The daily sentinel., 1910-09-17
SEEKSCHANGE
IN MONEY
SYSTEM
LBy Associated Press. l

W d4iilA 7AtllE pNIAa ! - 1 lllA Jul
national-banR currency is inelastic is
Dana Noyes in an article just pub
lished by the National Monetary
Commission under the title. History
of the National-Bank Currency"
The demand for currency naturally
increases with an increase in popula-
tion and business activity. II varies,
moreover. from season to season.
The harvest months require more
currency than the early springtime,
primarily because the hand-tohand
use of currency for paying the wages
of the agricultural laborers is at its
maximum in the one period and at
its minimum in the other The
ideal bank-note system should pro-
vide automatically for these changes
in demand. "A currency which is
Inadequate for harvest uses will re-
suit in the sudden pulling down of
the reserve money of city banks and
the consequent forced reduction of
their loan accounts. A currency
which is larger than is needed in the
period between harvests, and the sup
ply of which can not be reduced
through automatic retirement by its
issuers, will usually bring about "a
needless accumulation of reserve
money in the cities, with one or both
OF two results-stimulatio of un-
healthy speculation in the oversup-
piled city markets. or expulsion of
gold with possibly awkward Incl
dental consequences.
The history of national-bank cur
rency, however, shows little connec-
tion between the demands of bust
ness and the volume of notes out
1t discloses rather a rela-
tion between the outstanding note
and the movement of the
public debt. This, the writer con-
tends, is the natural result of the
requirement that government bonds
must be deposited as security with
the treasury by the issuing bank. The
founders of the national-bank sys-
TEN in 1864 were influenced primar-
lily by the necessity of obtaining
market for government bonds and of
for the future cementing
of the union of the states.
Down to 1874 the Increase of ma
notes followed the
growth of the country's population.
wealth, and trade. One reason for
this was that the amount of out
government bonds was so
large and changed so slowly that the
banks had no difficulty in obtaining
the collateral necessary for new cir
culation. But after that year the
real defect of the system became
more and more apparent. In the re-
funding operations of the following
decade the bonds often commanded
such high premiums that banks were
induced to withdraw their circula-
tion for the purpose of realizing on
the bonds deposited as security.
Notes have not been issued or retired
in response to the demands of trade
but in accordance with the price of
bonds. If the price of government
bonds was high, the circulation
would decrease, II low. it would i'm
crease. The result has invariably
been that circulation once taken out
hr a national bank on government
bond security, remains outstanding
in entire disregard of the trade re-
Vt the moment"
"UndeA present system. bank
ncte circuA not only does not ex-
pand and Co ract as trade activity
increases or h minishes, but is ex-
iremely apt to move in exactly the
opposite direction from such trade
requirements" This fact has been
shown repeatedly in this history of
our national-bank currency. A pc
riod of great prosperity normally
calls fer an increase In currency.
Brt this same prosperity is likely to
bring surplus into the treasury.
The most natural outlet for this sur
plus is the paying off of the govern
ment debt. The reduction of the
amount of outstanding bonds draws
upon the security available for the
national bank-note issues and the cir
culation decreases. while business ac-
tivity increases. This is Just what
happened after 1879. Surplus rev.
enues made 1t possible to reduce the
debt from s1.797.-
643.700 at the close of the fiscal
year 1879 to s1,021, ,692.350 at the
end of the fiscal year 1887 and
$5S5, ,029.33o at the end of 1892.
Bank-note circulation fell from