
proposed for the new kind. In addition.
the banks should be required to retire
at least once per annum any excess above
the par value of the bonds deposited. AS
suming then that all national banks
would take advantage of the provision
and issue once per annum the maximum
allowed by law, we did not have an an
nual compulsory contraction of $500, 600, 600.
''In addition to this, there should be au-
thorized an issue equally large. taxed at
not less than per cent with no re-
uuirement as to reserve. The high rate
of tax would compel its retirement when
not needed. II is idle to require a reserve
against emergency currency, for the ex-
haustion of reserve what makes the emer-
gency."
In addition to his prepared speech, Sec
rotary Shaw. speaking of government
finances, said:
"Our government finances are led by a
long rope and some day that rope VIII
sIip out of our hands, and II may be
months before we get 1t back again."
Referring TO the recent issue of Panama
canal bonds, he said
at was a race between myself and the
banks, but I beat them out, and II I
had not. instead Of being worth 1O4 they
would have been worth only dollar
Copoarpf1c tho recent striuRpncV in the