Crawfordsville Weekly Journal, Crawfordsville, Montgomery County, 11 February 1898 — Page 9

WTong. unite In supporting Mr. Bryas. I have occupied more time In this digression tlmu I intended. But the point Is really an important one. This sort of stuff fooled six millions of American citizens in ISOU we must see to it that it does not fool any more of them, nor so many, again. The fundamental point is this: Civilized society must have as the basis of Its exchanges

It may be said in general terms that it is necessary that there shall be enough gold in me country to keep its paper money good, enough more to supply the wants of those who have occasion to use It in specie, with surplus enough to pay without embarrassment any foreign balances that may become aue in the course of trade. The $700,000,000 which we have in this country now is enough, and more than enough for all these purposes.

PAPER MONEY.

The first requisite of good paper money Is, that it shall be easily and certainly exchangeable for gold. No other test of its value is possible and that test is adequate only when it is easily applied. This certainty of redemptioa must be not merely for a day, but for all the foreseeable future. It must be a certainty resting on a safe and pernianeut system.

The next requisite is, that it shall come into existence quickly when it Is needed and go out of existence as quickly when it is needed no longer or, to use the common phrase, it must respond iu its volume to the demands of trade. Papel1 money is not a value measuring tool it is an exchange making tool. It is a better tool for that purpose than gold. It is of the essence of a good monetary system that it shall be able to create these paper tools when they are needed, and as ninny as are needed. They ought to circulate rapidly and come home often. A note of any kind is a promise to pay money. A note never paid is an unreal promise. The maker of such a note is liable to forget that he is under any obligation to pay it, and neglect to keep himself In readiness to pay it. Every redemption of a note is a demonstration of its value and quick circulation and frequent redemption is the highest proof of the soundness of the system. Paper money issued by the Government is wanting in this requisite. It is impossible to give it an elastic quality. Laws can be passed only at long intervals. Every act of legislation Involves debate. If Congress were to undertake to follow the varying demands of trade with suitable supplies of money it would be debating the money question all the time and then with great !ia bility to error in its conclusions. The future demand of trade for tools is like all H.s other demands—beyond the foreknowledge of the wisest men. The only way to meet it with always enough and never too many is to let the supply grow out of the demand—let trade furnish its own tools.

INSTABILITY OP A GOVERNMENT CURRENCY. But the most serious weakness in a paper currency issued directly by the Government is the impossibility of securing its stability. Nothing can keep such a Hubject out of politics. There will always be some proposition on foot to do something with it and there will always be a party ready to take up such a proposition.

History demonstrates the proneness

of men to make one great mistake over and over—to imagine that hard times can be cured by the issue of more money. The mistake is a perfectly natural oue. When business is dull money ceascs to circulate freely. There appears to be a scarcity of it. What more obvious remody than to create more of It? As long as all that is necessary to the creation of it is an act of Congress there will be a clamor for such legislation at every return of unfavorable business conditions.

Another delusion quite as seductive at this Is .that cheap money is a blessing: to the poor. To a man who has poE.etrat.od the subject the fallacy of he .proposition is clear enough. Cheap money is money of little value and being of little value will buy little else that lo valualjle. Hence a man gains tiothing by cheap money. It is just as much less valuable to spend as ft Is easier to get. But there are millions of men whose heads do not seem to be able to hoI? borh of these ideas at once. "To gi*4 mqney ,s a blessed thin# cheap things are easier to get than dear

tlUngs ther&fote cheap money

some fixed and stable standard of the struggle is that business is always value. As civilization advances and the transactions of men become more and more complex, profits smaller and valuations more exact, there is more and more necessity for precision a_nd constancy in the standard. At the same time there Is less and less use of the standard Lor the immediate purpose of exchange. Men are all the time inventing new instrumeuts of credit and new ways of doing business which take loss time and labor than to do it by the direct use of money, and especially metallic money. And so,, paradoxical as it may seem, it Is abso-1 lutely true that the more business they do, the less gold they need relatively to the amount done. Hence it is impossible to say that any specified quantity of gold is necessary for the transaction of rhe business of the world or any particular people in It.

