Evening star., 1914-08-17

But our supply Of money remains al
ways about the same, regardless OF
business conditions, Just short OF -FOUR
billions Of dollars. Therefore. in this
country the increased demand has been
met by an increased credit, and our
credit system now and again has
disastrously crumbled under the strain
Of its burden.
X (,
perfect elasticity. By way of illustra-
ton It might
Credit System Might be supposed
Result in Elasticity. method was
in operation by which all checks Of
solvent firms and individuals were
guaranteed to the full satisfaction OF
the public. In such suppositional case
the check would pass from hand to
hand with the same readiness as does
tho United States note. and the supplies
Of checks drawn would always auto
matically adjust Themselves to the
needs Of business, each day the num-
Der Of checks drawn would equal the
amount OF that days transactions.
making a perfect adjustment between
business and the facility for financing
1t. As 1t Is the check has done much
to decrease the Importance of inelastic
currency systema
II lover and above a minimum
amount Of circulating currency needed)
an elastic form Of money could be Isl
sued in just the amount needed by
that need was passed. the second prob
lem in the establishment Of an ideal
monetary system would be solved. This
solution is Just what Congress has
sought to find. The minimum needs of
business are to be supplied, as here:
tofore, by the forms of money issued
by the government. by national bank
notes and by bond-secured notes Of the
reserve banks. The variable factor il
TO be the federal reserve note. This
Is to be called into being only upon
evidence OF increased business needs,
for 1t is to be issued against CONNER
cial paper, whose volume is based upon
the Increase and decrease Of actual
commercial transactions.
OF course, an elastic currency In ex-
change for a safe currency would be far
too great q price to pay. The very first
requisite Of q healthy business organiza-
t1on is a safe money supply: For this
reason all leading commercial nations
the right Of note issue with every pos
sible safeguard. In England, France and
Germany the right Of issue Is limited,
with few and comparatively unimportant
exceptions. respectively to the Bank of
England. the Bank of France and the
Reichsbank.
In England. with the exception Of Els
10000 secured by government obliga-
tons. notes are issued only upon deposit
Of gold. In Germany. reserve OF 80 1-3
port all notes issued. The limit Of note
issue in France is set from time to time
by the national assembly. The first care
u to make bank notes safe. even at the
expense Of elasticity. There are a num-
ber who feel that in the federal reserve
notes Congress has provided elasticity
at the expense Of safety.
The federal reserve notes will probably
prove as safe as any of our other forms
of m o e y.
Will Probably Prove They are to
ss Safe a. Any Form. Of the 1s un,tsa
States. have not been limited in amount
and have been protected by the autho-
rsed security against which they may
be issued and by the requirement that a
reserve Of not less than 40 per cent in
gold must be kept against every note in
circulation. These notes are to be re-
ceived by all member banks. by reserve
taxes. customs and other public dues.
They are redeemable on demand in gold
at the United States Treasury. or IN gold
or lawful money at any reserve bank.
They may not be used as part Of the re-
quired reserves of national banks or Of
reserve banks, nor can individuals be
compelled to accept them.
In a discussion Of the safety Of the
bill, Senator Owen. chairman Of the
Senate committee on banking and cur
rency. thus summed up the case in their
favor:
The primary security against these
notes consists Of the note Of the indi-
vidual which Is discounted and which,.
under the terms Of this bill. has short
maturity. Under the law OF probabilities.
the danger Of a man. who is regarded as
good by a bank and to whom the money
is loaned, falling within sixty to ninety
days would probably be about one in
x. 600
"And such a note. before it becomes
a security under the system for the is
suance Of these Treasury notes. must
also be Endorsed by the member bank.
And under the law Of probability. the
ing, examined by the examiners, and
reported as sound. failing within the
period Of sixty days. or ninety days
the life Of the contemplated transac-
tion-is probably one In 100000. And
the probability Of the e. failure nu,s Of the he
the bank which indorses that note,
within the limited number of days.
would be measured by $4,000 multiplied
by 100000.
'If, however. such q contingency
should arise, then the note has the
Note in . Contingency eurity o Z
Has Further Security. LIABILITY T Of
the stockholders of the member bank
indorsing the note.
IF. however. those resources should
fail. the government in that contin-
gency would. against such loss of
security. have the stock Of that par
ticular member bank that failed In this
reserve bank.