Evening star. [volume] (Washington, D.C.) 1854-1972, 1913-02-08
IV.-THE ALDRICH PLAN.

In 11DS Congress appointed the nom
partisan national monetary commission.
of which Senator Aldrich was made
chairman In January, 1912, this COM
mission made its report. recommending
a plan for banking legislation, which
has become currently known as the
Aldrich plan. 1t represents the results
of four years exhaustive study and
investigation in this country and Eu-
rope by members of the commission.
by business and professional men, by
bankers and financial experts.
This report made authoritative state
ment of the fact, known already to
financial students. that other countries
do not have such panics and currency
famines as those from which we
periodically suffer. and that this i'm
munlty is due to the existence in prac-
tically every country except this OF ii
bankers bank. in which the principal
money reserves of. the country are
centralized.
To such a reserVe-hold agency the
individual banks sell their shortly ma
turing loans when it becomes necessary
to do so in order to increase their
means to pay liabilities or to accom-
modate worthy borrowing customers.
In time of strinSency the rate
charged is proportlonately nigh. but no
solvent bank can be embarrassed so
long as it can at some price promptly
convert its loans into means of paying
Liabilities, and none of it's worthy Dor
rowers. willing to pay the necessary
rate, needs go without necessary ac-
comm oda tons. Ii REIMBURSEMENT from
undue expansion becomes necessary.
there is orderly liquidation and not
wholesale wreckage. This was well il
Illustrated by the events OF October this
wear in Berlin and Paris. where credit,
already strained. suffered a terrific shock
from the declaration of war between the
Balkan states and Turkey.
Usefulness of Bank Notes.
For depositors desiring it. these bank
ers' banks, as a rule have authority to
convert deposits subject to check into
the form of bank notes. which are simply
promises to pay money, the same in prin-
cip!e as deposits subject to check and
based upon money reserve and loans the
same as deposit liabilities. The circula-
ton of deposits in the form of bank notes
is the same in principle as their circula-
ton by checks or certificates of deposit
The use of bank notes avoids taking
actual money out of the reserve of the
bankers bank, whose power TO lend is
necessarily in proportion to its reserve
The use of bank notes protects its re-
serve from disturbance and maintains at
the maximum its ability to serve. This
makes for the greatest stability of bust
ness.
The vital principle is the gathering of
the principal money reserves of the coun-
try in the bankers bank, which is thus
made strong enough to buy loans from
banks when they need to sell
The use of bank notes is secondary,
though an important aid in protecting
reserves. This is shown in the operation
of the Bank of England as compared with
that of the Bank of France. The Bank
of England is not authorized to issue
bank notes of the kind described, yet it
performs it's function of bankers. bank
with conspicuous 5uccess. It's reserve,
however. f.uctuates with every fluctua-
ton OF business needs, necessitating fire.