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blessed thing fp a poor man and there banks and moneyed the reasoning tftids. The disparities of private hands than condition among men will uwer cease, find while they exist there will be a

class—and in times of distress it Is liable to be a large class—who will believe that cheap money would ma ice things better for them.

Against these tendencies, which have their origin deep in the constitution of human nature, it requires a constant struggle to hold a currency issued directly by the government up to its standard. And the worst feature of

fail and some disaster occur. This is no mere theorizing of mine it is a simple recital of experience. Some question has been pending in respect to our government currency, some threat of change iu the air. some possibility of trouble ahead, every day for twentyfive years. It is uoi in iiumau nature to stand up forever under such strain. It is like sustaining a weight upon one's extended arm.

It may be said that the money question will always figure in politics, no matter what system we may have. Perhaps it will. But that element would not be so disturbing if the money of the country were not within snch immediate reach of political influence and legislation. As it is now Congress has but to stretch out Its hand to make or unmake. The situation invites agitation. If we had a money system set on a foundation of its own beyond the control of Congress otherwise than by innovation upon or destruction of the system, the danger of injudicious change would be immensely decreased. Every piece of paper money would be a contract enforceable by law. The conditions of its Issue would be prescribed by law. The whole system would rest on law and be protected by the sanctity ef contract. A government note is payable If tile government wills, and when it wills, and as it wills all of which is as the people, or a majority of them, will, for the time being.

they rest on law. It would require a tremendous revolution to overthrow them. No one fears such a revolution. Our monetary system ought to have a similar stability, and would have, if it were removed from the Immediate control of Congress and given an independent existence under the guaranty of law.

This is, in my opinion, the fundamental objection to a paper currency issued directly by the Government. It is impossible to give it the quality of stability. it is constitutionally tainted with all the uncertainties which attend the vicissitudes of politics. If this difficulty could be removed if there were some way to pass an irrepealable law, or if the steadfastness of public opinion, once expressed, could be depended upon, and provision for the redemption of the notes could be made upon which we could rely with confidence, the notes of the Government, would be good enough money merely as money. But these conditions are Impossible of attainment and this sort of money is therefore subject to an inherent weakness which never can be cured under a Government like ours.

There are other less fundamental but still serious objections to Government notes as money. One of these is the mis-educating influence which they have upon the minds of the people. A Government note circulating year after year without redemption ceases to be regarded us a promise to pay money, and is invested iu the public mind with the attributes of money per se. It has been argued in innumerable speeches in this country and believed by their hearers that the "government stamp" is all that is necessary to make apiece of paper good money. Men who have fallen into that way of thinking become incapable of exercising an intelligent judgment upon the money question.

The element of uncertainty which inheres in such a currency communicates itself to all business undertakings. The business men of the United States have no money to use to-day other than gold, except that which depends for its value upon the continued redemption of the greenbacks by the Government in gold. A failure on the part of the Government to maintain such redemption would precipitate a universal and awful crash. The consequence is that business is all the time in a state of nervouh tension. The least incident that excites apprehension on this point sends a cold shiver through the whole business system of the country. Real and enduring prosperity is impossible under such conditions.

I think we are suffering more injury from this cause than we are aware. My boyhood was passed in a part of Indiana where the people lived on malaria. Most of us had some form of ague the greater part of the time. But we became so accustomed to it that it passed for health. Men survived it, as I have. But we were sick all the same and no doubt less effective for work than we should have been. I think the business men of this country have forgotten, or never knew, how It would seem to breathe the air of a perfectly sound, abundant, elastic, good currency.

One of the incidents to which I have

any time, Is a threatened depletion of the gold in the treasury. There is no-' where else in the world so large a pile of gold so easy to get at as ours. It Is entirely defenseless against attack. Any oue who brings the government notes is entitled to it In any quantity. In countries where the accessible gold is held by banks they can protect themselves to some extent by raising the rate of interest on call loans when a raid on their gold reserve is threatened. But our government ha« no such resource. We would be in a far stronger position with reference to our gold sup-: ply if It were distributed among our institutions and we are with so much of it in the treasury on call.

