:> 3 o <^ '■^''idiAlK.ljUV 1 >w » c TAll Or /<0l MVMfl 5 5 Q ii: f fi Q 55 ^ 54cOFCAllFOffi^ ^OFCAIIFOi?^ Y< %Anvjjaii-iv^ *^^Aavjjani^ lOSANCElfj ec ^tUBRARYQC;, -s^iUBRARYO/; ^J71J3NVS01=<^ ^/idJAINnjVW^ ^^tfOJIlVDJO^ %OJI1V3JO^ >- aweuniver% ^lOSANCElfX^ o ^OFCAllFOiZ^ ^.OFCAllFOi?,(^ ^ 1 ii— ^ ^ a^^VUBRARYQa^ 5 1 < r-' ^ •^-tfOJIlVDJO'^ =0 it, '•^ — '§ \V\fl)NIVEIfJ/A o ^lOSANCflfX^ "^/^ajAiNn-jwv^ ^OFCAIIFOR^ o ^OFCAllFORj!^ "^^^AavaaiH^ ^, o ■%il3AIN(13WV 5MEUNIVERS/^ ^lOSANCElfj> ^nM-IIBRARYOc^ ^lllBRARYQc^ jo'f^ '^.yojnvDJO^ •^ oe ,WEUNIVER% v^lOSANCElfj> ^ — f > I ^OFCAllFOft^ ^OFCAIIFOP^ •>&AHV«ail-^>«^ ^plied it to those wishing it for any purpose that the demand obligations of the Government were not presented for current redemption. ]\Ir. Hill. And as a matter of fact we were more dependent upon foreign nations at that time than now? Mr. Eckels. Yes; very much more dependent. The Chairman. At that point, if you want a suggestion as to the fact Mr. Eckels. I would be very glad, Mr. Chairman, at any time to have any suggestion any member of the committee may desire to make. the SUFFOLK SYSTEM. The Chairman. In New England, under the Suffolk system, whicli is generally conceded to be the best banking system on the whole we had in this country before the war, the total specie held in those banks for circulation in New England was 13i per cent, and that would amount on $800,000,000 of ciiculation to 1108,000,000. Their specie for loans and discounts was .'J.'J per cent, and that, on the $4,000,000,000 of discounts, $1,SOO,000,000 of national-bank loans and discounts and $2,200,000,000 of State bank loans and discounts, would amount to $156,000,000. 1 think we now have of visible gold $315,000,000. I thought 1 would give those figures. Mr. Eckels. Thank yon. So the only thing to judge by, as to what can be done, is that wliich the history of tlie country shows has been done. There is the fact that before the war, under the then existing State banking systems, properly conducted institutions redeemed their notes in gold, and were always furnished the gold necessary for the business interests of the country. Of course there were a great many institu- tions which were wholly fraudulent, and there were great losses to note holders, but that was becanse of the bad banking laws and the reck- less and dishonest manner in whicli the individnal banks which failed to redeem their notes in gold were conducted. Mr. Calderheai), The Government obligations were at a discount the most of the time for several years before the war. Mr. Eckels. 1 do not think the Government ever had any such o1)ligations out before the war except in the shape of a comparatively sunill amount of Treasurv notes during a jieriod shortly after the war of 1812. The Chairman. How loni:- were those outf FINANCIAL AND BANKING SITUATION. 237 FINANCIAL LEGISLATION OF THE WAR. Mr. Eckels. Only a short while. It will be recalled by members of the committee familiar with the ilnaucial legislation of the war that in the discnssion of the bill introdnced by Mr. Sj)aldini;', which authorized the first issuance of Treasury notes, it was very stronjily protested by those opposed to the measure that the (lovernment was enterin;;' upon a policy which had never been known of befoie, which never had been suggested in any debate or embodied in any bill, and which was then only justified by those urgino- it upon the ground of the pressing- necessity of an extraordinary condition of alfairs, necessitating extraor- dinary expenditures. The measure only became a law under protest, the strongest advocates of it placing their advocacy of it ui)on the grounds of necessity, and emphasizing the fact that as a financial proj)©- sition it was unsound and repugnant to all of the country's previous financial policy. The disbelief in the soundness of it was emphasized by a provision in the first instance that the Treasury notes thus issued and thereafter issued should be, up(»n i)resentation in certain sums within a certain period, refunded into bonds. All of those advocating the bill, including Mr. Sherman and others, ])romised that immediately upon the close of the war the notes should be retired. The present Senator, then Representative from Vermont, Mr. Morrill, not only refused to su])port the measure, but upon every occasion was strongly against it. His frequently expressed judgment to-day is that the expenses of the war were enormously increased by the issuance of legal-tender Government paper at that time, and that it was wholly unnecessary. It was the opinion of the New York bankers — and I sup- pose other bankers, but I si)eak particularly of the Kew i'ork bankers — who, up until the time of the issuance of the Treasury notes, assisted the Government in maintaining the gold jyajnuents, that thej could have continued to maintain gold payments, despite the strain of the war, if Congress had not passed the first act. Secretarj^ Chase never thor- owghly believed in it, and only after reiieated eflbrts was dragooned into giving it sanction. GOLD PAYMENTS DURING THE WAR. The Chairman. Mr. Coe, of ISTew York, and two other bankers made a proposition to JNIr. Chase, so I was told by Mr. Coe, that they would maintain gold payments provided they allowed the banks, by some national legislation, to issue all the currency the Government needed. They would guarantee to maintain the gold )>ayments, but Mr. Chase thought he possibly could not carry that through Congress. ]Mr. Cooke. Looking back over the history of that period, do you believe it was possible to have maintained gold ])ayments during the war"? Mr. Eckels. Yes. I base my judgment largely upon, the opinion of those who were then most familiar with the situation. Certainly the return to gold payments was greatly delayed after the war by the failure to fund these obligations. The Chairman. Louisiana maintained gold payments clear up to Butler's capture of Xew Orleans. Mr. SpaldinCt, Do you think that banks could have maintained specie i)ayments during 1893, 1894, and 1895? Mr. Eckels. Yes. 238 FINANCIAL AND BANKING SITUATION. ]Mr. SrALDiNCr. Is it not a fact that tUey really suspended all pay- ments aud paid only through clearing-houses? Mr. Eckels. Yes; many banks i)aid through the clearing-house. Mr. Spalding. Because they had no currency, muck less goldf PANIC OF 1893. Mr. Eckels. This thing lias to be remembered in connection -with the panic of 1893. There would not have been the panic of 1893 and its effect upon the banking institutions of this country if under the financial legislation of 1890 the (lovernment's demand obligations had not been greatly increased without in anywise empowering the Secre- tary of tiie Treasury to increase the gold reserve to meet the new gold obligations. There was thus created a doubt as to whether the Government was able to maintain gold ])ayments. If the legal tenders had not been outstanding the (lovernment would not have ]mt it in the hands of anybody to go to the Treasury of the United States aud withdraw the gold from it. Mr. Cooke. Then you make it a matter of national credit and not a matter of necessity. Is that the principle? Mr. Eckels. Largely that. Mr. Spalding. I do not like to interrupt you Mr. Eckels. I am perfectly willing to be interrupted. Mr. Spalding. You put it, as I understand your argument, that the demand for gold was a speculative demand largely, or fear, or some- thing of that kind; not an actual demand as against the national obli- gations abroad? Mr. Eckels. I think the demand came through fear of a failure of the Government's ability to maintain gold i)ayments. The policy of the Government under the resumi)tion of s})ecie payment act was that, as against $;i4(i,()00,()()0 of demand obligations of the Government, a reserve fund of $100,<)0(>,()0(l of gold was sufficient for the current redemption of those demand obligations. effect of the SHERMAN LAW. The act of 1890 increased the amount of those obligations by 615^,000,000 without in any wise increasing the amount of your reserve, and while the holders of them might believe that $100,000,000 might be sutticicnt for the current redemi)tion of $.'>1:G,000,000 they doubted that $100,000,000 was sufticient to provide current redemption for almost $500,000,000. The CiiAiUMAN. The basis of that discrimination, however, is this: The ])eoi)le were educated to believe that $100,000,000 was sulfuMent and believed it was necessary to have $100,000,000 for $310,000,000 of obligations. They were convinced that $100,000,000 was not suflicient for $500,000,000 of obligations, and therefore a fear created the demand for gold. Mr. Spalding. Is it not a fact that until trade relations changed they had this deuumd for gold and it was a legitimate demand to pay our exchanges abroad, and since the change of current there was no demand for gold? Mr. Eckels. I think there were other causes entering into it. I do not think any of these great finan(;ial disturbances are i)ro(luced by a single cause, "but there is always one yreat cause which brings many to a culmination. FINANCIAL AND BANKING SITUATION. 239 Mr. Johnson. It is your opinion that the main reason for the drain on the gokl reserve which has occurred during- the present Administra- tion was a feeling- on tlie part of the people that the Government might not be able to maintain its credit? Mr. Eckels. Yes. Mr. Johnson. By keeping its demand obligations at par? Mr. Eckels. I think that from the time of the passage of the Bland- Allison actit became evident that the Government was coining- and stamp- ing a piece of metal, calling it a hundred cents when it was not in and of itself worth one hundred cents. It was dependent upon something to make it of that value, and when to this was added the further tend- ency to do the same thing through the oi)eration of the Sherman law and the purchase of silver, these acts combined caused doubt in the minds of those who were dealing with us abroad and doubt of people at home as to the ability of the Government, with the limited powers of the Secretary of the Treasury, to maintain, what the Sherman law said was the policy of the Government, the parity of the two metals and to redeem the Government's demand obligations in gold. Mr. Johnson. Another question. What has caused tlie stoppage of the demand on the Government for redemi)tion ; and is it likely to occur, and if so, under what circumstances? single gold standard. Mr. Eckels. It is likely to occur whenever the public mind is again put in a condition which makes it believe that this Government is not going to maintain the single gold standard of value, or is not going to be able to maintain gold payments of its outstanding obligations. Mr. Johnson. Do you think it ceased because the j)ublic mind was reassured on that jjoiut? election of 1896. Mr. Eckels. I think it has ceased, because the repeal of the Sherman law has given the public to understand that unless some further legis- tiou is enacted we have gotten to the end of increasing the money of the country with a dollar which in and of itself is not worth a dollar. I also think the fact that the recent election was against those advo- cating- the free and unlimited coinage of silver has done very much toward stopping the presentation of these demand obligations. The situation has further been relieved because, owing to the peculiar con- dition of aHairs abroad, there has been a great demand for our bread- stuffs, whereby yery much gold has come into the country. A large ])ortion of it has gone into the Treasury. It is safe to say, however, that whenever we come again to the point where, through overspecula- tion and overtrading, business disasters follow, or because of some bad piece of financial legislation the credit of the Government becomes a matter of public discussion, these demand obligations, unless paid and canceled, give the means to continually embarrass the Treasury Depart- ment and create still greater adverse conditions in the country's busi- ness world. Mr. Fowler. Suppose in the next six months the fortuitous circum- stances which are in our favor should turn against us and there should be a natural demand for 8100,000,000 of gold; where would they go to get that ? Mr. Eckels. They would go to the Treasury, because we do as no other country in the world does. The operation of the law makes the Treasury 240 FINANCIAL AND BANKING SITUATION. of tlie United States the oue source of supply not only for all the gold that our own people want but for the people of every country in the world who wish to send here and buy it. Mr. Fowler. If they withdrew the $100,000,000 out of the Treasury, what would transpire! SILVER REDEMPTION, REPUDIATION, OR MORE BONDS. Mr. Eckels. We would be compelled to redeem the obligations of the Government either in a depreciated metal or else to repudiate them or else to again do what the present Administration has done, sell more bonds to maintain the gold reserve. Mr. Johnson. If there was any way of getting the Treasury divorced from the banking business and the bank issue was devolved upon the banks, they would go, under this condition, to the banks? Mr. Eckels. Yes. Mr. Johnson. And your oi^inion is that the banks would be as able as the Government to do itf Mr. Eckels. Yes, more able. The reason the banks are better able than the Government is simple. The Government has no proper machin- ery for banking. A bank has all the machinery for obtaining credit and buying gold. It can discount its bills; it has, if well-conducted, all the methods of obtaining gold wherever it is necessary, and at a moment's notice. During the panic of 1893, the banks in Chicago, for instance, were able to send to London and Berlin and get gold, just as the banks of New York last year had the machinery which enabled them to obtain the gold to place in the Treasury in order that it might maintain the necessary gold reserve. All this the Government of the United States could not do unless it issued bonds, not having the machinery which attaches to a bank. Mr. Hill. The banks in New York have a call loan on $50,000,000 of gold in London. Mr. Fowler. In regard to this $100,000,000 of gold in the Treasury, in case you reverse the situation and there was a demand of $100,000,000 made on the banks of New York, they at once would realize they would want to i)rote('t this reserve and would put np the rate of interest to hold the gold in this country and it would not go abroad'? Mr. Eckels. That is the practice of the Bank of England. Mr. McCleary. Suppose tlie banks in New York had demand obli- gations which were payable in gold, how would the rate of discount affect that? Mr. Eckels. Of course it would not affect the presentation of its notes. Mr. McGleary. Would it not put the bank in exactly the same con- dition as it would i)ut the Government with the notes issued* The Chairman. You can not do that; this does not i^ut them in the same position of the banks. BANKS would MAINTAIN GOLD REDEMPTION. Mr. Eckels. I think you would find this: As against their notes of issue the banks Avould, from their knowledge of the usual amount of current redemption, maintain the necessary amount of gold for the redemption of tliose notes. Just as a bank is now able to know how much of a reserve it is necessary to have in bank as against its dei)osits. Every prudently conducted bank would be com[>ell('(l for self-protection to maintain a proper reserve, and the notes issued by the bank would FINANCIAL AND BANKING SITUATION. 241 be redeemed, and they would not be issued, as in the present case, unless there was a demand for them. Mr. Spalding. That would contract the currency? Mr. Eckels. The banks would contract the currency whenever nec- essary, and they would enlarge it when necessary. It is a great mis- take to think that it is a possible thing tor banks to prosper by CKELS, Yes. I think this, Mr. Cox, that if in connection with your suggestion there was a law upon the statute books that these demand obligations of the (xovernment could be used as a basis of banking and that when a bank went out of the system the Government should redeem and permanently cancel them, or when there was a reduction of the circulation of the banks that so much of the demand obligations held by that bank as were affected by the reduction could be i):iid and canceled, the difficulty on the score mentioned by you would be obviated. ^Ir. C(ix. Of course, the idea is to prevent them from getting back again and going into the Treasury. That is the object. Mr. Eckels. That I sui)i)ose would be a practical thing, but it is already an admission that the further maintenance of these issues is a wrong thing. Mr, Cox. 1 must say, with due respect, I can not see any difference in banking on the promise of the Government to pay in the shape of greenbacks and the promise of the Government to pay in the shape of bonds. Mr. Eckels. Except this, a Government bond runs for a definite period of time, payable at su(;h a tiuje, while under the existing law the legal-tender note is a continuing obligation which is never permanently redeemed and canceled. Mr. Cox. That is true, but it is assumed the bonds will be paid, and that you have then got nothing upon which to base your circulation. BONDS AS A BASIS FOR CIRCULATINCr NOTES. Mr. JouNSON. What is your opinion of the bond security under the present national banking law f Do you think it ought to be perpetuated in any new system of banking and currency which may be devised, and if not, what Avould you suggest for a substitute which would give a safe circulating note? Mr. Eckels. I think as a correct, scientific banking principle the issuing of bank notes against bonded securities is erroneous. Anything which makes the volume of circulation depend upon reasons other than the needs of business, and which regulates it in any other wise than through the daily needs of business and commerce, is not a true bank- ing i)rincii)le. Ml-. Cooke. Does not the element of good security come in there, of necessity? M]-. Eckels. Of course there is that, but in all the bills which have been given me the fact is recognized that the people of this country are used iu)w onlv to bank notes issued against securities. Mr. ^^'alker's bill, Mr. JlilFs bill, Mr. Cox's bill The Chairman. Mine provides a guaranty of the Government. Mr. LIiLL. 1 have an optional feature in the last bill presented. bank notes issued against CREDIT. Mr. Eckels. Some of the bills have introduced both the element of note issues against security and that of note issues against credits. I FINANCIAL AND BANKING SITUATION. 243 tbiiik that as a practical feature of any banking- law wliicli is to be pre- sented to Congress you will have to recognize certain conditions and habits of mind which prevail in this country. Tliese conditions will have to be observed in order to make any bill accei)ted by the public and the bank notes issued by virtue of it given complete contidence. The majority of men in business now do not know anything about a bank note in this country except as it is a secured bank note. There- fore I think at the outset there will have to be maintained securities against the largest portion of the issue of notes or else a (iovernment guaranty as good as a bonded security. And then, in adtlition to this, for the])urpose of giving ])lay towhat is termed the necessary elasticity of the currency, there could be very properly issued a certain i)ercentage of notes, regulated by a tax, against tlie credit of the bank. Mr. Johnson. Over and above the amount of security? Mr. Eckels. Yes; over and above the amount of security. Mr. McCleary. An emergency feature? Mr. Eckels. It might be taken out at any time the banks would be willing to pay tbe tax. Mr. FowLEK. Is it not true, as years come and go, that such notes would normally and naturally be needed for all the more sparsely occu- pied regions of the country and might not at all be needed where there is a large amount of money deposited" BANKS ARE CONDUCTED FOR PROFIT. Mr. Eckels. In preparing any banking bill I think as a practical thing it must be considered whether or no it will be generally adopted. It would be difficult to have it successful if it is not acceptable to the banking interests which it is ])roposed shall go into the system. There is, of course, much talk about the prejudice of the people against banks and against banking interests, but the fact is the business of this coun- try is conducted through its banks. These banks are not institutions conducted in whole or in part for pliilanthropic purposes any more than any other business enterprises. The men who go into the banking business go into it because there is for them a margin of profit in it, and they go out of it whenever there is no margin of profit, just as a man goes into the grocery business when there is profit in so doing, and goes out of it when there is no profit. Mr. Black. I would like to ask this question: As I understand it, in your opinion the impairment of the Government's credit during these periods of agitation has contributed more than any other one cause to the present condition? Mr. Eckels. Yes; that, in my view, has been the cause which has brought to a head all these other things. Mr. Black. How does that consist with the fact that whenever the Government has offered its obligations they have been disposed of at very good rates? Is the Government's credit very seriously impaired? Mr. Eckels. In the mind of the general public, especially people who are dealing with us abroad, there was seriously a doubt as to whether the Government could maintain the indefinitely repeated ])ayment of gold for its demand obligations. Mr. Black. Has there ever been a period when those people hesitated to take the Government obligations at reasonable rates ? Mr. Eckels. Oh, no. I think the people generally have been willing to accept the bonded obligations of the Government because they ran for a definite period of time. There is a great difference as to whether the Government twenty years from now can put itself in condition 244 FINANCIAL AND BANKING SITUATION. Mr. Cooke. There is another elenieut — they pay an income! Mr. Eckels (continuing). To meet the bonds payable at that time and whether itcau to-morrow, with sl()(),()00,()0() of oold in the Treasury, redeem more than $480,000,000 of demand obhgatioiis if they were all presented. This dillerence is accentuated by the knowledge that the payment of a bond means payment and cancellation, while the payment of a demand obligation of the Government under the law means but the necessary preparation to start it out again to be returned for repay- ment, and so on indefinitely. Mr. Black. You make a distinction between demand and bond obli- gations? Mr. Eckels. As affecting the credit of the Government, yes. SILVER REDEEMABLE IN GOLD. Mr. Black. After you had retired the greenbacks, would you make the silver we now have — I am not speaking now of any further coinage of silver, but would you make the silver we now have redeemable in gold? Mr. Eckels. I do not see how the Government could do anything different as long as it declares through legislative enactment it is the policy of the Government to maintain the i)arity of the two metals. Mr. Black. Then you would make the silver they now have redeem- able in gold ? Mr. Eckels. I think it is incumbent upon our Government to main- tain the parity of the two metals. Mr. Cooke. If the impairment of the confidence of the country and of the world in our currency brought about or started the working of this endless chain, why did not that occur during the fourteen years from 1878 on, when we were buying this enormous quantity of silver? Mr. Eckels. For the simple reason, Mr. Cooke, that at that time there were but $346,000,000 of demand obligations of the (xovernment which in the public mind were redeemable ui)on demand in gold, while by 1893 there had been added $152,000,000 more, without any increase in the means or improvements in methods of meeting the increased liabilities. Mr. Cooke. Your idea is that there was a culmination of the condi- tions which is api)licable to it? Mr. Johnson. And the act of 1890 had been passed. Mr. Eckels. Y'es; but it is known that from the passage of the Bland- Allison act there had been more or less discussion of the ability of the Government to maintain itself and to maintain its silver at a parity with gold. Mr. FowLKR. The terms of that act did not provide they should be redeemed in coin. Mr. Johnson. The gold in the Treasury fell off perceptibly after the passage of the act of 18!)0 ; that is, receipts of gold for duties on imports? HOARDING GOLD. Mr. Eckels. For the reason, among other things, that people pre- ferred to hold or hoard their gold. Mr. Cooke. Why did they ])refer that? Mr. Eckels. For the sim])le reason that they knew if they had a gold dollar it was a gold dollar, and if tliey had a paper demand for a dollar in coin they did not know, in the lirst instance, whetlier the Government would have the gold with which to redeem it, and iu the FINANCIAL AND BANKING SITUATION. 245 second instance they did not know but that it might be redeeined in silver worth, without a gold support, but 50 cents. , Mr. Johnson. The demand for the redemption of notes by the Treas- ury commenced during the last year and a half of Mr. Harrison's Administration, did it not? Mr. Eckels. It commenced immediately after the passage of the Sheinian silver act. But, Mr. Chairman, the fact is, when that bill was under discussion there was not a prominent financier in luirope and scarcely one in this country who did not discuss the question and point out how disastrous the outcome would be. Some of the foreign corre- spondents, particularly one of the German correspondents for one of the leading papers in Berlin, pointed out to a certainty the thing which actually came to pass, namely, that within three years the law would so work as to produce a fall in the price of silver, an impairment of American credit, and a widespread panic. The actual fact is that at the time of the contract with the syndicate for a bond issue — a b!6(),000,0(H) above its normal reserve. Is it not a fact that S6(>,0()(),()00 is in legal tenders, Treasury notes, silver certificates, and that nothing can be done with it, there is no place to send them, but they must keep them in their banks? That is true, is it not? Mr. Eckels. Yes. The Chairman. Now, if every dollar of currency was issued by the banks themselves, that accumulation never would occur, because the currency would have been sent back to the banks issuing it? FINANCIAL AND BANKING SITUATION. 255 Mr. Eckels. There is no (jueslion as to that. The Chairman. So that under our present system there is no machinery by which to send this money back into tlie country where it is needed, because it is issued by the Government, and wherever it drifts there it must stay; whereas if it was issued by the banks, when paid into another bank it would be immediately sent ba(;k to the bank that issued it. Again, does it not follow necessarily that the banks, in order to make a profit on currency, would have to seek out and would seek out for their own self interest persons in their community to whom they could loan it, and who could use it, and thereby make a profit to the bank, Miiich would in fact result in giving very nuich larger facili- ties to secure loans in the neighborhood where the bank was located, because they are obliged to loan to people to make money on their cur- rency, where they denied them under the circumstances suggested by Mr. Fowler. CONGESTION OF CXTRRENCY IN NEW YORK. Mr. Eckels. I think that the banks would do so, but a distinction, too, must be drawn. These large sums of which complaint is made go to Kew York City, not because of the legal tenders themselves, and not wholly because of the present banking system. In some measure the fact that the Government furnishes the facilities for redemi3tion of the legal-tender issues at New York adds to the drift of those issues there; but the great cause of congestion is in the lack of banking facilities elsewhere through which money could be used more profitably than in Xew Y'ork or other commercial centers. Under the present banking law, unamended, many communities can not have the benefit of banks, and not having them can not obtain needed money and credit. The Chairman. Is it not a fact that the 860,000,000 of currency lying in these banks, of which I have spoken, is because they can not success- fully loan it f Mr. Eckels. They can not loan it successfully now because of the general condition of the times, and at all times they are more or less embarrassed to keep it in active use. The Chairman. Then if we had this old Xew England Sutfolk system of issuing and redemption of this currency by banks, the volume of currency paid into banks wouhl not deplete the power to loan by these banks. They would send it back to the country banks and it would be disposed of. Mr, Eckels. Yes. I am agreeing with you as to the bank issuing the notes — that if they do issue the notes undoubtedly they would see to it that there was not an accumulation. Mr. Johnson. Here is a i)oint I want to make. If a banking and currency system can be devised whereby the issue of notes is less expensive than under the existing system, whereby the profit of the banks on the issue of notes is greater than it is under the existing sys- tem, will it not increase the probability that banks will be established in these agTicultural sections? Mr, Eckels, I think that is undoubtedly true, ' Mr. Johnson. I believe that there is a very just grievance upon the part of those living in these sections, when they say that they can not get money to meet either ordinary or extraordinary exchanges without much trouble i«id without paying exceedingly high rates of interest? Mr. Eckels. There are many such communities guttering from the inconvenience you have stated. The remedy is, wherever any remedy is possible and conditions warrant the undertaking, to establish banks, 256 FINANCIAL AND BANKING SITUATION. either iudependeut banks or braiujli banks. These banks would rapidly increase if it was proven that there was a margin of profit in them. Mr. Johnson. And the more the expense the less the margin of profit ? Mr. Eckels. Yes. 2^ot the least benefit which would follow would be that throug'h the establishment of these banks these communities have been afforded the means of bringing to the attention of the own- ers of loanable capital elsewhere that they have the things which justly entitles them to credit — facilities which they have not at the present time. In a great number of instances at present I have no doubt the want of these facilities, more than any other reason, keeps people who are justly entitled to credit from obtaining it. Mr. Kewlaxds. Will you permit me — I just want to make an inquiry for the purpose of expediting business. At a convenient time I would like to ask Mr. Eckels a few questions, and now I want to know whether we are to go on with the hearing this afternoon or adjourn until to-mor- row. I presume Mr. Eckels wants to get back to the office at some time. The Chairman. That is for the committee to determine. Mr. E(-KELS. I must leave some time during the afternoon, as my deputy is absent and I must attend to some duties at my office. The Chairman. Until what hour! Can we go on this afternoon? Mr. Eckels. Until 3 o'clock. Mr. i^EWLANDS. I ask that the j3ommittee adjourn until half past 1 o'clock and then resume. The Chairman. 1 think we had better proceed a little further. ]Mr. jSTewlands, Then I make the motion that we adjourn at 1 o'clock until half-past 1. I think some of the committee Avish to go into the House during the morning hour. Mr. Fowler. I second that motion. The question was put and the motion was agreed to. call deposits counted as RliSERVE. Mr. Spalding. Is not the congestion in ]N^ew York City caused largely by the fact they pay interest on call deposits of the banks of the inte- rior, and at the same time they are allowed to count that as their reserve; and is that not one of the causes of congestion? Mr. Eckels. Yes. Interest on deposits undoubtedly attracts much money there which is counted as a part of tlie banks' recpiired reserves. Much of it, however, goes there because the owners have no means of knowing where else to invest it. Mr. Spalding. It is counted as the reserves of the banks in the inte- rior and out West, and it is kept on call, and they pay l.\ to 2.] ])er cent? Mr. Xewlands. And in that way the Western banks utilize the reserve and get interest on it. Mr. Eckels. In connection with this, if we regulate or attempt to regulate the matter by not ])ermitting them to count that as a i^art of their reserve, they would not have any more loanable capital at home, because they have still to carry tlieir reserve, which could not be loaned. Mr. Spalding. I am not combating it, I am simply stating that as one of the factors. Mr. Newlands. Do you propose that bank currency shall be legal tender? Mr. Eckels. No; I would not make bank currency legal tender. Mr. Newlands. Suppose a depositor deposits moiu\v with such a bank and takes a certilicate of dei)osit, and then demands payment of his certificate iu legal tender, could the bank pay him with this currency? FINANCIAL AND BANKING SITUATION. 257 Mr. Eckels. It could pay in this currency, and the currency would be redeemable in gold. Mr. Newlands. That deposit calls for dollars, does it not? Mr. Eckels. Yes. Mr. Newlands. If he demands payment of gold or legal-tender money, would not he be entitled to it? Mr. Eckels. Yes; and he would undoubtedly get it, because no bank would ])ermit itself to lose its credit. The competition between banks and the necessity of self-preservation through a maintenance of credit would regulate that. Mr. Newlands. The bank could not legally compel liini to accept this currency in payment of a certificate of deposit? Mr. Eckels. I do not believe much in legal tenders, anyway. Mr. Newlands. Suppose the bank loans out its money upon the promissory note of its customer payable in dollars, would that customer pay bank notes in discharge of that note? Mr. Eckels. No; I think he would have to go to the bank and get his notes redeemed. Mr. Newlands. No; be would have to tender legal-tender money? Mr. Eckels. Yes. Mr. Newlands. And the function, I understand, of this bank cur- rency is that it would be practically simply a bank check payable to bearer to circulate in a community ? Mr. Eckels. Say a proniissory note on the part of the bank redeem- able in gold. Mr. Newlands. Now, to what extent do you expect when green- banks are retired bank currency will be issued in this country; how many millions? Mr. Eckels. I think it would be issued to the extent that there was a demand for it. Every dollar which could possibly be used profitably by the people would be issued by the banks, because in this way only would a profit on note issues accrue to those who are engaged in the banking business. Mr. Newlands. In jour opinion, would the aggregate issue of the banks equal the aggregate issue of the Ignited States bi?uks and United States Government in the shape of greenbacks to-day ? PRESENT REDUNDANCY OF CURRENCY. Mr. Eckels. Probably not. I think to-day there is a great redun- dancy of currency, but if needed it would be issued. Mr. Newlands. I understand the issue of greenbacks to-day is approximately 8300,000,000? Mr. Eckels. $340,000,000. Mr. Newlands. And of the national banks about $200,000,000? Mr. Eckels. More than that; about $235,000,000 now. Mr. Newlands. JMaking in all about $550,000,000. Your idea is that under this new system of national-bank currency that extent would not be issued, but it could be issued if it was needed ? Mr. Eckels. Yes, if needed. I have no doubt, however, but that a great deal of gold would come in, which would lessen the necessity of bank notes. uncovered paper money. Mr. Newlands. Do you know of any country in the world that suj)- ports so large an amount of bank i)aper redeemable in gold and main- tains it at par with gold ? cur 17 258 FINANCIAL AND BANKING SITUATION. Mr. Eckels. Yes; I think the issue of the Bank of France is almost as large. Mr. JSTewlands. Uncovered i)aper money ? Mr. Eckels. Oh, no; not uncovered. Mr. Newlands. What is the total amount of uncovered issue of the Bank of France ? Mr. Eckels. I could not say definitely as to that. In England it is about £16,000,000. Mr. Newlands. About $80,000,000. And what is it in (xermany? Mr. Eckels. I do not know certainly, but about $00,000,000. It may be larger. Mr. Newlands. Do you know how large it is in France? Mr. Eckels. No, I could not state positively. Mr. Fowler. I would like to understand what you mean by covered and uncovered currency? Mr. Eckels. Covered paper is the paper which has the actual coin, behind it for its redemption — a special deposit. Mr. Fowler. For its security! Mr. Newlands. I would not call money covered money that is simply secured by bonds, or assets, or anything else. Mr. Fowler. Do you not know there is not a dollar of the Imijerial Bank of Germany that is not secured? Mr. Newlands. I was asking with regard to that. Mr. Eckels. 1 think at times, Mr. Fowler, notes are issued by the Imperial Bank regulated by a tax Mr. Fowler. And not covered by a single dollar, coin or collateral? Mr. Newlands. I observe in the report of the Director of the Mint thatthe uncovered paper money of England is ])ut at about $80,000,000 — that accords with your statement; that the uncovered paper money of Germany amounts to about $125,000,000, I can not recollect the exact amount; and the uncovered paper money of France and the Bank of France amounts to less than $125,000,000. Now, is the report of the Director of the Mint correct in that statement? Have you ever examined it? Mr. Eckels. Yes, I suppose it is. He makes up those figures. Mr. Newlands. Do you know any other countries that are able to maintain their paper money at par with gold outside of such small countries as Belgium, Holland, and possibly Switzerland? The Chairman. Do you know what portion of the money is covered by gold and silver in France? Mr. Eckels. No, I do not. Mr. Newlands. Russia, the Director of the "Shut states, has about $500,000,000 uncovered i)aper money. Do you know whether or not- it is kept at par with gold? Mr. Eckels. No, I think it is not at i)resent. Mr. Newlands. How nnich of a discount? Mr. Eckels. Well, 1 do not know just the exact figures. Mr. SpAldinc. About 50 ])er cent compared with gold. Mr. Newlands. Austria has something less than $200,000,000 of uncovered i)aper money, according- to the Mint Director's report. Is that money kept at a i)ar with gold? Mr. Eckels. No, there is a discount now, as I remember. Mr. Newlands. Do you know how heavy a discount? Mr. Eckels. No. Mr. Newlands. Italy, according to the Mint Director's report, has quite a large amount of uiK'overed ])ai)cr money. Do you know whether or not that is kejit at a par with gold? FINANCIAL AND BANKING SITUATION. 259 Mr. Eckels. No. Mr. Newland.s. Do you know what the discount is? Mr. Eckels. No, I do not. Mr. Newlands. Do you know what amount of uncovered paper money Spain has? Mr. Eckels. No; but there is a considerable amount. Mr. Newlands. Is that kept at a par with gold"^ Mr. Eckels. No. Mr. Newlands. Do you know what tlie discount is? Mr. Eckels. No. Mr. Newlands. I have not tlie Mint Director's report before me; if the secretary will kindly get me the copy of tlie Director's report— — Mr. McCleary. I have a table of the statements here. Mr. Newlands. Will you be kind enough to let me have that? Mr. McCleary. This is not the report of the Director of the Mint. Mr. Newlands. I will state to you that the report of the Director of the Mint states that the uncovered paper money of the United States is $416,000,000, of the United Kingdom $113,000,000, of France $32,000,000, of Germany $(iO,000,000, of Italy $191,000,000, of Greece $22,000,000, of Spain $83,000,000, of Portugal $5r),000,0()0, and of Russia $539,000,000. Now, I wish to ask you whether in the case of Kussia, Italy, Spain, Por- tugal, or Austria, whose uncovered paper money is put at $200,000,000, if that unco\'ered paper money is Icept at a par with gold? Mr. Eckels. No; I take it, it is not. Mr. Newlands. Is there a heavy discount in all of them? Mr. Eckels. Yes. Mr. Newlands. Now, this statement also shows that the South American States have $550,000,000 of uncovered paper money. Is any of that kept at a par with gold '! Mr. Eckels. I do not know what the conditions are in Chile now, nor in Brazil, but undoubtedly in all of those countries there is possibly a falling off. Mr. Newlands. Is there any debtor country which keeps its uncov- ered paper money at a par with gold? Mr. Eckels. No; I think not, except the United States. Mr. Newlands. Can you point out to me a single debtor nation in the world, that is to say, a debtor in its relation to other nations as people bear to other people the relation of debtors, where uncovered paper money exists, where they have been able to keep that paper money at a par with gold ? Mr. Eckels. Not where the government has issued it, but they have where the banks have issued it. Mr. Newlands. In what countries? Mr. Eckels. In the United States, until the war, banks properly conducted, such as the bank of which Mr. McCulloch, of Indiana, was president, and other banks always maintained redemption in gold. The banks in the Suffolk system did the same thing. Mr. Newlands. I am limiting my inquiry to the present time. Can you point out a single debtor country DEBTOR NATIONS. The Chairman. I want to ask Mr. Eckels whether as a matter of fact there is any such thing as a debtor nation? There is no debtor nation or creditor nation. Mr. Eckels. I suppose where you speak of a debtor nation you speak of the financial condition of the aggregate of individuals. 260 FINANCIAL AND BANKING SITUATION. Mr. Kewlands. I liave limited my inquiry to the present condition. Can you point out to me a single debtor country to-day which has uncovered paper money issued either by banking power or government power that keeps that money at a par with gold except the United States? Mr. Eckels. No, but there is not a nation at the present day that has a banking system which makes so much of bank deposits as is made in this country and has as good and stable banks, but is able to maintain a parity between gold and the paper issued by such banks. Mr. Newlanus. You maintain that such countries could maintain it, but you do not insist that in any country you know of it does maintain it"? Mr. Eckels. The United States. Mr. Newlands. [ excepted the United States. Do you know any country besides the United States'? Mr. Eckels. Except Great Britain. Mr. Newlands. I am talking about a debtor country, Mr. Eckels. I thiuk that is so. All of those countries, Mr. New- lands, are populated with i^eoples who are not to be compared, and are countries whose resources are not to be compared, with those of this country. Furthermore, and the point is an important one, all of these people are wanting in banking facilities as we have them. You can not make a fair comparison or arrive at a correct conclusion in this thing unless all conditions are of the same character and equally favorable. Mr. Newlands. (Jan you point out a single debtor country where bank issues of uncovered paper mone}^ are kept at a par ^^ith gold, except in the United States"? Mr. Eckels. No, I do not know that I can. However, if the banks of the United States can so maintain their note issues, it is sufficient for this inquiry. The proposed bank legislation is for the United States alone, and is to be based upon conditions which the experience of this people demonstrate they can perform. Mr. Newlands. We have maintained the parity of our uncovered paper money with gold thus far! Mr. Eckels. Yes. Mr. Newlands. The strain of that maintenance has only come upon us in the past three or four years? Mr. Eckels. Well, of course we have only undertaken to do it since 1879. Mr. Newlands. But I am saying the strain, the final strain, has been during the past three or four years? Mr. Eckels. Up to that time the banks furnished the gold. They thus relieved the Treasury, and no one appreciated the danger who did not look ahead, until the |)oint was reached when the banks shifted the burden to the (jroverninent, where, under the system maintained, it belongs. The banks only did this when it became evident that any other course invited danger to their creditors and themselves. RECENT BOND ISSUES. Mr. Newlands. During those three years we have issued 1204,000,000 of bonds. How much of that ^-'(MiOOOjOOO of bonds was necessary to take the idace of the deficit in the Treasury, and how much was neces- sary for gold redemption? Mr. Eckels. Tiiat you will have to find out from tlie rejwrt of the Secretary of the Treasury. The fact is, that not a single dollar of it FINANCIAL AND I'.ANKING SITUATION. 261 could liave been issued if it liud not been for the law applicable to tlie maintenance of tlie f^old reserve required to redeem the (xoverment's currency issues. Mr. Newlands. 1 understand tliat, but I am speaking now of the facts. BOND8 SOLD TO MEET CURRENT EXPENSES. IVfr. Eckels. tJndoubtedly, Mr. Xewlauds, more or less of it was ultimately used to meet the current expenses of the Government, but the Secretary has always, and correctly, maintained that in only one instance would it have been necessary to issue bonds to meet the ex])eiises of the Goverument. In all the others the bond issues were made absolutely necessary for the purpose of maintaining the parity of the two metals as called for under the act of Congress. Mr. Newlands. Understand me, 1 do not make the inquiry for the purpose of criticising Mr. Eckels. I understand that. Mr. is^EWLANDS. — the Treasury Department in the employment of any of this fund to meet a deficit of revenue. I simjjly want to draw a dividing line and ascertain how nmch of this issue was necessary to make up a deficit and how much for gold redemi)tion of greenbacks. Can you state that approximately? Mr. Eckels. No, 1 can not. Mr. Spalding. About $200,000,000 up to the present time. The Chairman. Was there a time in the last three years when there was not a sufficiency of money in the Treasury to have met the demands if it had not been for the desire to maintain the parity ? Mr. Eckels. I think, except in one instance, that the Secretary stated it was necessary. Mr. Newlands. Then, in your judgment, the issue of these bonds was quite necessary to maintain the parity of the paper issued in gold. Mr. Eckels. Absolutely. The Chairman. The hour of 1 o'clock has now arrived and the com- mittee will take a recess until half past 1. after recess. The committee reassembled at 1.30 p, m, STRAIN OF maintaining PAPER AT A PARITY. The Chairman (to Mr. Eckels). Mr. Newlands said that the strain upon us in maintaining our paper money at par with gold has come ujjon us within the last three years, and you answered that that was true. I want to ask if the strain has not been upon us from 1879, when we resumed specie payments, and up to the present time, having cul- minated within the last three years, in the fact that the Treasury has carried in its vaults in the neighborhood of $300,000,000 in order to make the country feel satisfied that gold i)ayment was to be main- tained — carried it either in currency or gold, about half in gold. Mr. Eckels. Yes, it has. Before Mr. jSTewlauds came in I think I had stated why this condition had only come upon us within the three years. I alleged as a reason, the efiect of the Bland- Allison Act, which became more manifest with time. Then as a culmination to it all, came the Sherman silver-purchasing act, whereby there was increased the demand obligations of the Government without any corresponding increase in the gold reserve to be held as a redemption fund against the same, and without giving to the Secretary of the Treasury any 262 FINANCIAL AND BANKING SITUATION. means of increasing such gold lioldings. Tlie result of these tilings was that the general public, here, as well as those people abroad deal- ing with us, gained the inii)ressi()n that with the amount of silver and demand obligations wliich we had, and the law as it was, the Secretary of the Treasury could not, with the amount of gold at his disposal, maintain current redein}>tion in that metal, and therefore could not carry out the provision of the statute relative to keeping the parity of the two metals. This was the reason why the banks ceased to furnish the amount of gold necessary to settle international balances, the con- sequent effect of which was that the Treasury was called upon to make these current redemptions, a thing which up to 1890 it had only infre- quently been asked to do. and then only in small amounts. The CiiAiR^iAN. T^p to 1890 the banks had furnished the gold both for paying the duties — very largely, 80 odd i)er cent of them — and for foreign gold ex])ort, by the Government's being a member of the Xew York clearing-house and paying the gold into the clearing-house; so it went into the Treasury and out again without depleting the Treasury. Mr. Eckels. That is one reason. The Chairman. Now, furthermore, isn't it a fact that the taxation of the people was increased in the equivalent of what the money was worth to them that they had to pay in taxation, namely, per cent on this whole 8300,000,000 through that whole period, and that if the Government has to maintain gold payment we have to maintain it at the same expense we maintained it for the ten years, by $17,000,000 a year in increased taxation? Mr. Eckels. The fact was that up to that time the banks furnished all the gold necessary for domestic and foreign purposes without any apparent strain ui)ou tliem. Mr. Newlands. Mr. Eckels, in your opinion, did the shifting of the balance of trade between this country and foreign countries in 1893 and the consequent demand for gold, in order to settle balances, have any- thing to do with increasing the strain of the gold redemption in this countrj'? ]\rr. Eckels. Only to the extent that it made gold a little harder for the Treasury and for the people to get. I intended recurring to the last thing you asked me. You spoke about debtor nations having been unable to carry on the current redemption of their paper issues in gold or to maintain the parity thereof with gold. Why do you draw the dis- tinction in this matter between the debtor nation and the creditor nation? THE SILVER (,»UESTION. Mr. Newlands. You have started the silver question now, and I don't want to go into that. Mr. Eckels. I think you can state it briefly. Mr. Newlanls. 