The Washington herald., 1908-02-20

The strongest opposition 10 the Aldrich
financial bill comes from those who are
opposed on principle 10 a bond-secured
currency. 1t is maintained by them. not
only that a bond-secured currency is con-
trary to accepted financial axioms. but
also that if the Aldrich bill becomes law.
the bond-currency principle will become
so firmly fixed in our financial system
that II will be impossible 20 displace il.
Senator Aldrich, as his speech Of Febru-
airy 10 shows. does not accept his view.
regarding his measure as temporary I'm
character. and one that ought 10 be ac-
| ceptable to both central bank and asset
currency men. But when VIC take into
consideration the effect upon classes Of
securities other than United States bonds
of their use as security for note issues
IL appears that there is good ground
for the assumption that an extension
Of the basis Of note security may give
| the bond-currency system a new lease
of life.
II is well understood that one Of the
original objects of the national banking
system was the establishment Of mar
ket for United States bonds. which was
accomplished by making them the basis
Of the new national currency. How wei
this plan succeeded everybody knows.
At the present day the demand for
United States bonds for use as security
for bank note issues gives them an ex-
traordinary value, thus removing them
from the reach of the ordinary investor.
since over three-fourths of them are held
by banks as basis for their notes.
Now. the influence of a bond-secured
currency over the securities upon which
it was based has not been overlooked by
the framerss of the Aldrich bill. Senator
Aldrich. anticipating the criticism that
the bill would have the effect of "unduIy
and unnaturally increasing the market
value Of the securities which are TO be
! deposited under its provisions" has de-
clared, indeed, that the volume OF Sc
curities included among those acceptable
| as basis for note issues is so large that
purchases for use as such security would
not materially affect the prices Of the
/ securities; but in another place he
recognizes the value OF government ac-
ceptance Of particular bond issues as
| security for currency by pointing out the
benefits that would accrue by reason of
their purchase for use as such security.
We quote in fun what Senator AIdrich
said on this point in his speech OF Feb
ruary 10:
The plan Of the bill restricts the securities
10 be accepted under rs provisions 10 eoyernmeD,
issues and the bonds Of railroads that are. bv
recent legislation, under government regulation.
think ! am justified in designating the bonds n
States and communities government securities.
To sustain the credit and facilitate the borrowing
power under proper condition of the various political
divisions throughout the country is quite as i'm
portant TO the general welfare as it is 10 take
steps TO maintain the credit Of the national govern
ment.
In large portions Of the country considerable
sums constantly needed for local improvements
aud nothing would bring the benefits Of the na.
tional banking system more closely to the attention
Of the great masses Of the people than would the
willingness the part Of the banks 10 give
value and stability 10 local securities by their plr
chase a basis for security Of note circulation.
The committee recommend the use Of first
class railroad bonds because they are the only
securities, outside Of State and municipal bond.
issued by corporations whose public records. show
ing condition and earnings. as now provided by
law. would enable the Secretary Of the Treas,rv
90 definitely ascertain the salue and The safety Of
the security. In theory and BY existing leeislstiop
railroad companies are quasi public corpurations
and under strict governmental control and real-
lstion. Immense amounts Of money viii be re-
quired in the near future in the deyclcpment Of
railroads in various parts Of the country especially
in the South and West Anything which the GOV
ernment can do within the limits Of absolute
safety and without ans cost to itself. to give
better standing 20 the railroad securities which
must be issued 20 provide transportation facilities
in sections Of the country that existing roads do
not reach should be done without hesitation"
That is 10 say. Mr. Aldrich regards II
as a mertoriOus feature OF his bin that
il will tend 10 give value, stability. and
standing 20 various classes of securities
other than United States bonds. As in
time of war the Federal government re-
sorted 10 an unusual measure TO sustain
the credit Of the nation and facilitate its
borrowing power. so now he would by n
currency bill sustain the credit of States.
cities, counties. and railroads. and facili-
tate their borrowing power under the
plea that the securities issued by them
are practically government securities.