Evening star., 1928-02-26

bonds and provide currency Of uni
form value. Congress by the act OF
February 25. 1868. provided for the
National banking system, which indi-
rectly gave the National banks a mo-
nopoly of the issuing OF bank notes
secured by deposit in the United
States Treasury Department at WASH
inRton Of United States Government
bonds. This arrangement at once made
a market for a large amount OF ponds
and also provided the Nation with
perfectly safe circulating medium j,
regard to which there could be no rossi-
Bile question. The virtual monopoly of
issue referred to above obtained midi
rcctly by taxing all other bank notes
at the rate OF 10 per cent per annum,
whereas the National bank notes were
only taxed one-half Of per cent per
annum. 1t followed very naturally
that the State banks had to discontinue
the issuance of bank notes.
While the currency issued BY the
national banks is perfectly sound, yet
1t proved to be currency which was
almost wholly unresponsive to the
needs OF business. because the amount
outstanding was regulated not by the
requirements of business but by the
ability OF the banks to keep the notes
IN circulation profitably to themselves.
The country thus had two kinds OF
notes. one OF which would not expand
or contract and the other which fire.
quently would contract just at the time
1t should expand and expand when IL
ought to contract.
Specie Payments Resumed.
In 1879 specie payments were re-
sumcd-this gave the holders OF the
grcenbackS the right to demand gold
for them. About this time large dis
eoveries OF silver in Nevada and other
Western States had the effect Of de-
preciating the value of silver In the
terms Of gold. and as both gold and
silver were at that time legal tender
the result was the forcing out of the
better money by money having q lower
value, and thus in a few years gold
began TO flow away from the country,
such exports between 1889 and 1896
! reaching alarming proportions. Through
the efforts OF Congress to put more and
more silver In circulation by requiring
the Government TO purchase and pay
for II In notes which we're receivable
for all Government dues. the Treasury
| became 80 depleted Of its gold reserves
TO whether the convertibility OF the
grcenbacks could be maintained. Be.
| cause the holders OF greenbacks coulc
go to the Treasury Department and de.
| mand gold. the greenbacks then being
reissued In payment OF public dues and
the process repeated. it became per-
fectly easy for the gold TO be milkcd
out Of the Treasury and out of the
country. Consequently the country
would have gone on silver basis and
form OF partial repudiation OF Ali con-
tracts. except those specifically made
payable In gold. would have taken
place. so acute did this situation be-
come in President Clevelands second
term that he called upon the banking
interests of the country. especially upon
the International bankers. to take steps
bY artificial measures to assist the
Treasury to keep in gold for redemp-
tion purposes and to maintain our po-
sition as q go!d-standard country.
Fortunately by this time the coun-
try awakened to the dangers Of the
situation and legislation was had which
made 1t no longer obligatory for the
Government to afford market for
silver. and the metal was left TO find
its level In the bullion market. Since
that time there has been no question
OF dual standard in connection with
our currency However. although this
difficulty had been cured, the problem
Of making the credit media OF the
country responsive TO Its needs was still
unsolved This resulted in an investi-
CATION OF the monetary systems OF the
world by a congressional committee
under the leadership Of Senator Aldrich
OF Rhode Island. which committee In
1910 brought In report and made
recommendations out OF which In 1918
grew the present Federal Reserve Sys-
tenn. This system was devised with
view to overcoming the objections
which the country always had had to
A central bank of issue and at the same
time to secure for business the benefits
OF the banking facilities which the
growing business Of the country re-
Quired.
Needs Of Ruslaesx Weighed.
While not disturbing the existing
forms OF c,,rreney---the greenhacks. the
national bank notes. the silver certifi-
Gates. etc.~~the Federal Reserve System
provided for an issue Of notes secured
directly or indirectly upon the credit OF
the Nation and based primarily on the
needs OF business The scattered re-
serves OF the banks were all consol!-
dated into Cne reserve fund ana thus
became mighty foundation upon
which to build our credit structure. All
the National banks were required To be-
come members OF the Federal Reserve
System~~~the State banks and trust COM
panics also had the privilege OF menu
bership Banks having membership III
the system have the right to uSe Their
Vt.att tAh n n
Il bass ,or borrowing at the Federal
Reserve Banks and receiving either a
credit on the books, " large scale
credits are needed for the factlitation
of business; or. Federal Reserve notes,
to pay the wages of farm hands or for
factory or mercantile pay rolls, As soon
as the period of strain has gone by The
notes. unless needed. automatically
flow bnek into thr bank and are cam
cfied. and In the sam eWny the credits
arranged for ut the Federal Reserve
Banks automatically are Cancelled ny
letting the discounted paper run OF.
Thus for the flrst time IN the history
Of the country We had n scientifically
adjusted credit structure which came
lust In time to be of tremendous Use In
mrnts OF the World War, not only OF
our own Nation but of the foreign ma
tions al we'll who turned to us for aid,
And I'D, through the evolution OF time
ana experience. We have finally reached
the aystem IN use today This may not
he perfect In all It's operations. but II
Is certainly the best thing the country
has ever had, WithatandtnH the tes,a OF
the greatest war In history and that ot
the succeeding period OF fecuperatton
Some mistakes have been made Il Ii
true, but The Federal ReaerVe Hystem
now Is tunotioniag smoothly ana suc-
eessfully. not only facilitating the f,ow
OF business In our avn country, but also
aiding III the rehabilitation OF the cur
sa.a aai1a AZ H. A