1 will say 1 thiidc a debtor nation is more likely to be called upon ibr international money than a creditor nation is, and that the strain of the redenqttion in gold will be greater upon a debtor nation than a creditor nation; hence I assert that the reason why the creditor nations have l)een able to keep their uncovered paper at par with gold is that they have the advantage of being creditor nations and that the reason why debtor nations have been unable to do so is that they have the disadvantage of being debtor nations, and that con- sequently the demand for the redemi)tion in gold is greater; and I also assume the theory of the bimetallists, that there is not enough gold in the world for gold redemption. FINANCIAL AND BANKING SITUATION. 263 Mr. Eckels. To what extent do you give consideration to the indi- vidual management of the banks and cliaiacter of the banking institu- tions — for instance, in this country or tlie banking institutions of lius- sia, or the countries to which you have alluded f Mr. Xewlands. I sliould make the proper allowance for that. The tendency of my investigation is to show that this idea of almost unlim- ited paper issues means an experiment which has not as yet been suc- cessfully tried by any debtor nation, that is all. UNCOVERED PAPER MONEY OF THE WORLD. I observe by the Mint Director's report that the total amount of uncovered paper money in the world is $2,469,000,000, and of that amount a little over $200,000,000 is issued by creditor nations, so called, leaving about $2,200,000,000 issued by debtor countries; and I believe we have your statement that, so far as your knowledge goes, the United States is the only one of these debtor countries that has been able to keep its uncovered i)aper at par with gold. world's stock OF SILVER AND GOLD. The Director of the Mint also states that the total bulk of silver in the world— the total silver stock— is about $4,000,000,000, and that the total stock of gold in the world is about $4,000,000,000, and that the total stock of paper money is $2,400,000,000, making in all about $10,400,000,000. Now, 1 believe the assumption of the gold standard men is that gold has not appre<;iated ; that it is maintained at a fixed value. If that be true, this stock of silver, whose face value is $4,000,000,000, has depre- ciated to about $2,000,000,000, and we have a total stock of uncovered paper money in the world of about $250,000,000,000, of which only about one- fifth is kept at i)ar with gold, the rest being at a very large dis- count, approximating $1,000,000,000; so that there is a total deprecia- tion in its face value of the Avorld's stock of money of at least $3,000,- 000,000 out of $10,250,000,000. Now, do you think that this dislocation of the par between gold and silver and paper in the world's currency has a bad effect upon trade and upon business? Mr. Eckels. It undoubtedly has some effect, but I think the error of the assumption of the silver people lies in this: You base Mr. Newlands. Pardon me, I did not inteudto go into a silver argu- ment. I simi)ly wish to inquire wliether in your opinion this deprecia- tion of $2,000,000,000 in silver and $1,000,000,000 paper has had any disastrous effect upon the trade of the world? Mr. Eckels. Undoubtedly it has affected the trade of the world somewhat but I think it has not been what you term disastrous, at all. MAINTAININa THE PAR OF EXCHANGE. Mr. Newlands. Yes. Then we have in this country gold, silver, and paper. The effort of this country has been to maintain the par of exchange between those three classes of money. Do you think that it is desirable that the par of exchange .should be maintained? Mr. Eckels. Yes; I think every country ought to maintain all the money which circula>tes in that country at par. Mr. Newlands. With gold ? Mr. Eckels. Yes. But I do not think it ought to get itself into a position where it must be at a continual expense to maintain one 264 FINANCIAL AND BANKING SITUATION. form of money at a parity with the other and that it onght to lop off those moneys which can not sui)port themselves. Mr, Xewlam)S. Your idea, then, is that it is desirable that we should maintain the par of exchange in this countrj^ between our various forms of money, and if that proves expensive then we should lop oft' depre- ciated forms of money? Mr. Eckels. Yes. Mr. Newlands. That would mean getting' rid of silver in this coun- try as a prinuiry money, and it would also, in your judgment, mean getting- rid of paper money, unless its par could be maintained Avith the gold, Mr. Eckels. Yes, it has always been redeemed, on demand, in gold. Mr. Kewlands. Suppose you could not maintain that parity in this country; in your judgment, wouhl it be disastrous to the business of the country ? Mr. Eckels, Undoubtedly it would, Mr. iSTEWLANDS. If that be true isn't it just as important to maintain the par of exchange in international moneys — the moneys of the world? GOLD THE RECOGNIZED STANDARD. Mr. Eckels. Yes, it is important to have it maintained at a par in the countries with which we are dealing, and in all these countries with which we are dealing the recognized standard is the gold standard. Mr, Newlands. But taking the world-wide view, is it your opinion that it is important to maintain the par of exchange between the dif- ferent kinds of money throughout the Avorld? Mr. Eckels. 1 think it would be a very good thing if it could be done. Mr. Newlands. Now, if it could not be done; we will assume that we have the standard, with a par of exchange, twenty years ago, and we will assume that in the process of years, as has been the case, the silver has depreciated as compared with gold, and the uncovered paper money of the world has depreciated as com^jared with gold, and assum- ing that caused, as you think it would cause, a dislocation of the busi- ness of the world and disaster; upon whom would the disaster fall, ui)on the countries that had the depreciated currency or upon the countries which according to your judgment had the stable currency — gold ? Mr. Eckels. Well, I would think it would affect both, Mr. Newlands. You think it would affect both? Mr. Eckels. Yes. Mr. Newlands. What particular disadvantage would it create as to the countries that had the depreciated currency? Mr. Eckels. To change the standard? Mr. Newlands. Yes. Mr. Eckels. For instance, in this country I think that the loss occurring by the change necessarily made in contracts would be far greater to our own people from siujply their domestic exchanges than it would with those who are dealing with us abroad. Mr. Nea\ lands. What efi'ect would it have upon production and upon labor, in your judgment? LABOR WOULD SUFFER MOST OF ALL, Mr. Eckeis. I think that labor would suffer quite the most of all. Mr. Newlands, Your idea is that labor would l)e cheai)ene(l, alth(mgh nominally paid in the same lace value; that the money would have less purchasing power ? FINANCIAL AND BANKING SITUATION. 265 Mr. Eckels. I think tliis: The only capitiil Miiich tlie laborer has is his ability to work, which capital he sells ibr money. For his own good he ought to sell it for that money which buys for him the largest num- ber of things. It therefore follows that if you lessen the value of that money you lessen the number of things which he can purchase with his capital, which is labor. Mr. I^BWLANDS, In other words, you chea])en his labor? INIr. Eckels. Yes; you cheapen his labor without incaeasing the price of it. On the other hand, you increase the price of the things which he has to ])urcha8e. The laborer occupies a very dittererit position in the thing Avhich he has to sell from the man who has mercliandise to sell. Consequently anything which tends to raise the price of that which he has to purchase without increasing the receipts from that which he has to sell injuriously affects him. Mr, Newlands. I understand then, that in your judgment that would apply to all these countries which have a dei^reciated money — either silver or paper. Mr. Eckels. I think in the end that they would be very much more largely the sufferers than the people who maintained the gold standard. Mr. Newlands, It has the tendency in these countries to really cheapen their labor, hasn't it? Mr. Eckels. Yes, because it does not give them an increased price for their labor, and it does increase the prices of the things which they have to buy. Mr. Newlands. Very well, then. Take these countries which have either silver or depreciated paper, and whose labor is cheai^ened, accord- ing to your statement, by that fact. Mr Eckels. There are other elements, of course, that contribute Mr. Newlands. Does it then enable them to produce both agricul- tural products and manufactured products at a less labor cost, all other things being equal? Mr. Eckels. Apparently, in the aggregate they do, but the way to estimate properly a labor cost is, not to say that this man who is work- ing on this thing receives so much a day, but it is to take how much he receives a day and then estimate the labor cost by dividing the daily wage by the number of things he manufactures or makes a day. In this manner you are able to ascertain correctly the individual cost of the individual article. It is wholly inaccurate to compare simply the total dollars received and not take into account the results obtained from the expenditure of those dollars in every country between which comparisons are being made. Mr. Newlands. You mean efiticient labor has a great deal to do with it? Mr. Eckels. Yes; very much. Mr. Ne\vlands. But I covered all that by saying "all other things being equal" — appliances for manufacturing, the machinery, everj^thiug that human intelligence can ])roduce to aid human labor. I ask you, if the labor unit cost less i)er day by reason of the depreciated money, whether the products of that country do not have a certain advantage in the markets of the world over the products of the country that has the currency that is stable, according to your judgment — gold. Mr. Eckels. Undoubtedly any country which has the lowest wages possible but has all the advantages in the way of advancement, in machinery, skill, education, etc., has the advantage over another coun- try which though having the same advantages still pays higher wages, but you must entirely (;liange the condition of the people of these coun- tries, their habits of work, their habits of thought, and their habits of 266 FINANCIAL AND BANKING SITUATION. living. It is imi)0ssible to make out of these people the same thing that you can make out of the Anglo-Saxon people. ^Ir. Xewlands. Then you think the superiority is in race and not in money standard? Mr. Eckels. I think that is a very large contributing element. The superiority of race manifests itself in having in countries akin to us the best things in daily convenience, the best things in manufacture of which the world knows, and the reason we maintain here the highest standard of monetary value is because it best answers the purpose of the highest civilization as expressed in its commercial necessities. THE SILVER QUESTION. The Chairman. There are certain things in reference to the financial question that properly come before this committee; there are certain things in relation to coinage that properly come before the Committee on Coinage, Weights, and Measures. This committee is willing to hear views with reference to the bills in question that are now before this committee, but I do not think it is willing to go into a discussion of the silver question. I do not think this is the proper committee for that discussion. Mr. New^lands. I do not intend to go into the silver question at all. I am addressing myself to the importance of maintaining the par of exchange. We have Mr. Eckels's view that we ought to maintain the par of exchange between silver, paper, and gold in this country. If the countries that have a depreciated currency have a cheaper labor as the result of it, all other things being equal, will not the prod- ucts of their labor, in the world's markets, assuming that they are of e(iual quality, pull down the value of the product of the gold-standard countries to their level in the markets of the world? WRONG PREMISES. Mr. Eckels. Yes; but the great difficulty, Mr. Newlands, with your question is that you make an assumjition of something as a fact which is not a fact. Mr. Newlands. I quite agree with the gentleman as to the absolute im])ortance of maintaining the par of exchange between our various moneys in this country. I also insist that as this country is a part of tlie general world and as its prosperity depends largely upon the ques- tion of exports and imports, that it is of the highest importance that the par of exchange be maintained in the world's money. Mr. Eckels. It is so maintained, is it not"? Mr. ^'ewlands. No; because since 1873 the par of exchange has l)een absolutely lost between silver and gold and the result has been that the silver countries have been able to produce cheaper. Conse- quently their agricultural production has been stimulated at our expense and their manufacturing production is about to be stimulated at our expense; and hence I say that all legislation should be addressed to the question of restoring the par of exchange in the world's money. The Chairman. 1 think this committee has no Jurisdiction over that question. Now, I ask the committee whether they want to go further with this iTivestigation of silver or not. Mr. Newlands. I have about come to the end of that. Mr. Eckels. I do not tliink you can assume any one thing as the cause of these conditions of various countries being different now from FINANCIAL AND BANKING SITUATION. 267 what tliey were. You can not say, for instance, that because Argentina happens to be a silver country that therefore Lirge amounts of wheat have been i^roduced in Argentina to comijete with our wlieat in Dakota. There is no one single element which produces these conditions, but a great many. Mr. Xewlands. I agree with you — a great many. FUNCTION OF METALLIC :\rONEY. Mr. Eckels. And I think that the refinements of banking exchanges which have gone on through a jirocess of evolution from first to the last have necessarily limited the use of metallic money, and that metal- lic money is now only in demand for the purpose of reserves in banks and for the purpose of settling international balances. What is said upon the subject of ultimate redemption of the demand obligations of the nations of the world, or the time obligations so far as it extends to the assumption that there is not enough gold in the world for that pur- pose, is based upon the very erroneous idea that all tliese obligations are to be redeemed at one and the same time. There is no one who wishes redemption of the obligations which he holds for any other pur- pose than to obtain something else, except a miser who desires to hoard his money. The Chairman. Something else that can not be obtained by any other thing. GOLD SUPPLY AMPLE. Mr. Eckels. But the amount of gold needed for the current obliga- tions of any people is to be estimated in the same way that the amount of reserve to be held against the deposits of a bank is estimated. Nobody expects the depositors of a banking company to come in and demand all their deposits at the same date. Bankers can estimate from time to time their needed reserves just as a man estimates who is con- ducting a grocery, or any other business, how much he will need to meet the current wants of his customers. To my mind it is just as erroneous to say on the grounds stated that there is not enough gold in the world to meet the outstanding obligations of the people as to say that everybody will want the same article of food on the same day and the supply is inadequate. For instance, the national banks in this country showed at their last call that they had nearly $2,000,()()0,000 in individual and other deposits and only had in bank $381,000,000 of lawful money reserve. ]!^ow, that !^381,000,000 is more than suflicient to meet any demand that might be made upon the part of depositors, as estimated by the action of depositors at previous times, and upon the same i)rinciple if to-day there is in this country or elsewhere the percentage of gold necessary for current redemption, the amount to be ascertained in the same way that bank reserves necessarily are ascertained, there would be sufficient amount to meet all demands. If there should be a sudden demand for a larger amount the bank has facility for getting that amount from the places where there is a surplus, because the banks have the kinds of assets which are convertible and which are desired by thei)eoi)le who have a loanable capital, and they have the machinery for the immediate conversion of them. It is just as it was when the Baring failure occurred. It was not difficult for the Bank of England to get from the Bank of France, which had a large surplus, all the necessary gold it desired. 268 FINANCIAL AND BANKING SITUATION. The CiiAiKMAN. Mr. Fowler has to go. Please let him ask one question, which he very much desires to ask. BANK OF FRANCE. Mr. Fowler. I want to explain away another assumption that has been made by Mr. Newlauds. The assumption is this: The argument has been repeated here that the Imi^erial Bank of Germany and the Bank of France issued their notes under cover. As a matter of fact, there is not one single dollar set aside by the Imperial Bank of Germany for the secnritv of a single note, and although the issue power of the Bank of France is 4,000,000,000 francs, or $800,000,000 of our money, and its outstanding notes are $735,843,041, there is absolutely not one dollar security speciflcally set aside to cover a single one of those notes; that is, the issue of all notes amounts to $735,843,041. The deposits of the people of France, public and i)rivate, with the Bank of France amount to only $11*0,507,705; so that the Bank of France maintains its redemp- tion purely upon a note issue for which there is absolutely not the cover of a single dollar. And in addition to that, the banks of Scotland, the banks of Ireland, and the joint stock banks and inivate banks in England, excluding the Bank of England, have a credit currency of $70,000,000, for not one dol- lar of which is there a single dollar set aside for specific cover. Mr. Newlakds. Are you on the witness stand now? Mr. Fowler. I am, sir. Mr. Newlands. Permit me to ask you one question. The report of the Director of the Mint for 1895, page 40, gives a statement of the uncovered paper money in France and Germany, and it states that the uncovered paper money of France is $32,000,000, and the uncovered paper money of Germany is $65,000,000. Do you claim that that is incorrect 1 Mr. Fowler. I say that statement was technically correct at the time it was made, because the bank itself simply had that in its treas- ury, but there Avas not one single dollar set aside to secure the note issue. It might be the next day they would not have half as much metallic money to secure that as the day the Director of the Mint made that statement? Mr. Newlands. You mean that they did not require it to be covered? Mr. Fowler. That is it, exactly. Mr. Newlands. But do you take issue with the statement made by the Director of the Mint that on the day that that report was made France had out only $32,000,000 and Germany only $00,000,000? Mr. Fowler. I know nothing about the correctness of his statement that day. The r>iink of France might not have had ni)on the same day a single dollar of metal there, excei)ting of its own volition. Mr. Newlands. Assuming that the bank has the power to issue this vast amount of uncovered paper money, it only verifiies the proposi- tion that no safe bank in God's world would ever issue it. If you rely on the banks of this country to furnish the country with paper money your hope of getting sufficient volume of such money will not be real- ized, because no safc^ l)ank will issue Mr. Fowler. Then the P>ank of France is not a safe bank, and its issue of $710,000,000 in i)ai)er money is not safe. Mr. Newlands. Now, to come back to the United States and the question as to whetlier — as 1 understand it — bank currency should be substituted for (xovernment currency. 1 wish to ask, in your judgment, what amount of uncovered paper money is there in this country to-day ? FINANCIAL AND BANKING SITUATION. 269 PAPEU 'MONEY OF THE UNITED STATES. Mr. Eckels. There are $235,000,000 in national-bank notes. Tliere are $346,000,000, technically, of legal-tender notes. There are about $125,000,000, I think, of the Sherman notes. In addition to these are the Bland silver dollars and the other silver dollars that we have coined, which, correctly speakinj>-, are credit currency, because they depend u])on sometliinj;- besides theni.selves. Mr. Johnson. Do you consider them credit currency to their face value*? Mr. Eckels. I suppose that the silver dollars would be credit cur- rency only to the extent of the difference between one hundred cents and their bullion value. There would be $5()5,000,000, about, in silver. Mr. Newlands. Do you regard all that as credit currency, save so far as the bullion value of the silver may be there for its redemption? Mr. Eckels. Yes; as stated. Mr. Newlands. If that bullion was paid out in redemption to its market value and put in the markets of the world, would ic maintain that value ? Mr. Eckels. Its bullion value? Mr. Newlands. Yes; its present bullion value. Mr. Eckels. No; 1 suppose not. If a great quantity of it were thrown on the market it would go down, just as the price depreciated when the Sherman silver law made a market for all the silver in the country. Mr. l>rEWLANDS. Then do you or do you not regard all this money — silver certificates, silver, Treasury notes, greenbacks and national bank notes — as redeemable in gold? Mr. Eckels. I do. I think under the act of 1890, which says it is the declared i)olicy of the Government to maintain the parity of the metals, that that law is nullified unless every dollar is exchangeable with every other dollar without loss to anyone. Mr. Newlands. And apart from that law would you regard it as wise policy to maintain that — all this credit money — redeemable in gold "? Mr. Eckels. I would. I regard it as an unfortunate circumstance that we have this, but having gone into it, there is no way thiit the Government creditably, no matter what the cost, can get out of it except by maintaining the parity of the metals. Mr. Newlands. How much gold is there in this country? GOLD STOCK OF THE UNITED STATES. Mr. Eckels. I think there is over $700,000,000. The estimate of the Director of the Mint is not at all high, and my information comes from an investigation made in June last of the amount of gold held by the individual banks, national, State, savings, and private ones. In their returns the kinds of cash which they held were separated. There was at that time, as I remember it, about $420,000,000 in gold in the banks. Mr. Newlands. Exclusive of the Treasury ? Mr. Eckels. Exclusive of the Treasury. Then there was the gold in the Treasury, and an estimate was made of the amount of gold hoarded, which at that time was a very large amount. I know of one incident where in one bank, after the election, one man took from its safe deposit vault $240,000 in gold coin and put it into the bank ])roper, and I know of a number of instances where $40,000 and $50,000 in gold coin were taken out of deposit boxes m this way. Of course there is 270 FINANCIAL AND BANKING SITUATION. a large amount of gold coin in circulation in the Pacific States. In all the silver-producing' States there is held bj' the banks about 815 of gold to $1 iu silver. Mr. iSI^EWLANDS. What do you estimate the total amount of gold in circulation in the Pacific Coast States is to-day? Mr. Eckels. I can not tell that specifically. Mr. Newlands. That is not importaiit if it takes any time. Mr. Eckels. It is in my report. I will be very glad to give you a copy of it. Mr. Newlands. The Mint Director, in his report for 1895, says that the gold stock of this country is $018,000,000. Do you regard that as an underestimate? Mr. Eckels. I do. Mr. Newlands. You think there is $700,000,000 of gold! Mr. Eckels. Yes; especially now, in view of the large imports which have occurred during the last few mouths. Mr. Newlands. Assuming that we have $618,000,000 of gold and we have credit money to the extent of $1,000,000,000 represented by these various forms of money, do you think it desirable that the num- ber of units in this country should be diminished; do you think we can get along with less than $1,600,000,000! Mr. Eckels. 1 think to-day there is a redundancy of currency. AMOUNT OF DEPOSITS IN THE BANKS. Mr. Newlands. No-w, you stated that the deposits in the national banks alone were $2,000,000,000. What is your estimate of the total deposits in all the banks of the country? Mr. Eckels. $5,000,000,000 is a rough estimate. I can tell what they were in the last report. Mr. Kewlands. This is in the last report, October 31; the deposits of the State banks were $6955650,914; loan and trust companies, $586,468,166; savings banks, $1,935,466,468, and in private banks $59,116,378. Mr. Eckels. Well, the aggregate of that is about $5,000,000,000, in dei)osits, isn't it! Mr. Newlands. Yes, I think so. It is not important as to the exact amount. It is between $4,000,000,000 and $5,000,000,000, not exceeding $5,000,000,000 and not probably less than $4,000,000,000. Mr. Eckels. I think it is certainly $5,000,000,000. Mr. Newlands. You think it is certainly $5,000,000,000? Mr. Eckels. Yes. RESERVE held AGAINST DEPOSITS. Mr. Newlands. Now, assuming that we have 1,600,000,000 monetary units in tbe shape of dollars in this country and $600,000,000 or $700,- 000,000 of this is gold and the other is bank ])aper, redeemable in gold, J ask you whether you think tbat the banks of the country ought to have any considerable amount of gold as reserve against this deposit of $5,000,000,000. Mr. Eckels. Undoubtedly; they have to carry a reserve. Mr. N]':wLANDS. AVould you think they ought to keep it in gold; would you have them keep their reserves in gold! Mr. Eckels. Yes; I would have them keep it in gold. The Chairman. You are talking about their cash reserve? FINANCIAL AND BANKING SITUATION. 271 Mr. Eckels. Oh, yes. Mr. Newlands. About liow much do you think they ought to keep ? Mr. Eckels. It has been found that the necessary amount of reserve to be hekl against deposits in what are termed reserve cities is 25 per cent of the individual deposits and 15 per cent in phices not reserve cities. Mr. Newlands. What would you say is the average amount re- quired ? Mr. Eckels. The average amount would be between — you can not well draw an average. Mr. Newlands. Would you say IG, 18, or 20 per cent? Mr. Eckels. Eighteen per cent. They do hold a larger reserve than that, as a general thing. Mr. Newlands. We have here the statement that there are $5,000,- 000,000 of deposits in this country. Now, the question is, how much gold should these banks hold against these deposits as reserves. The Chairman. He has answered that. Mr. i>rEWLANDS. Very well, I am going on. He has just answered that question. JSTow, you say about an average of 18 per cent in gold would be sufficient "? IVIr EckIjLS Yes Mr! I^Tewlands. :N'ow, 18 per cent of $5,000,000,000 would be $900,- 000,000 of gold as reserve for the deposits. A SAFE reserve. Mr. Eckels. The national banks hold an average of about 18 per cent. Mr. Newlands. And that, you say, is safe? Mr. Eckels. Yes, T think that is a safe reserve. Mr. Newlands. Eequiring $900,000,000 in gold? Mr. Eckels. Yes. Mr. ISTewlands. ISTow, we have also out, say, $1,000,000,000 paper money. What would you regard as a safe gold reserve to hold against that? Mr. Eckels. The national-bank currency is taken care of very satis- factorily by a 5 per cent redemption fund. You can not, Mr. Newlauds, estimate that the same amount of money as a redemption money is necessary for the current redemption of your notes as for deposits, because people do not care to carry metallic money, and they do not carry it, and they will not carry it. They only want to know that when they go to the bank of issue they can have their notes redeemed. Mr. Newlands. Then you have 5 per cent more needed as a reserve for the notes. That 5 per cent on $1,000,000,000 is $50,000,000. The total gold reserve of the country, then, would be $950,000,000. Mr. Eckels. Undoubtedly that would be so upon the estimate made But it must be remembered that when the point is reached where it is all bank credit currency, the legal-tender obligations have been exchanged, and the Sherman notes have been converted into gold, and the additional necessary gold, if any is needed, will have been imported into the country. So the gold in the country has been increased. Mr. Newlands. Will you tell me, Mr. Eckels, where you are to get this extra amount of gold from ? Mr. Eckels. Get it wherever there is a surplus — and there is always a surplus somewhere— Just as England got gold from France, the necessary surplus, to carry on the Bank of England when confronted by the Baring difficulty. 272 FINANCIAL AND BANKING SITUATION. Mr. Kewlands. Xovt, tlien, let me call your attention to the Mint Directoj's rei)ort. His report shows that in England, France, and Ger- many ah)ne one-half of the gold in the world is at the present time located, $2,000,000,000, and that the other half of the gold is scattered around the rest of the world — part of it is in Kussia^ part of it iu Austria, part of it in this country, and a little of it in other countries. Assuming that 82,000,000,000 of gold are required for the business of England, France, and Germany, do you think the other $2,000,000,000 is enough f(n' all the rest of the world? Mr. Eckels. That is an assumption. Let me ask you a practical question. Have you ever known a time, Mr. Newlands, when we wanted gold iu this country that we could not get it if Ave were willing to pay for it? Mr. Newlands. That involves a long answer, and I do not want to take up the time of the committee. GOLD CAN ALWAYS BE OBTAINED. Mr. Eckels. I will answer that question in this way; that it does not make any difference whether that $2,000,000,000 is in England, Germany, France, China, or anywhere else; if we want it we can getit if we are willing to pay for it. We may at times have to pay more for it than at other times, but there never has been a time, even during the period of the war, that gold could not be obtained if we paid the rate charged for it. I think that there will always be a sufficient amount of gold here when it is needed, and when it is not needed it will be else- where. It moves about. One day it will be in England, another day it will be in Germany, another day it will be in France, and another day it will be here, but always fdling up the vacuum Avhich ought to be tilled, and if that vacuum exists in the United States, and tlie reason for its filling exists, the experience of the past i^roves it will be filled. The amount also will vary. Your estimate of $050,000,000 may be just enough to-day, entirely too much to-morrow, and wholly insufficient the next day. It is always dependent upon changes in trade, conditions of credit, and other circumstances of a like character. Mr. Neavlands. Suppose we should go to that kiiul of a banking sys- tem to-day, and require $!>50,000,000 in gold. Plaving only $700,000,()00 we would require $250,000,000 more. Now, looking all over the world, from what country weat my former statement, that unless these other things are gotten out of the way a banking bill simjdy relieves us of a large inconvenience and some loss, but that it can not accomplisli a permanent good until we put ourselves on a basis of not having the (lovernment issue credit currency, whether it be in the shai)e of ])aper or dei)reciated silver. If thought best I would at some future time be very ghul to continue the discussion of this and kindred questions involved in our financial situation. FINANCIAL AND BANKING SITUATION. 275 BRANCH liANKS. Mr. Cox. I would like to ask one question of the Comptroller. To get back to the question of branch banks, which we were discussing this morning, if I have got your idea about that, you would try to supply the scarcity of money at certain times by branch banks of large banks — isn't that it? Mr. Eckels. Yes. The reason, Mr. Cox, that in these communities independent banks can not be established is because they have not the necessary surjilus capital for that purpose, and therefore must depend on outside aid. Mr. Cox. I api)reciate fully the remarks you made about that. Mr. Eckels. But they could import capital from large outside banks through such branches. These branches could be conducted very much more economically than independent banks in those communities, as the investment of money in capital would not be necessary. Mr, Cox. I ap])reciate your idea very fully. Mr. Eckels (continuing). And thegeneral banking machinery would be found to be cheaper, and therefore the money rates would be cheaper. Mr. Cox. You are working at the same thing I am. Mr. Johnson. I think the answer is somewhat misleading when taken in connection with an answer the Comptroller made to a question I asked him — that the more inexpensive the notes are to the banks, the more likelihood there will be of these agricultural communities having a plenty of money. Mr. Eckels. Anything consistent with safety which tends to cheapen the rate of cost to institutions which are issuing money benefits the people who are getting that money, as it means for them lessened rates of interest and more investible capital. Mr. Johnson. For instance, the lack of profits might deter a bank from being established in a certain community, whereas, if there was a greater profit in circulating notes a bank would be established there. Mr. Cox. Let me draw your attention to the state of facts that exists. Take the rural districts of my country. Their credit consists in the real estate and property. That is what they have now. If you estab- lish a branch bank from one of the large banks and they require cer- tain bonds and stocks convertible into cash any day upon the market, can that ijossibly give our folks any relief? TROVINCE OF C03IMERCIAL BANKS. Mr. Eckels. I think if the branches are established in such places and it is found that the people there are individuals who pay their debts and have bankable assets which can be converted at any time, there will be no difficulty about their borrowing. Eight here permit me to say, in this connection, Mr. Cox, that a commercial bank can not take commercial deposits and invest those commercial deposits in fixed loans and investments without ultimately breaking the bank. The province of savings banks and trust companies is fixed investments, while the province of commercial banks is the conduct of daily commercial business. Mr. Cox. I appreciate that very much; but all through that country is a system of State banks without issue. They take their mortgages and make their loans, and most of them are made on the question of security, without any collateral whatever. It is personal security. 276 FINANCIAL AND BANKING SITUATION. jS^ow, when you establish your branch bank, would it not be better, under all the circumstances of the case, to leave those communities alone, under the State regulations, to control tlieir own matter '? Mr. Eckels. Of course if a community would not support a branch bank the bank would not stay there. STATE BANKS. Mr. Cox. My question is this: Each community J udgiug of its own wants and necessities, Avould it not be better to leave those communities under the State regulations to establish their own institutions'^ Mr. Eckels. I think, so far as I know, that nobody undertakes to interfere with State regulations of State banks or anything of that kind, except in the matter of note issue. The regulation of note issues is based upon the ground that at present, at least, the Government is pri- marily, or ultimately, responsible for the redemption of the notes. The demands of trade and commerce are such that there would be a serious inconvenience, even though no loss might arise, if the banks of each State issued their own different character of moneys. Mr. Cox. Your idea and mine is the same on one proposition — that this issue ought not to be based on bonds. Mr. Eckels. I think 1 said that I thought the correct banking prin- ciple was to issue bank notes against bankable assets. In this matter, however, you are obliged to deal Avith this practical fact, that the aver- age business man in this country has never known anything but a cur- rency based on securities. A new currency system must at the outset be completely enthroned in the confidence of tlie i)eople. Bei-ause of this you can not undertake to substitute in its entirety a wholly unse- cured currency at the start for a currency that is secured, but ultimately I think tlie point could be reached through gradual processes, just as any other thing is done, by which the largest portion of the banking currency could be issued against credit and be as readily accepted by the people. It would of course require a high order of banking and a high grade of assets. Mr. Cox. I api^reciate that very much, but let me draw your mind to this proposition : Suppose a bank is organized in my State under State authorities with the right to issue its notes under proi)er restrictions — we will assume proper restrictions are established — do you think it pos- sible that any State could ])ut its notes out over its counter unless as well secured as any other circulation out to-day? Mr. Eckels. I think, Mr. Cox, there is a great deal of unnecessary fear about State bank note issues, but the fact that it does exist is the fact you have to reckon with. I have no doubt that Just as the good State banks in Kew York, Louisiana, Indiana, Ohio, and Illinois and elsewhere maintained the payment in gold of their notes when per- mitted to issue them, they now would do thr same thing, and I have no doubt the State would throw about them every possible safeguard as far as regulation and safety are concerned. But here is a country of vast extent, embracing many different States that with the different systems established would tend to create a constant inconvenience without giving in return any adequate resulting benefits. Mr. Cox. Assume that your idea is correct. Inconvenience would exist and want of confidence in that circulating medium. Now, then, whom does that hurt? Mr. Eckels. ^Vhy, it would hurt your own i)eople most of all, because it would withdraw from them the credit extended to them by FINANCIAL AND BANKING SITUATION. 277 those people wlio have capital they wish to invest and who are doiiif? business with them in the knowledge that the return received will be exactly in kind and character of the tliinj:? loaned. Mr. Cox. Is it a part of this Government to take care of the credit of my people"? Mr, Eckels. It is in a general way, in not ])ermitting it to be unnec- essarily injured. The Chairman. In estimating the amount of redemption money needed in any banking system in any country can the estimate be made Avith reasonable accuracy on any other facts than the actual doing of the thing proposed by the banks? Mr. Eckels. They would arrive at it the same way as actuaries in insurance companies arrive at the question as to hoiv much they should charge on policies. CREDIT CURRENCY. Mr. Spalding. I have listened with a great deal of interest to you, and I should judge — I want to see whether I am right — that at the X^resent time you would not recommend an issue, or a banking bill that would allow the issue, of notes on a credit basis entirely on the assets of the bank ? Mr. Eckels. Not wholly; no. Mr. Spalding. You have stated the reasons. I wanted to see whether I had the idea. The Chairman. Just as safe as guarantees of bonds? Mr. Eckels. 1 think it amounts to the same thing. Mr. Spalding. For instance, the assets of the bank are how held for the depositor, aiul if there was an issue of credit currency it would take away the assurance of the depositor. Mr. Eckels. The only ditticulty would be in having the minds of the depositor and the note holder always kept right. It must be remem- bered that there have been 5,0G0 national banks established, and there have been but 330 bank failures. Nobody has lost anything through a bank note. Mr. Spalding. Because they are guaranteed. Mr. Eckels. But national banks have not failed because of their having bond securities preventing loss to note holders, but because they have been well conducted ; and I imagine it' these banks had issued against assets with the same good management there would not have been any more failures. The only difference would have arisen irom the public having felt the same assurance of safety in the notes of the banks. A change in the matter, of course, requires the reeducation of the public. REDEMPTION AGENCIES. Mr. Hill. Some years ago the national banks made the redemptions themselves. Was it a success or a failure? Mr. Eckels. I take it, from the changing of the law, that it did not operate well. Mr. Hill. Do you think it could be made successful at the present time "? Mr. Eckels, I would not be surprised if under proper circumstances there might be redemption agencies, but they would make redemption more expensive than it is now. Mr. Hill. In that respect it would be disadvantaget)us. It would require a larger reserve fund, would it notf 278 FINANCIAL AND BANKING SITUATION. Mr. Eckels. Probably. Mr. Spalding. Most of the bills, except Mr. Brosins's bill, recommend the issuing of notes on the assets of the bank, and tliat is the reason why I ask the question — because we are discussing these particular bills. Mr. Eckels. I regret that I am now compelled to go, bnt I will appear before the committee at another time. The committee thereupon adjourned. Committee on Banking- and Currency, Washington, D. 6'., Monday, February 1, 1897. The committee met at 10.30 a. m. Members present: The Chairman (Mr. Walker) and Messrs. Brosius, Johnson, Van Yoorhis, McCleary, Fowler, Lefever, Spalding, Calderhead, Hill, Cox, Stalliugs, Black, iSiewlands, and Hendrick. Hon. James H. Eckels, Comptroller of the Currency, appeared before the committee and resumed his statement begun on January 2S, 1897. STATEMENT OF HON. JAMES H. ECKELS, COMPTEOiLLER OF THE CURRENCY— Continued. Mr. Cox. Mr. Comptroller, to get at the cardinal principles you have in your mind for banking, as I understood at the commencement of your statement, the first is to keep the Crovernment loose entirely from the redemption of the notes? Mr. Eckels. Yes. Mr. Cox. And throw that upon the banks to redeem their notes'? ,Mr. Eckels. Yes; after the Government has gotten rid of its obliga- tions. Mr. Cox. You assume the Government has first disposed of its obli- gations and then redemption shall be made by the banks; that is the first i)rincii)le? Mr. Eckels. Yes; in gold. Mr. Cox. Either through the banks or a proper agencv established bylaw? Mr, Eckels. That is, the'banks shall be resi)onsible for the redem])tion in gold of all promises to pay which they issue. Mr. Cox. And you do that through the banks and not through the Government at all. That is the first principle you have announced? Mr. Eckels. Yes. Mr. Cox. The next point, as I understood you, as the basis of circulation you would take at least a considerable part of the assets of the bank : I\Ir. Eckels, T think that gradually that point could be reached, but it could not be at the outset. Mr. Cox. At the outset, then, you would have to have some other basis? Mr. Eckels. ]<>ither the guaranty of the Government or a basis of security, although, as I announced, I believe that the issuing of notes against credit is the theoretically correct principje in banking. The principal difiiculty in adoi)ting such a course at the outset lies in the fact that the i)e()ple are not educated to handling and believing in a currency not secured by a dejiosit. FINANCIAL AND BANKING SITUATION. 279 Mr. Cox. Thcie arc two fuiidiiincntal ]niucii)les you start out witli. Now, the third one 1 want to call your attention to. The CiiAiUMAN. Let me ask a question right there. You mean to say issuing- against the credits of a bank without Government guaranty? Mr. Eckels. 1 say, theoreti(;ally, I think that is the correct prin- ciple. The Chairman. Under the circumstances you would require a double guaranty? Mr. Eckels. At the outset, the Government .Ljuaranty or a deposit. Mr. Cox. Those two i)rinciples settled in a bill, then 1 want to ask, if you issue your circulation u})on the assets of a bank, to what extent do you think you could go with i)erfect safety upon that? Mr. Eckels. 1 would not want to undertake more than 25 per cent. That I would regulate by a tax, too. Mr. Cox. Kegulate by a tax, do you mean, or provide a safety fund? Mr. Eckels. 1 would have a safety fund for that, too, but I also would impose a tax upon that part of the circulation, so that it would not remain out any longer than it was absolutely necessary and that banks would not issue that character of currency in excess. Mr. Hill. Do you not think that the elfect of a compulsory gold redemption on demand by the banks would of itself be a sutficient restrictive without a tax"? Mr. Eckels. AVell, yes; I have no doubt it would, but Mr. Hill. Then why put a tax on? Mr. Eckels. 