Evening star., 1912-11-17

the best credit, the best asset t!iat any
nation can produce. their character cor
responds to the standard of COM
mercial honor which obtains in the
community. Millions of people are
striving to meet and pay these obl1ga-
tions at maturity, in order to protect
their credit and save their financial
lives. They are the best and most
liquid assets that banks can hold. in
peace or panic, and this is proven over
and over by the experience OF all COM
mercial nations.
Fluctuates With Trade Activity.
The volume of such notes or credits
in banks expands or contracts with the
varying activity Of trade, and bank
notes should be predicated upon such
assets-the best of assets-and expand
when business activity and the public
welfare call for their use; on the other
hand contract and disappear when
their service is no longer required.
When bank possesses ample capitai
and surplus, is replete with commercial
assets representing the best names and
best credit-just such assets as. the
bank was created to handie-and yet
cannot obtain currency to satisfy the
demands of it's customers, except by
buying gold abroad at premium and
importing the same, the trouble is not
with the bank, but with the law. That
was the general condition which existed
in 1907, and the responsibility tor that
condition and consequent losses rests
upon Congress and the public fndlffer-
ence which fails to inspire action by
Congress. What other nations have
proven as to currency based upon COM
mercial assets we should incorporate
into our law.
Market for Commercial Paper.
Third-There should be market for
commercial paper available to all banks
Interior banks may rediscount their
notes with correspondents in metro
politan centers. but banks in our larger
cities have little recourse except in for
eign countries There should be CEN
trail institution, under government con-
troll, where short-time commercial paper
or loans that are good beyond perad-
venture can be discounted and the pro-
ceeds, if need be, received in banknote
currency Such a resource does not ex-
iSt now. 1t would afford business neces-
sary relief and avoid money strln,
gency with its resulting loss to all
classes, capitalistic. and manuahsuc
alike.
How Clearing Houses Stop Panics.
Congress having neglected to provide
such currency, the clearing houses OF
the country have sought to meet ana
have succeeded in meeting crises sue
cessfully, by combining their credit ana
responsibility in the form of clearing
house certificates In New York and
some other large cities clearing house
certificates are issued in denominations
of 5000 and multiples thereof. Sucn
certificates are good only in the hands or
member banks, and are usabie oniy III
the settlement of debit balances at the
clearing house. In other cases clear ne
house certificates have been issued m the
form and size of current bank pl.ls IN
amounts ransing from 81 upward, ana
in rare instances for fractional parts Of
a dollar They were designed TO, and
did circulate from hand to hand as
money.
The first described certificates We're not
subject to tax, but the latter were
clearly subject to the ~ per c.Il "a a.
imposed by Congress. which was designed
to tax state bank circulation out of ex-
istence, and incidentally induce state
banks to come into the national system
The emergency, however, which caie ed
such certificates into use, was so great
that the government, with full knowl-
edge and record evidence available, has
in no instance made any attempt to en-
force the 10 per cent tax The usIui
purpose served by such certificates anc
the good accomplished were proclaimed
by all.
These certificates so used are simply
form of asset currency. For the best OF
reasons the government neglected to en-
force the penalties provided by law, al
though the violation of iaW was nag
rant and yet stranSeSt of al, With this
object lesson borne in upon them with
almost crushing emphasis. the govern
ment neglected to provide for a currency,
within the law, similar in character, but
superior in efficacy.
The need of a proper and flexible cur
rency was well illustrated by the expert
ence of the country in 1898 The great
protection which such currency would
afford to the country generally and to
every individual. by the protection of
values, whether it be wage, salary, bonds
or factory was .ividly brought to the
attention of all, t1 the very general re-
sort to currency substitutes which OBJ
tained.
of the free coinage of silver at the ratio
of 16 to /, raised the fear that the coun-
try might go on silver basis and the
standard of values be all upset accord
ingly; this fear gave undue consequence
10 the Barring failure and had the effect
Of preventing an early restoration of con-
fidence. The boarding of gold, in antici-
patton of a possible premium, should the
country go on a silver basis, was an in
cident of the situation and directly af-
fected the money supply.
The resulting strinsency induced the
issuing of clearing house certificates very
generally in the smaller as well as the
larger cities of the country, and also the
issuing of certificates of deposit and
cashiers checks by the bankers in
amounts of 81, So and $40. designed to
pass into general circulation as money.
The money stringency was thus relieved,
the panic overcome. and all such cur
rency retired within a short period-not
exceeding three four months-without
the loss of dollar.
Independence of Money Centers.
The experience of Columbia, s. c.. was
very Illuminating in respect to this sub
ject. The bankers there We're unable to
obtain currency from their metropolitan
correspondents, and therefore issued
clearing house certificates. which We're
used in paying the farmers. moving their
crops and the transaction Of business gen.
orally in that community. One of their
leading bankers prepared statistics, show
ing the amount of currency which had
been brought into Columbia by express
the previous year, to supply the crop
moving requirements of the fall. The
express charges for bringing in and sub
sequently returning this money were very
4 ,t,a ;,,Ya 49,