Another consideration has largo

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haunted by the fear that the effort may our laws, finances and public opinion

Our school system and our postal *r&ce would be left in the life of the system are creations of legislation, but Pe°Ple of the disaster which had oc

political supremacy which roaches round the globe, and of which

One other thought. The world has reached a point in its civilization when society and business, if suitably organized, can survive the wreck of any existing government. We could and would now, In every respect, except as to our paper and silver money. Our farms, factories, railroads, telegraphs, telephones, stores, churches, schools and libraries would remain, although our government were destroyed. We would organize a new one on the ruins

curred. The forces a.t work for the development and elevation of the race do not originate in government, but in society. The surest guarantee of national growth and progress is to be found in the highest and freest development of these forces. It Is inconsistent with these ideal conditions that the monetary system of a people shall be a part of and dependent upon their government. It is a mixture of business and politics which is injurious to both.

THE SAVING OP INTEREST. The commonest argument In favor of the greenback currency is, that it saves Interest on so much of the public debt. The argument is a fair one and entitled to consideration. We have $-150,000,000 of them, including the Sherman notes. We need a gold reserve of twenty-five per cent, to protect them that is, $112,500,000. That Idle gold offsets that much of the interest, leaving $o37,500,000 to count interest on. We could borrow the money at two and a half per cent., or $S,527,500 per an­

num. We borrowed $95,000,000 twenty years ago in order to create the gold reserve. I believe that all or nearly all of that is still outstanding in re­

funded form. We borrowed $202,000,000 during President Cleveland's last administration in successive loans to replenish the gold reserve. We are

paying four per cent, on that, or $10,480,000 a year, which is a good deal more than we are saving on greenbacks. I do not think it is fair, however, to

charge all that up against the green-

causes contributed to the result. But one thing is certain a mere deficit in revenue would never have produced the panic of 1S93. The government might get out of money and get way behind in its payments without any demoralization of general business. Everybody would know that the government was good and that it would only be a question of time when salaries would be paid up and all obligations settled. It was the financial situation that made the deficit such a disturbing factor. And it was the existence of the greenback currency, which must be redeemed in gold, else everything would go to smash, that made the panic possible. Hence I think that it is entirely fair to say -that a large part of the interest which we are paying on those

weight In my mind. The world is full question of interest shrink* into unof rumors of war. Croat events are tak- importance. If we could have these lug place east of us and west of us. A notes on some certain and sure basis, struggle is on for trade, commerce and so that they would not bring those

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can foresee the end. No more can anyone foresee how it may affect us. It is of infinite importance to us to bo strong in our position, and prepared for nil possibilities. In the present state of

war would mean for us further issues of government notes, suspension of specie payments, lnllation of prices and all the frightful demoralization which attends those conditions. If our demand debt were out of the way and our monetary .system planted on a sound gold basis we cmil^ uo through a war with none of these disasters.

I would like to go further and see our whole national debt paid as soon as possible, for this reason, if for no other, that to be out of debt would be our strongest security against aggressiou. Modern war is almost wholly a matter of money. The national debts of the European governments are the most effective peacemakers among them. If we were out of debt, with a clean sheet to start on, such a record behind us as we would have, and such resources in our hands, no nation or combination of nations would dare to encounter us in war. We could raise billions of money.

of the old, and In a very few years lit- mote as it Is, of a sudden and large demand for redemption of notes, and the consequent accumulation of them in the division of issue and redemption to an extent which might injuriously contract the currency, authority is given to the Secretary of the Treasury in such case to put them in circulation again by purchasing United States bonds with them such bonds to go into the redemption fund and be sold again at the discretion of the Secretary for the benefit of that fund.

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bear If the greenbacks had not been In existence. It is Impossible to tell how soon we may have to borrow money again to protect the gold reserve. It is not the present year nor the next, nor the next, that Is to be taken into account. The question Is one of permanent economy—economy for ten years to come, twenty years to come. And In view of what has happened within five years past, it Is impossible to say that but of necessity to base the note issues the greenbacks may not cost us more upon the assets of the system itself, prothan they save in Interest. yidlng special security for the immedi-

But the question 1s a wider one than

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that. If the dangers which I have bank by a great guaranty fund to pointed out as inherently existing in a which all the banlcs are to contribute, currency of this kind under a govern- The system proposed by the commisment like onrs, exist, as I belfcye they sion involves only a few important do, the losses which It is liable to In- changes of the existing law. Of these fllct upon us are so vast that .the the chief Is the one to jvhieh 1 have

dangers with them, the saving of interest would bo a solid argument in their favor. As it is. the drawbacks and t.!ie da.ngcrs far outweigh Ihe advantage of that saving. 1

Mi OGRESS I VE KTIR EMENT.t The plan proposed by the commission contemplates a very gradual withdrawal of the greenbacks and Sherman notes and the substitution of bank notes in their places in such manner as to produce no appreciable contraction in the currency or effect upon business. The division of Issue and redemption will pay the notes as they arc presented just as the treasury Is paying them now and must continue to do if the Government is to maintain its credit at all. No bonds are to be issued unless it should become necessary In order to maintain the redemption fund, just as we must do now. The notes redeemed are to be cancelled to the extent of $50,000,000, if so many are redeemed after which they are to be cancelled only as rapidly as bank notes are issued to take their place, for the period of five years. After the expiration of five years those redeemed are to be cancelled to an amount not exceeding one-fifth of those then outstanding. At the expiration of ten years those then remaining in circulation are to lose their legal tender quality. But they will still remain as valid demands on the Government and redeemable In gold upon presentation.

To guard against the possibility, re-

This provision serves two important purposes. First, it will prevent any injurious contraction of the currency. It Is entirely certain that there will be no rapid demand for redemption if such a plan as that recommended by the' commission should be adopted, except in some extraordinary contingency which would create a great demand for gold. But it is the part of statesmanship to provide, as far as possible, against even the possibility of disaster. Tills remote possibility of contraction is provided for by the power given to the Secretary to put the redeemed notes cut in the purchase of bonds. The provision that this shall be done in no oilier way cuts off the "endless chain." The notes put out purchase bonds, which, by their sale will produce the gold necessary to redeem the notes when presented again. It will never be necessary to raise money by taxation or loan to pay the same note twice, as it may be under our present system.

It appears to me to be morally certain that if this scheme were adopted in connection with a suitable banking law capable of responding sensitively to the demands of business, the government notes would disappear and bank notes take their place by a process so

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backs nor do I think anybody can tell just how much of it ought to be so regarded. We have used up most of the money in ordinary expenses. At the same time the alarm caused by the fear that the gold reserve would be exhausted was the Immediate occasion of the borrowing. And the deficit of revenue, which brought on the crisis at that particular time, was in part due to the uncertainty and want of confidence which existed in our monetary affairs although it was due in part, also, to the premonition of unfavorable tariff legislation in consequence of the election ot Mr. Cleveland. It is more than any man can do to disentangle all these things and say how much each of these out the Union and absolutely good ev-

easy that no one not other-

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change was going on. BANK SYSTEM. No plan of currency reform which involves the retirement of the greenbacks. however gradual that retire­

ment may be, can be called complete which does not provide for the issue of other paper currency to take their place. In considering what that should be there is little room left for choice. A state bank currency as the sole or main source of supply is not to be thought of. The system must be national. It must be so organized that its notes shall be equally current through-

erywhere. We have been accustomed to bank notes so perfectly secure that no one ever takes the trouble to notice by what bank the notes that ho receives have been issued. We can take no backward step in that respect. Our bank notes have enjoyed that degree

of confidence because they have rested upon a form of security which we have all regarded as, and which has been in fact, absolutely safe. We cannot think of introducing any form of bank note currency less ierl'ectly secure than that which we have now. I But it Is absolutely necessary, if we are to provide for a system callable of the growth which will be required in order to enable it to supply the country with currency, that we shall fiud some new form of security for Its circulating notes. The national banking sysI tem, as a note issuing system, is drying up on account of the scarcity and high price of U. S. bonds.

There are no other bonds, or stocks, or securities of any sort sutlleient in quantity, value and homogeneity to form the basis of a national currency, It is therefore not a matter ol' choice,

ate payment of the notes of a defaulting

already referred relating to the security of the circulating notes. That change is in substance this: Instead of being required lo put up bonds to the amount of $100 for every $!H) of notes issued, the banks are to be required to put up bonds at their value upon a three per cent basis to an amount equal to the notes Issued up to twenty-five per cent of their capital. As against the residue of notes Issued they are to put up no security In the form of bonds deposited. but are to secure them in another way, which I will now describe. Each bank Is to put up in the hands of the Government ah amount In gold equal to five per cent of its total circulation. These deposits are to form one common guaranty fund for the protection of all the notes of all the banks. In case of failure of any bank to redeem its notes they are to bo redeemed forthwith out of the guaranty fund: and the Government is then to proceed forthwith to collect the amount from the assets of the failed bank, including the personal liability of the stockholders, if the other assets are insufficient, and therein1 reimburse the guaranty fund. If the guaranty fund becomes Impaired the Comptroller Is to make an assessment upon all the banks pro rata, according to their notes in circulation, to make up the deficiency so that the fund siiv.ll be constantly kept up to five per cent of all the notes outstanding in the.coun-. try.

The banks are thus tied together in one vnst partnership for the payment of all the notes Issued by any of them. Every note has behind It all the capital of all the banks, all their assets and the personal liability of all their stockholders. It Is Impossible for security to be more secure. The assets of the banks represent at any given time the active wealth and business of the country. They could not shrink In value to an amount anything like the note circulation without such a condition of universal and hopeless insolvency as would bankrupt the government and destroy the value of its bonds.

Such a security is, in its essential character, a stronger one than government bonds can possibly be. I said a while ago that In civilized countries society was more than government. Government rests upon society not society upon government. If the Confederate government had established a national bank system exactly like ours at the same time we established ours, with its notes secured by government bonds, what would they have been worth at the end of the war? P.ut if the Confederate government had established a banking system like that which the commission proposes, entirely disentangled In its foundations and sources of strength from the government, and resting upon the bus! nes assets of the country and the personal responsibilities of the stockholders, there would have been something left of It even after the desolation of war. There were banks In the South which sitood alone, without the strength which comes from widely extended association, but which nevertheless survived the war, though in a crippled condition, but whose notes had a substantial value after all the vicissitudes through which they had passed. We have been so long accustomed to think of United States bonds as the only absolutely and eternally good security in the world that it is a little hard to get out of our hearts the feeling that no other security can be quite so good as the basis of bank circulation. But that is a mere habit of feeling. The notion that our government can never, by any possibility, fail to pay its debts, is a patriotic Instinct rather than an Intelligent conviction. I suppose people have thought so of their governments over and over again in this world. I am not intending to cast any aspersions upon our government or its bonds. 1 believe that we are entitled to regard them as perfectly good, and so far as security of payment is concerned, 1 regard our national bank notes as perfectly good. But notes secured iu the way which I have described will also be perfectly good so far as security is concerned. And between two things which are both perfectly good there is no choice of goodness. -'V

In another important respect our present bank notes and those proposed would stand upon a footing of equality. Our present notes all rest upon identically the same kind of security to wit, United .States bonds. They are therefore equally good, and all good in all parts of the country. A note issued by the smallest bank in Indiana is ju.it as good as one Issued by the strongest bank in New York. Under the proposed system all the notes will be payable, in case of failure of the bank that Issued them, out of tho same guaranty fund in the hands of tho Treasurer of the United States. And to this guaranty fund all the banks are. bound to contribute In due proportion. So that every note will be as good and as current as every other one, whether issued by a little bank in Kansas ora big bank iu Boston. i'/Vi

This comparison, you will observe, is between our present system and ono resting wholly upon the general assets of the banks and their own guaranty fund. But according to the plan proposed, we shall not come to that completely until after the lapse of ten years. For live years the banks are to keep up, as 1 have said, a deposit of bonds equal to 25 per cent, of their capital. At the end of five years they arc to be entitled to begin to withdraw their bonds at the rate of one-fifth of the total amount on deposit per annum. Thus a I the end of ten years we will have effected a complete transition

from the present system to the new one, at which time the government notes will have been retired, provided they have ail come in, which is a most unlikely thing.

THE RESTRAINING TAX. 1 have stated that one of the requisites of good paper money Is that it

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shall come into existence quickly whefll

It is needed, and go out of existence again as quickly when it is no longef needed. This Is one of the qualitieswhich it Is impossible to obtain In n, government currency. Congress authorizes the Issue of a certain quantity of notes if that does not furnish as many tools as business needs for use there is inconvenience In consequence. If it is too many, the excess constitutes an injurious surplus iu the channels ot

trade. A surplus of money in the community at large is the same sort of temptation to unwise and extravagant expenditure which a surplus of money is in the poaket of an injudicious young man. The happiest of all conditions is to have just enough and no more.

And what is this "Just enough" for the wants of business Is a tiling Impossible to lay down by any rule of per capita amount or anything of that sort The requirements of business vary In various seasons and In various parts of the same season. In the West a larger amount of money Is needed to move the fall crops than during the rest of tho year. In the South a like necessity exists during the cotton picking season. To meet these requirements by a government currency is impossible.

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To meet them perfectly by a bank currency requires, first, that up to a certain point the Issue of notes shall be. prompt and easy, so that there shall be no obstacle to an adequate supply of all that are needed and, second, that beyond that point there shall be somO' sort of restraining Influence which shall prevent the iSme of notes which are not needed, and induce the retirement of those which have been issued to meet a temporary demand. Thin 1B provided for In the plan proposed by the commission by what may be called a res-training tax on bank notes. Up to tiO per cent, of its capital each bank may issue notes without the payment of any tax ou its circulation.' Tills does not mean that the bank is to pay no tax at all. In place of the present tux on circulating notes there is substituted a tax upon capital, surplus and undivided profits, as I shall explain iu a moment. But up to GO per cent, of the capital no Impediment is put In the way of the quick and free issue of notes. Then upon all notes issued above (50 per cent., of capital, and not1 'above SO per cent., there Is a tax of 2 per cent, per annum, payable monthly upon all above SO per cent, a tax of (5 pei- cent, per annum, payable monthly. Each bank 1s to have the right at any time to retire any part of Its circulation and be relieved of the tax by returning ihe notes to tho Comptroller of the Currency for cancellation, or kipositing with him an equivalent" amount of lawful money. A bank will not keep out notes on which It has to pay a tax unless it can make something by the operation. The notes lasued up to 00 per cent, of the capital are Intended to furnish the general stock to be kept in use at all times of the year from year to year. If there

Is a demand for more than that the banks will find it to their interest to issue another 20 per cent, and pay 2 per cent, pen- annum for the privilege and when there Is an urgent demand they will issue still another 20 per cent. and. pay 0 per cent, per annum for the privilege. But this last Issue will not be kept out unless there is very good uso for it. They will be issued in times of emergency, to meet sudden and great demands. At such times the power to issue notes may be of Incalculable val-: ue to the community.

In the panic of l.SiJ.'i people seemed to lose thedr senses. All the money In thecountry was locked up. The banks in New York were unable to pay their customers' checks for want of money. All sorts of illegal expedients were resorted to to bridge over the difficulty. Manufacturers issued sliinplastera of thedr own, which were taken by their employes Cor wages. The New York Clearing House issued an immense sum —$40,000,000, I believe—in certificates, which were used as money. The Clearing Houses of other cities did the samo. At such a time nothing is so valuable as a system which can respond at once to a sudden demand. We met that emergency in 1SD3 by illegal devices. When the Bank of England has to face such an emergencyit does the same thing. It Issues note®, illegally, having first received the assurance of the Cabinet that its violation of the law will be winked at. A* much bettor scheme is provided In the system proposed by the commission a capacity for meeting such an emergency by a regular and lawful issue of" notes under such a restraining tax that", as soon as the emergency has passed and there is no further need for the** additional Issue they will be retired bythe voluntary action of tho banks. Such a system is truly elastic. It has not only a power of expansion in response to the demands of trade, but it has a power of contraction when the outstanding notes are in excess of those, demands

TAXATION.

A national bank ought to be taxed exactly as any other business Is Laxed. They are subject now to taxation under the State law and ought to bo, and aro, I believe, treated by that law precisely as other business institutions and enterprises are treated. Under the Con­

stitution of the United States the buslness of banking Is not taxable for revenue, any more than any other speciflo business. A compensation may be required for the grant of the franchise, and any United States tax upon nation--" al banks must rest on that ground. That compensation ought to extend toau amount sufficient to cover all ihe-