1 would simply do that at the outset as an additional precautionary measure. Mr. Hill. I mean if you limit it to 25 i)er cent of the capital? Mr. Eckels. Possibly the tax would not be necessary at all. CIRCULATION TO PAR A'ALUE OF BONDS. Mr. Cox. One other question. This is rather disconnected from the point here, but we have a bill which has i)assed this committee, and which is in the House, which proposes to permit the banks to take out circulation up to the par value of the bonds. That has been recom- mended, as you know, several times by you and your predecessors in otitice. If this privilege is given to the l3anks to take out circulation up to the par value of the bonds, do you, or do you not, tliink it wise that the law ought to be compulsory to make them take out circulation up to the par value of the bonds ? Mr. Eckels. No, 1 do not believe any law ought to be compulsory as to the amount of circulation that should be taken out or the amount that should be retired, for if a law is placed on the statute books to that effect the element of elasticity is thereby removed and a hard and fast line is fixed by saying instead of the banks regulating the amount of circulation which should be issued according to the business needs of the country, as they see it from day to day, they shall, irrespective of those needs, keep out so much circulation. Mr. Johnson. And, as I understand it, the business needs of the country should be the criterion as to the amount to be put out ? Mr. Eckels. Yes, entirelj'^ so. Mr. Hendrick. 1 Avish to ask a question of the chairman. I thought it was understood Friday afternoon, when we adjourned, that when we met to-day the Comptroller w^as to (;ontiuue his suggestions without interruption. Have we changed that rule? 280 FINANCIAL AND BANKING SITUATION. Mr. Eckels. Before goiug on further I wisli to be permitted to make a personal statement. I have come before the Banking and Currency Committee at the request of the committee, not for the purpose of pre- senting a bill of my own or with any set plan or statement, because I have not prepared either a bill or a statement. My only purpose is, if I happen to have any knowledge upon the subject that it is desiral)le to obtain, to answer such questions as may be put to me upon the lines which suggest themselves to the members of the committee. I wish to cooperate with them in gathering information that will enable them to arrive at a conclusion as to what ought to be done in the construction of a safe and practical bill. I think pertinent to the matter is any question which affects our present monetary condition. My idea has always been tliat when the difficulties under which the country labors from a financial standpoint are solved they will be solved through the agency of a properly constructed banking bill. It is through that agency the country must obtain relief from the difficulty which the Treasury Department has in handling its demand obligations, and also the difliculties which it labors under from its silver currency. Holding to this view, it seems to me before a bill can be properly drawn members must inform themselves upon not only one branch of the country's monetary affairs, but upon every branch, becanse each one is dependent upon the other. If one evil is corrected and half a dozen other evils are not, the country will not be much better off than it was at the start. As all these questions are independent, the Banking and Currency Committee ought, in my judgment, to give this inquiry a very wide range, and when it obtains all tlie information possible it can then construct a measure which will meet the needs of the country. COMPULSORY NOTE ISSUES. Mr. Cox. I want to state, Mr. Chairman, that this question I am propounding to j\Ir. Eckels is fundamental and included in the bills before us and I am trying to see how it will work. IS^ow, going back to the last question I asked you when I put the proposition, "Would it be wise to make the banks take out the circulation if we gave them tlie right to issue up to the par value of the bonds," your answer to me I fully appreciate, but I do not think you quite got my idea. That is, if we gave the riglit to issue up to the i)ar value of the bonds and they deposited the bonds they take out circulation IVoni the Ooverumeut under that system? Mr. Eckels. Yes. Mr. Cox. iTow, I do not mean to say they shall put that into circula- tion, but I mean to say they sliall i)ut it into the banks. The object of that is to prevent quite a number of these banks from depositing the bonds and taking out no circulation at all? Mr. Eckels. 1 think there are only seven or eight banks in the system which deposit the bonds the law requires of them on the organization of a bank and do not take out any curreney. It will be found, with the exception of the seven banks mentioned, that circulation is taken out, though not in very large amounts; but the impression that I received from your question was that if the banks were permitted to issue up to the i)ar value of tlie bonds, there should be a compulsory statute which would make it absolutely incumbent upon them to take out the amount of cir(!ulation to which they Avould be entitled under the ])revious bank- ing act. Mr. Cox. Then, to bring the i)oint riglitout, that would not force the banks, as a matter of fact, to pay their money out over their counters. FINANCIAL AND BANKING SITUATION. 281 I am transferring' circulation up to tlie par value of the bonds out of the Government vaults into the vaults of the banks, and the object is to have the money there, so wlien an emergency arises, if it arises, of course they can apply to the (lovernment and get it, but it prevents any bank from depositing bonds — and I know there are not many of them — and taking out no circulation at all. That is the idea I had in the matter, and I wanted to see how it would work. Mr. Spaldinct. I simi)ly want to ask a question in line of his thought. What serious objection, in your mind, would there be to authorizing the issuing u\) to the par value of the bonds, and, say, 50 per cent of the sur- plus of the bank to be issued as a credit currency, to be a first lien on all the assets of the baukf It would be an inducement for a bank to keep a surplus, and there would be some profit in it, and it would limit the amount of circulation to the par value of the bonds and 50 per cent of the surplus of said bank ? Mr. Eckels. I think there might be danger of inflation. I think if you start out with too large a percentage at the outset Mr. Spalding. You can cut it to 25 per cent. Mr. Eckels (continuing). That there would be possibly some doubt as to the ability of the bank to redeem its notes. Mr. Spalding. That is the doubt I have in my mind. ABILITY OF BANK MANAGERS. Mr. Eckels. The whole gist of the thing, as far as credit currency is concerned, however, turns really. upon the ability with which the banks are managed. One of the greatest of economic writers has called attention to the fact that a great many years ago a very large number of the banks of England failed and there was a total loss to the note holders of notes issued by them against the assets of the bank. At the very saine time there was not a single bank in Scotland failed, although the notes of the banks of Scotland were issued in the same way as the notes of the banks in England against credits. When asked for an explanation, he said the difference was in the fact that the banks of Scotland which did not fail were conducted by bankers who understood their business, while the banks of England which did fail were in the hands of bankers who did not. Mr. Fowler. That is, the credit part of it. Mr. Eckels. Yes ; the credit part of it. While I have no doubt that a large majority of the people here who are engaged in the l)anking busi- ness could issue bank notes without a single dollar of deposited security, and maintain themselves, the factor which would make such course a possible cause of weakness would be the fact, as previously stated, that people who are not educated to a credit currency but are educated to a bond security or Government guarantee, would not without every pre- cautionary measure thrown about such a currency have com])lete con- fidence in it and accept it readily. It will have to be introduced gradually. It is to be remembered, as I stated on Thursday, that banks have not been kept from failing in this country because of the bond deposit security for circulation, but because those in the nuinagement of them had conducted them, on the whole, with skill; and, therefore, with the same methods of banking and the same men in control, there would not be any greater number of failures under a different method of issuing bank notes. Mr. Spalding. Then you would not consider it a safe method for general banking law to go beyond the actual deposit security for the bills which were issued ? 282 FINANCIAL AND BANKING SITUATION. LIMITED CIRCULATION AGAINST ASSETS. Mr. Eckels. 1 do not say that. I say it would. I should permit that increase against the credits, but I should limit at the outset that amount. Mr. Spalding. That is what I want to know. Mr. Xewlands. To what amount? Mr. P2CKELS. I stated that I thought we might safely try 25 per cent. Mr. Spalding. As I understand it, it goes right to the gist of most of these bills, with the exception of INIr. Brosius's bill, and to give a clear idea of the banking bill it would be this, that over and above the I>ar value of the bonds dependent upon the surplus of the bank, 25 per cent of said surplus of tlie bank miglit be issued — not to exceed that! Mr. Eckels. 1 do not think I would limit it to 25 per cent of the sur- plus — 25 per cent of the caintal. Mr. Spalding. And to be a first lien upon all the assets of the bank, so that before any depositors are paid the bill holder is to be taken care of? Mr. Eckels. That is on the theory that a note holder is entitled to greater consideration than a depositor or holder of a check. The rea- son given for the theory is that a note holder is rather compelled to accept a bank note, while the action of a depositor is a voluntary one. The Chairman. There is another point — that the note holder is in no position in his relations to business to know whether a bank is sound or not, as compared witli the business man, who is expected to know whether banks are sound or not. That is a large element in the case. Mr. Spalding. This I believe to be your position : If a $100,000 bank deposits sufficient bonds it might issue §100,000 in bank currency, and then it could, at discretion, issue $25,000 more, and the $25,000 would be guaranteed by the entire assets of the bank, and the $100,000 which had been issued prior to that would be guaranteed by the bonds of the United States? Mr. Eckels. I think that is perfectly feasible. Mr. Johnson. I only desire to submit an observation, and that is this: Under the present banking system the first lien of the note holder upon the assets is not looked upon with any dread by the depositor, as the bonds are sufficient to pay the notes, but under a system of bank- ing upon assets alone, if the first lien upon these assets were given the note holder, the depositor would feel that he had less chance for pay- ment in the event of a failure, because in that event the note holder would exhaust his assets for the payment of his debt. Mr. Eckels. That is undoubtedly so, and that is the very reason why nothing distinctively radical can be entered ui)on at the outset. Mr. Johnson. 1 am quite sure, from communications 1 have received from various sourcies on this subject, that a great many people louk with disa])probati()n upon bank assets as a first lien for note holders without a bond security, for the reason that they think it would cause great loss to the depositors. I think your suggestion that there be a limited amount of banking on assets is very much to the point in this connection. Mr. Eckels. Then, of course, such notes would have to be converti- ble in gold on demand, and if the bank failed to convert its notes in gold on demand it should be considered to have committed an act of insolvency and the bank assets taken into possession for the purpose of first i)aying off' the note holders and then of paying off" the creditors not note holders. FINANCIAL AND BANKING SITUATION. 283 Mr. Fowler. You have said that you thought at the vstart they might be allowed 25 per cent, but as I understand you it is your opinion that as people beconu? accustomed to issuing credit currency and redeem- ing it in gold they might ultimately issue whatever the demands of business required, to the amount of tbeir capital and suri^lus, possibly? Mr. Eckels. Yes. Mr. Johnson. Your idea is that when i)eople grow accustomed to this system and have confidence in it, it can then be extended? Mr. Eckels. When people lind out that they can take these bank notes and go to a bank or a redemption agency and get gold, the sys- tem is established and given with entire confidence. It will then be seen that instead of wishing to carry gold the note holders prefer to carry tlie promise to pay in gold issued by the banks in the form of currency. It is just exactly as if I should go to a man and borrow $100,000. When it came time for payment, if he knew 1 had the money he would not be particularly anxious to have it paid back if it was not needed by him to buy something more desired than my note. The same rule would prevail with holders of bank notes. If they found whenever tliey went to a bank they could get gold of the bank for the bank's promises to pay which they held they would prefer the convenience of the paper i^romise to pay to the piece of metal for which they could exchange it. Back of it all is the maintenance of the credit of the issuing bank by its ability to convert into gold its promises to pay whenever these promises to pay are presented for redemption. Mr. Spaldiko, There is one idea I want to clear up in my mind and possibly the minds of some of the other members of the committee. Take, for instance, a bank with a capital of $50,000. Say that bank can issue currency to 25 per cent of its capital. Now, if it was desired by the board of directors, they might issue $12,500 on the capital stock of the bank without purchasing any bonds under that 25 per cent arrangement, which would prevent such a demand for bonds that might be called upon to enhance their value way above a point where it would be profitable to issue on them, and in this way it would be left entirely to the discretion of the banks, would it not? VALUE OF BONDS INCREASED. Mr. Eckels. There is, however, one point which is worth considering in connection with the issuance of currency to the par value of bonds. Unless it is checked some other way, such increased circulation is liable to increase the market value of the bonds and to that extentdecrease the profit upon the circulation, and the same difficulty which is now apparent may have to be confronted. It might be regulated by a counterbalance in the shape of a certain amount of credit currency. Mr. Cox. If you issue to the par value of the bonds will not it neces- sarily increase the value of the bonds? Mr. Eckels. I think that it would tend to. Like any other instru- ment the greater the results to be obtained from it the more valuable would it become in the market. Mr. Cox. As the value of the bonds increases, the tendency is to refuse to take out circulation ? Mr. Eckels. Yes; under existing law. But despite the fact that the increased amount granted would increase somewhat the value of tlie bond, my opinion is that it would not increase it to the extent it would increase the profit on the circulation. The profit, though, on circulation 284 FINANCIAL AND BANKING SITUATION. "svould not be brought up as largely as may be expected without an increase in the value of the bond unless there is permitted a certain amount of credit currency to be issued after a certain amount of bond or guaranteed currency had been issued. The Chairman. If you desire to add anything in a general way, according to the suggestion of Mr. Hendrick, before we proceed to the bills, I hope you will do so. BANK RESERVES. Mr, Eckels. I would like, before the committee takes up the bills specifically, to be permitted, for the purpose of eidarging and possibly clearing up a Httle, to recur to a subject Avhich was untiuished when I left onTliursday. 1 wish to recur to the general subject of reserves which Mr. Newlands suggested in the various questions whicli ho asked. The tenor of his questions Avas to the eftect that an issue by the banks of all the credit currency redeemable in gold would find this country in a position of having its banks undertake to carry a very large amount of bank issues without the requisite gold reserve. He further sug- gested that in addition to the gold reserve which it would be necessary to maintain against the notes, the necessary amount of gold reserve would have to be held against bank deposits. He reasoned from the amount of bank deposits and the estimate of the amount of bank-note currency which the banks would be compelled to assume, this country, according to the statement of the Director of the Mint and according, to my statement as to the amount of tlie gold there was in the country, would find itself without what he estimated to be necessary and what he stated 1 admitted to be necessary. It would find it had not the amount of gold which it ought to have for those purposes. estimating amount of reserve needed. There are some elements which ought to be considered in connection with this question. One of the elements is tliat you can not estimate what amount of gold is necessary for the puri)oses that he suggested as a safe reserve by the amount of gold which seems to be carried in the countries which have not a highly developed banking system. For instance, you can not estimate how much gold is needed in tlie United States by the amount of metallic reserve which is considered to be essential in France or in Germany, for the reason that in those countries the people are not educated to the point of using checks and credit instruments in the payment of obligations. Tlie fact is that the people least advanced in business use the greatest amount of ])re('ious metals in making transfers of property, and that in the higiicst develoi)ed business countries the least metallic money passes from hand to hand in bringing about such transfers of property. Thus, for instance, England, which, 1 sui)pose, carries on tlie greatest transa<'tions of any country in the world, employs the least amount of gold with whi(!h to so do. Because of our development in the lines mentioned, in this country it would be found that there would be less gold required to hold as bank reserves against deposits and for the purpose of note redemptions than in any of the continental countries of Europe, and as little, in proportion to the amount of business, as is required in England. FINANCIAL AND BANKING SITUATION. 285 NO DEMAND FOK METALLIC 3IONEY. It could not be estimated that in this country it would be necessary to carry tlie same amount of <;old reserve against bank notes as is essential to carry against bank deposits, for the reason that people do not want to carry about metallic money. An illustration of this is shown in the fact that the silver dollars themselves can not be gotten into circulation, because nobody wants to carry a silver dollar if he can get a paper representative of it. The amount of gold reserve required as against the bank notes issued would be found to be comparatively a very small per cent. As an example, take the national-bank notes to-day. They are sustained without any difficulty at all by the deposit in the Treasury of a 5 per cent redemption fund of lawful money, and certainly there could not be any greater amount of gold required as against the new notes to be issued. Mr. Hill. Without the greenbacks! Mr. Eckels. Yes, if banks were properly conducted, if they main- tained their credit; because the whole thing turns upon the credit which the bank would maintain. The Chairman. In other words, it would be discovered by actual practice Mr. Fowler. That is the experience practically in Scotland ? Mr. Eckels. Yes; in Scotland; and it is the experience practically in England, because, as I have said, in proportion to the amount of business done the percentage of gold used in England is comparatively nothing. DECREASING USE OF METALLIC MONEY. As the banks improve the instruments of credit and exchange there will be a corresponding decrease in the use of metallic money. It will come about that the only thing metallic money will be used for will be as a precautionary measure, as reserves in a greater or less amount against bank deposits, as a small reserve against bank-note issues, and to settle international balances. As there is developed in communities or sections which can maintain them systems of clearing houses, the balances to be settled in gold will be still further reduced in amount, because with a properly constituted clearing-house system either cities or communities will from day to day leave only a very small balance to be settled between the members of it in actual money. Mr. Brosius. May I interrupt you with a questisn on that point? Do I understand you to convey the idea that the amount of redemp- tion in a general way will depend largely upon the credit or x^aper money of the country"? Mr. Eckels. The current redemption. Mr. Brosius. Do you mean to distinguish between current and final redemption when you say after the establishment of the credit money, in case that event should come to pass, there would not be any more gold required for redemption than there is now under the present system of redemption 1 ULTIMATE REDEMPTION A MATTER OF FANCY. Mr. Eckels. Yes, for the reason that about all that is to be esti- mated on in the matter of promises to pay on the part of banks is current redemption, because what is called ultimate redemption is 286 FINANCIAL AND BANKING SITUATION. largely a matter of faiicj'. Nobody wants ultimate redemption if he can have current redemption, except the man who wants to hoard money. Mr. Brosius. You were speaking of current redemption when you made the statement? Mr. Eckels. Yes. 'Sir. Brosius. My inquiry is, and I would like to know whether or not 1 entirely com])reliend you, whether the amount of current redemp- tion depends largely on the general credit of the paper money, paper currency, and if, in the i)ublic belief, all the paper currency and bank notes are equal, the current redemption would be very limited? Mr. Eckels. Yery limited, and then 3Ir. Brosius. And the necessity for that would be very limited also? Mr. Eckels. Yes; that is, as I say, as your bank system improves it makes every dollar an efficient dollar, and instead of bearing a single transaction it will bear a great many. Mr. SpaldinCt. Would that change conditions in regard to the demand for gold that has been upon the country for the last four or five years? I am speaking now of the actual demand for gold to go abroad. GOLD HOARIJED. Mr. Eckels. I do not think it would. The great difficulty which has caused the demand for gold has been because of the fear that the United States would not maintain its gold payments and a large part of the gold that has been withdrawn has not gone out of the country but has been hoarded. ]Mr. SPALDiNfi. That could not have been in regard to Austria; they came here and bought it. GOLD MERELY A COMMODITY. Mr. Eckels. And that is what everyone does who requires gold. Gold or any other form of money is simply a commodity, and if a man wants it he has to go and buy it. lie either exchanges labor or the product of labor for it. If this country needs $100,000,000 of gold to meet the business demands of the country, the banks in this country will buy that gold. If this country does not need 8100,000,000 of gold and some other country needs it, that other country will buy it from us. It will be found that if these needs are permitted to be regulated by business agencies, and not undertaken to be entirely directed by statutory law, the largest portion of the monetary difficulties of the country will be solved. The Chairman. Eight here let me give you a few figures which will help us all. In the last sixteen years there were only three years, 1S89, 1801, and ISO.}, tiiat our exports of gold exceeded our imports and production, and we accumulated in those sixteen years, that is to say, our imports and ])r()du(;tions over exports, $020, 271,010. We exported $102,575,144, making a net increase of gold in those years of $526,698,800, and of the products and imports it is estimated that $229,672,150 were used in the arts. Mr. Newlands. I would like to put some inquiries to Mr. I^ckels with reference to the statement as to the reserve, but the question comes up as to the orderly course of proceeding. Mr. Eckels. If 1 am to be consulted I would prefer to have the inquiry take Just as wide ai range as i)ossible. Whatever knowledge can be obtained on the subject, the committee ought to have the benefit FINANCIAL AND BANKING SITUATION. 287 of it. 1 do not know how much inrorination I can give on the subject, but if any I shall be glad to give it. The Chaieman. I think we could cover a broader field in much less time if we ask the questions on the bills we have before us and get the views of the Comptroller on them: but Mr. Newlands has the tloor. Mr. Newlandr. I was going to say that when I api)eared here at the meeting last Thursday it was about 12 o'clock and 1 believe the pro- ceedings commenced at half past 10. I found Mr. Eckels was then under- going cross-examination from different members of the committee and I supposed that he had finished his general statement and it was in order then for any member of the committee to question him. Objec- tion was made to my line of inquiry, and a misapprehension arose between Mr. Hill and myself. I thought Mr. Hill was endeavoring to check that line of investigation or cross-examination, which I thought entirely relevant and pertinent, and which I now understand he thinks was entirely relevant and pertinent, and which certainly Mr. Eckels thought was relevant and pertinent, whereas his real purpose, as I understand it, was to bring the committee down to an orderly method of proceeding and to first exhaust Mr. Eckles n\)on the general state- ment regarding these bills and then to have an examination by members of the committee. I do not want to trespass too much upon the time of the committee, but there are some important matters on which I would like to question Mr. Eckels in reference to this general subject, and the question is. When shall I do so; shall I go ahead now, Mr. Chairman! The Chairman. Certainly, if that is the disposition of the com- mittee. Mr. Newlands. If you wish Mr. Eckels to go on with the inquiry regarding the bills I will postpone the examination until later on. The Chairman. ]\Iy Judgment is we should go along wholly on the lines of the bills, and then take the other matters up subsequently; but Mr. Newlands has the floor. Mr. Newlands. Very well. Mr. Comptroller, you think that as yet there is no country in the world which has reached perfection in the use of credit facilities'? Mr. Eckels. Xo, I think there is an evolution going on in that respect, Just as in the matter of transportation. Mr. Newlands. The advance of civilization will still further utilize credits and bring about a lesser use of metallic money? Mr. Eckels. Yes. credit FACILITIES IN VARIOUS COUNTRIES. Mr. Xewlands. ]S"ow, what country, in your opinion, has reached the highest perfection in the use of credit facilities? Mr. Eckels. Well, 1 think the English people have. Mr. IsTewlands. You do not think the French or Germans have? Mr. Eckels. No; not as high as the English. Mr. jSTewlands. What country next to England, in your Judgment? Mr. Eckels. I should say the United States. Mr. Newlands. So, in this advanced condition of the use of credit facilities, England stands first and America next? Mr. Eckels. Yes. Mr. Newlands. What country would you put after America? Mr. Eckels. I do not know as between Germany and France. The Chairman. In speaking of England, do you refer to the United Kingdom I Mr Eckels. I mean Great Britain. 288 FINANCIAL AND BANKING SITUATION. Mr. Xewlands. I understood you to meau that. Mr. Eckels. I spoke of England as being' Great Britain. Mr. XE^YLANDS. You say in this couritry, as to the reserve for the security of a bank issue, the issue of bank currency need not be as large as the reserve for deposits ? Mr. Eckels. Yes. Mr. Kewlands. And you understand the 5 per cent redemption fund in the case of the national-bank notes has been ample? Mr. Eckels. To furnish current redemption, Mr. oSTewlands. Is it not a fact that the national-bank notes can be redeemed by the banks in any lawful money '! Mr. Eckels. Yes. Mr. jSTewlands. That includes greenbacks? Mr. Eckels. Yes. Mr. Newlands. So that in addition to the 5 per cent redemption fund the national banks have $346,000,000 of greenbacks in the country to draw upon for redemption, have they not ? Mr. Eckels. A part of that; of course they are compelled to keep this redemption fund in lawful money with the Treasury. That is the only fund which they have for current redemption. PLACE OF CURRENT REDEMPTION. Mr. Kewlands. That is the only fund they have, but they can redeem at the bank counters in currency? Mr. Eckels. Yes. Mr. Fowler. Can you give any information as to how much! Mr. Eckels. They do not as a matter of fact redeem at the bank counter. It is done here at Washington. Mr. Xewlands. But they can I Mr. Eckels. They can, but they do not. Mr. jSTewlands, As I understand you, in this new system greenbacks are to be eliminated from our circulation ? Mr. Eckels. Y'es; because it is rather an absurdity to say you redeem something with a redemption that has to be redeemed itself. Mr. Newlands. That is the case now? Mr. Eckels. It is like undertaking to have two redemption moneys, when, as a matter of fact, one redemption money is redeemable in some- thing else. RUSSIA AND THE GOLD STANDARD. Mr. Xewlands. The report of the Director of the Mint, as I showed the other day, shows that England, France, and Germany have two billions out of the four billions of the gold in the world. Y^ou know that liussia is endeavoring to reach the goki standard. What, in your judgment, has ])re vented Russia from reaching t4ie gold standard and being successful in making gold redemi)tions? Mr. Eckels. The general condition of tlie countiy and the charac- teristics of the peojde, the enormous expenditures which the (lOvern- ment has been compelled to make to maintain itself at home, and its enormous rates of taxation upon the people. It is largely because of such adverse conditions. Mr. Xeavlands. Js the credit of Ilussia good in the maikets of the world? Mr. Eckels. Yes. Mr. Newlands. Do you know how much gold she has accunuilated? FINANCIAL AND BANKING SITUATION. 289 Mr. Eckels. No, 1 do not; but it is a very considerable sum. Mr. Newlanu.s. Ls that ^old maintained in circulation in Kussia! Mr. Eckels. I think part of it is and part of it is reserved. There are certain of their currency credit instruuients redeemed. Mr, Newlands. Is it not almost all of it in the treasury of Russia? Mr. Eckels. Yes; a very large portion of it, and it is a great waste to keep it there. Mr. iSTEWLANDS. The Mint IJirector's report shows that the amount of gold in Russia was $480,000,()()(). Now, will Kussia be obliged to get more gold in order to make gold redemjjtions and to maintain tlie par- ity of their uncovered i)aper with gold? Mr. Eckels. I should take it with the general characteristics of the vast mass of the Russian i)eople that they would require a larger per- centage of gold for current redemption of their notes there than with a people such as the people we have who are used to banks of deposit and discount. Mr. I^^E^A LANDS. Russia has $539,000,000 of uncovered paper money and only about -$48,000,000 of silver and $480,000,000 of gold. Now, is it your oi)iiiion that in order to successfully make gold redemption and to maintain the ])arity or restore the parity between its uncoxered paper and gold, it would be necessary that they should have a larger gold reserve than now? Mr. Eckels. I would not undertake to answer the question, because 1 do not know the local conditions and methods and machinery of exchange in Russia, but 1 do say upon general principles that it would require a larger percentage in Russia than it would in the United States. Notwithstanding this, the fact is that if it required a larger percentage, Russia, like the United States, could get the necessary gold by paying for it, and if upon the banks Avas placed the necessity of redeeming this uncovered paper, tlie banks are equipped with the machinery for getting the gold, because they have the things to sell in order to buy it. Mr. Xeavlands. Do you know whether this uncovered paper money of Russia is Government or bank paper? Mr. Eckels. As 1 remember, some of it is Goveryment and some of it is bank paper. Mr. Newlands. Do you know the proportion ? Mr. Eckels. No; I do not. Mr. Newlands. Do you know what relation that uncovered paper money bears to the gold, how much discount it has ? Mr. Eckels. No; but as stated on Thursday, there is a considerable discount on all of them. Mr. Newlands. Somewhere near 50 i)er cent, is it not? Mr. Eckels. Yes. Mr. Newlands, I presume you admit, then, that if Russia is not able to keep its uncovered i)aper money at par with gold, more gold is required in that country, unless they reform their methods'? Mr. Eckels. I think undoubtedly more gold might be required in Russia under its present conditions, but at the same time I think that if it was reijuired there it would not be required souiewhere else and the surplus somewhere else would go there if proper inducements were offered. at:stria and the cjold standard. Mr. Newlands. Now take Austria. Austria, according to the Mint Director's report, has $140,000,000 in gold, $120,000,000 in silver, and CUR 19 290 FINANCIAL AND BANKING SITUATION. 8204,000,000 of uncovered paper money. Is it or i.s it not yonr under- standing tliat Austria is not able to maintain tlie parity of its paper Avitli gold ? Mr. Eckels. I do not think it Las fully succeeded, but it has started, to bring tbem to a parity. jNIr. Newlands. It is endeavoring to go upon the gold standard and restore the parity between its paper money and gold ? Mv. Spalding. Excuse me, but they are on the gold standard; they are not going to tlie gold standard. Mr. Eckels. Austria has the gold standard and is undertaking to bring about parity. In connection with all these questions based upon the facts that are obtained from the rei)ort of the Director of the Mint, is to be ke])t in mind the lact that if Eussia, if Italj'^, or any other coun- try wants gold it is going to be able to get it by giving in exchange the things which those people who have gold want more than they want gold. So that if the ])eople of the United States had here a surplus of gold they would sell that gold to Kussia or Italy, and our people would be better oft" for having done so, because they have received in exchange for it the things which they want more than they do the gold. I do not believe in the theory that the wealth of the country is in the num- ber of dollars in gold or silver which its people have, but it is to be estimated in the things which have been or can be, if necessary, exchanged for gold. Outside of the fact that our Treasury conditions are such that busi- ness is embarrassed by this going of gold out of the country, there liave not been any adverse conditions in the way of wealth holdings of the people by it, except as they have lost through the disturbance in business credit which it has created. In each instance they have exchanged the gold for something which they needed more, and added more to their welfare, instead of lessening their wealth by the gold which has gone out. The only difficulty is that it has been taken from the Government at a time when the Government had demand obliga- tions out which our own and other people were holding, and which they feared were not going to be redeemed, and therefore commenced to hoard and contract, and the credit of the Government being thus impaired, it affected the credit of every business enterprise which was more or less dependent upon the credit of the Government. Mr, Newlands. I understand your view is that more gold is required in the monetary system of every country, and that involves also the admission that a proper amount of gold is required in every country. Mr. Eckels. Yes. Mr. Xewlands. In your statement, as I Tinderstand it, some coun- tries may have a surplus and others have a scarcity, and those that Lave a scarcity can always get the gold from the countries that have a surplus. Mr. Eckels. If they pay enough. Mr. Newlatnds. I am indicating now the countries which have a scarcity of gold. We have been tlirough Kussia, and we are now at Austria-Hungary, and I assume as to the reiiuirement of different countries for gold that they have enough when they are able to keep their uncovered ]>aper money at x>ivr with gold. Is that a correct assum])tionf Mr. EcKia.s. Yes; but they always get enough gold if they have something to exchange that peo])le who have gold would rather have than the gold. The CiiAiiiMAN. Does it not involve also a sOund financial system? FINANCIAL AND BANKING SITUATION. 291 Mr. Eckels. Those are all contributing' (urcumstances as well as the business habits of the peoi)le. Mr. Wai-keu (Mr. Brosius in the (;hair). I move that when the com- mittee adjourns, as I am obliged to be away now, that it adjourn to meet to-morrow and continue this hearing, and that at to-morrow's ses- sion Mr. Eckels's mind be directed to the bills submitted to him. The motion was agreed to. Mr. Calderhlal). Is it the purpose of your inciuiry to sh<»w there is not gold enough available for banking purposes? Mr. Xewlands. I propose to (juestion Mr. Eckels as to the existing stock of gold. I can not tell whether Mr. Eckels will develop the fact whether there is gold enough in the world or not. Mr. Calderhead. Is that what you are trying to ascertain? Mr. Xewlands. I am trying to ascertain now whether there is enough gold in the world for us to do business; whether we can get it, and where we can get it. Mr. Calderhead. Is not the question before us, whether we can establish a banking system or not, without reference Mr. Newlands. We already developed the other day that $950,000,000 of gold will be required in this country as a practical reserve. Mr. Fowler. Did Mr. Eckels say so? ; Mr. Eckels. I beg your pardon; what was that? Mr. Newlands. I understood you to say the other day you regarded 18 per cent as a fair average reserve for banks to hold as against deposits, and that that should be' held in gold, and you stated that the amount of deposits in the country you estimated to be about 85,000,000,000, and 18 per cent of that would be $900,000,000, and I understood you to estimate that if the credit currency of the country were issued by the banks instead of by the (xoverument the total issue Avould approximate $1,000,000,000, taking the place of silver certiticates. Treasury notes, greenbacks, etc., including the present national bank notes, and a safe gold reserve for redem])tion purposes as against this $1,000,000,000 would be 5 per cent, or $50,000,000. That would make, then, the total reserve of gold in this country $950,000,000, would it not ? Now, then, I am simply pursuing the inquiry as to where we are to get that extra $250,000,000. Mr. Eckels. We can get it in England; we can get it in France; we can get it in any country which has gold to sell, and there is no country but has gold to sell if we are willing to pay for it, and there has never been a time yet, Mr. ISewlands, where a country maintained its credit, that it could not obtain all the money that it wanted for the purpose of carrying on the business of that people. Mr. Newlands. Well, 1 admit that. Understand me, I do not pro- pose to get into any contention on that; I am simply getting at the facts. Mr. Eckels. I understand that, perfectly. ]\rr. Newlands. We will assume, now, that $950,000,000 is needed and we have only got $018,000,000, according to the statenjeut of the Director of the Mint, and $700,000,000 according to your statement, and at least $250,000,000 more of gold will be required; and you must admit Mr. Eckels. If that amount was necessary. Mr. Newlands. You must admit, if we have not got it, it must come from some other country? Mr. Eckels. Yes. Mr. Newlands. Now, I am directing myinquiry as to what countries 292 FINANCIAL AND BANKING SITUATION. have a surplus aud what countries have a scarcity of gold — what coun- tries will re(iuire more gold in order to establish the monetary system which we have established and are endeavoring to maintain and what countries have a surplus of gold. Now, we have been through England, France, and Germany t Mr. Eckels. IJpon that point you find that whenever the occasion arises that we want $1*50,000,000 of gold we find other countries have $L*r)0,000,000 of gold that they do not want as badly as they want some- thing which they have not and which we have. There may be a time when we would have to have as mucli as $1,300,000,000 of gold, and there may be a time Avheu we would be recjuired to have but $400,000,000 of gold, or less. It would all depend upon the condition of business here, the amount of property to be transferred, the number of transactions to be carried on, and, most important of all, the state of credit maintained by the institutions which are issuing these promises to pay, and by the state of credit maintained by the borrowers of this country in dealing with those institutions. PRESENT PRODUCTKIN OF CtOLD. Mr. Fowler. In answer to his question, where would the United States get the gold, isn't it a fact that the world is now producing about $250,000,000 in gold a year ? Isn't that the prospect of the present year ? Mr. Eckels. That is the estimate, but if it were not producing that much we could get it if we paid enough for it. Mr. IsTewlands. I will get down to the question of production in a moment. Mr. Johnson. There has been a great impetus in the production of gold in the last four or five years. Mr. Hill. Is it not a matter of fact that England to-day has only between 1 and 2 per cent of gold reserve as against its bank deposits and circulation? Mr. Eckels. I do not remember the per cent, but it is the smallest of any people. iVIr. Hill. About $484,000,000 against about $5,000,000,000 of bank dei)osits and bank credits — between 1 and 2 per cent. Mr. Eckels. It is not more than 2 per cent. I know it is a very small percentage. Mr. Newlands. That is nearly 10 per cent. Mr. Eckels. 1 think it is about 1 per cent. I said $5,000,000,000 of bank deiDosits and bank credits and a gold reserve of $484,000,000. Mr. Newlands. $500,000,000 is 10 per cent of $5,000,000,000. Mr. HiLi,. That is correct. Mr. Newlands. Let us return to Austria, if you please. Do you know how nearly the uncovered paper of Austria has been brought to a parity with gold? Mr. Eckels. No; I do not know what the ])ercentage of discount is. I have not examined those things because 1 desired to discuss the question upon the principles involved and not ui>on mere technical figures. Mr. Newlands. Could you ascertain? Mr. Eckels. Yes, 1 could ascertain, and will do so. Mr. Newlands. Would y(>,000 people and only $4(),(M)0,()()0 of gold. We will assume that they all endeavor to go to the gold standard and that they have eciual banking facilities with our own. Would they or would thev not require more gold? Mr. J'iCKELS. They wouhl not if they had e(iual l)aiiking facilities with us and the people were educated to the use of banking facilities. In such case they would not require any more gold proportionately than we do. Mr. Xewlands. They have |1 per head in gold, whilst we have in this country about $8 per head. Mr. Eckels. They might have to increase their gold holdings, but if they did they would be able to obtain them, because there never has been a time yet Mr. Newlands. We have gone over a number of countries that have a large amount of uncovered paper money and small stocks of gold, and we will assume, now, that they have endeavored to go upon the gohl standard. They will certainly require some more gold, will they not? Mr. Eckels. Or increased banking facilities. Mr. Newlands. Or else they have got to have a perfected banking system. Mr. Eckels. Yes. Mr. Newlands. Do you think it possible in a few years to accom- plish a world-wide perfection of the banking system? Mr. Eckels. No, probably not. Mr. Newlands. Then, the demand for gold will precede the perfec- tion of the banking system, will it not, in these countries'? Mr. Eckels. Yes; but growing less instead of greater, becauvse iu eacli of these countries banking methods are continually being improved upon, and there is a corresponding lessening of the demand for the use of metallic money. There is, on the other hand, a largely increased yearly production of gold. Mr. Newlands. But, as I understand it, you regard a proper ajnouut of gold as the basis of a proper banking system? Mr. Eckels. I do; for current redemption. Mr. Newlands. Would it not be possible for them to perfect tke banking system without obtaining the i)roper amount of gold? Mr. Eckels. I think not. Mr. Newlands. That would involve an increased amount, to some amount, at least, in all these countries that have the large amounts of paper money at a discount. Mr. Eckels. Undoubtedly it would require an increase, but the increase iu production is to-day larger in proportion than the increase iu the demand. Mr. Newlands. Do you think the increased production of gold would meet this increased demand? Mr. Eckels. The increased production on the one hand, and it would decrease the demand for the use of gold iu countries which are improving their banking methods. Mr. Newlands. Yes. Now, what country can you point out to me to-day that has a surplus of gold ? 296 FINANCIAL AND BANKING SITUATION. SURPLUS OF GOLD IN SEVERAL COirNTRIES. Mr. Eckels. I tliink there is a surplus of gold in I'ugland; I think there is ii surplus iu France; there has been a surplus of gold in the Uuited States, and that is proven by the i'act that our people wanted something- more than they wanted the gold and they gave up the gold. There may not have been a surplus i'or the length of a year at a time, but there has been a surplus as the varying conditions of business have changed. ]\Ir. i*^EWLANDS. You think that the surrender of gold from a country is purely a voluntary matter ". Mr. Eckels. Certainly. It is surrendered because the people of the country desire to get something wliich they consider of greater use to them than the gold. Mr. Newlands. The United States is, I believe, in the relation of its i)eo])le to other countries, the greatest debtor nation of the world — I believe it is so regarded, is it not ? Mr. Eckels. Yes. the EXPORT OF GOLD. Mr, JS"EWLANDS. When the creditor countries throw their securities upon the American market for sale in gold and the export of gold is caused by that, do you think that the absorption of these securities and the export of gold is a voluntary thing by the people of the United States, and a pleasurable thing? Mr. Eckels. Probably at times it is not a pleasurable thing, and there may be immediate periods when it is a detrimental thing, but in the general average it is a beneficial thing. Mr. ]Kewlands. Then, the export of this gold does not necessarily indicate a desire on the part of the country to let so much gold go to another country, does if? ]Mr. Eckels. Xo; it doesn't necessarily indicate that, but, on the other hand, it indicates that the people are able to get the gold to meet these demands. Mr. Newlands. It may mean that thej^ are compelled to paj' their debts — reluctantly "'. ]Mr. Eckels. Well, undoubtedly at times a man pays his debts reluctantly, but even if he does he feels more comfortable after he has paid theuL Here is the difficulty in the taking of the gold from this country: It is taken direct from the Treasury of the United States in an unnatural way, instead of being taken through the agency of the banks, for tlie purposes of legitimate business in the natural course of business. Mr. Newlands. Now, if there is a surplus of gold in England, France, and Germany, how do you account for it that when the exports of gold increased within the last few months to this country from England, arising from our wheat sales, that the Bank of England rate of discount, which is normally about 1.