New-York tribune., 1910-11-13
MONETARY EXPERTS TALK
Paul M. Warburg Recommends
Capitalization of Cash.
CHARLES A. C0NANT's VIEWS
Academy Of Political Science
Empowers President to Draw
Up Reform Plan.

Academy O Political Science
Empowers President to Draw
Up Reform Plan.
The Academy Of Political Science ennpow-
cred it's president yesterday morning -
draw up and submit to the National Moro-
! tary Commission plan for betterinz the
present monetary system in this country.
The motion came as the result ~ two
/ speeches before the third session If +he
academy in Earl Hall, Columbia University
by Paul NJ Warburg, q member Of the
firm Of Kuhn, Loeb & Co., and Charles A
/ Conant, former president of the Morton
/ Trust Company and author Of "A History
/ OF Modern Banks OF Issue
Mr. WaTburg urged the adoption Of a svs-
TEN of centralized reserves while Mr..
COnant discussed the problem of transition
from the old conditions to the new.
! "Panics," said Mr. Warburg ARE acute
infections Of the body economic bv the
germ distruSt. Every modern financial svs-
TEN is built upon confidence, upon credit
Againt the immense amount of on-demand
/ obligations, payable by rights in cash at
the option of the payee there is only a
J comparatively small amount of actual cash
a modern system must be so constructed
that q demand for cash caused by dis
trust must be absolutely impossible, or the
/ system is not safe and the mere knowledge
/ of its being unsafe will precipitate a panic
whenever an acute crisis arises
! Effect of Central Banks.
The speaker then asserted that the rea-
son for Europe's financial stability lay in
/ its central banks. In system constructed
on credit, cash must be centralized as far
as possible into one big reservoir. from
which every one 1egttiuately entitled to it
may withdraw IT at will. and into which
| it must automatically return whenever it
| is not actually IN use.
Mr. Warburg went on TO detail the work
ing Of such a system and the safeguards
which would have to be thrown around
1t. The duty Of the general banks, he
said would be TO act as custodians Of the
peoples money and to employ the same in
conformity with the principles that a bank
must not give any other credit than it re-
ceiyes: and Of the central bank. to watch
that the right proportion be maintained De-
tween all on demand cash obligations OF
the country and the actual cash at its dis
posaI The channel that connects these
two systems and enables them both to
perform their functions in safety Is the
central banks discount rate
Chief among the dangers to be guarded
against enumerated by Mr.. Warburg were
that the central reservoir might be operated
for profit; that it might extend its opera
tions too freely; that it might be controlled
by politics or private interests. singly or
combined
Question of Note Issuing.
After showing how these and other dam
gers might be disposed OF, the speaker pro-
ceeded 10 the question OF note issuing.
The main function and object Of q CEN
trail bank" he said, 'fs 10 make every doll
lar which lies idle return to the central
money reservoir 10 make It available TO the
fullest extent wherever and whenever it
can do good legitinlately.
The system becomes more pliable and
safer by the addition Of the power TO issue
notes not fully covered by bullion because,
the lines being less rigid. the fear Of reach
ing the end Of the tether is not SO great;
and, furthermore, since the result to be
reached Is not exclusively dependent upon
the discount rate, the latter need not be
changed so often and SO drasticaIly as with
an elastic system.
centRuOn Of note issue, and a f1Uidity Of
credit, strongly safegUarded, are the rules
that must and can be observed. They are
the only means Of safely killing the germ
distrust- i system Of cen tranzed reserves
and decentralized banking power is clearly
the system that this country requires. and
II is my conviction that II will gladly ac-
cept II when once It has this clearly
presented to It in a definite form
Problem of Transition. !
Mr. Conant, in taking the platform, as
serted that the problem of transition was
one which theoretical economists too much
ignore But. he went on TO say, the ex-
periences Of such countries as Austria
Hungary, Russia and Japan in replacing
trredeemabIe paper money by gold currency
have taught the far-sighted man OF finance
how far he can go in handling the edged
tools-gold. confidence and credit-to &C
compIish given results.
In dealing with the methods by which
the power of note issue should be trans
ferred from nearly seven thousand national
banks" he said. 10 a central bank with
adequate branches, il is possible 70 touch
upon only few Of the salient problems
v lich present themselves Among the es- |
sential problems to be considered are the !
=. The disposition of per cent bonds
. The disposition OF the existing |
tionaI bank notes.
''3. The relation OF the existing national |
banks and other banks to the central bank. |
~ The reorganization Of the government |
Mr. COnant suggested the postal savings !
system as perhaps the best means Of elm
mating the per cent bonds. He saw little
reason 10 doubt that this system will show
such e growth before the central bank
opens its doors that the problem of getting
rid Of the bonds would be solved soon after
provision was made for their absorption by
the peoples savings.
Solution of the Problems
The wisest solution Of the second problem
Mr.. Conant found in the plan. like that
recently adopted by the Bank OF Switzer-
land, OF Withdrawing the note issuing power
from the national banks at the rate OF
fixed amount quarter.
The third problem was easily disposed of
by pointing out that the lations between
the local banks and the central bank. in
stead Of being competitive, would be uu-
-uaAY helpful And the fourth difficulty
could be readily solved if the government
WouiC turn over TO the bank its reserve of
$50 000.cG in gold The bank would then
need no other asset against the 1916. coo 600
in outstanding greenbacks except the lis-
oility or the government for their ultimate