New-York tribune., 1909-12-15
FOR CENTRAL BANK
F4IRCHILD'S TIEWS.
Says 1t You'd Protect A gainst
Currency Fdmines.
By Julian n. Fairchiid President Of Kings
County Trust Company.

place another patch upon the existing sys-
TEN in the shape OF authority TO national
banks 10 form local associations 20 issue
emergency circulation.
The national bank act was a war meas
ure. II yearly becomes more burdensome.
No country but the United States. with its
vast resources and it's eighty-seven MILL
ions OF hard working, strenuous people,
could have prospered under a system
which has caused so many financial up
heavals and such constant and unneces-
sary expansions and contractions of bank
ing credits.
II is the experience of Europe and OF
this country that a nations money must
be based on three principles:
Cd That the circulation be issued by one
institution. whereby the amount outstand-
ing may be increased or decreased accord
ing 10 the natural laws Of supply and de-
mand.
20 That the institution be not owned,
but supervised, by the government, where
by its great powers may not be abused
90 That the circulation be secured by
banking assets. gold, commercial paper
and securities. Our currency is not issued
by one institution supervised by the gov
ernment in the interest of the whole coun-
try. 1t is issued by 6,S53 national banks,
large and small. scattered over forty-six
states and each having the right 10 issue
or withdraw circulation without the guild
ance or restraint Of any central authority.
CAPITAL EASILY RAISED.
One objection frequently made 10 cen
tral bank is the difficulty Of raising the
necessary capital This objection rests on
the false assumption that national banks
only should be stockholders Of the new
bank. No such hank would have the con-
fidence Of the public unless all the COM
mercial banks of the country were in
cluded in il as stockholders. II the state
banks and the trust companies. as well
as the national banks. had the right 10
subscribe 10 the extent OF, say. 10 per
cent of their paid in capital. the neces-
ssry capital would be promptly forthcom-
ing.
In September, 1908. there were 6.S53 ma
tional banks. 1l,220 state' banks and s42 loan
and trust companies, a total OF 1875 in
stitutions engaged in commercial banking.
Their aggregate paid in capital. exclusive
Of surplus and undivided profits, was 81, 500
10000 A 10 per cent subscription. payable
in gold. would start the new bank with a
capital OF $4,000 600 No institution should
be allowed n control stock in excess of 10
per cent OF its own capital nor in excess Of
per cent Of the capital stock of the central
bank
OLD OBJECTIONS RENEWED.
Another familiar objection is that the
control would become centralized or politi-
cally warped. This is the same objection
which was made in Europe when the prI-
vate issuers Of currency for the several
nations were called upon 10 surrender their
time honored privileges II is the same OBJ
lection which was made in this country
when crude politics and the inexperience of
the people wiped out the Second Bank Of
the United States in the bygone days of An
drew Jackson. And il is the Identical OBJ
lection which was subsequently made by
the old state banks when their abused right
TO issue currency was about To be trans
ferred 10 the new national banks
He who believes that an American central
bank is politically impossible fails 10 grasp
The situation. for II is the vice Of the pres
ent system that il inevitably tends TO CEN
trahzation Of banking power. It permits
the larger proportion of the circulation 70
be issued and retired at the option Of the
large banks, the stock Of which * in com
paratively few hands and it makes the
currency supply Of 12,O00 state institutions
absolutely dependent upon the will Of 500
national Institutions. notwithstanding that
the deposits Of the former exceed those OF
the latter by s4co.oooOoO
BONDS ON FALSE BASIS.
Government bonds are selling upon false
basis. because they are deposited with the
government by the national banks which
issue currency at par upon the deposit. II
is claimed by the national banks. and
rightly so. that they would lose millions Of
dollars upon their bonds If the change was
made to an asset circulation.
In October. 1905, the outstanding bond
secured circulation was S632, ,0o0 0oo. OF which
80 per cent. or S5t54 60 900. consisted Of tha
per cents Of 1880. \ per cent bond
divested Of the privilege Of issuing cir
culation upon it would not sell at the
present price. Therefore. the loss 10 the
banks upon a bond which could be sold
In the market would probably be between
eighty and one hundred million dollars.
This loss must be met by the government
some time.
Let the government redeem these bonds
and sell in the market a bond with the
interest based upon the actual credit of
the country, the new bonds To be OK
changed for those now held by the banks
and without loss 10 them This is merely
a matter OF interest loss to the govern
ment, and would be extended over a num-
ber OF years. according 10 the term of the
new issues. There is no reason why the
United States should be a preferred bor-
rover In these days because of its grant
Of special banking privileges.
BASIS OF CIRCULATION.
The basis Of circulation should be A
percentage according 10 value of banking
assets-gold. commercial paper and estab-
lished securities. As 10 what shall con-
stitute good banking assets should be left
10 the directors Of the proposed bank. No
statutory detail can take the place Of
sound judgment on this point The un-
taxed circulation should be limited to a
percentage per capita of population. th,
excess or emergency circulation 10 be
covered by a sliding tax
Unless the government is properly rem
resented in the directorate in some form
the bank can never be established
Its business should be To act as fiscal
agent Of the government and as the de-
positsry Of its current funds 10 deal in
foreign exchange. 10 issue circulation. 10
discount for other banks. 10 accept their
deposits and 10 carry the bulk of their
reserves
In 1898 United States deposits in national
hanks aggregated Sl25.ga00o. The cash
holdings of national banks, state banks
and trust companies then lying idle i'm
Hr.rsNs HsrFan