^ to 2 per cent, Avas raised to 4 and 5 per cent? Wasn't its purpose to i)revent the export of gold ? Mr. Eckels. Undoubtedly it was, but it did not accomplish the pur- pose, because there were some things they wanted more than they did gold. Mr. Newlands. The fact, then, of that raise in the rate of discount showed that England felt it ha,()0U of gold she has now? Mr. Eckels. For the reason that there is a continual a])prehension in France, in Germany, and all continental European countries, that war disturbance may arise and the necessity of having immediately within their juiwer the means of sustaining themselves in a war. A further reason is that the French ])eoi)le do not use banks of deposit, and therefore there is necessity of having a large amount of metal money to use in the daily transactions of life. Tiiey estimate their amount just as a grocer estimates the amount of stock he has to carry in his store, or any other man engaged in business — by experience with the demands of peo])le for the ])articu]ar article which he has to sell. They estimate that amount to be necessary in France because the habit of the French ])eoi)le in the matter of the transfers of ])roperty is to make transfers by ])aying the actiuil money itself instesul of by giving redeemalde ))romises to pay, or checks or bills of exchange. The Chairman. I woidd like to ask two or three questions right there, if there is no objection. EXPERIENTIA DOCET. You sj)oke of the (puintity of gold in England. Is it a fact, in the continuation of your idea, that these things can only be known by exi)eriencc — that is the only way to know how much gold is necessary — isn't tiie experience of tlie English system tlie only thing that the FINANCIAL AND BANKING SITUATION. 299 English can rely upon ; isn't it equally true of tlie Scotch ; and that the amount of specie they have has beeu proven to be amply saf[i(;ient; isn't that true of the Irish, although that is a part of Great Britain, and isn't it also true of the Canadians? Mr. Eckels, All these systems are based upon the experience that these immediate peo])le have of themselves had, added to by the gen- eral principles of monetary science underlying all banking and mone- tary systems. The Chairman. But the modification that the general principles of monetary science have exerted on statesmen as to what should be made into hiw is comi^aratively slight, is it nof? Mr. Eckels. I think in some instances at least it has been. The Chairman. You are familiar with the Suflfolk system of Xew England, are you not? Mr. Eckels. Yes; somewhat. The Chairman. Is it not reasonable to suppose that what was true of ]Sfew England for thirty years as to the proportion of currency in the various things that could demand currency in redemption, would be satisfactory and safe ? Mr. Eckels. Modified tochangethepresentmethod of doing business. The Chairman. Then when you come to the last analysis of these theoretical propositions they would and ought to have but slight influ- ence on legislation as compared with the actual facts developed by looking into what was actually done and to the conditions now in the countries named or in our own country and what were the facts in dif- ferent systems in previous periods? Mr. Eckels. Except that the theoretical questions tend to bring out the actual facts, and I think that somebody has said where there is a conflict between facts and theories so much the worse for the theories. Mr. Calderhead. When you say that Pravice clings tenaciously to a large amount of gold, do you mean the people of France? Mr. Newlands. The French peo]»le generally. Mr. Calderhead. What has legislation to do with that? Mr. Eckels. You know that virtually every French peasant is his own banker. He does not use banks of deposit; he does not trust banks; he keeps his metal money and does not exchange it for notes with the banks. It is in the cities where that thing prevails, and con- sequently there is a necessity for a larger store of the metal medium of , exchange. Mr. Newlands. Then, taking into consideration the existing condi- tions of France, and the lack of banking" facilities, etc., you do not regard the French people as unwise in holding on to this $850,000,000 of gold, do you ? Mr. Eckels. I do not regard them as unwise in holding on to the amount which the necessities of business re([uire. Mr. Newlands. Experience would tell them as to what the necessi- ties of business require. Mr. Eckels. 1 would take all their experience; .and I find in one instance England was short of gold, but then, when they wanted it they got it immediately from the Bank of France, You can not say you luust have always the same amount of gold in existence in the country all the time. Mr. Newlands. Do you remember how much they got from the Bank of France at tliat time? Mr. Eckels. £15, 000,000, 1 think. The Chairman. They got the right to £15,000,000, but actually got less than £0,000,000. 300 FINANCIAL AND BANKING SITUATION. Mr. Xewland.s. I am simply finding- out -with regard to the country tliat has a surpkis of gold, and in regard to these countries tbat have a sufficiency of gokl, and 1 am iuquiring now whether France has too much gokl. I understand Mr. Eckels i^ractically admits that the experi- ence of the country is a safe guide, with reference to its condition of banking and business, that it is not unwise to keep on hand 8850,000,000 of gold — that is, he will trust to experience as to the wisdom of it. NUMBER OF BANK DEPOSITORS IN THIS COUNTRY. Mr. Eckels. But coupled with the statement that we have always been able to furnish gold when demand is made for it. Two years since, I made an investigation at the Chairman's request of the number of bank depositors in this country — State, savings, private, national, and all. There were over 0,000,000 of them. That fact was so potent as indi- cating the extent to which credit instruments were used in this country that tlie Banker's ^lagazine, of London, called attention to it as indicat- ing a condition of affairs here that must necessarily give our people a tremendous advantage in time over other commercial people with whom we were dealing, as lessening the amount of actual money which they must use and otherwise in the methods of transferring property, because 9,000,000 people depositing in banks means an enormous use of checks and drafts and a corres])onding reduction of the use of actual money passing from hand to hand. The Chairman. Paper money or coin money! Mr. Eckels. Yes ; either one. Mr. Newlands. Do you think credit can be used too extensively in business? Mr. Eckels. Yes; it can. Overtrading can impede business. Mr. Newlands. Can you have a very large increase in the credits of the country or the world without correspondingly increasing the base in the shape of primary money of redemption ? Mr. Eckels. 1 think we can have a very large increase of credits safely if we have an increase in the amount of property in the country. I do not think it depends on the amount of what you term ]>riniary money,"but it depends upon what has been transferred — the increase in the value or the amount of that which is being transferred by your credit instruments. Mr. Calderhead. I would like to inquire whether you think a very^ large increase in the deposits of a country would make an increase of gold necessary by that country. Mr. Eckels. Not necessarily; no. Mr. Calderhead. It would not have anything to do with it, would it? Mr. Eckels. No. The values of those deposits depend largely on the things in which those deposits are invested, because as soon as a deposit is brought into a bank it is expected it will be loaned out and take the shape of some property which is of value. The expectation would be that the bank every day would loan out the amount it took in. The measure of the safe extension of credit is the measure of the value of tlie pro])erty. Mr. Newlands. Do I understand you, then, to point to England, France, and Germany as the countries which have a surplus of gold which can be drawn upon in order to enable the United States to establish a proper monetary system, and also these other countries which have a large amount of uncovered i)aper outstanding; you think those are the three countries which can be drawn u])on for gold? FINANCIAL AND BANKING SITUATION. 301 Mr. Eckels. They can be drawn upon if we needed any more, and undoubtedly if we wanted more than they could supply us with we wouhl buy it directly from the miner, not only here, but in Africa or anywhere else, and have it coined. The Ciiair:man. Isn't it a fact whatever coin money exists must nec- essarily be used, and tlie fact of the existence of a huge body of coin in the country is not a proof that it is necessary to have that to do the hirge business of the country? Mr. Eckels. Undoubtedly, and the strongest criticism which has been presented against the Bank of England is that it unnecessarily keeps locked up such a tremendous amount of gold. VISIBLE GOLD. The Chairman. Isn't it a fact she puts dow^n her rates of discount to 1 and 2 and 2^ ])er cent to dispense the gold when she tinds she has too much and when she linds it is l)eing too rapidly withdrawn she puts up her rate to keep the gold? Isn't it a fact that all the visible com- mercial gold in England is now about $175,000,000, but ordinarily it is $120,000,000 to $135,000,000 I Mr. Eckels. Yes; as to the rates of discounts and the purpose of them. I do not know exactly the amount of visible gold, but it is com- paratively a very small amount at present. The Chairman. Is it not a fact furthermore, that the gold in the pockets of the people is held on to tighter in case of excitement or panic and they do not pay it out then i? Mr. Eckels. That is undoubtedly true. Mr. Newlands. Is it not a fact that the exports of gold from various countries and the imports to them are watched very caretvilly by all people interested in business, and particularly in financial business? Mr. Eckels. I think that is so, but they are watched with more anxiety by this people than any other people on the face of the earth, because ours is the one people that has its Government in partnership with every individual who is carrying on business. BISMARCK ON THE SUPPLY OF GOLD. Mr. Newlands. Now, I ask whether the statement attributed to Bis- marck is not substantially true, that this gold blanket is not sufUciently large to cover all the nations of the world, and when one nation tugs at it it exposes the naked members of the otlier nation? Mr. Eckels. No; and I think Bismarck's opinion, among men who are informed on this subject, has less weight in hnancial affairs than the opinion of any other statesman who ever rose to his prominence in j^ub- lic life. Mr. Newlands. With reference to the production of gold, you rely upon that to supply the wants of these countries that have these large amounts of uncovered paper money ? Mr. Eckels. As a contributing element ? Mr. Newlands. Yes; as a contributing element. At what figure do you put the production of gold during the past year? Mr. Eckels. I do not know; I suppose $225,000,000. Mr. Newlands. That is the largest production known in the history of the world, is it not? Mr. Eckels. Yes. Mr. Newlands, The world is searching for gold now very energet- ically. 302 FINANCIAL AND BANKING SITUATION. Mr. Eckels. Yes. Mr. Xewlands. Doesn't that indicate a great demand lor gold? GOLD A YALX'ABLK I'KOPKETY TO IIAYK. Mr. Eckels. Yes; undoubtedly; or it indicates at least that the peo- ple think it is goino- to be a valuable property to have. ]\Ir. Newland^. o^ow, as to that annual ])roduction of gold, have you any information as to how much of it is really absorbed in the monetary systems of the world and how much goes to dentistry and the other arts ? Mr. Eckels. I imagine all goes into the monetary systems of the world that can possibly be used to the best advantage by the monetary systems of the world, and that which can be best used in the arts, and thereby bring more profit to the owner of the gold, goes into the arts. It is necessary, of course, to buy the gold to coin into money. Mr. Newlands. What proportion goes into money? Mr. Eckels. I do not know exactly. Mr. Newlands. a large proportion goes temporarily into money and finally into the arts? Mr. Eckels. It changes. It stays in money as long as it can best be used for money, and when it is of more value in the arts it goes to the melting pot. Mr. Newlands. Do you think more than one-half of it? Mr. Eckels. I would not undertake to give the- exact proi)ortion. The Chairman. That is a matter of public record. Mr. Eckels. I have not the statistics here: but I have always observed this, that there has never been a time in the history of this l)eople, or any other x)eople, that there was not a sufficient amount of gold obtainable if it was needed. Of course, sometimes more must be paid for it than at other times, just as you have to pay more for com- modities at certain times than at other times; but it can always be bought by paying enough for it. Mr. jSTewlands. Do you know what statisticians have estimated as to the percentage of gold produced that goes into the arts — dentistry, etc.? GOLD IN THE ARTS. Mr. Eckels. Xo; I do not know what their estimate is, and I do not care particularly, because I do not think it affects the question. My theory is that there always goes into money that which can be best used for money and there always goes into the arts that which can be best used in the arts. Mr. Johnson. Yon would not be alarmed, then, to see a large amount of it being used in the arts? Mr. Eckels. I would not <'are if 95 per cent of it was used. It would indicate the condition of business Avas such that it could more profitably be used by putting that proportion into the arts, and that it was therefore not needed for money. Mr. Xewlands. Isn't it true that the more valuable gold becomes the greater demand there is for it in tlie arts and on account of the very fact that the whole world is seeking for gold it makes it desirable in the arts ? jMr. Eckels. J think that is so. I think some eminent authorities have said, the higher becomes the ]>rice of gold the better for the peo- ple, for the reason that it decreases the inconvenience of bringing about exchanges of property. The objection to any money which FINANCIAL AND BANKING SITUATION. 303 increases the bulk of tlie tliiiii;' wliich is to do ;i certain required work is tluit it tliereby lessens the profits to the person who is handling that money. APPKECMATION OF aOLD. Mr. Xewlainds. You believe, therefore, that it is a good thing that money should increase in value? Mr. Eckels. I do not think there is any harm in it at all. Mr. Newlands. You think that if gold appreciates it is a good thing? Mr. Eckels. I do not think it would in any wise work a single loss to anybody. Mr. Newlands. JJo you think that gold has appreciated ? Mr. Eckels. No. Mr. Newlands. You think it is a stable measure of value? Mr. Eckels. I think it is a stable measure of value. The Chairman. Is it not a fact, Mr. Comptroller, that when you speak of gold being more valuable in the arts, or going into the arts rather than into money, it is not a matter of increasing its price, but that the bankers and the money users having reached the amount neces- sary in the reserve to be held, the balance goes into the arts, so that the bankers and the people are not at the exijense of holding it in a money form ? Mr. Eckels. More valuable in that form. The Chairman. More valuable because it is not necessary to use a reserve ? Is it not a fact that, except in England and California, pretty generally, the use of gold has gone out as currency money and that paper and silver are being used as currency to the exclusion of gold? Mr. Eckels. Yes; and people do not want to carry silver because they j)refer to carry paper. All these things have to be gauged by the habits of the peoi)le, and by their continual desire to have this thing or that which least inconveniences them and is of the least expense and best answers the immediate purpose. It would be about as reason- able to desire to go back to old things in the methods of transportation, or in anything else as it would to go back to something which simply increases the inconvenience of doing a thing which you wanted accom- plished in the best way. Mr. Newlands. I understand you to say that you regard gold as a suitable measure of value, and you regard it as a good thing if it appre- ciated in value? Mr. Eckels. I said that I do not think any harm would follow from it. The Chairman. Are tliere any other members who desire to ask any questions in the line of the questions that have been asked by Mr. Newlands? bimetallism. Mr. Johnson (to Mr. Newlands). Why don't you put the direct ques- tion to him ? Mr. Newlands. What was the direct question? Mr. Johnson. Why, the question you have been driving at all through your long examination — whether or not bimetallism is necessary in order to get a broad enough basis for the issue of paper money. Mr. Eckels. If that is the purpose of Mr. Newlauds's general tenor of questions, it will take but a few minutes to say a word on bimetal- lism. If I may be permitted, I would like to round out some things I have said on this subject. 304 FINANCIAL AND BANKING SITUATION. I liave touclied upoTi the question of the use of metallic moneys, and, "wbetber or not I am correct, 1 Lave reason to tbiuk that Mr. Newlands is a believer in bimetallism. Mr. Johnson. Tbere is a suspicion of that kind in the committee room. Mr. Eckels. From some of the inquiries made on Thursday and my replies I am sure tliat he will draw the inference that 1 am not a believer in bimetallism, that 1 believe in the single gold standard as being the thing which is most essential to the proper conduct of the business of a commercial nation having transactions with other commer- cial nations desiring that which will best meet the needs of commerce. BIMETALLISM AN IMPOSSIBILITY. I do not believe that bimetallism would add in the least, if it were a possible thing, to facilitating commercial exchanges or aid in the trans- fer of proi»erty. As a practicable thing it is an impossibility, because there never yet has been seen in the history of commercial nations, or in the history of any i)eople that have undertaken to maintain mone- tary systems in practical operation, simultaneously, the things which are essential to the maintenance of a bimetallic standard. Those things are, if it is possible in the maintenance of a national bimetallic standard and a national bimetallic currency, a ratio to be fixed upon by law as between two metals, which ratio ought to be as nearly as jiossible the commercial ratio as the lawmaking jtowers are able to ascertain, if it is international bimetallism then the ratio agreed upon between the agree- ing nations. There must be in addition, made of that silver and that gold, money of absolute redemption, every dollar coined being of the value of every other dollar entering into circulation. Every dollar must maintain itself iiidependently, so that one dollar can be exchanged for the other without any loss, or a man transfer property and receive i^ayment therefore either in silver or gold without any loss. Again, there must be uidimited legal-tender properties attaching to each and every dollar of the dollars coined out of the gold and silver upon the ratio agreed, and there must be full, unlimited free coinage of both metals. When all these elements are provided for, concurrent cir- culation of the dollars so coined'out of the two metals must always be present. If at any time any one of these elements which 1 have enum- erated is wanting, a country has not a bimetallic standard and a bimetallic circulation, but it has either an alternating standard and circulation or a single standard with a single coin in circulation. 1 am contideut that it can not be i)ointed out that for a single day in . the history of the United States, under the operation of any coinage act, there have ever been these four elements essential to the maintenance of abimetallic standard in combined action. Wehave never had a time in our history where the two metals have circulated independent of each other, each metal maintaining its full value indei)endent of the other metal. We have never had independent concurrent circulation and without such concurrent circulation and such absolute independence of the sustaining power of one metal under the other we have not two moneys of ecpial icdemittive powers. If we have to maintain our silver with a gold ])rop under it, then silver is not a money of rcden)ption, and if we have to maintain our gold with the silver under it gold is not a money of redemption. Unless a man can exchange his property and his dollars without loss, whether or not he receives the silver or the gold, lie is not given a money whicli in and of itself is the equal in value of FINANCIAL AND 15ANKING SITUATION. 305 the other form of money wliich enters into the inainteiiance of the bimetallic circulation of the country. Thus far in this country we have had only the single standard and a single self-sustaining circulation. At one time a silver standard and a silver circulation, at another a gold standard and ;i gold circuhition, but never a bimetallic standard and a bimetallic circulation, ^uch a thing 1 believe to be an absolute impossibility. Mr, Newlanus. You have observed throughout that I have hardly used the Avord "silver'' in tliis inquiry. My whole inf|uiry has been directed to finding out whether or not there is suthcient gold m the world for redemption purposes and whether under the banking system that is ]»roposed we can procnre enongh gold in this country for redem])tion purposes. My incpiiry, therefore, lias been directed to asc;er- taining the stocks of gold in the different countries of the world, and the possible requirements of countries that are now struggling to get upon the gold standard and to make gold redemption. The CiiAiiJMAN. Mr. Comptroller, in 1893 I received from your Depart- ment, or copied from your report, a statement that it cost $137.48 per $100,000 for the redeniption of currency. In the testimony given by the Secretary of the Treasury in 1893, on $75,000 he reports that the annual cost for the redemption was $37,50, express charges $2,50 — I su])pose those are to be included — making $40. Mr. Eckels. Yes. The Chairman. That would make the entire cost on $100,000 $53.33, or one-third more than Mr. Carlisle figures on $75,000. Jn your report I think you say it cost $45 and some odd cents per $100,000, didn't you ? Mr. Eckels. 1 don't remember the exact figures. 1 will look that up. The Chairman. Now, the number of redemptions under the Suffolk system averaged in ordinary years about five. As shown in the paper sent here by Treasurer D. N. Morgan, December 1, 189G, it cost $1,125 per $1,000 to make the redemptions, and if it is averaged to be redeemed five times — that is to say, each $1,000 — the redemptions Avill be a total cost of $6.62i, and that would l)e $502.50 instead of $137.50 on $100,000 of bank notes. The point is whether the $137.50 covers merely the actual redemptions of each $100,000 each time, or whether that would cover the whole of the nnmey in circulation in its actual redemption, if our paper money was all bank currency and frequently redeemed? The Treasurer's figures are as follows : Treasury Detartment, Office of the Treasurer, Washington , D. C, December 1, 1896. The charges for trausportation aud the costs for assorting the notes of national banks redeemed during the fiscal year ending June 30, 1896, under the act approved June 20, 1874 (18 Statutes, 123), were as follows: Charges for transportation $32, 518. 03 Costs for assorting: Salaries $77, 7(5(1. S-i Printing, binding, and stationery 2, 825. 97 Contingent expenses .., 974.19 81,r.66, 70 Total 114, 085. 63 These expenses have been assessed n])on the several national banks in proportion to the circulation redeemed. The aggregate amount redeemed aud assorted during the liscal year was $101,409,451.50, giving $1. 12^ as the average rate for each $1, 000. On November 1, 1S94, he says: The contract rates for the; transportation of all kinds of pai)er currency to or from Washington are — CUR 20 306 FINANCIAL AND BANKING SITUATION. Between Wasliiiiglon ami points in tbo territory of the Uuitecl States Express Company and reached by it, I'O cents per !fl,000 or fractional part thereof over $500; sums of $500 or fractional part thereof, 10 cents. Between Washington and points in the territory of another express company, excepting points in Texas, Arkansas, Colorado, Kansas, Nebraska, 5lontana, North Dakota. South Dakota, Wyoming, and the Indian and (Oklahoma Territories, 60 cents per $1,000 or fractional part thereof over $500 ; sums of $500 or fractional part thereof, 40 cents. Between Washington and points in Colorado, Kansas, and Nebraska, 75 cents per $1,000 or fractional part thereof over $500; snms of $-500 or fractional part thereof, 50 cents. Between Washington and points in Texas, Arkansas, Montana, North Dakota, South Dakota, Wyoming, and the Indian and Oklahoma Territories, $1 per $1,000 or frac- tional part thereof over $500; sums of $500 or fractional ])art thereof, 65 cents. Express charges aio paid by tlie (Government, at contract rates, on standard silver dollars sent by the Treasurer or Assistant Treasurer in snms or multiples of $500, on tractional silver coin in sums of $200 or more, and on minor coin sent from the mint at Philadelphia in sums or multiples of $20. Thereupon at 4 p. m. tlie committee adjourned. Committee on Banking and Currency, Washington, J). C, Tuesday, February 2, 1S97. The committee met at 10,30 a. m. Members present : Tlie chairman (Mr. Walker) and Messrs. Brosius, Van Voorhis, McCleary, Fowler, Lefever, Spalding, Calderhead, Hill, Cox, iStallings, Black, Newlands, and Hendrick. Hon. James H. Eckels, Comptroller of the Currency, appeared before the committee and continued his statement begun on January 28, 1897. STATEMENT OF HON. JAMES H. ECKELS, COMPTROLLER OF THE CURRENCY— Continued. The Chairman. Mr. Comptroller, 1 asked you some questions yester- day, the answers to which we want in the record in order to complete that matter discussed. Mr. Eckels. The reporter, by referring to his notes of yesterday's hearing, will find that you asked me a number of questions relative to the cost of redemption of national-banking notes in 1893, stating The Chairman. Some are for 1893, and some are for 1894; and the figures I gave you are from the very last report of last year. COST OF BANK-NOTE REDEMPTION. Mr. Eckels. Yes; I asked the chiefof the redemption division of the Comptroller's office to give me a statement of the cost of the redemjition of the national-banknotes fortheyear ending June 30, 1893, as requested by Mr. Walker, and heinformed me thatthe cost was $1.3551 per$l,000, or $135.51 per $100,000 actually redeemed and assessable. He further informed me that the estimated cost of maintaining $100,000 of the circulating notes issued to a bank is estimated tobeaboutone-tweutieth of 1 i)er cent, or about $50 per year. The Chairman. That is, for each redemption f Mr. Eckels. Yes; for the year — about $50 per year. Mr. Fowler. I do not understand that that clears the first proposi- tion. Mr. ErivELS. The cost for redemption of national-bank notes for the year ending June 30, 1893, was $1.35 lor each $1,000 actually redeemed. FINANCIAL AND BANKING SITUATION. 307 The Chaik>ia>". Fifty dollars per year, with the notes actually redeemed, as it has actually taken phu^e under our present system of redeeminji' national-banking circulation. Mr. KcKEL.s. Tlie §i;}5.r)l per $1()0,()(»() of notes redeemed in the year 18U3 was for that year only. Last year — 189G — the cost was reduced to $l.V2h per $1,0()0, or $112.50 per $100,000, and the total amount redeemed was about one-half of the outstanding national-bank circula- tion, or s10S,2(jO,!>78. The Chairman. That is to say, the total cost of tlie redemption for the year, divided by the total sunt of currency that the banks had out that year, amounts to the $1.3551 per thousand, or whatever it is. Mr. Eckels. Yes. The Chairman. Then, of course, if this currency should average to be redeemed twice or thrice or live times you would have that many more times the estimate given ? Mr. Eckels. But the estimate is, that for a bank having $90,000 in circulating notes the amount redeemed per year is about 50 per cent of the entire circulation. The Chairman. IJedeemed once. Mr. Eckels. Yes; and the greater the amount actually redeemed the less cost per thousand for redemption. Tlie Chairman. So that if the redemption was done five times on each note it would not be five times the amount as shown there? Mr. Eckels. ]So. The Chairman, Because the packages that came in would be larger? Mr. Eckels. Yes; and the cost of handling less, so that the cost per thousand lessens with the number of times of redemption. You had, Mr. Chairman, a statement to the effect that the number of redemptions under the Suffolk system averaged in ordiuary years, about five; and, as shown in the paper sent here by Treasurer Morgan, dated December 31, 189G, it cost $1.12i per thousand to make redemptions. The Chairman. And if notes are averaged to be redeemed five times- Mr. Eckels (continuing). That is to say, each $1,000 of redemption will be a total cost of $5.G2i, and that 'would be $502.50 instead of $137.50 on $100,000 of bank" notes. The point is, whether $i;{7.50 covers merely the actual redemption of the $100,000 each time or whether that would cover the whole of the money in circulation in its actual redemption, if our paper money were all bank currency and fre- quently redeemed. To that statement of yours the chief of the redemption division of the Comptroller's office has added this note. The altove calculation of $5,625 is for $5,000 redeemed and at the same rate. It should be $112.50 per $100,000, instead of $562.50. The Chairman. He did not know what he was talking about and I did. Mr. Eckels. He seemed to have the opinion that he did, and that you did not. The Chairman. The facts are that the records show that the total circulating notes in New England was averaged to be redeemed about five times each year. What 1 wanted to get at was, if the total cur- rency of the country was redeemed five times each year whether it would not cost five times what a single redemj^tion would cost. The larger the volume you redeem the less is the cost per $1,000. Is it oris it not a fact, Mr. (/omptroller, that, other things being equal, the larger the territory covered by any system of coin redemption, the less per- centage of coin to the total liabilities of a bank is needed, because of 308 FINANCIAL AND BANKING SITUATION. the varied industries, aud tbe varied times at which crops are gathered, so that each business measurably bakmces the other? Now, ^yhat is your judgment on that? Mr. Eckels. You mean overthewholecountryoriTidividual localities'? The Chairman. Over the whole country. 1 will read the (juestiou again. The Chairman repeated the question. Mr. Eckels. I think that is so, if the same perfection exists in the banking system in one ])art of the territory as in the other. The Chairman. I'hat is assumed. Secondly, is it not a fact that the larger and more varied the interests iucluded in any banking system, the less percentage of coin, to the total of volume of liabilities, is needed ? Mr. Eckels. That is unquestionably so, because the mote interests transacting their business through the bank the less occasion there is for the handling of coin in the transfer of property and the more there is of transferingof proi)erty through instruments of credit issued through the banks. The Chairman. In any banking system where the currency is put in circulation, is it not a fact that the depositors make a larger draft on the coin held for redemption than the class of people that use the cur- rency that is issued l)y the banks! Mr. Eckels. I stated yesterday that the note holder was less liable to come to a bank for the redemption of his note than the depositor* for the reason that people do not wish to carry with them a metallic currency except when there is some absolute necessity for so doing. Therefore the bank-note currency redemptions are less frequent than the redemjition of what might be termed deposit currency. The Chairman. You are talking now of final redemi^tion in coin? Mr. Eckels. Yes, the deposit money of the bank; and consequently there is less need for a large reserve against note issues than there is for a reserve against bank deposits. The Chairman. The theory upon which our banking law and all sound banking proceeds is that the reserve both of coin and of bank balances should be adjusted to the deposits and not to the currency. You think that is a sound system? Mr. Eckels. There is no reserv^e maintained against note issues, for the reason that they are all provided for by the deposits of bonds. At the outset the national-bank act did provide for holding a reserve against note issues. POPULAR IDEA OF A BANK'S SOLVENCY. The Chairman. Y'ou have introduced an issue there. The bonds do not cut any figure and have no relation to the currency excepting in its final redemption u])on the solvency of the bank. Our present system goes upon the theory that the reserves held ought to be adjusted to the individual deposits and also the coin held, instead of to the currency issued. Mr. Eckels. They cut this figure, that nobody ever thinks about a bank note, because he knows that as long as the credit of the Govern- ment is such that its bonds are redeemed, his note is good. The Chairman. J5ut in the i»opular mind the thing that tests a bank's ability to redeem is the currency it issues and not the deposits it accepts. Now, as a matter of fact, is it not the depositors, and not the currency holders, that demand coin redem])tion, as you have previously testified; and isn't our system adjusted ux^on that i)rinciple? FINANCIAL AND BANKING SITUATION. 309 Mr. Eckels. I tliink in the popular mind witli us, Mr. Walker, tli at which tests tlie solviMicy of a bank is its ability to redeem its indebted- ness to its depositors — its ability to meet the demands of the depositors. Under other eirtaimstanees technically a true test of the solvency of a note-issuinj;^ bank is its ability to redeem its notes. The CIIA1R3IAN. Is it not a fact that in a business community the thing" that is believed to test the solvency of a bank, with those familiar with banks and banking-, are the deposits and the demand that the depositors make ui)on a bank; but in the i)opular mind, say, the average taxpayer, the thing that rests in his mind, as a matter of risk, is the currency that the banks issue? Isn't there a distinction? Mr. Eckels. I do not think in the United States or any country where there is an absolute deposit of securities that there is any thought at all devoted to the redemption f>f the note issues. The Chairman. By the depositors ? Mr. Eckels. By the noteholders. They look to the Government. But where, as 1 say, the banks maintain the responsibility themselves of redemption of their note issues the popular mind would undoubtedly be constantly ou the lookout as to whether or not the banks were able to redeem the notes issued. The Chairman. Is it not a fact that the banks are required to put up the 5 per cent redemption fund, and that the banks themselves, through tiiat fund, currently redeem their notes, and then the Govern- ment sells the bonds to redeem the notes of insolvent banks? Mr. Eckels. That is the fact. The Chairman. So that the fact that theGovernment finally redeems the note does not cut any figure with the bank, because that is a final redemption, and the 5 per cent redemption fund is hekl and used for the current redemption. Mr. Eckels. I think, Mr. Walker, in the popular mind here there is not a single thought devoted to the redemption of bank notes, either current or permanent, by the man ])ossessiug them. He is aware of the fact that the Government attends to that part of it, because it is provided in the law that if the redemption fund is not maintained a bank without being notified can be closed up and the Government take possession and redeem the notes, recouping itself from the bonds deposited with the Treasurer. The Chairman. Isn't it true that the larger the volume of business done by a larger number of individuals in the same territory under the same system, the less percentage of redemption coin is ueeded? Mr. Eckels. Yes. Mr. Hill. I understood you to say, Mr. Eckels, in response to Mr. Walker's question, that the larger the country the less coin would be required for redemption purposes. The Chairman. The less percentage of coin. Mr. Hill. Yes; the less percentage. Mr. Eckels. The same character of banking facilities Mr. Hill. I want to ask you, if the country is divided into redemp- tion districts, wliere will be the greatest demand for redemptions, from withhi the redemption district in which the bank is located or without it? Mr. Eckels. 1 think without it. Mr. Hill. Then the more extensive the country is the greater the quantity of coin required, rather than a less quantity ? Mr. Eckels. I don't think so, with the improvements of banking facilities equally distributed. Mr. Hill. Why would that affect the case at all ? If the redemp- 310 FINANCIAL AND BANKING SITUATION. tions that are to come to banks, that are called for by the banks, are from without the redemption district, why is it not true that the greater the territory without the redemi)tion district, the larger will be the calls ? The Chairman. The jjoint is, it is impossible to have redemption territorial districts where the system covers a given territory. You can not make redemption districts. Banks must be allowed to choose among the large commercial cities the city in which they will redeem their notes. Mr. Hill. 1 don't think that would change the fact at all. It would seem to me the exact reverse is true. REDEMPTION UNDER THE SUFFOLK SYSTEM. Mr. Eckels. I don't think, Mr. Hill, that under the Suffolk system, as the number of banks increased and the territory was enlarged, there was a corresponding increase in the amount of coin used for redemption. Mr. Brosius. Mr. Comptroller, is it not a fact that the need for bank currency in any country, other things being equal, diminishes in exact ratio to the extent of the deposits of the banks of that country f checks create a currency. Mr. Eckels. Yes; because people, if they become bank deiDositors, use checks, and they create a bank- deposit currency. Mr. Brosius. They create a currency themselves. Mr. Eckels. Yes; the only diflerence being that the bank-deposit currency is not a currency wiiich passes rapidly from hand to hand, as a bank-note currency does. For that reason, it does not in all instances take the place of a bank-note currency. Mr. Brosius. I did not mean to imply that it took the place of it in the sense of superseding it. I only meant that where there is a habit of depositing in banks, so that all the available funds in a community go out of the pockets of the people into the general use of the public, that less and less amounts of bank-note currency are needed in such cases. Mr. Eckels. Yes; that is so. ]VIr. Brosius (continuing). Because all the funds of the community are utilized for public uses. Now, let me ask another (luestion. Is it not a fact that with the i)rogress of the evolution of banking agencies and facilities the habit of depositing the current funds of counnunities in banks grows, and that therefore the deposits in the banks of the country increase from year to year? Mr. Eckels. That is undoubtedly true. I have several times taken occasion to say that with the increase of facilities of exchange through banks of depositaiid discount youdiminish theuseof bank-note currency, and also of gold (-urrency or silver. After all, bank notes and gold and silver play so very small a part in the innumerable transactions in the business world that they can not be considered to compare with the other methods which are used for carrying on business. Mr. Brosius. Tliat is the philosophy of it. Mr. Eckels. That is the fact of it. DEMAND FOR ADDITIONAL NOTE CURRENCY LOCATED. Mr. Brosius. Does it not find additional illustration in the fact that in those sections of the Union in which there exists the greatest demand FINANCIAL AND BANKING SITUATION. 311 for additional bank-note currency there is the least amount of deposits in the banks? Mr. Eckels. Yes. j\rr. Brosius. In tlie cities of the Xorth and in the Xorth generally and the Middle States, where capital abounds and they have the habit of depositing', they are not deniauding additional bank-note currency, are they! Mr. Eckels. No. Mr. Brosius. In the South and West, where they do not deposit so generally, and where there is a dearth of deposits in the banks to be used for public purposes, they are demanding additional bank-note currency I Mr. Eckels. Yes. JVIr. Fowler. Is it a proof that they have no wealth? Mr. Brosius. No. Mr. Eckels. The desire for an inflation of the currency is not con- fined to any single locality or any single class of iieople. There has always been everywhere a desire to have a large volume of currency, but the needs of the South and the West for better note-issuing func- tions on the part of the banks are greater than in the East and the Middle West and the New P^ngland States. The Chairman. Is it not true that where the banks issue currency freely where they are located the currency carried in the pockets of the i)eople there actually increases, while being a less percentage to the total banking capital — that is to say, that the percentage of cur- rency to the deposits and to the banking capital may be less, while the total currency in circulation may be more, because loans are made in currency? Mr. Eckels. Yes. The Chairman. Now, Mr. Eckels, preparatory to taking up the bill H. E. 171, if you will turn to page 98 of* your report EFFECT OF REDEEMING IN OOLD ONLY. Mr. Cox. Before you take up the regular bill I wanl^ to ask Mr. Eckels one question. Mr. Eckels, I want to go back and call attention to a ques- tion we were discussing yesterday and try to make tlie question under- stood. When you were speaking of the redemption by the banks and taking it oft' of the (iovernment, and that they should redeem in gold, a question drawn (»ut by my friend there, to a certain extent, was the thought that if the gold was needed in this country the banks could get it, and if it was needed in other places and we had a surplus it would flow to them ? Mr. Eckels. Yes. Mr. Cox. Now, suppose the banks had to redeem in gold, and gold only, and there was at a time a demand for a considerable sum of gold out of this country. By your answer it would naturally take its course to fill up w^hat you i^iight call a vacuum there. Now, would not there be a danger that gold might go to a slight premium, or a considerable premium, and if it did go to a premium, even a small one, would not that be an invitation and would not it have the influence to rush the depositors into the banks for the redemption in gold, so that they would get the profit of that premium? Mr. Eckels. Of course there is always the liability of having a con- dition of the public mind that may upset the best system, but this thing is certain, that wherever the respousibilily has been placed on 312 FINANCIAL AND BANKING SITUATION. banks of looking after these matters, unbampered by unnecessary (Jov- ernment restriction, they have been able to do it. As they have all the machinery, they nndoubtedly wonld protect themselves. Mr. Cox. Bnt you admit that there is some danger along that line? DISTURBANCES POSSIBLE UNDER THE BEST SYSTEM. Mr. Eckels. Under the very best system possible there is ai)t to be a condition of the public mind which for the time may create distnrb- ances. Mr. Beosius. Conld gold go to a premium under auy circumstances as long as banks continue redeeming in gold? Mr. Eckels. No; the banks themselves might have to pay it. Mr. Brosius. It does not make any difference what the banks have to pay for it, because any man taking his note to the banks can get gold for it, and as long as tliat is the case gold will not go to a premium. Mr. Cox. But the question lies in the fact that the banks have to pay a premium for the gold. Mr. Eckels. They would probably have to pay a higher price for it. Mr. Cox. But the apprehension in my mind is that the depositor would rush for the gold if it was at a premium. Mr. Eckels. They would not, however, buy the gold back from the depositors. The depositor who would take that gold would hoard it. The Chairman. We will now take up my bill H. R. 171, but before we proceed to that I will ask you to turn to page 100 of your report for 1896. The nine recommendations therein made by the Comj^troUer are as follows: SUGGESTED AMENDMENTS OF THE BANK ACT. [Annual Rejiort of the Comptroller of the Currency, 1896.] • It is one of the duties imposed by law upon the Comptroller of the Currency that je shall, in his annual report to Congress, iudii'ate such amendments to the bank act as woukliii his judgment im])rove the national-banking system. In discharge of that duty, I submit lor cousnleration the following suggestions, which it is believed, if embodied into law, would be of material i)ub]ic benefit: First. That the loans and discounts of any bank to its executive oflicers and employees be restricted in amount, secured by ])roper collateral or by additional signature or signatures of financially responsible persons to the notes taken, and made only upon the approval of the board of directors, a written record thereof being kept. Second. That no loan shall bo made to a director who is not an executive officer of the bank, except either upon a dei)Osifc of collateral security or upon a note given therefor Ijcaring, in addition to the director's own signature, the signature or signa- tures of one or nnue financially responsible person or persons. Third. That upon a day in each year, to be designated by th(> Comptroller, the directors of nationiil banks shall l)e required to make an examination of the affairs of the bank -with which connected and submit to the Comptroller of the Currency a re])ort thfircon upon blanks to be furnished for such purpose. Fourth. That the assistant cashier, in the absence or because of tlie disability of the cashier, be authorized to sign tlie circulating notes and to sign and make oath or affirmation to reports of condition of a national bank. Fifth. That some class of public officers be empowered to administer the general oaths required to be taken by the national-bank act. Sixth. That in places having a population of less than 2,000 inhabitants national banks shall be permitted, uiidei' regnlati(ms to be made by the Comptroller of the Currency and apiiroveeatedly stated, Mr. Walker, that a banking bill that did not get rid of the demand obligations of the Gov- ernment would not relieve the immediate necessities of the Treasury Department, but these recommendations, some of which are designed to improve the administrative method of banking, and others to increase banking facilities, would improve the general conditions of the The Chairman. Existing conditions? Mr. Eckels (continuing). The general conditions of tlie business interests of the people. But even with these there would always be the danger of recurring periods of embarrassment by the unrelieved condition of the Treasury in not having its demand obligations can- celed. The Chairman. Then the point of the recommendations is to improve and benefit tlie existing system without specially relieving the Treasury situation. Mr. Eckels. As already stated by me, they would improve existing conditions of banking, and thus they might to a small extent relieve the Treasury. They would not, however, give it tlie relief that it ought to have. I believe they would add immensely to the general benefit of the ])eople. If they did not appear to me of such benefit I would not have suggested them. The Chairman. That is the point I wanted to bring out. Well, that would be a benefit to the jieople. Now, if you will turn to i)age 17 of myargument niadeon February 17, 1890, in support of bill H. li. 171 Mr. Eckels. ]>efore you do that, Mr. Walker, I wish to say that in this same report I discussed, in connection with these matters, the absolute necessity of the Government getting rid of its demand obliga- tions in order to grant the total relief to which I think the people are entitled. I do not wish to be put in the attitude of making recom- mendations which I think could be of no benefit. They are recom- mendations which are designed to accomi)lish the best thing possible to relieve the banking situation. Whether or not the legal tenders are retired, these recommendations would be of benefit. 314 FINANCIAL AND BANKING SITUATION. BILL H. E. 171. The Chairman. That is what I wanted to bring* out. That is to say, it would not relieve the Treasury situation, l)ut would improve the banking situation. Xow, if you will turn to page 17 of the argument you will please take up item 1. You have examined the five bills referred to this committee and drawn by Mr. Walker, Mr. Brosius, Mr. Hill, jMr. Cox, and Mr. Fowler, respectively? Mr. Eckels. Yes; I have given them such examination as I could. The Chairman. My first statement is as follows : Tho Walker bill makes not the slightest change in the existing conditions as to gold coinage or silver coinage or the use of gold or silver, legal-tender notes, Treas- ury notes, or any other form of paper money, anj' further than is necessary to relieve the Treasury of the United States from being in any way responsible for the current redemption of any form of p;iper money. It provides a surer and safer method lor the current redemption and also the linalreer cent, or at 130.8749, the protit to banks on this currency would be as follows: In 4 per cent localities the i)rofit would be 43.99 per cent more than in 6 per cent localities. Under the Walker bill it would be 50.47 per cent less in 4 per cent localities than in G per cent localities. In 4 per cent localities the profit would be 174.35 per cent more than in 8 per cent localities. Under the Walker bill it would be 10G.95 per cent less in 4 i)er cent localities than in 8 per cent localities. In 4 ])er cent localities the prolit would be 0555.55 per cent more than in 10 i)er cent localities. Under the Walker bill it would be 100.42 per cent less in 4 i)er cent localities than in 10 per cent localities. That is, under the present system currency costs more and more to the banks as they take it out where interest is higher and less and less to the bank where interest is low, and that is i)roved by the actuary's figures 1 have given you. Under the proposed bill the prolit on the currency is more and more as interest rates increase, and the i)rofits to banks grow less as interest decreases. PROFITS ON CURRENCY VARY DAY BY DAY. Mr. Eckels. Your seventh statement is as follows: Under the present law ])rolits on currency vary every is correct then? Mr. Eckels. Yes ; because under your bill you design to completely divorce the Treasury from banking and therefore it would be a matter of perfect inditiereuce to business people whether the Treasury was all right or the Treasury was all wrong, so far as they were concerned. The Chairman. So far as the currency is concerned? Mr. Eckels. Yes; if it didn't have any of these obligations to meet. Of course if it didn't have enough revenue to meet its current expenses it might cause an inconvenience to the peo])le to whom the Government was indebted, but that would not in any wise affect the business of the people. PROFIT ON circulation TO THE BANKS. Your fourteenth statement is as follows: Under the present law pi-actically every dollar of the $1,000,000,000 currency in circulation is carried by the ))anks at not a cent profit to them or anybody else, Ijut, on the otlier hand, at a great loss to them. Under the Walker bill they would be relieved of $400,000,000 of this burden, and competition would soon reut the redemption fund held by the United States Government should be increased proportionately with the issue of such currency. Mr. Eckels. If the notes were to be currently redeemed; but if the notes provide that they are to be redeemed at certain times, it might not be necessary to increase the current redemption fund. Mr. Brostus. But the bill does not so provide. The Chairman. It is a penalty if they are kept out. Mr. Brosius. Yes; of course. CLEARING-HOUSE CERTIFICATES. Mr. Eckels. I take it these notes are to be the same as clearing- house certificates, except in small denominations. The Chairman. ''Of not less than 81,U00.'' Mr. Eckels. And that they can be used for that which a clearing- house certificate can not be, viz, to circulate as currency. Under the general rules of clearing houses, certificates issued can not circulate as currency. Under the operation, for instance, of the New York Clear- ing-House Association the present clearing-house certificate is some- thing like a collateral. responslbility for current redemption. Mr. Hill, Section 27, on page 18, of the new bill, provides that the Treasurer shall at all times keep and have on deposit in the Treasury of the United States, in coin or in coin certi^eates for the redemption fund of each association, during the solvency of the association, the 10 iier cent provided in section 12, to be held and used for the current redemption of its greenback and reserve notes; and when the notes of any association organized under this act, assorted or unassorted, shall be presented for such redemption to the Treasurer of the United States in sums of 8500 or any multiple thereof, or in sums equaling not less than 1 ])er cent of its total circulation of banks having less than 830,000 in circulating notes, the same shall be redeemed. Now, does not that provide for a current daily redemption, not only of legal- tender paper issued under this bill, but also reserve notes issued under this bill I Mr. Eckels. It is supi^osed that every note issued by the bank would be currently redeemed. Mr. Hill. But doesn't this i)rovide for a current daily Treasury redemi)tion ? Mr. Eckels. I suppose that that which Mr. Walker desires to arrive at is that the responsibility for current redemption shall be i^laced upon the bank, although it may be done through the agency of the Govern- ment. The Chairman. That is a proArision of existing law. Mr. Eckels (continuing). That the Government simply acts as an agent, so far as current redemption is concerned, but the total respon- sibility of current redemption is placed upon the bank, and that the final responsibility, in case of the failure of a bank, comes upon the General Government under its guaranty. Mr. Brosius. Isn't this the same provision as that now existing in reference to current redemption? 328 FINANCIAL AND BANKING SITUATION. Mr. Eckels. Except tliat Mr. Walker's bill increases the percentage of the redemption fund placed with the Government to 10 per cent. RELIEVING THE GOVIORNMENT OF liANKING FUNCTIONS. ]\[r. Hill. Does the bill, as a matter of fact, relieve the Government of its banking functions or does it put it into the business very inuck more deeply? Mr, Spalding. That is the point, Mr. Eckels. My idea is that when we speak of the banking function of the Government we apply that term to the Government's issuing demand obligations, which tions. Mr. Hill. Under the provisions of this bill, as I understand it, the banks of the United States can organize into local clearing-house associations; the local clearing-liouse associations can organize into what is known as the national clearing-house association. Uiuler the provisions of this bill the board of control, which it provides for, has absolute power to order the withdrawal and redemi)tion of the circu- lating medium or the bank issues, or to order them issued, either one. 13o you believe it is a safe power to put into the hands of any four men in this Ivcpublic the absolute control through the clearing-house asso- ciation, which this ])rovides for, making practically one large national bank, as it is i)ossible it would be, with full power of the issue and withdrawal of the circulation'? AGGREGATED CAFITAL NOT DANGEROUS. Mr. Eckels. As 1 have said, I would like the l)anks largely to arrange that matter among themselves. It seems to me self ])rotection would prevent any undue danger, even though they should select a certain set of men as managers. 1 believe that there is a good deal of exaggera- tion as to the dangers atteiulant upon the aggregation of capital. I do not think aggregated capital does anything more dangerous to the public's interests than individual ca])ital, because aggregated cajiital is simi)ly the capital of combined iiulividuals, and combined individuals in a corporation know that their institutions can not prosper if there is FINANCIAL AND BANKING SITUATION. 329 not general prosperity among tlie people. There can not be a situation with the people poverty stricken without capital each day lessening its own holdings and thereby impoverishing those who constitute the cor- poration and lessening the amount of profit which they draw from a use of the general aggregate. Mr. Brosiub. Eecurring to the first item in the general statement, I think I will ask you a question or two, Mr. Comptroller. PRESENT REDEMPTION METHOD SURE AND SAFE. Turning to page 17 of Mr. Walker's argument showing the excel- lencies of the bill, I want to ask you whether the present mode of redemption, under existing law, is not absolutely sure and absolutely safe, as long as the Government's credit stands. Mr. Eckels. As long as the Government's credit is of a character that it can obtain an amount of gold necessary to meet these things; but in the maintenance of that credit there is a tremendous expense put upon the people, in the way of taxation upon bonds; and in the way of the daily disturbance of the business of the people, who either . wrongly or rightly measure their undertakings by the probability of the Government's maintaining its credit. It seems to me the Govern- ment should be put in a position where the necessity did not exist for exerting itself always to maintain its credit. Mr. Brosius, You mean to say that the maintenance by tlie Govern- ment of these demand obligations under existing law is liable to bring embarrassment u^jon the Government! Mr. Eckels. Yes. Mr. Brosius. Of course, you will see that my inquiry did not reach, to that. I am only speaking of the question of redemption Mr. Eckels (continuing). Because it is in the power, Mr. Brosius, of any set of men in New York City, or any other part of the country, to gather up $100,000,000 of legal tenders and take them suddenly to the Treasury for redemption, and thereby break the Government. SAFE, BUT EXPENSIVE. Mr. Brosius. Exactly; but as long as the Government is not broken redemption is sure and safe. Mr. Eckels. Yes, but it is made more expensive than it ought to be. Mr. Brosius. Does that involve the point of surety and safety ! Mr. Eckels. No. Mr. Brosius. I am only arguing one point. Mr. Eckels. No; it is sure and it is safe as long as the Government's credit is not broken down. Mr. Brosius. That is the point, then Mr. Eckels. But it is expensive. Mr. Brosius. I make the inquiry because the statement in the argu- ment is, first, that this bill provides a surer and safer method for the eurren.t redemption, and also the final redemption of such notes, than under existing law. The point is, as you have indicated, that until the Government is broken present redemption is absolutely sure and safe. Mr. Eckels. But it can not be told from day to day whether the Government is not going to be financially broken. Mr. Brosius. Of course, that is so; but I say until it is broken. Mr. Eckels. Of course if there is in the Treasury of the United States a tremendous surplus of gold which lies there as a fund for some 330 FINANCIAL AND BANKING SITUATION. future emergency, which is taken out of the channels of trade and which is a cause of higlier rates of interest because of that fact, there is provided a safe method of redemption and a sure method of redemp- tion; but why shouhl we have a thing that entails such expense to accomplisli the thing that we desire when we can save that expense? Mr. Brosius. That may be so. There may be other reasous for changing the system which do not involve the cjuestion of security. SAFER AND BETTER REDEMPTION ]}Y BANKS. Mr. Eckels. On the other point — the matter of safety — taken from day to day and year to year, I think that with other conditions prop- erly adjusted there would be in a time of emergency a better and a safer redemption by the banks than by the Government, Itwould comeabout because the banks have the means, as I have stated before, of obtaining the gold immediately without going through the long process that has to be gone through with by the Government unless there is a syndicate contract, THE SYNDICATE BOND CONTRACT. There could be nothing more in point than that syndicate contract. It was an illustration of what the Treasury could do when it undertook to exercise the legitimate function of a bank to obtain gold to meet an immediate necessity. It did the thing which was designed, but in doing it it created a storm of objections. Every bank can do exactly that thing- when the necessity arises, and there would not be any questions raised or issues discussed. Upon the other hand, whenever the Government undertakes to do a thing which a bank does there are protests on every side. If the banks were compelled to do this thing when confronted, as the Treasury was, with all these outstanding obligations, and with but •$S,000,000 of coin in the vaults of the Treasury, they could always, within twenty-four hours, make an arrangement with those who could command the gold, to make the situation j)erfectly safe, and business would go on uninterrupted. Mr. Brosius. But up to the limitation of the ability of the (loveru- nient to provide the means of redemi)tion, it is perfectly safe and secure as it is. NOT SAFE IN AN EMERGENCY. Mr. Eckels. It is safe and sure, but it is expensive. It is safe when everything is all right, but it is not safe when an emergency is to be met." Tliere uuist be tlie provision for tlie emergency as the center of a sound tinancial system. A system Avhich is good when everybody is well off financially and weak in times of financial difficulty is just the system to be avoided. The test of strength should be applied to its weakest ])oint. Ml'. Brosius, Given this situation when, by reason of the state of exchange we are called u])on for a large export of gold, which is in the best situation, possesses the most powei-, and the greatest facilities for answering such an unusual demand, the Govei-nment of the rnited States, which has the power to issue bonds and (command gold from the four corners of the earth, or the jjrivate banking institutions"? civil war conducted on A gold basis. Mr. Eckels. The banking institutions. The Government wouhl have been, in more than one instance, financially embarrassed if the banks FINANCIAL AND BANKING SITUATION. 331 had not come to its assistance. The civil war in its first inception was carried on on a gold basis tlirongh the gold supplied by the banks and would have been carried on to its finish in that way if the Goveinnient had not undertaken to introduce a method of obtaining money through the issuance of promises to pay, in the shape of currency notes. Mr. Brosius. How would the banks get the gold if the jjeople who have the gold refuse to sell it to the banks. Mr. Eckels. There never was such a condition if sufficient was offered for it. Mr. Brosius. But you said if the banks refused to come to the rescue of the Government by supplying them with gold the Government would be broken; but what bank ever did refuse to come to the assistance of the Government when it could exchange its gold for a bond bearing interest and making it ijrofitable for it to do so? Mr. Eckels. The Government ought not to be compelled to issue bonds, increasing the taxes of the people, to maintain a Government currency which is unnecessary. Mr. Brosius. That raises another question, but your point is that the Government might not be able to get gold from the banks. You say the banks could do this thing better; but the banks must depend upon gold either from the people here or people in other countries, and if you assume that the banks will not let the Government of the United States have its gold — the best purchaser in the world — what becomes of my assumption that other people will not sell their gold to the banks ? My point is that the Government of the United States, by reason of its i)ower and facilities, can command gold from the four corners of the earth, and always could do it when it issues bonds, whereas the banks may not be able to find gold anywhere. Mr, Eckels. The facts are tliat the Government Mr. Brosius. Has always found it when it wanted it. A SELFISH proposition. Mr. Eckels. Yes, through the banks. As I said the other day, IMr. Brosius, there must be eliminated from this cpiestion the elements of patriotism and the element of sentiment. We are dealing now with a selfish proposition, and a banking system can not be established on any other lines and be perfectly safe. USE OF RESERVES. Mr. Brosius. Turning to statement 12, in Mr. Walker's argument, page 18, he says that the present law forbids, under severe penalties, the banks under any circumstances to use their reserves for the very purpose for which tlie banks are required to keep such reserves. Is it not the law to-day that any bank can use its reserves to any extent it pleases without becoming amenable to any penalties whatever, and not until the Comptroller of the Currency notifies them to make good their reserve, and they fail to do so within thirty days, do they become amen- able to any penalties, and the discretion of the Comptroller can be exer- cised in notifying them to make good their reserve? So, as a matter of fact, under existing law any bank can use its reserves in case of a stringency to their utmost limit without becoming amenable to any penalties until notified by the Comptroller that they must make their reserve good. 332 FINANCIAL AND BANKING SITUATION. Mr. Eckels. If tlie bank directors willfnllj- insisted on continually violating tbe provision of the law that they shall not nse tlieir reserves except to pay tlieir depositors, or in such way as the hiw provides, an actiori might be brought to forfeit the cliarter of such a bank. Mr. Beosius. How could an action be brought to forfeit the charter of a bank when it had been guilty of transgressing no law? Mr. Eckels. I think that provision of the law Mr. Brosius. Let me refresh your recollection, Mr. Comptroller. DISCRETION ALLOWED THE COMPTROLLER. Mr. Eckels. Yes, I think that provision of the law does not expect that a bank shall continually loan money when its reserve is short and that 3rr. Brosius. But they are permitted to do so until notified by the Comptroller? Mr. Eckels. They are not permitted to make any loans, but can use the reserve for payment of depositors. Mr. Brosius. So the Comptroller will understand that this question has only become important in cases of stringency where it was really necessary for the bank to draw upon its reserves beyond the usual limit, and the discretion of theCom])troller in such a case should be exercised, as he has a knowledge of the situation, and he would exercise a wise discretion in not calling upon a bank The Chairman. In not enforcing the law? Mr. Brosius. That is enforcing the law. The law does not require that notification at any time. The law places it in the discretion of the Comptroller as to when he shall give that notice to the bank. Mr. Eckels. He is supposed to do it when it comes to his notice. Mr. Brosius. It may be so Mr. Eckels. The Compti-oller has a wide discretion, and, generally speaking, I think it is generally exercised wisely. PLACE OF REDEMPTION. Mr. Calderiiead. A portion of ray question has been answered already in reply to questions asked by other members of the committee, but a paragraph of Mr. Walker's argument states that the bill will give, practically, final gold redemption at the subtreasuiy in New York and redemption in legal-tender notes and silver at country banks. The Chairman. No; it says at the national clearing houses, not sub- treasury. Mr. Calderhead. He says there that [reading] " under the proposed bill not a dollar of currency notes of any kind will be redeemable at the United States Treasury. It will give, practically, final gold redemption at the national clearing house in ]Sew York and redemption in legal- tender notes and silver at country banks." withdrawal of gold FROM BANKS. How will that prevent the withdrawal of gold fbr shipment? Mr. Eckels. It simply would make tlu; withdrawal of gold I'rom the banks instead of from the Treasury. That is the whole object of this bill. One of the principal objects of this bill is to make the banks the source of supply for the gold needed for business purposes, instead of the Treasury. FINANCIAL AND BANKING SITUATION. 333 Mr. Calderhead, I iniderstaiid that. Now, isn't it a fact tliat from 1878 until the time when the Treasury suspended ^ohl payments of bahmces at the clearinji- house in Is^evv York the gohl withdrawn was practically withdrawn from banks? Mr. EcjKELS. Yes. Mr. Calderhead. Since the (iovernment suspended the ])aymentin gold of its balances at the clearing house iu New York the gold has^ been withdrawn from the Treasury? Mr. Eckels. Yes. Mr. Calderhead. Why would not the gold still be withdrawn from the baiiks if the Government would resume the payment of its balances at the clearing house in gold f Mr. Eckels. Because there is not such faith in the credit obligations of the Government now as there was when the amount of them was less and when cu.stoms duties were being paid in gold and a very large gold reserve was in evidence in the Treasury. The banks then knew at any time they wanted to take their legal tenders to the Treasury they could get the gold in exchange therefor. Mr. Calderhead. Is it not a fact that from 1878 until the Govern- ment suspended payment of its balances in gold the people paid in gold? Mr. Eckels. Y"es; because the individual then was as willing to have his legal-tender obligation, which he felt certain would be redeemed in gold at any time presented. When, however, the condi- tions changed, he felt it was a good deal better to have his gold, and, as he could pay in something else, he preferred to pay in something else. cause of suspension of gold payments. Mr. Calderhead. What was the cause of the suspension of the payment in gold*? Mr. Eckels. I think the suspension of the payment of balances in gold arose from the conditions caused by the increase in the credit instruments of the Government without a corresponding increase iu the required means of meeting them. Tlie Chairman. 1 received a letter from Hon. Charles Foster, ex- Secretarj^ of the Treasury, which indicated that this ceasing to pay the balances in gold was hardly a matter that came to his or anybody's cognizance. It grew up naturally and without design. cessation of customs payments in gold. Mr. Brosius. Mr. Calderhead, will you allow me to supply the state- ment of the danger on that point, because I have given that matter some examination. Mr. Calderhead. Certainly. Mr. Brosius. The fact is that the cessation of the payment bj^ the Treasury of the balances in gold followed instead of preceded the cessa- tion of the payment of customs in gold. In other words, by reason of the alarm that was aroused in the public mind for reasons we all understand, payments of customs in gold began to fall off, and it became necessary for the Government to cease paying its balances in gold. The point is to get the order of precedence correct. Mr. Calderhead. The alarm appears to have existed in Mr. Foster's mind for a year and a half before there was an alarm in the mind of the public, and he curtailed the payments in gold himself. 334 FINANCIAL AND BANKING SITUATION. Mr. Brosius. I cau show my friend the figures as I have them of the payment of customs and of the settlements in gokl, and it demonstrates clearly the point. Mr. Calderhead. I thought I was speaking from the figures myself. As a final question, I would ask you. Mr. Comptroller, would it not relieve the Treasury, would not the surest way to relieve the Treasury be, to resume the payment of balances in gold! Mr. Eckels. Provided the Treasury has gold. Mr. Fo v\'LER. Assuming that were done, that the Government should now begin to settle with the clearing house in gold, would that be any reassurance to the i)ublic that this question that is now under debate — whether we have a gold standard or a silver standard — would be settled? Mr. Eckels. Xo; I think not. I can not conceive myself of why the people of the United States should raise any objection or find any fault with people who do the thing which the Government expects them to do, in demanding continualiy these gold redemptions even for hoard- ing or investing, as long as the Government keeps out the means of doing it, and thus declares it to be a good thing for the Government. There is nothing unpatriotic about it. It is a business proposition. The Chairman. Mr. Stallings or Mr. Hendrick, do you desire to ask any questions? Mr. Stallings and Mr. Hendrick. No, sir. T^VO KINDS OF REDEMPTION. Mr. Spalding. In paragraph 8 of Mr. Walker's argument he says: Under the proposed bill iiot a dollar of currency notes of any kind will be redeem- able at the United States Treasury. It will give, practically, final gold redemption at the national clearing house in New York, and redemption in legal-tender notes and silver at country banks. Just above that he says that under the present law practically every dollar of the 81,000,000,000 in currency notes is redeemable in gold at the United States Treasury, and then he makes the statement I have just quoted. Would not that make two kinds of redemption"? I am asking for information, because a bank that would pay silver in one place and gold in another place, it seems to me, would get in trouble. Mr. Eckels. I think that is a question Mr. Walker ought to answer. The Chairman. While silver dollars are a legal tender and the bul- lion in them is of less commercial value than the gold in a gold dollar, there must be a wide discretion allowed banks in Avhat they will redeem in, and the present law does not provide for any gold redemption any- where, except in New York and San Francisco. The proposition is that the bankers would ordinarily refuse to redeem in gold anywhere, except- ing when the necessities of a customer of the bank requires it, except in New York and San Francisco. They would redeem in gold to no greater extent than necessary to keep all kinds of money at a parity. BANKS REALLY MAINTAIN PARITY OF METALS. Mr. Spalding. I wanted to know whether, under that bill, it would make gold in New York and silver in Kansas'? The Chairman. All kinds of money would be kept at a par in Kansas. Mr. Spalding. At the present time the Government maintains the parity of the two metals. The Chairman. Only nominally. The banks have really done it. Mr. Spalding. The Government is obliged by law to maintain the FINANCIAL AND BANKING SITUATION. 335 parity of the two metals. 1 simply stand on a law. Under this bill you can get gold in New York but you can't get gold in Minnesota. The Chairman. You can't get it in Minnesota now. Mr. Spalding. Yes, yon can. The Chairman. No; you can only get it in New York, but ns a matter of practice, you may — not as a matter of legal right. Mr. Spalding. Now, you are discriminating in favor of New York City. It seems to me that there is grave doubt about this being a bill that will give satisfaction, if the argument which you have made here in regard to the bill is true. You may be mistaken in regard to the bdl. The Chairman. No; not at all. Mr. Spalding. That would make gold in New Y'^ork, and in Kansas City, where there is an immense trade, all you could get would be silver. The Chairman. If there are no further questions on this bill, Mr. Cox's bill will come up now. Mr. Newlands. I Avanted to ask a few questions of the Comptroller Oil this bill. The Chairman. Perhaps we had better take a recess now. Thereupon, at 1.15 p. m. the committee adjourned until 1.45 p. m. AFTER RECESS. The committee reassembled at 1.45 p. m. Mr. Newlands. I have a few questions to ask Mr. Eckels: Will this bill, called the " Walker bill," do away with the issue of the United States bonds for gold redemption? Mr. Eckels. Only in case of the success of Mr. Walker's plan to absorb as a security for bank-note issues the demand obligations of the Government, commonly known as greenbacks and Sherman notes. Mr. Newlands. And Treasury notes also ? Mr. Eckels. And Treasury notes ; and then it would not do away with bonds if circumstances should arise whereby the silver coin should not maintain itself. Mr. Newlands. Do you think the obligation of the Government would exist to maintain a parity of silver coin with gold by redemption in gold? Mr. Eckels. Yes; I believe, however, if it was manifest that the policy of the Government was to retire tlie obligations of which I have spoken, there would not be the danger from a silver coin that there is now. As I stated the other day, I look upon this silver coin as credit currency to the extent of the difference between its face value and the intrinsic value of the metal in the coin, just as I do upon these other obligations. Although I do not think the riddance of these obligations would entirely do away with the necessity of the maintenance of a reserve, it would tend to do so to a very great extent. It certainly would render it less difdcult and less expensive as well as less uncer- tani. Mr. Newlands. There might be a possibility of the necessity of the Government maintaining a considerable reserve fund in gold in order to redeem silver in gold; is that your position? Mr. Eckels. Yes; under certain circumstances. Mr. Newlands. Do you think that is a remote or near possibility. Mr. Eckels. 1 do not think it a possibility that is very near, if there is not some legislation which increases the silver currency of the country. In connection with Mr. Walker's bill it might be stated that he makes a provision whereby there shall not be any paper currency in 336 FINANCIAL AND BANKING SITUATION. circulation less than a 553 bill, his idea evidently being to have the sil- ver dollar circulate, as it does not now circulate. I think he also pro- vides that as a part of the reserves deposited against bank-note issues, which he terms greenbacks, there shall be a certain proportion of silver certificates, or there may be a part in coin. I do not think there is the danger from the silver that there is from the other obligations ^yhich the Government is maintaining. JMr. Newlands. Outside of the possibility of the necessity of main- taining a gold reserve for the gold redemption of silver, would there be, under this act, any necessity for the issue of bonds for gold-redemption purposes ? Mr. Eckels. Not for currency redemption, and if the operation of his act is to shut up these legal tenders there probably would not have to be any other for permanent redemption. The tendency would be, if the people felt that the demand obligations of the Government were not being currently redeemed by the Government, to return to the pay- ment of impost duties in gold. He sijecifies that as one of the pro- visions of his bill whereby, I take it, he expects to accumulate a fund of gold for the permanent redemption of these notes. IMPRISONING THE CKEDIT MONEY. Mr. ]SIewlands. Do you think this bill would be elTective in impris- oning all the credit money of the United States except the silver coin, which you characterize as credit money ? Mr. Eckels. I would not want to pass an opinion upon this subject unless I felt certain that the anticipation of Mr. Walker would be fnl- filled — that the banks would be very eager to go into his proposed sys- tem. The matter turns on whether the banks Avould want to go into it, and it would not be effective unless the banks did go into it. Mr. Hill. That is, unless the banks took hold of it quite universally. Mr. Eckels. Yes. Mr. Newlands. Does this act in any way compel the banks to take advantage of the provision or carry out the provisions of this act? BILL PERMISSIVE AND NOT MANDATORY. Mr. Eckels. It is voluntary with them. One section of the bill gives them the option of voting whether they shall reorganize under this pro- posed act or continue under the present one. Mr. Hill. But they lose circulation if they do not reorganize. Mr. Fowler. But they don't have to go in 1 Mr. P^CKELS. Ko. Mr. Newlands. Would a national bank forfeit its charter under the provisions of this bill unless it went in? Mr. Eckels. No; I understand not. Mr. N]<:wLANDS. Then I would ask if it is so persuasive in its features as to probal)ly induce the banks to avail themselves of its provisions? Mr. Eckels. That is a question which would have to be intelligently answered by the banks themselves. Mr. Walker's calculation is that there would be a very large per cent of profits over and above the ])er cent of proiit accruing totlie banks at present; but whether or not the banks would agree with him 1 can not say. Mr. Newlands. In your Jndgment would it be persuasive? Mr. Eckels. I could not say as to that. There are, as I have said, some very excellent features in the bill, but as to whether or not the FINANCIAL AND BANKING SITUATION. 337 banks would be williug', under the inducement otiered, to take the responsibility of these redemptions and run the risk of having a doubt in the minds of the public because of so radical a change, is a pretty hard question for me to answer. Mr. Js[ewlands. Is there a risk in these redemptions '. REDEMPTIONS SAFELY TRANSFERRED TO BANKS. Mr. Eckels. I do not think, myself, there is any risk at all in transferring the redemptions to tlie banks, but my views may be very much more radical than the views of a great many other people, espe- cially people who, in the general care of business matters, do not view the thing from the same standpi>int that I view it from. Mr. Newlands. How could we ascertain whether or not the banks would be pursuaded to accept the provisions of this act! Mr. Eckels. I take it that it might be ascertained if in the first place this committee was pursuaded to report it, and in the second place if it could get through Congress. Mr. Kewlands. Action of Congress then would have to precede any action by the banks themselves as to whether they would acquiesce in its i^rovisions? Mr. Eckels. Yes; action by the committee would have to be first and then action by Congress, because I take it tliat every member of the committee would want to ascertain the view which those who are expected to go into this reorganized scheme held of it, and then it would have to be gotten through Congress, which would depend largely upon how much of the banking interests were back of it and how much public sentiment was back of it. Mr. Kewlands. Then I take it that tlie individual members of this committee and the individual Members of Congress must push their own inquiries in their various districts, as to whether the provisions of this bill will be acceptable to the banks ? You know of no way of an organ- ized method by which the banks, in anticipation of our action, can indi- cate whether or not they will accept its provisions? Mr. Eckels. I do not know of any way of ascertaining how this bill would be viewed except in the way I have indicated. PROVISIONS advocated BY CONVENTIONS. Mr. Newlands. In these national-bank conventions has there been any indication that the provisions of this bill would be acceptable to bankers? Mr. Eckels. The provision of the bill as to the issuing of notes against assets has been more than once advocated by conventions. That was the basis of the plan which is known as the Baltimore plan, which was presented by a convention of bankers; but as to the feature of the deposit of the greenbacks, that has never been passed upon by a con- vention. It was, however, embodied in the bill which was presented by the Secretary of the Treasury two years since. Mr. Newlands. To what extent, assuming that the provisions of this bill are accepted, not only by the national banks, but by the State banks of the country, and taking into consideration tlie present condi- tions only, and not future enlargement of bank capital, to what extent can currency be issued under this law ? Mr. Eckles. That estimate you would have to make by taking the amount of the present banking capital and figuring the percentages CUR 22 338 FINANCIAL AND BANKING SITUATION. provided by Mr. Walker to be deposited, of Treasury issues — when I use that term I embody all tlie paper issues of the Treasury — and the gold and silver provided to be deposited by these banks. That is a mathematical calculation. PRESENT BANKING CAPITAL OF THE UNITED STATES. Mr. Neavlands. Do you know to-day what the total amount of bank capital in the United States is? Mr. Eckels. The total capital of all the banks, or at least of almost 10,000 banks of the country, as shown b}' the last report, was $1,049,371,724. That is on page 19 of my annual report. There are in addition to that a number of banks, about 3,000 more, most of them private banks, the capital of which I have not. Then there was a sur- plus, $698,948,536. Mr. Newlands. What are the limitations with reference to capital and reserves placed by this act upon the issues of bank currency? Mr. Eckels. That you will have to find by consulting the bill. I do not carry in mind the distinctive provisions of it. Mr. ISTewlands. The purpose of this is to get at what amount of bank currency can be issued. Mr. Eckels. You will find the proposition set forth on page 8, sec- tion 5. Mr. JSTewlands. You have never made an estimate of the total amount ! Mr. Eckels. Of "what would be absorbed? No. th:^ee kinds of currency provided. Mr. Newlands. As I understand it, there are three kinds of bank currency provided for by this act; first, legal-tender notes, with green- backs ', the other reserve notes, and the other emergency notes. Is that correct *? Mr. Eckels. Yes. Mr. Newlands. Under this act, leaving out the emergency notes for the i)resent, which notes would be greater in amount, the legal-tender notes or the reserve notes ? Mr. Eckels. That would depend on how much reserve is held by the banks, but I should judge that the amount of reserve notes would be larger than the amount of legal-tender notes. government as a redemption agent. Mr. Neavlands. Now, as to redemption, Mr. Eckels, do you under- stand tliat under this act redemption has to be made by the banks themselves, or by the (Jovernment as the agent of the bank? Mr. Eckels. 1 understand that the banks are to furnish tlie gold to the Government, together with whatever else is provided as a means of redemption, and that the Government itself, as it does now, acts only as an agent. Mr. FoAVLER. As it does for national-bank notes? Mr. Eckels. Yes; as it does for the national-bank notes. Mr. Hendrick. 1 would like to ask one question there. I understood you to say the other day that one of the chief sources of trouble now arises from the fact that the (xovernment is constantly called upon to redeem these legal tenders, and that wlienever that is the case the public are aware of that fact; that that very knowledge on the part of FINANCIAL AND BANKING SITUATION. 339 the public creates a distrust and a disturbance. Now, would not that still be the case under Mr. Walker's bill; if the money — the gold — is to go from the banks into the Treasury, would not the public always know when there was a deficiency and when there had been a demand on the banks by the Treasury for gold "? METHOD OF REDEMPTION NOT CHANGED. Mr. Eckels. No; the difference is, in the one instance the Govern ment itself has to supply the gold by the limited means which the Gov- ernment has in its power, and in the redemption which is })rovided for, while under Mr. Walker's plan the banks supply that gold. For exam- ple, there is no one ever disturbed now about the current redemption of bank notes, because the banks supply a fund to the Government and the Government simply acts as the agent, and 1 do not see any differ- ence between the method of redeeming the banknotes under the provi- sion of this bill and the present method of the redemption of bank notes. Under the present method the redemption of bank notes does not disturb the business of the country at all. It is the redemption of the notes for whose redemption the Government itself has to supply the gold that creates a disturbance. TREASURY AS AN AGENT OF BANKS. Mr. Brosius, Is it speaking correctly to say that the Treasury or the Government acts as the agent of the banks ? Mr. Eckels. I think that is what it does. Mr. Brosius. If there is an agency, that imi3lies a principle with tlie power to constitute an agent; but in this case the law declares that the Treasury shall do so and so, and that the banks shall do so and so, and it does not seem correct to say that the Treasury is the agent or is inferior to the banks, and carrying out the banks' direction is an agency. Mr. Eckels. If technically it is not correct, it is in fact, because that is all the Treasury does. It takes this money which the banks supply and pays it out. Mr. Xewlands. Are the banks under this act compelled to make redemption over their counters at all ? Mr. Eckels. I think there is a provision to that effect. The provision is that notes shall be redeemed in lawful money at the bank counters, Mr. Newlands. Let us refer to that section now. Mr. Hill. On pige 21, beginning at section 37, the subject of redemp- tion and maintenance of reserve will be found. Section 39, I think, is the one you specially refer to — 38 and 39. Mr. Newlands. Do you understand that under section 39 of the Walker bill the bank is compelled to make redemption of its notes? Mr. Eckels. Yes; that is my understanding. I was under the impression that there was a distinctive provision on the subject. Mr. Fowler. There is some section that provides it shall be in silver or in these notes, but that is all there is to it. MAINTAINING GOLD REDEMPTION OF NOTES. Mr. Eckels. Whether or not there is a provision, I think there should be a provision that the banks should hold themselves ready to redeem their own notes at their bank counters if necessary. 340 FINANCIAL AND BANKING SITUATION. Mr. ^EWLANDS. lu what? Mr. Eckels. In sold. Mr. Xewlands. In gold alone? Mr. Eckels. I would not permit any bank to issue notes if it did not stand ready to redeem in gold, if the man who held the note wanted gold. ]\Ir. Newlands. But you are not prepared to say that this Ijill pro- vides for such gold redemption ? Mr. Eckels. I think it provides that the ultimate redemption shall be in gold, and there may be a current redemption in something else, but there is a provision that the bank at all times has to maintain the parity of tlie various forms of monej^, which is simply a way of indi- rectly saying that it must maintain gold payments. Mr, Xewla^'DS. I will bring you to that section — section 50, 1 believe that is. What is your construction of that section ! Mr. Eckels. My construction of that section is that it means the maintenance of gold payments of notes. Mr. Newlands. Section 50 is as follows : Sec. 50. That any uatioDal-bankiug association that fails to keep, use, and pay out its silver coin and gold coin and currency notes so as to keep all three kinds of money at a parity each with all the others shall be deemed to have failed to pay in coin or coin certificates on demand the greenbacks and reserve notes or other notes signed and issued by its officers. Now, I ask you what your construction is there as to what would be required in order to maintain the parity? Mr. Eckels. My construction of that section would be the con- struction I place upon the present duties, under existing law, of the Secretary of the Treasury — that the parity of the moneys in circulation must be maintained, and that if anj'body wants gold it is the duty of the Government to pay gold. What Mr. Walker's construction is I can not say, but that is the construction I would place upon it. The Chairman. That is my construction. It means that the banks shall maintain it just as the Government does — take the place of the Government. Mr. ISTewlands. Then, according to your view, that would require gold redemption by the banks of silver coins, as well as of the notes of the banks, whether legal-tender or reserve notes, just as redemption is now made of the greenbacks by the Treasury Deiiartmenf? Mr. Eckels. Only to the extent, Mr. Newlands, that the banks had deposited and the Government had accepted these various forms of credit currency by the banks. It would never redeem any notes not issued by the banks. Mr. Newlands. Only its own notes? Mr. Eckels. Only its own notes. Mr. Newlands. And the Treasury Departinent has to redeem the notes of all banks lu gold ? Mr, Eckels. It would redeem all notes that the banks issued, but the redemi)tion is to be made out of a fund provided by the banks, not by the Government — that is, the current redemption — and if there was a failure of the bank to provide that fund for current redemption ])ur- poses, then the bank would be dec^lared insolvent and its assets taken to first i)ay its obligations to the Government, in the meantime the Government, under its guarantee, making these redemptions of the notes of the failed bank out of the Government's fund. Mr. Newlands. J)o you understand that this action would give the holder of the bank note the option to demand from the bank the gold or silver, or would the bank have the option, assuming that in the FINANCIAL AND BANKING SITUATION. 341 markets of the country tliey had an exchangeable value, and that one was not at a discount as measured in the other? Mr. Eckels. 1 think the holder of the note would have the option. I believe that would be an element entering into the contract between the bank and the holder of the note, just as that element enters into the contract between the Government now and the holder of the demand obligation of the Government, which reads payable in coin. Mr. Xewlands. Is that correct, according to your idea, Mr. Walker? The Chairman. The holder of the note has a right under this con- tract to have his money kept at apftr with gold, and he would not have the right to demand gold. That would be with the option of the bank; but if the bank refused gold in such manner as to put gold at a pre- mium, then the bank would be insolvent; just as the Bank of France or the Bank of Germany do to day; you can not get gold there unless your business requires it. Mr. Eckels. Except as is paid a very slight expense, which it costs the Bank of France to collect it together. This payment is as an agency fee. The Chairman. Certainly. Mr. Xewlands. Then your construction differs from the author of the bill as to the meaning of this section ! Mr. Eckels. To the extent that I do not think you do maintain the parity of the moneys unless you pay the money out that the man who holds the note wishes to be paid to him. Mr. Newlands. Whereas Mr. Walker contends that so long as gold and silver have an interchangeable value in the country and by the action of the banks silver is not i^ut at a discount, the bank has the option of paying in either gold or silver; and if by its action silver is put at a discount or gold at a premium, then the bank must pay in gold or be guilty of an act of insolvency. Mr. Eckels. But the question of the exercise of the option could not arise as long as these dollars were at a parity and were interchange- able without loss to either party. If, however, circumstances did arise under which these dollars of gold and silver were not interchangeable without loss, the bank would not have an option under a proper system, but the note holder would have the right to demand the metal he desires. The Chairman. That is my position exactly. Mr. Eckels. That he would have aright to demand that these notes be paid in that metal which sustains itself, being gold. Mr. !Newlands. But I understand you to contend that the same con- struction should be given to the parity clause of this bill as is given by the Secretary of the Treasury to the parity clause in the Federal law. Mr. Eckels. That is the construction that I would place upon it. Mr. IS^EWLANDS. Then, according to that, redemption in silver or gold at the option of the holder would be required, even before they had parted as to interchangeable value, would it not? Mr. Eckels. Yes; if any man had a note and wanted it redeemed in go.ld, he ought to be entitled to demand of the bank that he be paid in gold. Mr. Newlands. So that would be your construction of this section ? Mr. Eckels. Yes. Mr. Van Voorhis. In other words, refusal to pay gold would of itself work the differentiation. Mr. Newlands. Now, Mr. Comptroller, what construction do you put upon section 7, which reads as follows : That no banking association shall plead in defense in any action lirought against it that any note issued by it is a United States legal-tender note. 342 FINANCIAL AND BANKING SITUATION. Mr. Eckels. I suppose that is to prevent the bank from taking advantage of making- a legal tender of its own notes, largely. Mv. Newlands. lUit that defense can be made by a bank as to a note issued by any other bank. The Chairman. That is it exactly. Mr. Eckels. Yes. EFFECT OF H. R. 171 OX SILVER. Mr. Newlanbs. Now, Mr. Eckels, we will assume that this law goes into operation — that it is accepted by the banking sentiment of the country — that the greenbacks. Treasury notes, and silver certilicales are imprisoned, and that bank currency, either legal-tender notes or reserve notes, is issued. Where, under those conditions, Avould the Silver in the country be — the silver that is now in the Treasury of the United States? ^Ir. Eckels. Well, if the silver certiticates are used as a part of your basis of note circulation, it would be in the same position that it is now — the holders of the silver certificates would be entitled to the silver standing back of tliose certificates. Mr. Newlands. When you speak ot holding silver certificates in reserve, you mean the leserves of the banks'? Mr. Eckels. The bill i^rovides that for the issuance of these green- back notes there shall be deposited coin, silver, and silver certificates, and the bank to comply with that provision must first obtain the silver certificates, and those silver certificates would transfer the ownership of so many silver dollars into the banks, which representatives of own- ership would be deposited with the Government. Mr. Kewlands. So, after such silver certificates go into the posses- sion of the Government they are destroyed, under the provision of this act? Mr. Eckels. Yes, they are destroyed: but destroyed during the period of time in which they are there imprisoned, and after that, if I understand it, it is the design .of the bill to substitute for so much of them as are deposited, gold coin, by the ultimate redemption of the notes. ]\Ir. Newlands. Substitute where? Mr. Eckels. To the holders of the certificates of the greenback notes issued. ^Ir. Newlands. TUit 1 understand the purpose of this act is to iMii)rison first all this credit money of the United States excepting, perhaps, silver. The Chairman. What do you mean by impiison*? Mr. Newlands. That is the word used by Mr. Eckels. The Chairman. After the bank takes it and pays it in circulation, it is just the same as now. Mr. J^^ckels. The basis of your issue, Mr. Walker, as 1 understand it, is that you have the banks deposit so much of these notes witli the Ceneral Government. The Chairman. They destroy them and put new notes in circulation. It is not ini])risoned at all. ]\Ir, Newlands. Now, we will assume that all the greenbacks and tlie Treasury notes and silver certificates are gathered up in this way by the banks and are deitosited with the United States Government as a basis of cuirency. Then 1 understand you to say that all that paper would be destroyed by the Government? FINANCIAL AND BANKING SITUATION. 343 Mr. Eckels. Yes; but other paper issued in lieu of it through the bank. Mr. Newlands. But pai)er issued in lieu of it would be bank paper. The Chaikman. But legal-tender notes just the same. Mr. Eckels. But right there, Mr. I^ewlands, 1 take it the expecta- tion of Mr. Walker is that that section of the bill which provides that no notes shall be issued below 83, by the banks or by the Goverment, will release a large amount of silver coin dollars which the people would be willing to carry around for use in daily transactions. Mr. Newlands. What amount would that release? Mr. Eckels. I suppose to the extent that one and two dollar bills are in circulation now. Mr. Brosius. Under this bill, when it comes in to complete the effective operation, there would be no silver certiflcates. Mr. Newlands. Can you tell me to what extent the place of one and two dollar notes would be taken by silver? Mr. Eckels. Mr. Walker stated that the Treasury report of 1895 shows there were one and two dollar bills to the extent of $74,CG8,926 in circulation. Mr. Newlands. That would leave in the United States, in existence, about $400,000,000 of silver coin and bullion ? Mr. Eckels. Yes. SILVER FORCED INTO CIRCULATION. Mr. Newlands. Taking into consideration the silver now in actual circulation — the silver that would be forced into actual circulation by the retirement of the one and two dollar notes — we would have a bal- ance of silver somewhere in the country of about $400,000,000 ? Mr. Eckels. Yes. Mr. Newlands. Where, under the provisions of this bill, would that silver be? Mr. Eckels. So much of it as is represented by Treasury notes and sdver certificates in sums above S3 would, to the extent that the banks went into the system and took out circulation, be locked up, and instead these greenback issues provided for in Mr. Walker's bill would take their place. Mr. Newlands. Where would it be locked up? Mr. Eckels. It would be locked up in the Treasury, subtreasuries, or wherever provided. Mr. Newlands. Is there any provision Mr. Eckels. It provides that the banks shall deposit with the Treas- ury of the United States under section 5, page 8. Mr. Newlands. Shall deposit these silver certiflcates and Treasury notes — greenbacks — is that it? Mr. Eckels. Section 5 provides as follows: Sec. 5. Tbat every association oriianizecl under this act, before it shall be author- ized to commence a banking business, shall deliver to the Treasury of the United States United States legal-tender notes, including Treasury notes, or coin, or coin certificates, or mixed, as provided in section six, in amounts as follows: Section 6 provides what the percentage shall be of each. Mr. Newlands. That is true, so far as the Treasury notes, coin, coin certificates, or mixed that are surrendered by the banks as a basis of the issue of currency. Now, after that surrender takes place, and after the silver certificates and the Treasury notes and the greenbacks are destroyed, where is the silver which these silver certificates and Treasury notes represent? 344 FINANCIAL AND IJANKING SITUATION. Mr. Eckels. It is just Avheie it is now. 'My. Xewlands. Where it is now — in tlie Treasury of the Uuited States ? Mr. Eckels. Yes. Mr. I^^E^VLANDS. Tnder this bill would it remain in tlie Treasury of the United States ? Mr. Eckels. I think that it would. Such is my understanding, at least. Mr. Xewlands. After the bill went into operation and its provisions were accepted by the banks, I understand Mi-. JCckels to say that the silver now standing back of the Treasury notes and the silver certifi- cates — which would be destroyed in case the bank bill goes into opera- tion — would remain in the Treasury. The CnAiR:MAN. How, when the bill provides a note shall be paid out for every silver certificate and note destroyed? Mr. Newlands. I was asking Mr. Eckels his construction of this. Mr. Eckels. 1 take it that the Treasury notes and the silver certifi- cates and the coins, etc., that the bill provides as security for part of the circulation shall be given to the Uuited States as security for green- back notes — shall remain with the Treasury of the United States. The Chair:man. No; it is paid in as free money in the Treasury, to be used in the Treasury. Mr. Eckels. It does not make any difference whether it is a special fund or among the free moneys; but it can only be gotten at by the redemption of something. The Chairman. Oh, no; the silver is paid out when the silver certificates that were issued for it are destroyed. Mr. Newlands. Is that your understanding of the bill, Mr. Eckels, that this .*$400,000,0()0 of silver which formerly backed silver certificates and Treasury notes, will go into the general fund of the Treasury to be paid out in the payment of the current obligations of the Treasury Department? ^Ir. Eckels. Mr. Walker makes that explanation of the bill. The Chairman. That is thci text of the bill— not that the Treasury shall pay them out, but he shall destroy the certificates and pay out in dollars; that is, pay the silver right out. Mr. iOcKELS. But as I understand it, this stands back of the Treasury of the United States as a guaranty. The Chairman. Not until it is paid right in. The silver certificates are destroyed and the gold certificates are destroyed. That pays the gold and silver out, instead of ])utting the certificates into circulation again. Every certificate that is paid in is destroyed and that leaves the money free in the Treasury to be paid out. That is what the bill says. It does not contain the words "free to be paid out," because that is not necessary. Mr. Newlands. So I understand that when the gold certificates and the silver certificates are surrendered to the United States Treasury the banks which enter those certificates take out the coin? The CiiAuiMAN. Yes, sir. Mr. Newlands. Then they also take out legal-tender notes and reserve notes in addition? The Chair:man. They take out legal-tender notes, $100 for every $100 of lawful money they j^ay in, simply for the purpose of identify- ing what bills each bank shall redeem. Mr. Ni'AVLANDS. Then you are mistaken in the statement that this 8400,000,000 of silver would remaiu in the Treasury! FINANCIAL AND BANKING SITUATION. 345 Mr. Eckels. Under Mr. Walker's explanation, and he of course knows better the provision of the bill than I do. Mr. Newlands. I was asking your construction of this act, because we wanted to know your views with rej^ard to it. Mr. Eckels. What section is that, Mr. Newlands? Mr. Newlands. Look at section 21, Mr. Eckels, if you please. Mr. Eckels. Yes. Mr. I^"ewlands. Do you understand that under that provision the silver backing the silver certificates which are surrendered to the Treas- ury, and by the Treasury Department destroyed, is to be turned over to the banks surrendering the silver certificates, or is it to remain in the Treasury of the United States ? The Chairman. It is to remain free money in the Treasury, paid out on certificates or paid out for any dues. Mr. Eckels. My understanding was that it would remain in the Treasury, whether it went into a special fund or whether it went into a general fund — that it still remained as a security. The Chairman. Have you read the language — that is not it at all. Mr. Eckels. For these greenback notes issued on which the Gov- ernment makes its guaranty"? The Chairman. They are destroyed and all the money that these certificates are issued for are free moneys in the Treasury. Mr. Eckels. But do they still remain, Mr. Walker, to be used for whatever purposes the Treasury sees fit? The Chairman. Certainly ; the coin — gold or silver. Mr. Eckels. What I am trying to say is upon the point of the deposit of the certificates — the silver or the gold for which those cer- tificates are issued. Is it not turned over to the banks'? The Chairman. Oh no, unless they exchange it. Mr. Eckels (continuing). But remains in the Treasury? Mr. I^^ewlands. It remains in the Treasury. Mr. Eckels. Mr. Walker says that it is a provision of his bill that this is to remain as free money in the Treasury to be used for any pur- pose possible, but the banks do not have the greenbacks to which they are entitled under the bill, and also the gold or the silver for which those greenbacks stand, any more than they have the silver certificates now and the silver coin standing back of them. Mr. Newlands. But as to those greenbacks — their redemption is backed by the banks, is it not, and not the Government 5 that is, the bank is the obligor and not the Government. Mr. Eckels. The current redemption of them ; yes. Mr. Newlands. Well, then, how, in that case, does the bank get an equivalent for the silver certificates which it has surrendered"? The bank notes, as I understand it, are not Government notes ; they are bank notes, and the bank is the obligor. Now, the bank, the owner of the silver certificates, surrenders those silver certificates and gets what — simply its own notes? Mr. Eckels. I judge that the expected advantage to the banks under the plan would be this, that they deposit 1 00 cents worth of paper, gold or silver, and they get instead of that a bill calling for 100 cents. They obligate themselves to currently redeem that obligation in gold, because of the additional profit of having given to them 100 cents against a security worth 100 cents, instead of being as now, given 90 cents for a security in the shape of a bond worth 110 or 115 cents. In addition, for doing this they are permitted to issue a certain amount of notes against assets, without a deposit of security. I suppose that is the way the estimate has been made as to the profit upon these notes. 346 FINANCIAL AND BANKING SITUATION. CURRENT AND FINAL REDEIVIPTION. ]\rr. Xewlands. Do you tlistinguisli at all between ciu-reut redemp- tion and ultimate redemption as to the obligor? Mr. Eckels. Yes. Mr. Newlands. With referen<;e to the current redemption, the bank undertakes to do that; who undertakes the ultimate redemption of the notes? Mr, Eckels. The notes known as greenback notes are simply the substitution of an obligation which now rests u])on the Government, and wliich the Government is bound to ultimately redeem, so that the Government is only compelled to redeem those notes when the banks go out of existence, instead of being compelled to redeem them both when it goes out of existence and currently. The reserve notes are currently redeemed by the bank and only ultimately redeemed by the Government in case the bank fails, at which time the guaranty of the Government intervenes, and the Government recoups itself for having taken care of the ultimate redemption of the reserve notes by hav- ing the assets of the bank placed at its disposal for the payment of such notes. Mr. Ke^\^lands. 1 understand you now. Then there is a difference as to the ultimate redem^jtion between the reserve notes and the ulti- mate redemption of the greenbacks under this act? Mr. Eckels. Ko; except Mr. Newlands. That is to say, that when the end of that note is reached, the Government itself redeems the legal-tender note without calling upon the bank in anyway, while as to the reserve notes the Government redeems them, but recoups itself with that redemption out of the bank assets. Mr. Eckels. It redeems the reserve notes only of banks which fail. The other notes the bank, if solvent when it goes out of business, redeems, or when it does not wish those notes to be in issue any longer it redeems them. Mr. Newlands. Does the bank redeem its legal-tender notes when it goes out of business? Mr. Eckels. Oh, no; as to the greenback notes, as I understand it, the ultimate redemption rests upon the Government. Mr. Newlands. Let us use the words legal-tender notes. Mr. Eckels. The legal-tender notes, as I understand it, are currently redeemed by the banks and ultimately redeemed by the Government, because they are an ah^eady duo obligation of the Government. The reserve notes are currently redeemed by the bank and ultimately redeemed by the bank, excepting in the case of the failure of the bank, when the Government intervenes and redeems these notes and recoups itself from the failed bank's assets. Mr. Newlands. So, by that ])rocess, the silver becomes and the silver certiticate becomes free coin in the Treasury and can be ])aid out by the (iovernment in its current expenses? Mr. Eckels. Yes; the befietit under Mr. Walker's explanation, I believe, is ligured that what the Government receives outside of not having to make current redemption, it has this nuich fund of money to use for its current needs, whereas now it can not have any daily benefit of the bonds, whicli are deposited as security. Mr. Newi-ANDs. What would the elfect o^" that process be; would the Government pay out this silver in its current expenditures, and FINANCIAL AND BANKING SITUATION. 347 thus get it into (urculation in the couiitiy, or wouhl it be retained in the Treasury of the United States'? Mr. Eckels. That woukl depend a great deal upon the condition of business and the manner in which the Treasury Department was con- ducted. There is now, for instance, deposited with the Secretary of the Treasury amounts of money which the banks put there, which are used as current funds, and I suppose it is paid out at times as needed. Mr. Newlands. This silver, as I understand it, would be the abso- lute proj)erty of the Government by this changed process? Mr. Eckels. Yes; except Mr. Newlands. Instead of being the property of the holder of the silver certificates it would be free silver in the Treasury, liable to be paid out at any time in its expenditures'? Mr. Eckels. But with the Government's guarantee that it would take care of that upon the basis on which these notes are issued. Mr. ISTewlands. That would mean the Government guaranteeing to maintain the jjarity of that silver Avith gold; is that it? Mr. Eckels. No; the Government would simply guarantee ultimate redemption in gold, not its current redemption in gold. Mr. Newlands. Of the silver coin itself? Mr. Eckels. Yes. Mr. Newlands, In its current redemption ? Mr. Eckels. In its current redemption. Mr. Newlands. How do you distinguish between current redemption and ultimate redemption? Suppose the Government of the United States owes me for service $100 and pays me $100 in silver coin. Do you regard it as current redemjition or ultimate redemption if I take it to the Treasury and demand gold? Mr. Eckels. I regard it as ultimate if the notes are changed and issued. Mr. Newlands. It is not the end. Mr. Eckels. Take silver coin. If that is put in circulation again it is simply current redemption. Mr. Kewlands, I do not think that we understand each other. We will assume now that the banks have surrendered the silver certificates and that the silver coin is free in the Treasury — $100,000,000 of silver — and that the Government would pay me $100 in silver for services rendered. Now, you say the Government does not have to make cur- rent redemption, but is to make ultimate redemption of that silver. I ask you what constitutes the difference. Suppose I take that $100 to the Treasury of the United States and demand gold. Do you call that current redemption or ultimate redemption"? Mr. Eckels. Well, I suppose it would be ultimate redemption until the silver was issued again. redemptive money defined. Mr. Brosius. Can there be any such thing as ultimate redemption of money that is itself redemptive money ; in other words, is it correct speaking to say that a silver dollar has ultimate redemption where it is exchanged for gold, a silver dollar itself being redemptive money — absolute money'? Mr. Eckels. Yes; it is a correct thing to say. As a matter of fact, it is not redemptive money, because it does not stand by itself — is not supported by itself It obtains value from the gold with which the Government maintains it at a parity. 348 FINANCIAL AND BANKING SITUATION. ^Ir. Beosius. If the law says it can bo used lor redecmiug" other nioiu'y it is ledeniptive iiKniey, isn't it? ]\Ir. Eckels. Yes: but if the law at the same time says the Govern- ment is obligated to maintain the parity of that metal with some other metal it is not, correctly si)eaking, rodem])tive money. Mr. Brosius. That is effected )>y simply exchanging the gold dollar for the silver tlollar; but tlie silver dollar takes the place of the gold dollar in the Treasury and goes out in the payment of the expenses of the Government. It is an exchange rather than a redemption. Kedemp- tion carries with it the idea that the thing redeemed is done for; but the silver dollar is not done for at all. It is absolute money. Mr. Eckels. I think the term current redemption is used, for instance, as Treasury notes are taken in and reissued. ]Mr. Brosius. I Avas referring more especially to ultimate redem])tion. I think, popularly speaking, for current redemption that woukl be all right. SILVER REDEEMED IN CiOLD. Mr. Newlands. Then your theory is that if the Government, in the payment of its current obligation or expenses, ])aid out this $400,000,000 in silver and got it into general circulation, and it was deposited in the banks, the banks could present that silver to the Treasury of the United States and demand gold? Mr. Eckels. I think the banks would deposit it and take out these, if they wanted to take out additional circulation on it. ^Ir. Newlands. They could take out additional circulation, there is no doubt of that, but could they not also present that silver to the Treasury and demand gold ''. Mr. Eckels. I have no doubt that if the metals were not maintained at a par the Government would be obliged to give them gold. Mr. Xewlands. But apart from the question Avhether they would give them gold or not, under your construction of the paritj' act, would not the United States Treasury be com])elled to redeem this silver coin in gold whenever the banks presented it? The Chairman. They do not present it, they can not present it, under the bill. Mr. Eckels. I think it would be compelled to redeem it — that is, I think the (iovernment would be compelled to redeem it in gold. Mr. Newlands. Then you would do away with this endless chain ? The Chairman. How, under my bill, does the bauk ac^quire any right to present silver when the bill itself makes it an offense if the bank does not keep it at a parity with gold ' I tlo not see how they could take it from the Government. Mr. Xewlands. I am assuming that parity is maintained; that there is no difference whatever in the value of gokl or silver in the United States, and that the banks have so much silver and present it to the Treasury of tlie United States. Mr. Eckels. If the parity is maintained there is no danger of tiieso dollars being presented to the United States Treasury, and they will be presented to llie banks in the individual localities, instead of having to be sent to Washington or to San Francisco. Mr. Newlands. You say there will be no danger of this $400,000,000 in silver, or any i)art of it, being forwarded to the Treasury of the United States for redeiiii)tion in gold. Assuming that, I ask you whether the l)anks would notliave the i ight to ])resentthat silver to the Treasury of the United States and demand redemption in gold. FINANCIAL AND BANKING SITUATION. 349 Mr. Eckels. Mr. Walker says tliat under the penalties he has pro- vided in this bill, whiles they might have the right, the penalties attach- ing to it would not make them Avish to exercise it. The Chairman. I say under the bill that would not be done. They would have no right to go to the Government whatever, because the bill makes it an act of suspension if they themselves do not maintain the parity between gold, silver, and paper. Mr. ISTewlands. I am now endeavoring to get at the construction of this act by the Comptroller of the Currency, and I would like to have his understanding regarding this. Mr. Eckels. I have no doubt that all the silver which the Govern- ment has issued, not being taken care of by the banks, the Government would be responsible for. Mr. Xewlands. What do you mean by responsible for it ? Mr. Eckels. Compelled to keep it at its parity with gold. Mr. Newlands. How ? Mr. Eckels. They would have to provide the means for doing it. Mr. Newlands. To what means do you refer? Mr. Eckels. Well, they would have to have gold in the Treasury, but that question would not arise if the things could be accomplished as provided by Mr. Walker, putting upon the banks the necessity of continually maintaining the parity of these metals. The whole thing would turn upon the ability of the banks to maintain the parity of these metals. There is this to be remembered in connection with this matter, that the stock of gold will continue to increase in this country, while, unless some new provision of law is made, the stock of silver will not. Mr. Newlands. I understand, under section 50, that any national- bank association that fails to keep, use, and pay out its silver coin and gold coin and currency notes so as to keep all kinds of money at a parity each with all the others, shall be deemed to have failed to pay in coin or coin certificates on demand the greenback and reserved notes or other notes signed and issued by its officers, and that would, as I understand it, constitute an act of insolvency. Is that correct? Mr. Eckels. The act of insolvency arises from its not redeeming its notes, either in gold or equivalent to gold. Mr. Newlands. It says it shall be deemed to have failed to pay in coin. Mr. Eckels. Is there a further provision* of the act explaining what is meant by coin payment? The Chairman. This section 50 explains what is meant by coin pay- ment. It says they shall redeem in coin, because while we have silver we can not make any more stringent provision than that. Then section 50 is put in. That is if the bank refuses to pay gold it puts gold at a premium, and you have to buy it in the market, then the bank has failed to redeem in coin; but if the payment of silver to an individual does not put gold at a premium, then no action can be maintained against the bank for refusing to pay gold. That is the way it is in Europe, Ger- many, and France. Mr. Newlands. Say a bank has $100,000 only in gold and $200,000 in silver, and the fear is by tendering silver to the man who demands redemption it may put gold at a premium. What is to prevent that bank from taking its silver to the Treasury of the United States and demanding gold and thus getting gold for redemption? Mr. Eckels. The fear of the jjcnalty that is provided by the provision of the act if it does not maintain the parity of the metals. 350 FINANCIAL AND BANKING SITUATION. Mr. Newlands. As I understand it, it is maintaining tlie parity of the metals by that means. It is paying out gold, not silver, and it takes its silver to the Treasury of the United States and gets gold for it. Is not that maintaining the parity? Mr. Eckels. That is maintaining the parity, but the other thing would tend to break down the parity. Mr. Xewlaxds. What, taking the silver to the Treasury Department for redemi^tion in gold? Mr. Eckels. J think so. Mr. Newlands. Very well, then, if that is the case, why has not taking greenbacks and Treasury notes to the Treasury Department and demanding redemption in gold broken down the parity between green- backs and Treasury notes and gold? Mr. P^civELS. Possibly I should not have said parity. I should have said breaking down the credit of the Government. Mr. Newlands. Breaking down the credit of theGovernment, or Mr. Eckels. And injuring the credit of the bank, Mr, Newlands. The credit of the Government would not be broken down if it redeemed its silver in gold, would it? Mr. Eckels. No, I do not think it would break the credit of the Government if it redeemed, but as I understand it Mr. Newlands. The credit of the banks would not be broken if it got gold for silver and then tendered the gold in jedemption of its obligation ? Mr. Eckels. No, possibly I was in error in that. This is a matter that Mr. Walker should explain in detail. But it is the expectation on his part that by these various provisions of tlie bill which he has introduced such a parity would be maintained by the banks that the circumstances which you have inquired about would not arise. All the silver and the legal-tender paper issued in the manner provided by this act the Government would be obliged to take care of under its guaranty. geographical location of gold. Mr. Newlands. Can you tell from the reports that have been made to you where to-day most of the gold of the country is located ? Have the Eastern banks more than the Western banks, or the Northern banks more than the Southern banks, of gold, proportionately? Mr. Eckels. You will find a full statement on this subject in my annual report for 1896, page lil. In order to make it a part of the record I wish that page to be taken as a part of my answer. [Annual Keport of the Coniplrollor of the Currency, 1890, \>. 21.] The total cash and the part thereof of gold and gold certilicatos held by reporting baukfl, ill each geographical division is as follows: Geographical division. New England States Eastern Stat<-s Southern States Western States Pacific States and Territories Total Total cash. $35, 689, 272 213, 129, 509 29, 080, 601 109, 584, 045 25, 034, 702 413,124,849 Amount of f;ol(l and gold certifi- cates. .$15, 403, 768 88, 580, 133 9, 558, 183 50, 410, 427 19, 005, 830 189, 558, 341 FINANCIAL AND BANKING SITUATION- 351 A comparison of the money holdinfts in these .cjeographical divisions shows that the 829 reportinff banks in the New England States hehl bnt $6,602,671 more total cash and $5,845,585 more gold and gold certificates than the 676 reporting banks in the Sonthern States, not including Missouri ; the 1,275 banks in the Eastern States $103,544,924 more total cash and $32,1()9,706 more gold and gold certificates than the 2,434 banks in the Western States; the 676 banks in the Sontliern States $3,451,841 more total cash and $10,047,647 less gold and gold certificates than the 509 banks in the Pacific States and Territories; the 829 banks in the New England States $10,054,510 more casli and $4,202,062 less gold and gold certificates than the 509 banks in the Pacific States and Territories. It has been deemed necessary to indi- cate the location of banks reporting and not re])orting in order to give a ])roper measure by Avhich to estimate the amount and character of cash of banks not report- ing. It is a fair estimate to be drawn from reports received, and in view of their general distribution and character, and the proportion of cash of those reporting to total cash held in all such banks, that as 2,265, or 24.4 per cent of all banks and companies other than national banks held $34,484,737 in gold coin and gold certifi- cates, the whole number of banking institutions and companies in operation in the United States on July 1, other than national, viz, 9,260, held on that day in gold coin and gold certificates $140,939,807. Adding to this amount $161, 853, .560, the total gold coin and gold certificate holdings of the national banks on July 14, as being the same as held by all of them on July 1, the total gold and gold certificate holdings of the banks of the country on that day was $302,793,367. Mr. Newlands. We all know that the Pacific States and Territories have more gold proportionately than any other States because they deal almost exclusively in metallic money. Mr. Eckels. On pages 20, 21, and 22 of the report will be found the distribution geographically of the cash and the classification of the cash of the banks reporting to me. Mr. Newlands. Assuming that the 1400,000,000 of silver now in the Treasury becomes free and is paid out in Government expenditure, I ask you whether, in your judgment, that silver would land principally in the Eastern banks or in the Western or Southern banks. tendency of money to congest IN LAKGE CENTERS. Mr. Eckels. Well, at the present there are $15 in gold held in the banks of the silver-producing States to $1 in silver. The tendency of all money is to congest in large centers. Mr. Newlands. Where was that $15 of gold to $1 of silver? Mr. Eckels. In the silver-producing States. That is the proportion. Mr. Newlands. Leaving out the Pacific Coast and the mining States, which are almost exclusively upon a metallic basis, and considering only the Eastern States, the Middle Western States The Chairman. Ton mean a metallic circulation. Mr. Newlands. Yes, sir. Taking the States I have named, and the Southern States, where do you think this silver would be more likely to drift? Mr. Eckels. 1 think there are more silver and silver certificates probably in general use in the Southern and Middle Western States than there are in the East. Mr. Newlands. Is there not a tandeucy of gold to collect in the great cities — the reserve centers ? amount of gold in small CITIES. Mr. Eckels. No ; except to the extent that all moneys collect in the reserve cities. I think it is rather surprising the amount of gold that is in the smaller places as shown by the returns. Mr. Newlands. You do not find a greater disparity between silver and its paper representatives on the one hand and gold on the other in the country banks than in the great city banks ! 352 FINANCIAL AND BANKING SITUATION. Mr. Eckels. Xo; DOt to the extent generally supposed. I was sur- prised when I found from this investigation the relative proportion. Of course in the East, where the advantage of the longer time to accu- mulate occurs and where there is not the same need for expenditures for improvements in the way of buildings and that sort of thing, there is naturally more money and probably more gold — always excepting upon the Pacitic Coast, where it is used in daily transactions. Mr. Newlands. Xow, as between a bank Avhich sought to collect the gold and pay out its gold to its depositors and in current redemp- tion, and a bank Avhich happened to have the bulk of its money in silver and paid out its obligations in silver, do you think there would be any bias in the public mind as against the gold in favor of the other? Mr. Eckels. I think each individual bank, if it had the resiwnsi- bility placed upon it, would take care of itself— I think competition would regulate that. Mr. Newlands. Competition would induce the banks that wanted to get upon the best basis, to maintain gold i)aynient, would it not? Mr. Eckels. Yes; and the other, to maintain its patronage, would do the same thing. Mr. Xewlands. So they would both be competing for gold and both having a tendency to reject further deposits of silver, would they not? Mr. Eckels. No. Under the provision of this bill it is expected that that could not be done, that the banks organized under it would have to maintain the parity between these metals. I have no doubt they would take deposits of all moneys and representatives thereof. Mr. Newlands. There would not be any tendency to discourage the deposits of silver? Mr. Eckels. Hardly, if the provisions of that bill Avere carried out and could accomplish the things which the author expects the bill will accomplish. People are, under normal conditions, as ready to accept silver certificates, silver and legal tenders, as they are gold. Mr. ]Nev\^lands. You would expect, then, that under this act the exist- ing amount of silver in the country could be maintained at a par with gold? Mr. Eckels. I think the United States, with a proper banking sys- tem, if the banks were given the i)rivilege of issuing all the credit currency of the country, would probably be able to take care of $505,000,000 in silver. Mr.NEWLANDS. And maintain its parity with gold? Mr.EcKELS. Yes. present amount of silver currency. Mr. Fowler. What is the point of saying .'ir5G5,000,00O of silver. Mr. Eckels. That is, as 1 remember it, the present amount of our silver currency. 1 do not think the country could take care of any more. The Chairman. Is $5()5,000,000 the present amount of silver in cir- culation ? Mr. Eckels. Yes; there is almost that amount. 1 include in that the Sherman notes. 1 think there is about that amount of silver. Mr. Newlands. Would you regard it as an advantage and strength- ening of our monetary system if the commcicial Aalue of that silver were ecjual to its coinage value? Mr. E<'KELS. Only to the extent that we would not then have to worry about the parity between the two metals. FINANCIAL AND BANKING SITUATION. 353 Mr. Xewlands. Do you regard that as mncli of a worry? Mr. Eckels. It has been a g"reat source of worry in tlie last few years. Mr. Newlands. Is it a matter of worry uow? SILVER COINAGE AGITATION ENDED. Mr. Eckels. No; but simply for the reason that people seem to be pretty well satisfied that we have gotten to the end of the agitation for silver coinage. Mr. Newlands. Is it a matter of any worry as to the future — any anxiety as to the future"? Do you fear at all that the Government will be called upon to make gold redemption as heretofore, and to issue bonds for that puri)ose? Mr. Eckels. I suppose that there might an occasion arise when it would be, but the prudent thing, it seems to me, is, when there seems to be no occasion to fear any such thing, to get rid of the means which makes it a possibility in the future. Mr. Newlands. Now, the ultimate cause of this worry is the dispar- ity between the bullion value of silver and gold, is it not? Mr. Eckels. Yes; that the Government is continually called upon to give artificial value to a part of the money. INTERNATIONAL ACTION ON SILVER. Mr. Newlands. If it were possible, by international action or national actiou, to so increase the use of silver as to restore that parity, would you regard it as a desirable thing, or not? Mr. Eckels. I do not see tliat it would add to tiie actual benefit of the people to have a larger use of silver. The only benefit would be Mr. Newlands. I am addressing myself only to the parity now. Mr. Eckels. The only benefit would be that there would be removed the fact that a part of the money is artificial as to its value instead of itself carrying the full value which it purports to carry. CONSTITUTIONALITY OF PROPOSED LEGAL TENDERS. Mr. Brosius. I would like to know whether, in your judgment — I do not know that you are a lav>^yer, but I presume you are — the issue by banks, under the conditions proposed in the bill now before us, of legal- tender notes, would be constitutional. The Chairman. It doesn't provide for that. Mr. Eckels. The Supreme Court stretched the Constitution once, and I presume it could again. Mr. Brosius. The plan proposed is, for the Government to issue to the banks legal-tender notes, whi(;h the banks shall issue. If you say these are issued by the Government they are in the same attitude as the present legal tenders, and, of course, they are constitutional. My point is, whether it is obnoxious to constitutional objections for the Govern- ment to authorize banks to issue legal-tender money. The Chairman. The bill doesn't say that they shall print and deliver to the banks the legal-tender notes, or, in the language of the bill — That the Secretary of the Treasury is hereby authorized to issue United States legal-tender notes described in section 3 of the act of March 3, 1863. Mr. Brosius. And the bank shall issue them. The present law authorizes the banks to issue money, but that is not a legal tender. It cur 23 354 FINANCIAL AND BANKING SITUATION. is the same thing for the law to authorize tlie Goverumeut to supply these banks vrith paper money under this hill, but under this bill this money is legal tender. The point is, whether that is obnoxious to the Constitution or not. 3Ir. Eckels. I think if the Constitution was stretched so as to cover the greenbacks it would cover this. DECISION OF THE SUPRElVrE COURT. Mr. Fowler. Does not that decision that the Supreme Court rendered when the (piestion was brought up as to the power to reissue immedi- ately cover that, giving Congress a right to make anything a legal tender ? Mr. Cox. It doesn't go that far. Mr. Eckels. I do not believe it is right, but it is the decision of the court, and it is. just as eflective for the purpose to be accomplished as though it was right. Mr. IjROSIUS. Could Congress, under the Constitution, make the pres- ent bank-note currency legal tender? Mr. Eckels. It did make the Treasury issues legal tender, and the Supreme Court upheld them. It says that they could make anything legal tender. I do not believe that is right. Mr. Cox. I agree with you, Mr. Eckels, that it is not right. Mr. Eckels. But it is the law. STANDARD OF VALUE. Mr. FowLER. lu your hearings here I have gathered that in your judgment the matter that to-day is causing more unrest and the source of more trouble than any other is the doubt about our national credit, and therefore the first object of a comi)rehensive measure would be to establish irrevocably the standard of vahie of this country. Mr. Eckels. That is the largest element. Mr. Fowler. Therefore that should be the consideration in any measure. Mr. Eckels. That has been established for sixty years. Mr. Fowler. But established irrevocably. I suppose that could be done. It is possible, is it not ? Mr. Eckels. I am sure, Mr. Fowler, that it is thoroughly wise to em])hasize the fact that the United States maintains the gold stand- ard; and that fact is emphasized by the fact that it is made incumbent that all credit issues of the banks shall be redeemed in gold. Mr. Fowler. But is there anything in this measure that any more prominently fixes in the mind of the i)ublic that gold is the standard and that no other standard will be recognized, than exists to-day in the mind of the ])ublic? I\Ir. Eckels. I take it under the construction of the clause about maintaining the parity that that is the provision witli which Mr. Walker sets forth the establishing of tlie standard. Mr. FowLEK. But it would be no stronger than our present position unless you assume that the power of the banks is greater than that of the Government, would it not — its position is the same? Mr. Eckels. Yes; but the assum])tion is Mr. Fowler. To that extent it does not fix it any more definitely in the public mind than it is now fixed, does it? Mr. I^CKELS. Except that it takes away the current redemption of these demand obligations. FINANCIAL AND BANKING SITUATION. 355 Mr. Fowler. They are left to the bauks to be eurreiitly redeemed? Mr, Eckels. Yes. Mr. Fowler. Therefore the only difterence is you have not added anything to the strength or the ])ermanency of the gold standard except so far as you may assume, or I may assume, that the banks can more easily, more certainly, maintain redemption than the Government itself can ! The Chairman. I avIII admit that. You know they can do so; don't you know they can? RETIREMENT OF LEGAL TENDERS. Mr. Fowler. I thmk I do. Now, in the second place, the next point, as I understand your remarks, that is of essential importance is that all the demand obligations of this Government should be retired. Is that true? Mr. Eckels. That is right. Mr. Spalding. But not now ; that is what he says. Mr. Eckels. I said gradually. Mr. Fowler. The question is that that is the next thing. Is it your judgment that the effect of this measure, admitting that the Govern- ment would be bound to maintain the parity, as you have stated in answer to Mr. Newlands, and that this bill will virtually strengthen the situation of it or improve it Mr. Eckels. The provision of the bill looking toward the imprison- ment of the demand obligations of the Government I think would strengthen the situation. I said at the outset that my own view of the thing was not imprisonment but permanent disposition of them. Mr. Newlands. Mr. Walker contends that this does permanently dispose of them. Mr. Eckels (continuing). But Mr. Walker contends, and others con- tend, that that is not a practical thing. That is a matter that is not for me to determine. That is a matter which is for the members of the committee to determine, who are making the bill, and for Congress. Mr. Fowler. The point is this, and I think you answere'd that way — and I agreed with your conclusion — that the Government would have to maintain the parity of the metals if there were $400,000,000 or $500,000,000 in silver out, and as Mr. Newlands put it, if a bank had $100,000 of gold and $200,000 of silver and in order to strengthen its position it says " We want $100,000 more gold," they take $50,000 in silver to Washington or Xew York and say, "We want $50,000 gold for this," and that might happen in the case of 1,000 banks at the same time. Do you not think that the Government would be found to respond to the request of those banks ? Mr. Eckels. I will say frankly, Mr. Fowler, that I think that as long as there is a currency in circulation which does not maintain itself there is always danger to the Government. Mr. Fowler. The point is this: That if the preponderance of the cheaper or the weaker money, metal or paper, j)asses beyond the iioint of saturation, which is simply that that meets its needs, that would naturally go back for redemption. Mr. Eckels. Every dollar that is out that is not needed will go back for redemption. Mr. Fowler. So if you actually absorb the silver in the channels of trade through the provisions made for its use, and the banks had a smaller amount of gold than silver, it would want to have silver to strengthen its position. 356 FINANCIAL AND BANKING SITUATION. Mr. Eckels. That is likely so, but that is a matter which Mr. Walker believes he has covered in his bill by Mv. Fowler. That Avould be a silver chain instead of the greenback endless chain. Mr. Eckels. I do not think he anticipates such a thing would happen. Mr. FOWLEK. I say, would not that result — isn't that true? The Chairman. I would like to have the Comptroller tell us how a umu is going to take silver and ask redemi)tion when the banks themselves are compelled to keep the silver at a parity with gold. Mr. Fowler. AYhere is he going to get it — where are the banks going to get it, except from the (iovernment? The Chairman. You might as well ask the question about the air that we breathe — how are we going to get that? Mr. Fowler. I have always heard that the i)oorer metal would chase out the good metal. The Chairman. It would if they were compelled to pay out this metal. It is like putting a dam across a stream to keep the water from going to its common level. G-OVERNMENT DIVORCED FROM BANKING BUSINESS. Mr. Brosius. If this ])ill goes into eflect the Government is not in the banking business at all. Mr. Eckels. I suppose the theory ujion which the provisions of the bill are based as to the silver in the country, is that the banks will be able to sustain the i)arity of the amount of silver now in circulation without expectation of its increase with gold, and that they are better able to do it than the Government. Mr. Hill. Aside from the parity clause in this bill, isn't it entirely possible, under the i^rovisious of this bill, for a bank to redeem all its obligations in silver? Mr. Eckels. It subjects itself, under the bill, to a certain tax if it does not maintain the parity. Mr. HiLi^. But I say, aside from the parity clause, isn't is possible under the other provisions of the bill to redeem all its obligation notes of both kinds, and everything, in silver. The provision is that they shall pay in coin or coin certificates. It does not say gold or silver, and the only thing that prevents these banks going entirely to a silver basis is that provision of parity, l^ow, when you come to the provision of i)arity, that is not limited to redemption of notes, but it is in the payment of every obligation — deposits and everything else, that it has got to maintain the parity of the various kinds of currency. Can it be done? Mr. Eckels. Under my construction of that section and the con- struction I stated to Mr. Newlands some time ago, I would deem a bank to be committing an act of insolvency if it did not redeem its notes in gold on demand. Mr. Hill. Under tliat parity clause only; that you would consider covered everything else? Mr. Eckels. Yes. Mr. Fowler. If they all came in insisting on goldl Mr. Eckels. It is very much like the case when the constitution was presented to Gouverneur Morris, of New York, and he was asked what he thought about it. His reply was that it depended upon how it was construed. So the construction of that clause is vital, and to make it so it ought to be held that if the bank failed to redeem upon FINANCIAL AND BANKING SITUATION. 357 the demand of the note holder in gold it would commit an act of insolvency. Mr, Newlands. How about the depositor? Mr. Eckels. And the same rule should apply to the demand of a depositor. Mr. Hill. In the first draft of the bill it was jDrovided that the redemption fund should be paid out, but under the last reprint of the bill the redemption fund has been stricken out and the general provi- sion is now to maintain the parity of all money for any money it pays out, deposits or redemption fund or anything else, and the only resource the bank has is, it can pay out what it pleases by paying to tlie United States Government an interest account on the deficiency of its reserve of 4 per cent per annum on that deficiency. Am I correct? Mr. Eckels. Please repeat your question. Mr. Hill. I say it has the option of withdrawing from the parity clause by paying to the United States Government such a sum as would be represented by 4 per cent interest on its deficiency of reserve, but if its deficiency of reserve is kept up to the full amount it can pay sil- ver or greenbacks or gold, as it chooses. Mr. Eckels. But not, if my construction is correct, that an act of insolvency would be committed. However, those matters would prob- ably largely regulate themselves except in extreme conditions, as we see now. People in normal times would not be demanding a particular kind of money. In a general way, I think it is fair to me to say that the exi3lanation of the various provisions of these bills, which have been drawn by the gentlemen presenting them, ought to rest largely upon their explanation, not mine. I simply can state some general views on the subject, and must leave to the others to explain the intri- cacies of the details thereof. OPINION OF THE COMPTROLLEK. The Chairman. It is due to me to ask you, Mr. Eckels, whether I have gotten your opinion upon this bill before you came here, or whether we have consulted about it except about it being properly phrased when you were reading it over with me. I want to know whether this matter has ever been mentioned between you and me except that way. Mr. Eckels. No. The Chairman. This is the first time I ever have known what you really thought of or would say of the bill. Mr. Eckels. In the treatment of all these bills I have been very glad to furnish the various gentlemen who are interested in them such statistical information as they have wanted. I have furnished Mr. Fowler with a good deal, and I have furnished Mr. Walker with a good deal. I will be very glad to furnish them or any other gentleman on the committee with any other information in my power. Mr. Newlands. None of us regards Mr. Eckels as an accomplice in this bill. The Chairman. To-morrow has been assigned to the international banking bill. Thereupon the committee, at 4 o'clock p. m., adjourned. 358' ^FINANCIAL AND BANKING SITUATION. Com:mittee on Banking and Ourrency, Washi)u/f(»i, J). C, Monday, February 8, 1807'. The committee met at lO.oO a. m. [Members present: The chairman (Mr. Walker) and ^Messrs, Jirosius, Johnson, Van Voorliis, Fowler, Spalding, Calderhead, Hill, Cooke, Cox, Stallings, Black, Xewlands, and Hendrick. Hon. James II. h^ckels. Comptroller of the Currency, apj^eared before the committee and continued his statement begun on January 28, 1897. STATEMENT OF HON. JAMES H. ECKELS, COMPTROLLER OF THE CURRENCY— Continued. The Chairman. Allow me to say that the business before this com- mittee is considering bills which were referred to this committee, and which were introduced by ]\lr. Walker, Mr. Cox, Mr. Hill, Mr. Fowler, and Mr. Brosius. However interesting discussions in other directions may be, they are not in order. Mr. Cox has the floor. Mr. Cox. Have you a copy of the bill H. R. 1999 before you there? Mr. Eckels. Yes. Mr. Cox. I shall confine my short examination to the explanation of this bill. [H. R. 1999, Fifty-fourth Congress, first session.] A BILL to regulate national currency and provide for national money. Be it enacted hij the Senate and House of liepresentatives of the United States of America in Congress assembled, That so much of all acts and parts of acts as require or author- ize the deposit of United States bonds to secure circulating notes issued by national banking associations, or as require such associations to deposit or keep on deposit United States bonds for any purpose except as secuiity for public money, be, and the same are hereby, repealed as to associations taking circulation under this act; and notes issued under this act shall not contain the statement that they are so secured. Sec. 2. That any national banking association organized as now provided by law, and any national banking association hereafter organized, may take out circulating notes to .111 amount not exceeding seventy-live per centum of its paid-up and unim- paired capital upon depositing with the Treasurer of the Ignited States currencj' certiticates issued under section lifty-one hundred and ninety-three of the Revised Statutes of the United States, or United States legal-tender notes, including Treas- ury notes issued under the act approved July fourteenth, eighteen hundred and ninety, entitled "An act directing the purchase of silver bullion and the issue of Treasury notes thereon, and for other ])iwposes," and other lawful money of the United States, at the discretion of the Secretary of the Treasury, as a guaranty fund equal to thirty per centum of the circulating notes applied for. The association making such deposit shall bo entitled to rticelve from the Comi)troller of the Cur- rency circulating notes in denominations of ten dollars and multiples thereof ia blank, registered and countersigned as pro\'ided bylaw; and all such notes shall constitute, and nro. licreby declared to be, a iirst lien upcm all the assets of the asso- ciation issuing the same. All circulating notes furnished to national banking associations under this act shall be uniform in design ; and the Comptroller of the Currency is liereby authorized anil directed to liave projiared and keep <>n hand, ready for delivery on application, a reserve of blank notes for each national Itanlving association having circulation ; but such reserve for each bank shall at no time be in excess of the diticrence I)etween the amount fif its notes then outstanding and the total amount which it is by this act authorized to rec(?ive. Sec. 3. That in lieu of all existing taxes each national banking association taking out circulation under this act shall pay to the Treasurer of the United States, in the months of .January and .Inly of each year, a d and ninety, entitled "An act to direct the purchase of silver bullion and the issue ol' Treasury notes thereon, and for other purposes," if required to do so by the Secretary of tlie Treasnry. Sec. 11. That whenever tliere shall bo received into the Treasury of the United States any legal-tender notes or Treasury notes issued under the act of July four- teenth, eighteen liundred and ninety, of less denomination than ten dollars the same shall be canceled auromissor. Mr. Spalding. Let me ask if it is a fact that the Bank of England getting more gold into the bank, looked as though it was endangered and that the bank was in a worse condition than it was before ? Mr. Eckels. Oh, no; because, outside of the uncovered paper there is an equivalent of gold back of every piece of paper issued by the Bank of England. Mr. Spalding. Is not that because for every dollar of greenbacks taken out of the Treasury a dollar of gold goes in for them? Is not that the way the increase is made, exactly the same as with the Bank of England? Mr. Eckels. No; there is not a dollar of gold coming in every time a dollar of greenbacks is issued, because greenbacks are issued to pay current expenses. Mr.FowLER. And withtheexpensesrunningbehindabout|12,000,000 a month? Mr. Spalding. Is it not true that $195,000,000 was paid into the Treas- ury during this Administration in exchanging greenbacks for gold? Mr. Eckels. I do not know exactly the amount, but there was a great deal. Mr. Spalding. It was about that. Is it not true they recouped in a large measure the gold in the Treasury by issuing greenbacks, because they are better to carry than gold, and for various other reasons ? There were $195,000,000 paid in, notwithstanding the action of this endless chain so much talked about? Mr. Eckels. Yes ; there was a large amount of gold paid out. A great deal more than $195,000,000 was paid out. 372 FINANCIAL AND BANKING SITUATION. ^Ir. Spalding. That is lar.iiely because we are running short, I think. The statement of Mr. Hill is that the increase of gold in the Treasury endangers the condition of the Treasury, Mr. Eckels. It does not strengthen it unless you have both gold and greenbacks in the Treasury. Ml'. Spalding. It could not strengthen the condition, because there is less than $346,()()(),()00 of greenbacks in existence. Mr. Eckels. These notes and the Sherman notes would be about 8450,000,000. IMPRISONING THE GREENBACKS. Mr. Cox. Now, I will go back to my line of thought. The question proi)ounded by I\Ir. Johnson, in the consideration of this bill, is a very proper one. Of course, as you decrease the amount of greenl.iacks out- standing and put them into ])rison, as the term has come to be used, so to that extent you decrease the danger of a raid upon the Treasury. That is jdain. Now, under this bill you redeem the ones and twos and fives that are outstanding. You redeem them with silver when they come in. Do you remember the amount of fives, twos, and ones! I had that statement here at one time. Mr. Eckels. About $75,000,000 of ones and twos. Mr. Fowler. They amount to about 8250,000,000. Mr. Cox. Just assume that sum for the ])oiut of my question. Now, say they are destroyed; you require 30 per cent of the circulation of the banks to be taken out on the basis of greenbacks. That would l)nt in, I should say, if it were imperative, something like $150,000,000, would it not'^ lam running on these figures without having them fresh in my mind. Mr. Eckels. The present national-bank capital is about 8050,000,000. If all the present national banks went into the system Mr, Cox. Making it imperative. Mr. Eckels. If they were compelled to take out 75 yiev cent of the amount of that ca])ital in circulation, 75 per <'ent of 8650,000,000 would be about 8485,000,000, and then 30 per cent of that sum, if they all went into it, would impound about $145,000,000. i\Ir. Cox. Now Ave add to the other. Mr. Eckels. To which other '^ Mr. Cox. To the other where you have included the fives, twos, and ones; and it amounts to about $250,000,000. Mr. Eckels. But some of the fives are legal tenders. Mr. Cox. Suppose we let the fives alone and cancel the ones and twos with silver. That is about $75,000,000, and then you get about $150,000 on the 30 per cent that is to be dei)Osited for circulation of tlic legal-tender notes. Then you have got 8 180,000,000 and 875,000,000, which makes $250,000,000. 1 am running on rough figures now. When you come to the result you will find they are all impounded. SILVER IN place OF SMALL NOTES. Mr. Ecicels. I do not understand by what method you say you can- cel the ones and twos with silver. You do not intend to redeem in silver '? Mr. Cox. This act provides when they come into the Treasury in any shape whatever they are canceled and silver is issued in tlieir place and it gO(;s to the extent of the fives. The fives were i)ut in there. The calculation is. to supply the ones and twos and put in their place the silver. FINANCIAL AND BANKING SITUATION. 373 Mr. Hill. There are $5,000,000 greenbacks, $19,000,000 Treasury notes, and $43,000,000 of silver certificates — ones and twos — naaking $09,000,000 all told, of silver certilicates, greenbacks, and Treasury notes. Mr. Cox. It is not imperative under tliis act that he shall issue actual silver in the redemption and cancellation of those notes. It is owing to what the man wants; but it su])p]ies to these raiders upon the Treas- ury the ones and twos with silver out of the bullion. Mr. Eckels. I do not understand the Secretary of the Treasury is to redeem in silver anything except silver certificates. Mr. Cox. Look at section 11 : That whenever there shall he receivefl into tho Treasury of the United States any legal-tender notes or Treasury notes issued under the act of ,7 uly 14, 1890, of less denom- ination than $10, the same shall ho canceled and silver dollars or silver certificates of like denominations shall bo issued in amounts equal to such notes so canceled; and in order to put the provisions of this act into effect, tlie Secretary of the Treas- ury shall proceed to coin the silver bullion in tlie Treasury as rapidly as practicable, and ho is hereby directed to issue silver certificates upon tho silver bullion now in the Treasury for the purposes hereinabove stated. Mr. Johnson. I suppose if any individual presented Treasury notes and demanded gold he would be entitled to receive it, but if he should present it in paying for customs it might be retired and silver issued in its place. UTILIZING THE BULLION IN THE TRl^ASURY. Mr. Cox. That is exactly right. Of course the idea in that bill was to try and utilize the bullion which is in the Treasury. Mr. Johnson. It puts the silver represented by the certificate in its place? Mr. Cox. Section 12 gives discretionary power. Mr. Nbwlands. You get rid of the endless chain there. Mr. Cox. You have made a i)oint that is not in this bill. I do not want to go into that now. Section 12 is another thing which provides, for the purpose of getting control of these Treasury notes, that so much of tlie customs dues shall be paid in these notes. I am right in the construction of that? Mr. Eckels. Yes; it gives discretionary power. It all tends to attempting to do the same thing. The balance of the sections relate to State banks. Mr. Cox. No; the thirteenth section was put into this bill before any bonds were issued by the present Admiidstration and was an attempt to reduce the rate of interest. That is what that was jiut in there for. STATE BANKS. Section 14 refers to State banks. I want to ask you one question about that. You take all the provisions of that act that are made applicable to State banks, and the restrictions which are thrown around State banks in this act, and I would like to have your judgment as to whether it would be possible for a State bank to issue notes which would not be perfectly good. Mr. Eckels. That would depend entirely upon how the authorities live up to the provision of the law. If around State-bank issues are thrown all theprovisions which arc thrown around national-bank issues I am not able to see what advaiitage there is in not having State banks brought into the national system. 374 FINANCIAL AND BANKING SITUATION. Mr. FowLEK. So as to secure a uniform currency ' Mr. Eckels. Aiul to do away with the incouveuience and confusion of having different-appearing circuhiting notes. Mr. Johnson. There is not much more reason to have more safeguards thrown around State banks than around national banks, when they are really all national banks! j\Ir. Eckels. 1 think so. If the (lovornment of the United States has power to make provisions as to the things tliat shall be done by the national banks before they can issue notes, I do not know why it has not tlie right to go a step further and say it will, as a matter of legal right, regulate the whole thing. There is, in addition, the doing away with anj^ element of doubt that otherwise might exist as to the con- struction the various oflicers of the various States would jiiit upon the provisions regulating them, as provided for by this act. 1 think the notes would be perfectly safe, but 1 do not see any advantage that would accrue to the State banks, and I do believe that some disadvan- tages would result. Mr. Johnson. Having all national banks would tend to simplicity ? Mr. Eckels. Yes. Mr. Johnson. And avoid any question affecting jurisdiction between national and State governments? uniformity of reports an advantage. Mr. Eckels. Yes; and that is a great deal and worth considering. 1 have within the last two weeks sent a letter to all of the governors of the States asking if the State reports can not be made uniform with national-bank reports, the time for making calls, etc. Tlie gain in uniformity would be of great advantage. Mr. Cox. That ends the bill. Let me call attention to the first thing in regard to State banks. First. That snch bank has had at no time outstanding any circuLating notes in excess of 75 per centum of its paid-up and unimpaired capitaL Of course the right to issue circulation is the same as for national banks, so there is uniformity in that direction. It can not issue in excess of To per centum and there is uniformity of circulation. Second. That the stockholders are individually liable for the redemption of the circulating notes in an amount equal to the par value of the stock owned by them, but this shall not Ik'- required in the case of ])er8ons holding stock as executors, admin- istrators, guardians, or trustees if the assets anlication to the Comptroller of the Currency, to receive additional circulating notes in blank tn an amount which will increase the aggregate value of the circulating notes held )iy such associations to the par value of the bonds deposited, such additional notes to lie held and treated in the same way as circulating notes of national banking associations heretofore issued, and subject to all the i^rovisions of existing law affecting such notes: Provided, That nothing herein contained shall be construed to modify or repeal the ])rovi8ious of sections fifty-one hundred and sixty-seven and lifty-oue hundred and seventy-one of the Keviscd Statutes, authorizing the Comptroller of the Currency to require additional deposits of bonds or of lawful money in cast; the market value of the bonds held to secure the circulating notes shall fall below the par value of the circulating notes outstanding for which such bonds may be deposited as security. That permits the increase of circulating notes to par, which is your recommendation, I believe? ]\Ir. Eckels. Yes; I have made that recommendation each year I have been Comi)troller. Mr. Hill (continuing). And which I thought would meet the approval of the banking institutions of the country. TAX ON CIRCULATION. The second section ])rovides for the reduction of the tax to one-fourth of 1 per cent. 1 put this in the bill, in accordance with your recom- luendation. I wouhl like to ask you why, in your judgment, any tax should be put on circulation ? Mr. Eckels. The only justification for it would be to make banks pay the ne(;essary expenditure of the Government in taking care of the supervision of the banks. Mr. Hill. I would ask you if that is not paid by tlie national banks to-day, outside of any kind of a tax— the entire cost of making the bills and keei)ing the plates, and the examination of banks, and everything of that kind, as an additional charge, outside of taxation — isn't it assessed upon the banks? Mr. lOcKELS, Tlie tax is for that expense. Mr. Hill. The redemption charges are paid by the banks? Mr. Eckels. Yes. Mr. Hill. The cost of the bills is paid by the banks ? Mr. Eckels. Yes. The tax, though, is supposed to meet certain expenses of the Bureau. Sir. IIiLL, Then 1 understand that the salary of the Comptroller and the expenses of the Bureau are not included? Mr. Eckels. No. Mr. Hill. They are charged to the banks, and this tax of one-fourth of 1 percent is nominally supi)osed to cover every outside expenditure not now assessed. FINANCIAL AND BANKING SITUATION. 379 Mr. Eckels. Yes. Mr. Hill. And that this would be abundantly large and even more tlian sufficient. Mr. Eckels. Yes; more than sufficient. Mr. Hill. Let me ask you whether, in your judgment, it would not be full as well to include those expenses m the assessment, as now laid, and not have any tax at all ? Mr. Eckels. It would be virtually the same thing. Mr. Hill. If it was an assessment, as the redemption charges are now made, and as the examination charges are now made, the banks then would absolutely pay the expenses and nothing more? Mr. Eckels. Yes. Mr. Hill. Do you know any reason why money should be taxed ? Mr. Eckels. No; I do not know of any reason why money should be taxed. I do not know of any reason why a country should undertake to get out circulation and put barriers in the way of so doing, in the shape of unnecessary taxes. Mr. Hill. Section 2 is as follows: Skc. 2. That in lieu of all existiiitj taxes every national banking association shall pay to the Treasurer of the United States in the month of January of each year a duty of one-quarter of one per centum upon the average amount of its notes in circulation during the preceding year. I have drawn that section in deference to your judgment — contrary to mine, because I think there should be no tax on money, myself. RETIREMENT OF LEGAL TENDERS. Section 3 is as follows : Sec. 3. That M'henever and so often as circulating notes shall be issued to any snch newly organized banking association, or to an existing association increasing its capitaf or circulating notes, it shall be the duty of the Secretary of the Treasury to redeem and cancel legal-tendor United States notes issued under acts passed prior to July first, eighteen hundred and ninety, to an amount equal to the sum of national- bank notes so issued to any such banking association; and whenever the Treasury shall not have in its possession United States legal-tender notes issued as aforesaid, the provisions of this section shall then a})ply to the like redemption and cancella- tion of Treasury notes issued imder the act of July fourteenth, eighteen hundred and ninety. That provides for the redemption and cancellation of the legal-tender paper money of the United States exactly as fast and no faster than the national bank circulation is issued under the liberal provision of this bill. Mr. Eckels. That is virtually Mr. Hill. A reenactment of the old law, except that it provides for 100 per cent when the other provides for 80 per cent. Mr. Eckels. Yes. Mr. Hill. To keep the volume exactly alike. GOLD BOND ISSUES AUTHORIZED. Section 4 is as follows : Sec. 4. Thatto enable the Treasurer of the United States to comply vrith the require- ments of this act and to redeem and cancel the United States legal-tender notes and Treasury notes named therein, he is hereby authorized to issue from time to time, on the credit of the United States, coupon or registered bonds, redeemable at the pleas- ure of the United States after live years, and payable twenty years from date, bear- ing interest at the rate of three jjer centum per annum, payable semiannually, to such 380 FINANCIAL AND BANKING SITUATION. au amount as may be necessary for tlic purpose herein expressed, and the proceeds of the same to he used for no otlier purpose whatsoever. The bonds .so authorized shnll ho payable in <,()hl. aud shnll be of such denouiiuations. not less tluin oneliuu- dred dollars, as may he determined ui)ou by tho Secretary of the Treasury, aud luay he disposed of by hiiu at any tiuu' at not less than their par value for either class of said notes or for gold in this country gr elsewhere. That provides for autliorizing the Treasurer of the United States, wlieiiever it hecomes necessary and at liis discretion — for this purpose and this purpose only, the i)roceeds to be used for notliint;- else — to issue bonds di.stinetly and specifically ])ayable in ^old, with authority to sell theiiJ here or else^vhere. Have you any objection to that? ^Ir. Eckels. I see no objection to the bonds being paid in gold. iAlr. Hill. You think there is no harm in such a disci imination? Mr. Eckels. I do not. I think there ought not to be a bond issued by tins Government except distinctively payable in gold. Mr. Hill. That meets your approval? Mr. Eckels. In that respect the section meets my approval. Mr. Hill. Is there any other respect in which it does not meet your ai^proval? Mr. Eckels. I have stated a number of times that I thought the manly and creditable thing to do would be to get rid of these legal tenders, by the funding of them, but the question this committee has to deal with is whether or not it is the most practical way. If I had the doing of it I would do it in that way. Mr. Hill. If 1 had the doing of it and it Avas dependent on me and my vote, 1 would do it in that way, but I recognize the fact it has to meet tlie a])proval of the peoi>le, and consecjuently I have aimed for maintaining an exact eipiivalent in the issuance of bank notes for the retirement of the greenbacks. Mr. Eckels. I do not see any reason why the United States ought not to pay its debts, whether it has its debts in the shape of a bond, drawing interest, or in the shape of promises to pay not drawing inter- est. The funding of these legal tenders would be simply the payment of a just de])t. The objection that this method of disposing of them substitutes an interest-bearing debt for a noninterest bearing one is not a very substantial one. There is no reason why, if the (xovernment has the property of the citizens and uses it for the benefit of the Govern- ment, the Government ought not to pay for so doing. Mr. Bijosms. Will the ( 'omptroller have the goodness to explain why the (iovernment, or even an individual, should pay a debt that costs no interest when the creditor does not want it i)aid? Mr. Eckels. An individual or the Government ought to pay a debt that is a source of danger to it, whether it bears interest or not, and it ought to have it known definitely when these debts will be terminated. Mr. liROSius. Then you mean to qualify your former statement that the Government ouglst to ])ay any debt that is a source of danger? You did not have that in your other statement. Mr. Eckels. The (irovernment ought to pay all of its debts, whether they are dangerous or otherwise. The Chairman. Isn't it a fact that individuals i)ay debts when it is for their interest to ])ay them, without consulting fhe interest of the creditor"? Mr. Hrosius. ('an anybody ever say it is to the interest of the debtor to pay a debt not drawing interest, if the creditor doesn't want to receive it ? FINANCIAL AND BANKING SITUATION. 381 AITTlIORIZINa BANKS WITH SMALL CAPITAL. Mr. Hill. I call your sitteuliou to section 5. Section 5 is as follows : Sec. 5. That section Hfty-ono linndred iuid thirty-eight of the Revised Statutes is hereby so amended as to read as ioHows : "Sec. 5138. No association shall he organized with a less cajiital than one liun- dred thousand dollars, exeejit that l)anks with a capital of not less than fifty thou- sand dollars may, with the approval of the Secretary of the Treasury, bo organized in any place the population of which does not exceed six thousand inhabitants, and except that banks with a capital of not less than twenty-five tliousand dollars may, with the sanction of the Secretary of the Treasury, be organized in any place the population of which does not exceed three thousand inhabitants. No association shall be organized in a city the population of which exceeds fifty thousand persons with a capital of less than two hundred thousand dollars." This committee has already passed a bill, and it has passed the House, providiiig for the organization of small bankt. with a possible capital of $20,00i) in towns of 4,000 inhabitants. This section varies from that, limiting tiie capital to $25,000 in towns to 3,000 inhabitants. Person- ally I would prefer not to go below $25,000. Mr. Eckels. All the members of the committee agree in all these bills that banks ought to be allowed with a smaller capital than at present. RETIREMENT OF SILVER CERTIFICATES. Mr. Hill. Section 6 is as follows : Sec. 6. That from and after the passage of this act the Secretary of the Treasury be, and he hireby is, forbidden to issue silver certificates in excess of the amount then outstanding, or of the amount as it may hereafter be when reduced by the can- cellation of such certificates, because of the issuance of guaranteed national-bank notes in place thereof, as provided in section eight of this act. That provides for the retirement of silver certificates or for no further issue of silver certificates after they are retired under section 8 of this act. Mr. Cox. How do you retire themf Mr. Hill. Section 8 retires them. RETIREMENT OF NATIONAL-BANK CIRCULATION. Section 7 is as follows: Sec. 7. That so much of section nine of an act entitled "An act to enable national banking associations to extend their corporate existence, and for other purposes," approved July twelfth, eighteen hundred and eighty two, as reads as follows, "And no national bank which makes any deposit of lawful money in order to withdraw its circulating notes shall be entitled to receive any increase of its circulation for the period of six months from the time it made such deposit of lawful money for the purpose aforesaid: Provided, That not more than three millions of dollars of lawful money shall be deposited during any calendar month for this purpose : And provided, That the provisions of this section shall not apply to bonds called for redemption by the Secretary of the Treasury, nor to the withdrawal of circulating notes incon- seciuence thereof," be, and the same is hereby, repealed; and the Comptroller of the Currency is hereby authorized and directed to have prepared and keep on hand, ready for delivery on application, blank notes, to such an amount as he may deem advisable for each national banking association having circulation. I wanted to call your attention to that section in comparison with the section in the Carlisle bill which we have just had under considera- tion, which repeals other sections providing for the retirement of the national bank circulation. The section in the Carlisle bill and the recommendations made by the Secretary of the Treasury revive the 382 FINANCIAL AND BANKING SITUATION. previously existing: Uiav, -which limits the retirement to sums'of not less than s'.>,0\»0, Avhich, it seems to me, and I think you would ajiree with me. would be a mistake, certainly for small banks. So I have only provided for the rei>eal of a portion of that section rather than the whole of it. Mr. Cox. Let me understand that. What is the proposition involved in that? Mr. Hill. The proposition here is to repeal so much of the previous law as prevents the banks, when they have retired their circulation, taking it out within six months; also so much ot the existing law as forbids all of the banks of the country together retiring in excess of $3,000,000 a month. The Carlisle bill repeals the whole section, so that it leaves the pre- vious law in force, which would prevent any bank from retiring circu- lation in sums of less than $9,000. If we were to have a $20,000 bank tliis would make an excessive sum for them to retire at once. Mr. Eckels. I do not thiidc the Secretary had that in mind — I mean the small banks. ^Ir. Cox. The iiroposition to allow the organization of small banks was not before the Secretary. Mr. Eckels. No, it was not. But I suppose it would follow as a matter of course, when the bill Avas perfected upon the lines of small banks, that that provision would go. Mr. Hill. You would not think it Mise to leave that standing? Mr. Eckels. Xo. Mr. Hill. With that thought I have drawn this section in this way, and have added at the end the provision which will require the Comp- troller of the Currency to keep a supply of bills on hand at all times, which it seems to me is necessary. Mr. Eckels. That was also provided for by the Secretary's bill. BANK NOTES ISSUED IN LIEU OF LEGAL TENDER. Mr. Hill. Sections 8, 9, and 10 cover an optional privilege about, which 1 have a little doubt myself, but upon which I would be glad to have your opinion. Those sections are as follows: Sec. 8. That auy iiatioual bank uow organized, or that may be hereafter organized, may, in ])lace of a dejxjsit of bonds to secure circulation, ])ay to the Treasurer of the United States gold coin of the United States to the suni of not Ies3 thau twenty-five per centum nor more than fifty per centum of the capital of said bank, uud thereupon the Treasurer of the United States shall retire and destroy a corres])onding amount of the legal-tender notes or Treasury notes or silver certificates of the I hiited States, selecting such issues in the order herein named, and thereupon the Treasurer shall cause to be; issued to said national bank an e(|ual amoimt of national-bank notes of distincti\e color currently redeemable by said bank in gold at its own ollice and at the Treasury of the United States and guaranteed as to their iinal payment by the United States; but such guaranteed notes shall not be subject to taxation and shall not constitute a lien vipon the assets of said bank. Sec. 9. That any national bank taking out guaranteed national-bank notes, as provided in section eight, shall bo entitled to receive from the Treasurer, and is hereby authorized to issue national-b.'ink notes to an e(|ual amount without ayment by the United States shall lie of a distinctive color, anresent banking sys- tem by amendments to the present law which will produce that result without creating alarm in the public mind rather than to revolutionize it by the introduction of new principles and methods in banking, the result of which in practice can only be conjectured f That is a very general proposition. PEOPLE DEMAND NEW FINANCIAL LEGISLATION. Mr. Eckels. It is very unwise at any time to create any unnecessary alarm, and yon are right in your statement that the i)ublic is very sensitive on the (luestion of a radical change in banking and currency legislation. At the same time it seems to me there never was a better time for making necessary changes, even though they introduce a num- ber of new elements, than the present, because there never was a time when there liad been such a widespread discussion of the monetary question. I am sure the verdict at the last election was something more than a mere declaration that the voters did not want free coinage of silver. It was more, also, than a declaration that they were in favor of the g(dd standard as against the silver standard. ]\ry intimation of that result was that they wanted some affirmative relief. It seems to me such aflirmative relief can only be gained through FINANCIAL AND BANKING SITUATION. 387 changes in existing banking law and in relieving the Treasury of the things which past experience has shown embarrass it, namely, the legal tender demand obligations. I think the public, even though it is necessary to introduce a number of new principles to do it, will go farther to-day in sustaining departures in finance in this country than at any time within the last thirty years. It is not necessary to overturn the whole system. IS^obody contemplates sncli a course; but there are cer- tain things, even thongh they are radical, which ought now to be dealt with. I believe that the x)eople expect it, and that that was the thing they had in mind when the result of the last election was brought about. Mr. Brosius. Mr. Comptroller, the inquiry was very general and the answer has been equally general. I have no ])urpose to interpose my own views. I am simply eliciting the views of the Comptroller. I pass to the second proposition, and that has been i)artly answered by what has been said already, anticipating the in(|uiry. Whatever may be your view, Mr. Comptroller, of the correct theory of the lelation of Government to money, from the point of view of a practical legis- lator, taking into consideration the preponderance of the sentiment of our i)eople in favor of retaining the greenbacks in circulation as money, would it not be wise to postpone for the time any legislation relating to the retirement of that portion of our currency by the conversion of it into interest-bearing indebtedness ? POSTPONEMENT NOT WISE. Mr. Eckels. I am_certain it is not wise to postpone doing away with a thing which very frequently has demonstrated itself to be a source of business disaster to this country. I do not believe it is wise to assume that the public would Jiot sustain legislators in a matter of this kind, if the legislators themselves stood up and gave reasons for the faith that was in them why the thing ought to be done. In the retire- ment and cancellation of legal tenders is to be found the only practical way of bringing relief to the Treasury. It will not come through mere increase in revenues. If a banking bill is enacted and no provision made for getting rid of the source of the trouble, the banking situation is improved and the business interests of the country in a measure aided, but there is still left fastened on the country a growth which is a can- cerous one, and which in and of itself carries elements which nuist in the end bring a great deal of loss and at times almost destruction to business interests. Mr. Brosius. Are you not aware that you have proceeded in your answer upon an assumption that the greenbacks were very dangerous, and that they caused us a great deal of trouble! Mr. Eckels. Yes. Mr. Brosius. If I believed that I would agree with you perfectly. Mr. Eckels. I know we differ upon the danger of them. Mr. Brosius. Upon that point I want to ask you whether you are aware that not only a large majority of this Congress, but a large majority of the people of the United States, do not agree with you in the assumption you make? Mr. Eckels. There is probably a large majority in Congress aiid a greater or less number outside of Congress who believe it is not the politic thing to do, and possibly that it is not the practical thing to do, but I am sure there is a majority of Congress who believe it is the thing which ought to be done if it could be done. 388 FINANCIAL AND BANKING SITUATION. NOTES ISSUED AGAINST ASSETS. ]\Ir. Brosii'S. The third proposition is, "Whatever may be your view- as to the theory of credit currency issued against the assets of the banlv, inasnnich as our i^cople for thirty years have been accustomed to a secured curiency, would it not be wise, for tlie i)resent at least, and under existing circumstances, to adhere to a secured currency rather than to authorize the banks to issue notes against their assets alone ' Mr. Eckels. I have heretofore stated that 1 did not think it would be wise to permi*- the banks to issue all their notes against their assets, but 1 thouglit they might very safely issue a limited percentage of them in such manner. I do not think it would be wise — 1 think it w'ould be unwise — to permit them to issue all their notes against their assets, because that necessitates educating the people on one line and unedu- cating them on another, something which can not be done, except gradually. PROPOSITIONS FOR RELIEF. Mr.BROSirs. The fourth pro]iosition is, Assuming the impracticability of the retirement of the greenbacks and the issue of currency against tlxe assets of the banks alone at this time, can we, in your judgment, do better than to first provide for the issue of currency up to par, or may be the market value, of the bond deposited to secure circulation; and, secondly, to i)rovide for establishing banks with small capital in snmll towns, as we have already done; and, thirdly, to reduce- the tax on circulation to about one-quarter of 1 i)er cent, so as to make the profits on the issue of notes sufficient to induce banks to supply the l^eople with as much currency as they need ? Mr. Eckels. I did not assume, Mr. Brosius, that it is an impractica- ble thing to retire the greenbacks. Mr. Brosius. Upon that assumption 1 base the question. Mr. Eckels. I want it understood that I do not assume that, however. Mr. Brosius. I understand that. Mr. Eckels. But upon the other point. I certainly think it would be wise as a measure of legislation, pending these other things, which ought to come as rajndly as practicable, to permit the organization of snudler banks and to permit the establishing of branch l)anks. In this way the facilities of deposit and discount banking could l)e extended. I think at onei)oint backtliere, Mr. Brosius, you said something about whether or not there was any danger in the legal tender. Mr. Brosius. You are i)roceeding upon the assumption that there was danger. CAUSES OF PRESENT DANGER. Mr. I'^CKEL!-',. I would like in this connection to state why I think the danger from the legal tenders is increased by circumstances which sur- round them. If the Government possibly had had nothing outstaiuling but the 8.''>4G,(K)(),{)()0, it might have gotten along without a great deal of trouble in taking care of them ; but enacted legislation has i)ro(luced results which have augmented what might have been the small danger of the legal tenders into a very large danger, Tlie legislative acts to which I allude were those pro voiding that these notes should be reissued when once they Avere redeemed, the Bland-Allison Act, the adding the great amount of depreciated silver currency, and the Sherman silver- purchasing act, resulting in the issuing of the silver Treasury notes. All FINANCIAL AND BANKING SITUATION. 389 these as contributing? causes made a thing which of itself might not have been so harmful a source of recurring danger by ])laeing a great additional burden upon the Government to maintain the parity of the moneys which it circulated. Mr. Cox. May I ask a question right there? Mr. Brosius. Yes. Mr. Cox. Now, Mr. Comptroller, is not your mind thoroughly made up and conclusively made up that no banking system can be successful unless the greenbaclis of the Treasury are retired in some way or other? Mr. Eckels. I do not believe any banking system can be of mate- ria! benefit in relieving the Treasury Department unless provision is made for getting rid of the legal tenders and Treasury issues. Mr. Cox. Now, we have got one point from your conviction settled — that the Treasury can not be relieved unless those notes are retired. When we come to the next point in the investigation of this matter, it becomes a matter much more with the banks than it does with the Government. Is not that true? Mr. Eckels. I do not know that I understand you, Mr. Cox. BANKING MUST BE MADE PROFITABLE. Mr. Cox. I mean this: That to induce the banks to go into the bank- ing system there must be a reasonable assurance of profit to induce them to go in. You have cut off and intend to stoi) this Treasury-note system of redemption. Now then, do not you have to offer the banks some sort of encouragement in some way ? Mr. Eckels. No man will go into a banking system unless there is apparently a margin of profit in it. When the legal tenders arc can- celed, there has been removed from tlie channels of trade and commerce notes which to day are directly in competition with bank notes and thus is made a larger field for bank notes, with a corresponding increase in profit from the issue of them. ]Mr, Cox. Of course, that nuist depend upon the encouragement you give to banks for a reasonable profit. Is not that so? Mr. Eckels. Certainly; the banks must have encouragement in the way of profit or they will not go into the system. But as I understand it, Mr. Brosius calculates that the increase in the amount of notes they can put out in issuing either to their i)ar value or to the market value gives them an increase of profit. He would also permit the establish- ing of small banks. Mr. Cox. Does this bill contemplate the retirement of greenbacks and Treasury notes ? Mr. Eckels. No; Mr. Brosius's bill does not contemplate that. TWO CLASSES OF NOTE«. Mr. Hill. You stated in criticism of my bill that it would make it a matter of doubt in the hands of the holder — the issuing of two classes of bills. Mr. Brosius has again referred to the possibility and the advisability of the issuance of credit currency, and you stated that you were not in favor of an issue of credit currency in excess above the secured currency — I think you stated the other day in excess of 25 per cent. I would like to ask you how you are going to issue any credit, currency in conjunction with secured currency without haviug two forms of bills? Mr. Eckels. Two forms of bills, but one kind of redemption money for both of them. 390 FINANCIAL AND BANKING SITUATION. Mr. Hill. You do not object to two classes of bills? Mr. Eckels. Xo. Mr. niLL. But you do object to different kinds of redemption money? NOTES ISSUED AGAINST STATE AND MUNICIPAL BONDS. Mr. Brosius. My next inquiry is, It further relief should be needed in the South and West, where the capital is less abundant and the habit of depositing- current funds in banks less i)revalent, is there any insu- perable objection to lottino; banks issue notes on deposit of State or numicipal l)onds, in lieu of (lovernment bonds, under such conditions as will adequately safegnard the Treasury, limiting the issue, say, to 75 per cent of the securities de])osited? Mr. Eckels, The notes issued against these bonds would be just as good, undoubtedly, as those issued against any other bonds. The only possible danger in taking bonds other than (Government bonds would be that it would encourage municipalities to issue bonds unnecessarily. But so far as the security of the notes is concerned the bonds of almost any municipality which is not distinctively what might be termed a boom town would be perfectly good. Mr. Bkosius. The conditions and the restrictions to which I refer Mr. Eckels. But, ]\lr. Brosius, the people in these sections who are making the demand for this bank-note currency do not want to deposit security. They claim that such method unnecessarily ties up capital. That is the i)oint of their objection, and I do not know whether, unless they were given notes that were not secured, they would feel any better about it than they do now, or whether they would obtain any relief. ^Ir. Brosius. I am not inquiring so much about what these ])eoj)le want as to what is practical to give them. They comi)lain, as the Comp- troller is aware, that they can not get Government bonds, and unless they can bank on some other kind of securities they can not bank at all. Mr. Eckels. Yes. Mr. Brosius. If they could bank on State securities which they already hold, they could issue their currency and it would not tie up their cai)ital, because they would get interest just the same and simply deposit it as collateral se(;urity. They would be banking on their own capital, at the same time using the securities of the State as collateral securities. Mr. Eckels. I do not see any objection to that, as far as the security is concerned. INIr. Brosius. Now, Mr. Comptroller, if these measures which I liave suggested in these ]>ropositions were enacted into law, would not the banks iu>w existing and those to be organized, in that event be able, and Avould not the profits of their issue induce them to supjdy comnni- nities with a suitable amount of currency which would be entirely secure and reasonably elastic? Mr. locKELS. Under the measures suggested you would jn-obably get as much currency as the country could use; but whether you could always get it when most needed is another thing. The objci'tion to a iK)te issue based entirely on bonded secairities is that you have not the means at hand of getting out the currency when it is re(]uired. For instance, at a certain period of the year you haxe to have a large amount of currency, and before you can get it out on bonded securities you must piocure and dejmsit th<^ bonds, and it not infre(iuently happens that before you have done this the necessity has ])asse(l by. ]\Ir. Bkosit'S. Is there any other relief from that difliculty except to issue currency against their assets ? FINANCIAL AND BANKING SITUATION. 