The commonwealth., 1912-10-11

ssrtafn amount of cash On hand. Ns'
sionsi banks In the country must Keep
at least sir psr cent OF their deposts
In cash in their vaults; reserve city
banks must keep IAN per cent, and
the central reserve city banks OF New
York, Chicago and st. Louis must keep
25 per cent. The solidity OF bank
under this system 10 tested by the con-
dition OF its reserves. and not by its
ability TO continue the extension OF ac-
commodation TO customers No mat
ter what the conditions In the country,
what the, demands Of business. what
the needs OF customer or what the
security be offers, II a banks reserves
are down TO the legal limit. It must stop
hoaning,
Permanent Remedy suggested.
In the time Of crisis. therefore.
banks are Interested only TO protect
their reserves. Not only do they call
In loans and refuse discounts, but they
hoard cash. That they may survive
and comply with the law, business con.
Germs are sacrificed. Deposit currency.
although remaining OF service longer
than any other, Is hampered and busi-
ness is depressed. Without loans,
goods cannot be transferred.
AS q passing remedy In crisis.
clearing house associations have Is
sued certificates. They have accept
cd commercial paper and other coliat'
eral from banks and against such So
eurity have issued a promise TO pay,
supported by all the banks In the asso-
citation. 1t has been only a tempo
rary expedIent adopted to meet an ex-
igency. Its permanent value Is TO dem
onstrate the effectiveness Of banking
cooperation.
A permanent remedy Is mobilization
OF reserves and a re-discount system,
Mobilization OF reserves means put.
ting the resources OF all the banks be-
hind each one Of them. 1t would end
the boarding OF reserves and make
the test of banks solidity Its pow.
er to accumulate It's customers, not ita
hoard Of unused and unuBable cash.
A rediscount system would create
a market for commercial papers, and
especially provide place where banks
could rediscount their high-class hold.
ings and 30 secure funds. With US.
able reserves and rediscount mar.
ket. there woulC be no stoppage OF
bank loans, and the deposit currency
would always be available for use In
business.
How the Gold supply Fluetuasea
or gold the country's supply Ia about
$1,000. .000. 900.
Gold 10 an element In the currency
that constantly nuctuates In voIums.
1t increases when imports OF gold ex.
ceed exports. It decreases when ex.
ports exceed imports.
In this country there 10 no means OF
controlling the international ebb and
how OF gold. England has a single
standard gold system, but It has also
a discount rate. Under the operations
OF this system gold becomes q perfect,
ly elastic medium. European central
banks always carry large amounts Of
foreign bills, These bills are flrst line
OF defense against adverse balances
They are as good an Offset against
the country upon which they are
drawn as gold in the reserves. By
raising sr lowering its discount rate,
the Bank OF England, for instance, at.
tracts or repels gold, and so compela
a supply exactly adapted to the needs
of business We have no such system,
Silver Element Stationary.
The silver element In our currency
has been practically stationary since
the repeal of the Bland and Sherman
acts, AS to United States notes theii
volume has not changed since the re
sumption OF specie payments, January
l. 1879.
National Bank Notss.
Fc~ dexibility--for a medium that
can be changed to meet the chang
ing currency needs OF business bank
notes alone are fitted. While Eng
land has only gold, 1t has such con
troll over the supply and the quantity
Of gold Is so nicely adjusted to cur
rent demands for currency, that the
Bank OF England notes are perfectly
flexible. In all commercial countries
with successful banking systems, cur
rency demands are met by banks
which are necessarily In touch with
business, not by the government
which ia not.
A bank note Is banks promise te
pay. 1t 10 the same kind OF q liabil
ity as the deposit account. II ID the
oretically the same to the bank wheth
or It gives its notes to a borrower OF
the right to draw checks. Both obii
cations are payable on demand.
In quantity the national bank knotes
now exceed ss00.0o0,0O0 and form
about one-nfth OF the money In circu
lation. They fuctuate to some extent
in volume but their quantity 10 neces
sarily limited by the quantity Of bonds
in existence.
Thus It appears that OF the ave ele
ments in our currency, two are abso
lutely fixed, and three, while fiuctuat
ing to some extent change in volume
either with no relation whatever ia
the changing needs Of business or are
beyond control. Our monetary ays
tenn is defective at every point.
Cardinal Points Of Remedy.
The remedies are obvious. II hI
necessary to have: