Rensselaer Semi-Weekly Republican, Volume 19, Number 43, Rensselaer, Jasper County, 1 February 1898 — Page 7

xralte In supporting Mr. Bryan. I hate occupied more time in this digression than I intended. But the point Is really an Important one. This sort «£ stuff fooled* six millions of American citizens in 1896; we must see to that It does not fool any more of them, nor so many, again. The fundamental poipt is this: Civilized society must have as the basis of its exchanges some fixed and stable standard of 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 and constancy in the standard. At the Same time there is less and less use of the standard fbr the immediate purpose of exchange. Men are all the time inventing new instruments of credit and new ways of doing business 'which take less 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 absolutely 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 the business of the world or any particular people in it. It may be said in general terms that It is necessary that there shall be enough gold in tne 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 *ny foreign balances that may become Cue 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 value is possible; and that test is adequate only when It is easily applied. This certainty of redemption must be not merely for a day, but for all the foreseeable future. It must be a certainty resting on a safe and permanent 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 in its volume to the demands of trade. Paper 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 many 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. t 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 liability to error in Its conclusions. The future demand of trade for tools is like all its 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 Met trade furnish its own tools. INSTABILITY OF 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 subject 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. Tho mistake is a perfectly natural one. When business is dull money ceases to circulate freely. There appears to be a scarcity of it. What more obvious remedy than to create more of it? As long as all that is necessary to the creation ot It is an act of Congress there will be a clamor for such legislation at every return of unfavorable business condition*. Another delusion quite as seductive as this is that cheap money is a blessing to the poor. To a man who has penetrated the subject the fallacy of the proposition is dear enough. Cheap money Is money of little value; and being of little value will buy little else that is valuable. Hence a man gains nothing by cheap money. It is just as much less valuable to spend as It Is easier to get. But there are millions of men whose beads do not seem to be able to hold both of these ideas at once. “To get monexJua blessed thing; cheap things are easier'’to get than dear things; therefore cheap money Is a blessed thing to a poor man;" and there the reasoning ends. The disparities of condition among men will never cease, and 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 make 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 the struggle is that business is always haunted by the fear that the effort may 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 in the air, sopje possibility of trouble ahead, every day for twentyfive years. It is not in human nature to stand up forever under such strain. It is like sustaining a weight upon one’s extended arm. II 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 such 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 of contract. A government note is payable if the government wills, and when it wills, and as it wilhi; all of which is as the people, or a majority of them, will, for the time being. Our school system and our postal system are creations of legislation, but they rest on law. It would require a tremendous revolution to overthrow 5 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 impossMWe 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-educatiug influence ‘ which they have upon the minds of the people. A Government note circulating year after year without redemption ceases to be regarded as a promise to pay money, and is invested' in 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 a piece 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 ln'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 nervouhVension. 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 parsed 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 hn\*e. But we were sick Jill 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 referred, and one liable to happen at any time, is a threatened depletion of the gold in the treasury. There is nowhere else in the world so large a pile of gold so easy to get at as ours. It is entirely defenseless against attack. Any one 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 pn call loans when a raid on their gold reserve is threatened. But our government has no such resource. We would be in a far stronger position with reference to our gold supply If it were distributed ankrng our banks and moneyed Institutions and private hands than we are with so much of It in the treasury on call. Another consideration has large

weight in my mind. The world is full of rumors of war. Great events are taking place east of us and west of us. A struggle is on for trade, commerce and political supremacy w-hich reaches round the globe, and of which no one can foresee the end. No more can anyone foresee how it may affect us. It is of infinite importance to us to be strong in our position, and prepared for all possibilities. In the present state of our laws, finances and public opinion war would mean for us further issues of government notes, suspension of specie payments, Inflation 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 wo could go 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 aggression. 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. 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 on the ruins of the old, and In a very few years lit-' tie trace would be left in the life of the people of the disaster which had occurred. The forces at 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 Idea! 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 SAYING OF INTSI^EST. 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 $450,000,000 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 $337,500,000 to count interest on. We could borrow the money at two and a half per cent., or $8,527,500 pee annum. We borrowed $95,000,000 twenty years ago in order to create the gold reserve. I believe that all or nearly of that is still outstanding in refunded form. We borrowed $262,000,000 during President Cleveland’s last administration in successive loans to replenish the gold reserve. We are paying four per cent, on that, or $lO,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 greenbacks; 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 resdtve 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 of Mr. Cleveland. It Is more than any man can do to disentangle all these things and say how much each of these causes contributed to the result. But one thing is certain; a mere deficit in revenue would never have produced the panic of 1893. 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 loans ought to be regarded as an expense which we would not have to 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 tea years to come, twenty years to come. And in view of what has happened within five years )>ast, it Is impossible to say that the greenbacks may not cost us more than they save in Interest. But the question is a wider one than that. If the dangers which I have pointed out as Inherently existing In a currency of this kind under a government like ours, exist, as I believe they do, the Josses which it is liable to inflict Upon us are so vast that the

question of Interest shrinks into unimportance. If we could have these notes on some certain and sure basis, so that they would not bring these dangers with them, the saving of interest would be a solid argument in their favor. As it is, the drawbacks and the dangers far outweigh the advantage of that saving. PROGRESSIVE RETIREMENT. 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 are presented just as |jie 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 notfs 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, remote 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. This pfovlsion 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. This remote possibility of contraction is provided for by the power given to the Secretary to put the redeemed notes out in the purchase of bonds. The provision that this shall be done In no other 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 smooth and easy that no one not otherwise informed would know that any change was going on. BANK SYSTEM. No plan of currency reform which involves the retirement of the greenbacks, however gradual that retirement 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 Bhall be equally current through* out the Union and absolutely good everywhere. 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 he 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 perfectly secure than that which we have now. But it is absolutely necessary, if we are to provide for a system capable of the growth which will be requlrid in order to enable it to supply the country with currency, that we shall find some new form of security for its circulating notes. The national banking systenvas a note issuing system, is drying up on account of the scarcity and high price of U. S. boqds-

There are no other bonds, or stocks, or securities of any sort sufficient in quantity, value and homogeneity to form the basis of a national currency. It Is therefore not a matter of choice, but of necessity to base the note issues upon the assets of the system Itself, providing special security for the immediate payment of the notes of a defaulting bank by a great guaranty .fund to which all the banks are to contribute. The system proposed by the commission Involves only a few Important changes of the existing law. 'Of these the chief is the one to which I have

already referred relating t|> the security of the circulating notes. That change is in substance this: Instead of being required to put up bonds to the amount of SIOO for every S9O 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 an 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 be 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 thereby 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 shall be constantly kept up to five per cent of all the notes outstanding in the country. ' The banks are thus tied together in one vast 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 v*ealth and business of the country. They could nk 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 atsecurity 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? But 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 business assets of the country and the personal responsibilities cf the stockholders, there would have been something left of it even after the desolation of war. There were banks in the South which stood 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 beeu 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 cau 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, fall tp 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. lam not intending to cast any aspersions upon our government or its bonds. I believe that we are entitled to regard them as perfectly good, and so far as security of payment Is concerned, I regard our national bank notes as perfectly good. But notes secured In 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. , 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 arc therefore equally good, and ! all good in all parts of the country. A j note issued by the smnllcst bank in In- ! dluna is just as good as one issued by j 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 the same guaranty fund in the hands of the Treasurer of the United States. And ; to this guaranty fund all the banks are j bound to contribute in due proportion, j So that every note will be as good and as current as every other one, whether Issued by a little bauk In Kansas or I a big bank in Boston. This comparison, you will observe, is between our present system and ono j resting wholly upon the general assets j of the lwinks and their own guurauty ; fund. But according to the plan pro- | posed, we shall not come to that com- j pletely until after the lapse of ten j years. For five years the banks are to j keep up, as I have said, a deposit of.i bonds equal to 25 per cent, of their cap- j ital. At the end of live years they are ! to be entitled to begin to withdraw ; their bonds at the rate of’.one-flfth of | the total amount on deposit per annum. J Thus at 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 lmve been retired, provided they have all come in, which is a most unlikely thing. . j - THE RESTRAINING TAX. I have stated that one of the requi- { sites of good paper money is that it

shall come hito existence /ulckly when it Is needed, and go out of existence again* as quickly when it is nb longer ' needed; This is one of the qualities which Hr is Impossible to obtain in & 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 ma,ny, the excess constitutes an injurious surplus in the channels of trade. A surplus of money in the com*j muulty at large is* the same sort of* temptation to unwise and extravagant expenditure which a surplus of money Is in the pocket of an injudicious young man. The happiest of all conditions' is to have just enough and no more. what is. this “just enough” for, the wants of business is a thing im-i possible to lay down by any rule of per 1 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 the year. In the South a like necessity exists during the cotton picking season. To meet these requirements by a government currency is impossible. 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 bo' no obstacle to an adequate supply of all that are needed; and, second, that; beyond that point there shall be some; sort of resttraining Influence which! shall prevent the issue of notes which are not needed, and induce the retirement of those which have been Issued to meet a temporary demand. This Is provided for In the plan proposed by the commission by what may be called a restraining tax on bank nates. Up to GO per cent, of its qapltal each bank may Issue notes without the payment of any tax on Its circulation. This does not mean that the bank Is to pay no fax at all. In place of the present tax on circulating notes there is substituted a tax upon capital, surplus and undivided profits, as I shall explain in a moment. But up to 60 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 GO per cent, of capital, and not above 80 per-cent., there is a tax of 9, per cent, per annum, payable monthly; upon all above 80 per cent, a tax of 6 per cent, per annum, payable monthly. JDach bank is to have the right at any time to retire any part of its circulation and be relieved of the tax by returning the notes to the Comptroller of the Currency for cancellation, or depositing with him an equivalent amount of lawful money. A bank will not keep out notes on which it has to pay a tas unless it can make something by the operation. The notes Issued up to GO 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, per annum for the privilege; and when there is an urgent demand they avlll issue still another 20 per cent, and pay 6 [per cent, per annum for the privilege. But this last issue will not be kept oat unless there is very good use, for it. They will be Issued in times of emergency, to meet sudden and great demands. At such times the power to tome notes may be of incalculable value to the community. In the panic of 1893 people seemed to lose their senses. All the money In the country 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 shluplasters of their own, which were taken by their employes for wages. The New York Clearing House Issued an. Immense sum —540,000,000, I believe—in certificates, which were used as money. The Clearing Houses of other cities did the same. At such a time nothing is so valuable as a system which can respond at one© to a sudden demand. We met that emergency in 1893 by illegal deWhen the Bank of England has to face such an emergency It does the same thing. It issues notes illegally, having first received the assurance of the Cabinet that its violation of the law will be winked at. A much better schemh is provided in the system 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 furtlHT need for the additional issue they will Ik> retired by the voluntary action of the banks. Such a system is truly elastic. It lias not only a power of expansion in response to the demands of trade, but it baa a power of contraction when the outstanding notes are in excess of thosedemands. TAXATION. A national bonk ought to be taxed exactly as any other business is taxed. They are subject now to taxation under the State law and ought to bo, ami are, I believe, treated by that iaw precisely ns other business institutions and en-, terprlses are treated. Under the Con-| Ktitutlon of the United States the business of banking is not-taxable for revenue, any more than any other specific business. A compensatiQß. may be required for tbe grant of the franchise, » and any United States tax upon national banks must re«t on that ground. That compensation'fiught to extend to an amount sufficient to cover all th«.