Bisbee daily review., 1908-03-15

The statesmen of 1860 did not have a clean slate to begin with. Govern ment credit was taen precarious and needed support, and the temptation to use banking for this purpose proved irresistible. Sound banking was sac rifioed to sustain the National credit when 1t was resolved that the curren- cy should be placed upon Government bonds, which, in the opinion of MT. Gage, ex-Secretary of the Treasury. resulted in giving a marketable value to these twenty per cent higher than they would have otherwise reached.
 The result is that our banking capi- tsl is diverted to the extent of S1 ,25O, 000, 900 invested in Government bonds by the banks, because currency issued must be based upon an equal amount of these bonds deposited in the Treas ury A reserve of twenty-five per cent against deposits must be kept in cash and a reserve of five per cent against circulation. Mir. Fowler, the able Chairman of the Finance Com mittee in the House, states that the loss caused by this reaches S15O, ,000,. 900 annually. Banking capital in France, Germany, England, Scotland, Canada, etc, escapes this loss, be cause their currency is based upon the assets of the banks. None of their capital is locked up in bonds as security for notes. Banks keep the reserves which experience proves to be necessary.
 This. then, is clear-that banks in other countries start with great ad vantage over ours, which are heavily handicapped.
 There is another important advant- age which these banks possess over ours. Currency based upon the as sets of banks rests chiefly upon trade bills. In the nature of things, the bank is called upon to issue or re deem notes just as business requires; | that is, as business increases or de. creases. currency required is less or more. Business brisk, more notes are needed, and they remain in circu- lation; business dull. less notes need ed, and some are promptly returned to the banks for redemption All Is elastic and automatic.
 The law in European nations does not restrict the issue of currency equal to the resources of the banks, ] except that 'wnen the Bank of Eng land was re-organized in 1S44 the Gov | ernment owed it eleven millions of | pounds, and it was agreed that the Bank might issue uncovered notes | to this amount, but any issued beyond | this should be covered by gold The practice in emergencies is for the Gov ernment to allow the Bank to disre- | gard this and to issue additional cur rency uncovered, but the Bank must at all tima redeem notes in gold upon | presentation. In ordinary times the 1 amount of notes issued by the banks does not exceed much, if any, one l haT the amount issuable. Canada s average is fifty-four per cent, Scot | lands is less.
 We hear the reply, All this would be great improvement upon our sys- tenn, except that our bank notes have the bonds of the Government behind them, the best of all securities. Our | people would never agree to accep
 bank notes without this. Other ma tions have not this undoubted secur. itt.
 Let us look into this. Take Canada as an example, waieh has a proper manner of banking modelled after the
 
 sue notes based upon assets. These are secured in the following manner: i First-They are first lien upon all the resources of the bank. r Second-Eyery stockholder Is liabl'
 to an amount equal to the par value
 of his stock to meet the defts o7 the
 bank-upon this the notes nave als t a first lien.
 Ii Third-The Government taxed the ol banks five per cent of their average 2 circulation until fund was obtained
 the proceeds of which are ample tt f pay any reasonable loss upon tho notes, and this fund the Governmen
 now holds. If it should ever be foun'
 insufficient, the tax is promptly to b
 increased. This special fund, how , ever, has never yet been called upol . for dollar. The interest upon it
 now returned to the banks as super !. fiuous security.
 No bank not ia Canada or in any c the other countries possessed of prop CT banking has ever failed to be pail
 upon demand.
 Compare this with the security VI :, have for our currency from GoyerI {, ment bonds which have been sold i z gold for a shade over one-third thei : face value (greenbacks fell to thirty ]. six cents), and they may sell so agai . should we be drawn into a seriou . war. They are at fictitious pric | today equal to twenty per cent It : not true, therefore, that these ar the best security.
 The Government secures the Iega itender notes by keeDing in Washinf , ton rserve of nearly fifty per cen a a gold 150 as against 46 millions = but the only redemption fund agains i. Jour currency is five per cent in legs 2 tender paper money. which the bank < are required to maintain in Washing a ton against their circulation.
 There is only ons substance in th
 world which cannot fall in vaiue, b
 cause it is in itself the worlds stan,
 ard of value. and that Is gold, wnic
 the banks Of civilized nations have a
 their reserve.
 There never was a time, and ther !. never can be time, as far as We ca y see, when million dollars worth B. gold will not redeem a million dollar worth of debt. Hence the currency European nations Is absolutely secur '1 being based in gold, while the eurrel h cy of our country is not. A ssrioI c war would affect 1t, because our bono # would fall in value. Other nations g O -