New-York tribune., 1910-01-03
FOR TREASURY AID.
National City Bank Circular
ON WOrking Balance.

The January circular of the National City
Bank discusses in much detail the meas
ures suggested for increasing the Treas
ury's working balance and reaches the
conclusion that an issue of bonds uncom-
piicated by circulation tax and offered
to the general public for subscription
would be preferable to a further issue so
conditioned as to make the banks the only
possible purchasers. The circular says:
If it be so, as declared by Senator AL
drlch, chairman of the Senate tlnance
Committee, that ''it would not be possible
to sell to individual investors a consider
able amount of bonds of this character at
par, referring TO the per cent issues,
by for the national banks" the ques-
ton arises whether a bond bearing inter
est at the rate of 25 per cent per annum,
such as il is reported in the press dis
patches may be offered, will be sufficiently
attractive as an investment to insure the
annual report to Congress the Secretary
of the Treasury says: 1t is in my judg-
realize that il does not have a 2 per cent
borrowing power and never had. No
government, however rich, has a per
cent borrowing power. Possibly it would
have been better never to have issued z
per cent bonds bonds at any rate of
interest below the borrowing power of
the government in the open investment
market"
There are not many who will differ from
quarters if the borrowing power of the
United States, high as is its credit, can for
rate as per cent. There is no other
country in the world, no matter how.
secure its credit, which can borrow at
consols are to-day selling at g2lA. wn1fe
British consols, perpetual paying 2$4 per
ef SuD1eet TO an moons me tax 0I "a pence
cent. French rentes. perpetual paying
per cent at a market value OF 9S14 return
305 per cent. Imperial German IS, due
1918. at 1o2 return 3.75 per cent. The $50
per cent bonds of the District of Columbia,
guaranteed in all respects by the United
States. are selling on a 2.95 per cent basis,
and quite recently sold upon a $40 per
cent basis, while Philippine bonds issued,
the Attorney General of the United
faith and credit of the United States,'' are
selling on a SO per cent basis.
1t is clear, therefore, that it IS not the
investment return which has enabled the
United States To market more than four
h1ths or It's outstanding interest bearing
public debt on per cent basis or better,
but rather the fictitious value given to
these securities by the uses TO which they
could be or have been put. Divorce these
securities Fl ON such uses, or impair their
uses, and it would be impossible to main
tain them at par. Leaving aside the ques-
ton of good faith and good policy, il may
be admitted that 1t is not a matter of the
greatest moment whether a government
British and French securities are habit
ually quoted at prices below par. In fact,
IL is almost lnVarlaDly The practice
abroad 10 offer securities at prices mate
rally below par. But in this country it
has never been looked upon with favor
AS a matter OF fact there has only been
one instance since 1864 when United States
bonds have sold below par for any length
of time. In July, 1891, the government
offered 20 continue at per cent per an
mum, $50,000,000 AZ per cent bonds which
had matured. About 25000,0OO of these
offer on September 2. 1891, they fell be-
low par and continued below until they
We're paid off in May, 1900. They were as
1t is obvious that to issue a 2is per cent
bond which subjects circulation to a tax Of
/ per cent, is in effect to issue more > per
cent bonds, with the one-han of per cent
privilege. They would mean almost the
same thing TO a bank using them for circu-
viii this difference of z per cent re-
suit in distribution of the bonds among
investors? Careful inquiry, made at usual
sources Of first investment, convinces us
that it is more than doubtful if the bonds
can be so placed II. then, market for
them shall be found at all, it will be, for
the most part, among the banks, as it was
with the Is Of 1880 and the various Pan
anna per cent issues. The economic eff
feet resulting from such a market, if in
deed It should be found, would not be
wholesome.
There are strong reasons to believe that
we have too much national bank circula-
ton ahoat now. Banks are having great
difficulty in keeping it out. but they con-
tnue TO push it into circulation by every
In their circulation accounts. National
bank note circulation at this time stands
at S711.O00 600, the highest figure in our his
tory. Ten years ago, January /, 1900, the
volume of outstanding circulatio was $685.
00o,O00. The last Investigation as to retail
prices made by the Department OF Com
merce and Labor was in 1907. At that time
II was shown that the increase in the
prices of thirty principal articles of food
in 1907, as compared with 1900, had been
1873 per cent.
No further investigation of this subject
Will be made by the Department OF Com
merce and Labor until next year, but in
the mean time commercial agencies are
reporting price increases ranging from 80
per cent to 70 per cent above the cost of
the same articles ten years ago: and while
the causes which influence price levels
many and complex, 1t is generally
admitted that "a redundant circulating me-
dunn is one of them. Imitation as to prices
and currency are usually found together
IT, therefore, the United States shall issue
more bonds which are destined at last 10
find their general market with the banks
instead of with the investing public we
may only look for further increases in an
already oversaturated national currency
situation.
Is il not time to turn to the Investment
public with government issues? The COM
try IS exceedingly prosperous. and to the
regular investors are now added the agri-
cultural classes who have money 10 in
vest. Ii was once necessary, pcrhaps. 10
create an artificial demand for government
securities hL present, however such Sc
curities correct investment basis
would be absorbed by many classes. in
cluding the mail investors, who as in
France, would be attracted by The issue.