391 Mr. Eckels. None that I know of. Mr. BROSIU8. Then, if it is unwise to issue currency against the assets alone we must endure the difficulty to which you have just referred ! Mr. Eckels. I suppose we will have to put up with certain banking inconveniences; bnt understand me, Mr. Brosius, that the point I make is that it would not be wise at the outset to issue all bank notes with- out deposited security, but that it would be wise to undertake to issue a certain per cent against their assets. Mr. Brosius. In order to relieve the difficulty to that extent! Mr. Eckels. To relieve the banking difficulty. Mr. Brosius. I am speaking of the banking difficulty. Mr. Eckels. But issuing notes against the assets of a bank or issuing against bond security, M'ith no further provision, would not relieve the Treasury difficulty at all. UTILIZING THE IDLE SILVER. Mr. Brosius. I would like to ask one more question. If these pro- visions to which I have referred were embodied in legislation, would it not relieve the Treasury situation to provide for utilizing the idle silver now lying in the vaults of the Treasury and the mints, not even avail- able for the redemption of the paper that was issued in its purchase — lying there absolutely idle — utilize that by placing it in the reserve fund and uniting it with the gold reserve, thus making a consolidated metallic fund for redemption purposes, with authority given to the Sec- retary of the Treasury to redeem greenbacks and Treasury notes, either in gold or in silver, to its gold value, or in silver dollars, at the option of the holder, thus doubling or practically doubling the amount of our reserve fund and making it all available for purposes of redemption, and that when the Treasury note or a greenback is redeemed in this way it shall be canceled and not reissued, except on the deposit of a corre- sponding amount of gold, thereby converting all those notes practically into gold certificates ? Would not that strengthen our Treasury situa- tion and help us out of the difficulty to a certain extent? Mr. Eckels. I think that the way the silver could be of the most avail toward assisting the Treasury situation would be to sell it for gold and then make up the difference — let the Government ax-cept a loss on it. I suppose, however, that if it was converted into gold and that gold i)ut into the Treasury you might accomplish some relief alter you had redeemed the legal tenders by not permitting them to go out, except on the deposit of gold in exchange therefor. Every legal tender would then be converted into a gold certificate. Mr. Brosius. Is not that u good idea? Mr. Eckels. Well, it would be better than the present situation, but it is not wise for the Government to have out any paper currency at all. The issuing of paper currency is the province of banks. You still, by that method, bring an element in competition with the banks in their note-issuing functions. Mr. Brosius. You think that would be better than the present situation, but not so good as to entirely dispense with the paper money ? Mr. Eckels. I think it would be better than the present one. Mr. Brosius. The Con)ptroller will understand that these proposals bring out the ideas incorporated in my bill and I do not take up the bill to go through it in detail, but for the purpose of brevity I have submitted these propositions. 392 FINANCIAL AND BANKING SITUATION. Mr. EcKEL.s. Ill this bill you contemplate a further purchase of silver? :\Ir. Brosius. Yes. Mr. Eckels. Froiu time to time? Mr. Brosius. 1 think 1 would modify that i)rovisiou. 1 made uo iufiuiry about that. Mr. Eckels. Your design would be to make tlie present silver available"^ Mr. Brosius. To make the silver that is now idle and utterly useless available to splice out the gold reserve that has been inadequate in the past. The Chairman. We have got about forty-six minutes left. I would like to take about five minutes myself iii asking a few questions. Mr. Cox, have you any questions to ask? Mr. Cox. I want to get at that point clearly. The Chairman. Please remember that the time is short. Mr. Cox. I will be brief, jMr. Chairman. NOTES REDEEMED IN SILVER. The principle involved in that idea is that you utilize, or try to util- ize, the silver you have m the Treasury, for the purpose of the first retlemptiou, when these Treasury notes come in. Let us get the facts right. :Mr. Eckels. I take it that Mr. Brosius's idea is to take the silver bullion which is deposited there and unite it with the gold in the Treas- ury, both to be used as a redemptive fund. Whoever gets silver in redemption of his notes gets the quantity as measured by its gold value, and whenever a note comes in under those circumstances it is canceled and can only be gotten out again by a deposit of gold. It is not unlike the rule observed by the Bank of England. The plan is that in this manner every Treasury issue, legal tender or Sherman note, becomes a gold certificate. You do not design, Mr. Brosius, to permit these notes to be reissued on a deposit of anything but gold, do you? Mr. Brosius. No. Mr. Eckels. Not with silver. THE treasury a brokerage shop. Mr. Cox. That is the way I caught the point. Now, let us see how it works. I stop in there with one of the Treasury notes, ami I say 1 will take so much gold for this note, or 1 will take so much silver, at a certain value for tlie silver compared with gold. Now, when I make that proi)osition, ])ractically the Treasury decides which way they will pay me. Eor illustration, they pay me the silver, and I take the silver out and they have got the notes. Now, when 1 come back to redeem that note, J have got to pay in the gold ? Mr. Eckels. Yes. Mr. Cox. Now, then, watch. Does not that make the Treasury an absolute broker shop as to the ])rice of silver and gold? Mr, EcKLES. It makes the man who presents his note a purchaser of silver of the (iovernment. Mr. Cox. Yes, sir; and then when he wants to get rid of that silver he gives back and demands the gold. Vou have got a Treasury that is nothing in the Avorld but a brokerage shop. Mr. Eckels. That is what it has been, only the Government has been buying the silver instead of selling it. FINANCIAL AND BANKING SITUATION. 393 Mr. Cox. I agree with you, but that does not answer the question. Mr. Eckels. The Government has been doing- tliat thing. Mr. Cox. There is no question about that, and I think it the most erroneous thing in the worhl; but at hist the man comes with his Treas- ury notes and be says, '' I will take silver at a certain price," and he gets it. Conditions change, events turn around, and he brings that back and demands the gold. Does not the Treasury have to pay in the gold 1 Mr. Eckels. He biings the silver back and demands tlie gold? Mr. Cox. He brings his certificate back. Mr. Eckels. He takes his certihcate there in the first instance and gets silver. Mr. Cox. Pardon me there, for fear we will not understand each other. I am treating the certificate as a representative of silver. Mr. Eckels. The certificate has gone into the Treasury and has been canceled, so if he wishes to get it out again he must go and deposit gold for it. Is not that your purpose, Mr. Brosius? Mr. Bbosius. Certainly. The Chairman. Is not that the Comptroller's answer? Mr. Cox. Probably it is to the chairman. Now, I have got the man there, and he says, "I will take the silver for it." Mr. Eckels. He surrenders his certificate. Mr. Cox. Yes. Now, that is the silver; and afterwards he comes back with the silver and demands a gold certificate and the Government has to give it lo him ? Mr. Eckels. No; the Government does it now. The Government does not do it under Mr. Brosius's bill. Mr. Cox. What does it do ? Mr. Eckels. It says: "You can have your certificate if you will bring me gold for it. But you can not get it with silver." Mr. Cox. If he can not work the silver out he can not get any redemp- tion for his certificate. He can not get the gold. Mr. I-^CKELS. He gets the silver in place of it, if he wants silver instead of gold. Mr. Cox. The man gets his silver and he takes that out. Now he comes back to the Government with his silver. Mr. Brosius. He can not do it under my bill. If he takes the silver, he would dispose of it. He would only want it for export and he would have no motive to bring it back. Mr. Cox. Suppose he does not take that view of it? Mr. Brosius. He must take a correct view of it. Mr. Cox. Well, suppose he does not take your view of it, and he brings it back to the Government and saj'S, " Here is my silver. I demand the gold." What is the Government going to do? Mr. Eckels. The Government says that it is not issuing certificates except on a deposit of gold. Mr. Cox. Therefore the silver must stand its chance with the parity of gold? Mr. Calderhead. And the gold would go to a premium at once. Mr. Cox. Of course it would ; it would be at a premium in twenty minutes. Mr. Fowler. I understand that Mr. Brosius's bill repeals the act whereby the Government has to maintain the parity of the metals. Mr. Brosius. Not at all. Mr. Eckels, As I understand Mr. Brosius's bill, the silver is not 394 FINANCIAL AND BANKING SITUATION. coined. It provides to give so much silver bullion in exchange for cer- titicates. The Government sells its bullion to these certificate holders. Mr. Brosius. Tlie man -who goes there to have his notes redeemed Las a motive. lie Avants to ship it abroad and i)ay some balances. If he uses it for that ijurjjose, it is done for; he would have no occasion to return; but if he chose to buy silver and bring it to the (lovernment he could get silver certiticates for it, but not gold certiticates. Having been redeemed, that paper is canceled and can only be resurrected when somebody deposits that much gold. Mr. Cox. He carries his silver certiticates back? Mr. Beosius. No; he does not. The Chairman. He has not got any silver certificates. Mr. Cox. k5Ui)i)ose he gets the silver'; Mr. Eckels. What Mr. Cox would like to know is, if he got the silver could he take the silver back and get a silver certificate? 3Ir. Brosius. The bill does not interfere with the silver certificates at all. It contemplates the continuance of silver certiticates, but if any man has silver now he can go to the Government and get a silver cer- titicate ibr it. This bill does not i»rovide for any retirement of silver certificates at all. Mr. Johnson. I think it is misleading. Mr. Cox. It lias misled me. Mr. Eckels. When we »vere discussing the provision of Mr. Brosiiis's bill relative to the silver bullion now in the Treasury, I said I thought the best thing would be for the Government to sell that silver for gold, and accept its loss and make up the difference. Mr. Brosius reaches the same result so far as that silver is concerned, only he would sell it at retail and I would sell it at wholesale. Mr. Brosius. To be determined by the market price at that time. Mr. Eckels. Yes; the market v;ilue in gold. That deals with the bullion alone. No jirovision at all is made to in any wise change exist- ing conditions so far as the silver certificates are concerned; they are only issued against silver dollars coined. Mr. Fowler. Mr. Brosius just said that if any man went to the Gov- ernment with that same bullion, the price having changed, he could deposit all that bullion. Mr. Brositts. No; he must treat that silver Just as anybody else who takes that to the mijit. Mr. Eckels. He can not. Mr. Brosius. We are not buying silver now, and under existing law he couhl not. I had in my mind that we were still issuing ccrtifi(;ates for silver, but Ave are not under existing law, and he could not bring it to the Goverumeut because the Government is not buying silver. secured currency not elastic. Mr. Fowler. Mr. Eckels, in answer to Mr. Brosius's question Avith regard to a secured currency by municipal bonds, 1 think you stated it could be elastic. Can any secured currency be elastic ? Mr. Eckels. No; I said it could not be elastic. Mr. Fowler. I tliink the way you said it will give the impression that you said it could be elastic, and give the requisite anu)unt of money in the different localities of the country. Mr. IjCKELS. I did not speak about the elasticity of such a system, but I stated that ])robal)ly for ordinary times there would be enough cur- rency gotten into circulation. The difiiculty with all bonded security FINANCIAL AND BANKING SITUATION. 395 is, at the time an emergency might arise you could not get the increase of circuhition necessary to meet that emergency, because you would lose so much time in purcliasing yovir bonds, etc. I explained the matter at some length in answer to a previous question put to me, STATE AND MUNICIPAL BONDS. Mr. Fowler. Does not the condition of the national banks of the country show that none of the national banks in the South and West and Southwest and Northwest hold any kind of municipal bonds? Mr. Eckels. Tbey do not make a specific showing on the subject. Mr, Fowler, They do not, except buying and selling them for immediate use. Mr. Eckels. I do not know exactly what the character is of the stocks or bonds they carry. Mr. Fowler. The point is this: That in the East national banks invest a portion of their assets in bonds and many of their investments are convertible in the stock exchange, while the banks in the newer portions of the United States, or in those parts of the country where they have less money in the form of capital to deposit in banks, do not have any investment in the shape of county. State, or city bonds. Mr. Eckels. I think most of the bonds of muuici]ialities and State bonds are held in cities in New England and in New York. Mr. Fowler. They are not held by the Western banks at all. Take the States beginning with Virginia and sweeping on around and taking in Texas, Kansas, Nebraska, Dakota, Minnesota, and Ohio, if you ])leaKe, outside of the cities; do those baidcs hold any municipal bonds as invest- ments? Mr. Eckels. Comparatively speaking, very few. Most of them are held in places where there is a surplus of investable capital that can be put into bonds. Mr. Fowler. That is it, exactly. Now, another question on that scheme. Would there be any possible inducement whatever lor any national bank anywhere in the United States where the rate of interest was, say, S per cent, or even G per cent, to buy bonds of a municipal character and then issue 75 per cent of those in currency, considering the rate at which the bonds are now held in the West? Good bonds run from 4 to 5 per cent. Would there be any possible advantage in buying bonds and lending the m(mey that the Government would give you against lending your own money out? Mr. Eckels. There would be the same objection, I imagine, that arises from investing so much money in Government bonds and only getting 90 per cent. Mr. Fowler. It is no step forward at all, is it? Mr. Eckels. I suppose Mr. Brosius's idea was that it would enlarge the field of investment in the establishment of banks. Mr. Fowler. But if it was not a source of profit"? Mr. Eckels. They would not take out circulation; of course not. Mr. Fowler. They would loan their own money. You have the same amount of money, and if you have paid $100 for $75 in currency you have lost 825, haven't you? Mr. Brosius. My friend forgets that the banks of the United States to-day hold, in stock and miscellaneous securities, about $11)5,000,000. A large proportion of that is drawing interest at the rate of between 4 and 5 per cent. Those banks are largely investing their capital in security at 4 and 5 per cent. It does not take any more money to buy 396 FINANCIAL AND BANKING SITUATION. municipal or State bouds tliau it does to buy railroad bonds. If tliey can take that and issue 75 per cent of that in currency, I think they are making money. Mr. Fowler. Now, it is a physical fact that entirely disposes of your proposition, -when it is known, as "Mr. Eckels has already stated, that none of those securities are held in those localities where tlie ])eople are crying for currency. They are held in New England and New York. Mr. Bkosius. But they are; that is not a fact. The Chairman. This is not in the line of the investigation. Mr. Eckels is here giving liis views, and Ave are not discussing among our- selves. Mr. Fowler. Is it not a fact, Mr. Comptroller, that the bonds held by national banks are lield in those localities where there is no need of additional currency at all? Mr. Eckels. I have already said that a majority of them are held in the East and in New England. l>ut I suppose Mr. Brosius's idea is that if these bonds were permitted to be used for circulation, there would be more inducement for home people to buy them. Mr. Fowler. But, as a matter of fact, to-dav they do not buy them at all. Mr. Eckels. No; such bonds are all sold, or at least the most of them, in New York Citj^. They are bouglit in large blocks and from there distributed to people who wish to make investments in other I)arts of the country for the purpose of having a fixed income. miscellaneous stocks held EY NATIONAL BANKS. Mr. Brosius. Please allow me one word tliere. He has stated that these securities were not held in the sections of the country where they were demanding increased banking facilities and more money. I hold in my hand the statement compiled from the rejiort of the Comptroller of the Cnrrency for all the Southern States — 22 of them — with the amount of stock and securities held by each one, showing that in every State considerable amonnts of these miscellaneous stocks and securities are held by the national banks. Mr. FowLEij. Will you give those statements with the amount of stocks and bonds? Mr. Biiosius. Yes, sir; they are as follows: States. Stocks and securities. Virginia $1, 157, 518 Noil 1) Carolin.a 316. GO:i Soiitli Ciuoliua I 931, 496 Georgia \ 823, 814 ]'"l«)ri(l:i I 744, 427 Missouri , 7, 040, 668 Soiilli Dakota. Neliraska. .. Kansas Tennessee .. Alabama Mississippi 021, 154 1, 205, 022 944, 988 970. 020 1,152,953 414, 522 States. Louisiana... Texas Arkansas ... Montana Wyoming ... Colorado Utali Nevada Idalio Washington Total .. Stocks and .securities. 229, 525 362. 977 117,671 231, 133 217, 961 725, 506 273, 093 9.565 517. 488 149, 172 1, 25, 157, 276 Mr. Calderheat). While the banks in the 22 Southern and West- ern Sta-res hold 82r),ir>7,()0(> in stocks and seciirities, I would like to add to that statement that the banks in the 2.'i Northern and Eastern States hold $105,035,000 in stocks and securities. FINANCIAL AND 15ANKING SITL'ATION. 397 Mr. Fowler. Isn't it a fact that these bouds that yuii speak of are held in the huge cities of those States by tlie large banks, and not by the conntry banks? Mr. Brositts. They do not have large cities there. Mr. Eckels. As a general thing the city banks hold more stock than conntry banks, bnt I do not know how much of the kind of stock which he enumerates. Mr. Fowler. Is it not a fact that a great many bonds are tempo- rarily bought by national banks simply for the i)nrpose of negotiation in those Southern States, and they do not expect to hold them, but expect to sell them ? Mr. Eckels. My idea is that as a rule all the bonds of municipal- ities and States are handled by stock brokers and bond houses in New York, Boston, or other large cities. They are bought there in their entirety. Mr. Fowler. Is it true, Mr. Eckels, that these bonds are bought much more by banks, who lirst buy these issues and then go on to New York and negotiate them? Mr, Eckels. Most of them are bought by the houses that make that their business. The percentage of municipal bonds held by the banks is not very large. ]Mr. Fowler. Is there anything in the reply that Mr. Brosius made to show whether these are railroad bonds? Mr. Brosius. Nothing at all. They are designated as miscellaneous stocks and securities.. It would not take any more or any less money to buy them than to buy railroad bonds. Mr. Fowler. But it does not necessarily follow that those are cov- ered by your bill. Xlr. Brosius. I do not know how many municipal bonds; but it does not take any more money to buy municipal bonds than railroad bonds. CREDIT CURRENCY. Mr. Fowler. I understood you to say to-day (or the other day)^ by intimation — and if I am mistaken I would like to be corrected — that you thought any jDrinciple of secured currency was unsoun^i and not a proper basis of currency. Mr. Eckels. That it was not a correct banking principle. Mr. Fowler. Do you think it would be prudent to allow the banks of this country now, having become accustomed to a system of secured currency, to at once adopt the system of credit currency without the supervision of some i^ublic official as to their right and privilege to take it out? Mr. Eckels. No, I should not permit it at all. Mr. Fowler. You would leave it under the supervision of public officials ? Mr. Eckels. Yes ; I think the issuance of currency ought to be super- intended by public officials, whether it is secured currency or unsecured currency. Mr. Fowler. As I understand you, in answer to Mr. Hill's measure, I think it was, you stated that, in your judgment, granting them the privilege of taking out, say, in the outset, 20 or 25 per cent of credit currency, such 25 per cent should be under the permission or control of a j)ublic official ? Mr. Eckels. Yes. Mr. Fowler. And that, having once started upon the course of 398 FINANCIAL AND BANKING SITUATION. credit currency, the result of the system should be an (,'volution into a credit system entirely a.uainst a secured system ' Mr. ECKEL8. I believe that Avould be the linal outcome. My. Fowler. But that it should be one of evolution? Mr. 'i^CKELS. Yes. The Chairman. I would like to ask a few questions that will i^erhaps interest the committee. If you turn to pa.ne 5 of your report you will lind a headiiiii', " Sum- mary of the state and condition of every national bank n'[)orted dnriiij;- theyear endin*;' October G, 189(5," and then the last column at tlie ri, g-ives the last report. That is on page 10. Turning over to page 15, here at the bottom of the page it says, "The condi tion of State banks and banking associations." Now, is it fair to write in there, " Conditions of State banks of loan and discount ?" Are you comparing those banks — State banks — doing the same kind of business as the banks you rex^ort as national l>anks, on ])age 10 t Mr. Eckels. It is virtually the same kind of banks, because you see there is a separate report as to the condition of savings banks. Mr. Brosics. Where is the comparison made to which you refer? The Chaieman. It is not a comparison, but statistics on page 10 and on page 15. On i)age 10, the second table, it says 9156 — all baidcs. That does not include the savings banks. Those are the same banks you refer to on ])ages 10 and 15, are they not? ]\Ir. Eckels. No; with the addition of the savijigs banks. The Chairman. Do ;\'ou mean to say that the savings banks are not included? Mr. Eckels. Yes; on page 19. Y'ou find on page 17 The CiiAiRMAiV. But you will find on page 10 the loans and discounts on October G are given at $1,893,268,829. You will find on page 15 the loans and discounts are given as $2,348,19,"5,077. Y'ou add those together and it gives you the same $4,000,000,000, or about that, so that is what I want to Inive explained. It seems to me that if the table at the bottom of ])age 15 is of the loan and discount banks, then ceitainly the table on i)age 19 does not include savings banks. When yon cor- rect your testinu)nv, i)k'ase make that clear; and so I pass on. You will see that your iir!l,800,()(K>,000 added to your $2,200,000,000 will make about the same as your total of all loans. State and national, on i)age 19. Mr. Eckels. I do not think it does include the savings baidvs. The ('iiAiRMAN. Then it is safe for me to assume, in any estimates or figures or investigations 1 may make, that this table on page 19 includes the loans and capital and cash, etc., of all disc^ount banks, M'hether State or national. One word further. That is the word "cash." In this second table, page 19, how much of that is gold, or is it gold and silver, or what is it? Mr. ICckels. It includes all kinds of cash. The ('iiAiR.AiAN. Eractiomil and everything else, and do they hold as much as $512,000,000 clear from certilicates, or do you count gold certificates ? Mr. Eckels. Yes; all kinds of cash. Tiie CiiAiU'MAN. It counts all forms of metallic money or certificates of nu'tallic money. Is that llu^ idea ? ]\Ii'. JOcKELS. Yes; si)e(;ie and other currency held by the national banks on .Inly II, and by other banks about the same time, amounted to $135,000,000. FINANCIAL AND BANKING SITUATION. 399 THE (JAKLiSLE ]JILL. The Chairman. In the first place, I want to ask whether tliis bill reported by Mr. Cox has been materially changed as to the amount of greenbacks that are required to be deposited in pro])ortion to the cur- rency issued, or as to the currency to be issued, whether it remains the s;ime as when Mr. Carlisle presented it? M)-. Eckels. 1 think it is the same bill, with some changes to it; I do not know whether any changes have been made in it or not, Mr. Cox. On the question of currency it is the same bill. The Chairman. Look at the statement of Mr. Carlisle on page 29 of the report of the hearing before this committee on December 10, 1894. Mr. Carlisle said, in reply to my question — I read as follows: Mr. Walker. Have yon thought of how long a time ifc would take to retire the greenbacks f Mr. Caklisle. It might he done in twenty years or it might be done in iive or six years. The Chairman. Now, the point is whether you would proceed with legislation upon the theory that it would take twenty years or five or six years. (After a pause.) Well, as you do not answer, my question can be i)ut down and no answer need be put down. JMr. Cox. I want to say Mr. Eckels. I think that is a question that Mr. Carlisle ought to answer. Mr. Cox. I want the answer of Mr. Carlisle put in tlie record. The Chairman. I have the floor, Mr. Cox, I think it is proper The Chairman. The gentleman is out of order. This bill — the Cox bill — temporarily confines the legal tenders, but it does not destroy them. They still remain in sight of the people in the Treasury as a deposit, do they not? Mr. Eckels. Yes; they are kept there as a deposit. The Chairman. And in the eyes of the people the same as the silver is that they are now clamoring should be paid out, notwithstanding the certificates are out against it. Do you think that is a wise x>olicy ? Mr. Eckels. I have stated thatl think those things ought tobej)aid and cancelled and gotten out of the way. The Chairman. "^Isn't it a fact that the bill H. R. 171 Mr. Cox. I rise to a question of personal i^rivilege. The Chairman (continuing). Does not transform the legal-tender notes of the Cxovernmeut into bank currency? Mr. Eckels. I think the provision of your bill is to change the form of them, I think that the Secretary's bill, or Mr. Cox's bill Mr. Cox. It is the Secretary's bill, Mr. Eckles (continuing). Provides for the retirement of the legal tenders by reviving the old statute that so many should be retired in accordance with the percentage of bank notes issued. The Chairman. But in the first instance Mr. Eckels. They are deposited as a security. The Chairman. One fu-rther question. Mr. Cox. I rise to a question of personal privilege. The Chairman. The objection to the use of bonds is covered by bill H. R. 171. Is not the security equally a Government security when the Government is obligated to pay upon the insolvency of the bank, 400 FINANCIAL AND BANKING SITUATION. and as sure and as positive as holding a l)ond -^liicli the Government does for the money — is not that i)ra('tienlly tlie same security for the notes? Mr. Eckels. I wouhl just as lief have the Governmeuf s guaranty as the bond. The Chairman, l^ow, Mr. Cox. jMr. Cox. Now, let us put everybody square on this question. I read the answer of the Secretary to which Mr. Walker referred. It is as follows. Mr. Walker put this question: Mr. Walkeu. Have you thought of how loug a time it would take to retire the greeubacks ? Jlr. Caui.islt'.. It may bo it wouM take twenty years, and it might bo douo in live or six years. If the projjosed law had been enforced during Mr. ( 'lovehnid's last Admin- istration or during Mr. Harrison's Administration, the greenbacks would have been retired. The Chairman. That is expressing an opinion. Mr. Cox. That is an expression of o[)ini()n, but he has as much right to express an opinion as you have. That is on page 29. Mr. Eckels. I do not think the Secretary of the Treasury tliought this was the best way of getting rid of them, but it seemed, at the time the plan was offered, a commencement. Mr. Cox. J do not; but he is doing the best he can. ARE THE greenbacks DANGEROUS? Mr. Spalding. Mr. Comptroller, you seem to have indicated in all your answers and questions pertaining to the greenbacks that the Govern- ment Avas in danger because they were out. Now, is it not true that there was no danger or apprehension of danger up to JNIarch 4, four years ago; that up to that time there was no danger and there was no raid on the Treasury, and the greenbacks were doing their usual duty of a currency with the peoi)le, and the people were well satisfied with them? Mr. Eckels. There was danger then, but it was not so apparent. The conditions which developed it Imd not rea(;hed the proportions which they have since reached, in the fact that the burden resting upon the. Treasury in the maintaining tlie parity of metals was not so great asit has been during the i)ast four years. We have to deal with conditions as we find them to day, instead of with the conditions of four or five years ago. If the condition may have been all right four or five years ago, it is all wrong now. PROPOSED BOND ISSUE OF THE HARRISON ADMINISTRATION. Mr. Johnson. Is it not a fact that during the last ])art of the ITar- rison Adnnnistration the receij)ts of gold for customs i)ayment largely fell off, ami a large number of greenbacks and Treasury notes were presented to the Treasury, and gold drawn out of the Treasury on them ? Mr. Eckels. Yes; and it is a further fact that iu the last rejmrt made by Mr. Foster, the then Secretary of the Treasury, attention was called to the fact that there was an inadequate sup[)ly of gold ami inadequate means givcni to the Secretary of the Treasury to ]n'ovide gold to meet tlu^ additional burden ])utupon the Treasury through the issuing of the Sherman notes. Not only that, but the bond plate had been already pre])ared for the ]mr])ose of issuing bonds to obtain the gold. Mr. Johnson. It is the fact, then, is it not, that the drain upon the gold in the Treasury, while it had not gotten down to the ]>oint of reaching the gold reserve, had been steadily going on during the last months of the llairisou Administration! FINANCIAL AND BANKING SITUATION. 401 Mr. Eckels. Yes; it commenced in 1892. Mr. Cox. I want to pnt this question to tlie Comptroller: I want to ask him if it is not a fact in the history of the Treasury Department that during- the Harrison Administration, when the greenbacks were jiresented, those greenbacks, amounting to several hundred thousand dollars, were redeemed in silver by the Administration of Mr. Harrison? Mr. Eckels. I am sure 1 do not know as to that. Mr. Cox. Call the Treasurer here and he will tell you that is so. Mr. Hill. I want it to go into the record right here tlmt the state- ment made by Mr. Dingley last year, in connection with this matter, was — and I think in connection with the statement made by the Comp- troller it should go in here — that Mr. Foster came to the Ways and Means Committee in 1892 and said that there would be sufificient reve- nue to meet the expenses of the Government; but that after the elec- tion of 1892 was over the falling off in revenues was so great that he came to that committee in February, 1893, and said that there would probably be a deficiency of ."$50,000,000 in the revenues, and it was for that bonds were to be issued. GREENBACKS AN EXPENSIVE CURRENCY. Mr. Spalding. Is it not true that the greenback is a cheaper cur- rency than any credit currency or national-bank currency? Mr. Eckels. No; it is the most expensive currency ever floated in this country. Mr. Spalding. How much has been paid out in gold in the redemp- tion of greenbacks under this Administratioii ? Mr. Eckels. I do not remember the exact amount. Mr. Spalding. Four hundred and forty million dollars, in round numbers. The Chairman. It is all a matter of record. Mr. Spalding. No; it is not all a matter of record. How much gold was put into the Treasury by the exchange of green- backs for gold? Mr. Eckels. I can not say. Mr. Spalding, I have it direct— 1195,000,000 and over. Add $195,000,000 to the deficit which occurred and it would almost account for the entire gold, with the greenbacks, would it notf Mr. Eckels. I do not think so. Mr. Spalding. Add $195,000,000 to a deficit of $180,000,000 or $190,000,000, and it makes pretty near the amount taken out of the Treasury. I have that and can furnish it. Mr. Eckels. You had better put it in the record. The Chairman. Suppose you get your certificate to that effect and put it in tlie record. Mr. Spalding. I don't need any certificate. You have furnished no certificate for a great many of your statements. Would it be a safer currency issued on any of the assets of the banks, even 25 per cent, as the present currency? Mr. Eckels. A safer? Mr. Spalding. Yes. Mr. Eckels. No; you could not get a safer currency as long as the Government meets its obligations. No one has ever questioned the safety of the present national-bank currency. Mr. Spalding. That is true, because the notes are redeemed by the Government in greenbacks, which are lawful money. Now is it not true CUR 2G 402 FINANCIAL AND BANKING SITUATION. if you have $450,000,000 in greenbacks and you keep $100,000,000 tlieVe are $350,000,000 upon which you ]iay no interest; and under the uatioiuil-bank system they do pay interest on tlie eurroney, inasmuch as they pay interest on their bonds? ]\Ir. EcKLES. You do not pay interest in the form of interest on bonds, but you lose interest on the reserve you keep and yon ]>ay interest on that which you have to use at certain times to maintain yonr ^ohl reserve. Thus when you come to estimate the expense, the expense is hirg-er by not i)aying and canceHng them. Then, too, there is no end to the number of times the same process is jione tlirongh with. Mr, SPALDiNCf. Bonds are issued, not for tlie purpose of a circulating medium, but for sale by the Government on account of its necessities; and they were bought by the banks and put up as security for their notes, and they drew interest on their l)onds and drew interest on their issue. Is not that true? Mr. Eckels. Yes, Mr. Spalding, Is not that a more expeusive system than the other? The Chairman, Your time is up, Mr. Cox. 1 want this point clearly understood, that during the Administration of Mr. Harrison the plates were prepared for bonds to redeem those greenbacks, and not only that, but .Mr. Foster, his Secre- tary of the Treasury, did redeem a large amount of greenbacks in silver. Is not that the foct ? Mr. EcKLES. I do not know anything about any redemption in silver. I know that Secretary Foster held to the idea that the Treasury Depart- ment, with the increased amount of demand obligations standing against the (iovernment and without any additional power vested in the Sec- retary to provide gold, was approaching a condition of embarrassment, and that legislation ought to be had upon the subject, and that it was the i)urpose to issue bonds under the then existing laws relative to maintaining the gold reserve. yiv. Cox. I understand. Mr. Eckels. Mr. Hill says it was for current expenses, but if it was for current expenses it was under a provision of law to provide a gold reserve against the payment of these notes. Mr. Cox. I do not want to press the i)oint any further except to emphasize this : That in the Administration of President 1 larrison silver was paid out when greenbacks and Treasury notes were presented. They paid these notes off to the extent of $700,000 in silver. Mr. Eckels. I do not know anything about that. Mr. Newlands. Mr. Eckels stated that in his judgment the silver now in the Treasury ought to be sold and turned into gold. He saifl that the difference between himself and Mr. IJrosius was that Mr. Brosius wanted to sell it at retail and he proposed to sell it at whole- sale. Xow, I want to question Mr. Eckels somewhat upon that — as to how he would do it, and as to what effect it would have, etc. — and I would like to have an opportunity to ask some questions.on this line. Mr. Eckels. That was in connection, Mr. Newlands, with tlie i)ro- vision in Mr. Erosius\s bill where he provides a certain way of getting rid of the greenbacks, and I said-I i)referred the other way, as between the two. That is simply in connection with the i)rovision in Mr. Brosius's bill. Mr. Caldekhead. When Mr. Eckels returns, on Thursday. I want to in(iuire about how much the suspension of gold payments by the subtreasury in i)aying its balances, as it occurred once, had to do with the loss of the gold in the Treasury. Thereupon, at i>.15 p. m,, the committee adjourned. FINANCIAL AND BANKING SITUATION. 403 Committee on Banking and Currency, Washington, J). C, Thursdai/, February 18, 1897. The committee met at 10.30 a. m. Members present: The Chairman (Mr. Walker) and Messrs. Brosius, Johnson, Van Voorhis, Fowler, Spalding-, Calderhead, Hill, Cox, Stallings, and Hendrick. PJon. James H. Eckels, Comptroller of the Currency, appeared before the committee and concluded his statement begun on January 28, 1897. STATEMENT OF HON. JAMES H. ECKELS, COMPTROLLER OF THE CURRENCY— Continued. The Chairman. Mr. Fowler has the floor and will proceed to inter- rogate Mr. Eckels on House bill 6442. [For text of bill see page 107.] Mr. Fowler. Mr. Eckels, in your opinion is it not true that the chief source of our financial troubles to-day is that our national credit is in doubt? Mr. Eckels. I believe the most of our financial difficulties have sprung from that fact in the past several years, and while it is not so patent to-day as it was some months since, the danger that the same conditions are liable to occur makes it a source of doubt. The Chairman. That is, doubt to-day"? Mr. Eckels. Yes. Mr. Fowler. Is it not your opinion that the injury to our credit is mostly due to the fact that it is still a debatable question whether the United States will maintain gold payments of all its demand obligations ? Mr. Eckels. I have no doubt with a great many people the con- tinual suggestion that we are going to have another campaign upon the same lines as the last has created in their minds a question as to whether or not we might not be brought to a silver basis, although I myself do not believe we will ever get that far. , GOLD AND SILVER REDEMPTION. Mr. Fowler. Is it not your opinion that this debate will continue until this Government takes some decisive step looking to its construc- tion of the word "coin" and determining definitively that our dollar is 25.8 grains of gold, nine-tenths fine, and not 50 cents' worth of silver bullion? Mr. Eckels. I think that is determined already, so far as the law on the statute book is concerned, but I imagine that in the minds of a great many people who are either doing business living here or doing- business with us from abroad, there is a doubt in the midst of all this agitation as to whether or not we will maintain it at that point. Mr. Fowler. To what law do you refer when you say it is deter- mined by law already? Mr. Eckels. We have here as a standard of value the gold dollar established by the act of 1873, though recognized as a matter of fact long before that act. The word "coin," however, as used in the bonds and as used in the Treasury's legal-tender paper, is not definitely decided as a matter of law to mean gold. It is only as a matter of practice on the part of the Secretaries of the Treasury. The attaching of that meaning to it, though, is emphasized by the statutory declara- tion that the established policy of the Government is to maintain the parity of the two metals. Mr. Fowler. Is it not a fact that the silver dollar is coin and silver is a legal tender? 404 FINANCIAL AND BANKING SITUATION. Mr. Eckels. Yes. Mr. Fowler. Does not that fact leave tliis whole matter oue of argu- ment and conclusion rather tlian distinct declaration? Mr. Eckels. Yes; it unfortunately is left as a matter of discretion, largely, Avitli the Secretary of the Treasury, acting under the advice of the President, as to wliether he shall redeem the Government's obliga- tions in silver or gold, although the law is on the statute books that the policy of the Government is to maintain the parity of the two metals. ]>Ir. Fowler. If ])erchance the Secretary of the Treasury should cou- strue his power and the law to mean silver as well as gold and redeem in silver, what effect Avould that have upon our standard of value? Mr. Eckels. It would bring us to a silver basis. Mr. Fowler. Y'^ou say it is purely a matter of construction for the Secretary of the Treasury ! Mr. Eckels. Yes, as to what the word " coin" means. I myself do not see how a Secretary could construe it to mean anything else than gold if he took into consideration that which was the standard of value and the current coin at the time the obligations to be paid were issued; still, it is a matter of construction. Mr. Fowler. Is it not a fact that a large portion of public men to-day are complaining because of the construction of the ju-esent Secre- tary of the Treasury, and that tlie true construction is silver as well as gold? ]Mr. Eckels. Undoubtedly there are a large number of men who take the position that the proper construction of the work " coin " is that it means silver as well as gold. Mr. Fowler. That it is not only his power but that it is his duty to redeem in silver? Mr. Eckels. That is the way they hold, but no Secretary of the Treasury has ever thus far held so. Mr. Fowler. Is it not your opinion, even though we fix definitely the value of our dollar so that there could be but one construction put upon it, yet if we allowed the demand obligations of the Government to remain outstanding, that that would constantly jeoi)ardize the credit of the Government and the entire business interests of the country as well? Mr. Eckels. I have taken the position all through this discussion that as long as the demand obligations of the Government are unpaid and uncanceled wx are in danger. It is not enough to simply have it reejnphasized that the construction which has been jdaced by the various Secretaries of the Treasury ui)on the word "coin" means gold. That in itself does not uphold our credit. It but assists to that end. We must have in addition to that such a system as will enable the Government to make of the declaratioi something more than a mere declaration. The Government must be ])ossessed of the means of doing everytliing necessary to meet in an instant the demands upon it. On the other hand, the Government's credit is not assured until it is rid of the causes which make it a matter of doubt whether the Goveriunent can maintain itself in its gold ])ayments. Itnnist, in order to i)Ossess the com])l(}test confideiu-e, cut loose from those things which the busi- ness public loolc ui)on as Aveakening to its linancial stability. The business public to day so regards the Government's curioiu*y issues. Mr. Fowler. That is, we nuist have such a condition as to render it practically impossible for the Government to go to a silver standard? Mr. ICcKELS. Yes. As a matter of fact, we certainly have been on a gold basis for over sixty years. FINANCIAL AND BANKING SITUATION. 405 Mr. FowLEE. Is it not your opinion tbat the issue and redemption of all paper currency should be thrown on the banks of the country"? Mr. Eckels. Yes. Mr. Fowler. Is it not your opinion that to permanently establish in our foreign and domestic commerce the gold standard as our measure of value, you nuist com])el all the banks to currently redeem their obli- gations in gold coin or its equivalent"^ Mr. Eckels. 1 would not permit any bank to issue notes without compelling it to redeem them in gold, and of course if tlie banks redeem their notes in gold it would be of benetit to us in our commercial rela- tions. Mr. Fowler. Do you not believe that the sections of bill H, It. 0442 which provide for funding the national debt into U jier cent gold coin bonds, the retirement and destruction of all the demand obligations of the Government, and the redemption of all our paper currency by the banks in gold coin or its equivalent would settle our standard of value, place the credit of the nation beyond all question, and prove a source of the greatest possible stability to our business interests"? Mr. Eckels. Well, that is a very sweeping sort of question. Mr. Fowler. I will read it again. Mr. Eckels. I get the full force of it. Mr, Fowler. It only covers the points I have been over. Mr, Eckels. I have no doubt, Mr. Fowler, that the funding of our present bonds into 2 per cent gold bonds would establish beyond ques- tion that the policy of this Government was to maintain the gold standard of value, and I have no doubt that the funding of legal tenders into gold bonds would do the same thing; that it would be a practical measure of relief to the Government in the end. The Chairman. Do you include in that the Treasury notes and silver certificates"? Mr. Eckels. Yes; all the Treasury ])aper. I mean what are known as Treasury notes; I am not speaking of the silver certificates. I include the Sherman notes. Mr. Brosius. Sherman notes and greenbacks'? Mr. Eckels. Yes. If the United States went to the extent of fund- ing its coin bonds and funding its legal-tender paper, no one would ever again doubt but that this was a Government which believed very emphatically in the maintenance of the gold standard of value and in gold payment of all obligations. It is an essential thing for the main- tenance of national and individual credit to have it known beyond ques- tion that it is proposed to maintain at any cost gold ])ayments for all our obligations. This nation can not afford to take advantage oi any technicalities in the definition attaching to a word, when it comes to meeting its debts. BANKS COULD MAINTAIN GOLD PAYMENTS. Mr. Fowler. Have you any doubt whatever in your mind with regard to the ability of the banks of the United States to maintain gold redemption of the requisite amount of paper currency to properly conduct the business of this country? Mr. Eckels. No. Whenever the banks have undertaken to do it, at times when the Government was not issuing Treasury paper, they have been able to maintain gold payments and furnish all the gold necessary for the business of the country. Mr. Fowler. Is it not your opinion that a credit currency based upon assets is the only truly scientific form of paper money! . 406 FINANCIAL AND BANKING SITUATION. Mr. Eckels. I have said repeatedly I tbought it was theoretically the correct method of issuinriceof the bonds to the injury of the (rovernment, and as a, check against any such bull move- ment by speculation, the Government itself has a large quantity of 2 FINANCIAL AND BANKING SITUATION. 411 per cent bonds for disposition to the banks in the redemj)tion of the demand obligations of the Government. Do you not think that interests so vast and important to the people as our finances and currency are should not be left, in carrying out these financial and currency reforms, to the caprice of politics, but rather separated from them"? Mr. Eckels. I think everybody would agree, Mr. Fowler, that these things ought not to be left to the caprice of politics, but then would come in the question of what constitutes politics. Mr. Fowler. Well, I am simply asking about the principle, now. Mr. Eckels. I do not think if you go to anyone and say, "Ought this monetary principle to be decided as a political question," but he would answer, "No;" but he would also couple with the answer what he thought constituted politics. A CONSULTING BOARD. Mr. Fowler. Do you not think, therefore, that the supervision of these great interests had much better be left to a consulting board whose term of office will be such as to insure a continuous body than to a single individual whose ideas might possibly be at variance with the financial policy or be prejudiced in ftivor of some section, or be hopelessly ignorant of the subject when he came into office? Mr. Eckels. I think it is a great deal more essential to get a sound scientific bill than it is to establish a board. I think if you have a bill which in and of itself is good and whose provisions are not complex, that it would not be very hard, whether it was by one, two, or three persons, to enforce the provisions of that bill. The whole thing turns upon the character of the act. I do not see any objection to having a consulting board, if the officer who is charged in the first instance with the duty of carrying out the act has only to consult with the board. I am not a great believer in divided responsibility. Mr. Fowler. It would not be any more divided than in the case of the President and his Cabinet, would it? Mr. Eckels. Except that the President has the decisive voice in the matter, and under your plan no one man has. As I say, if you have a consulting board, with somebody at the head of it who as the last resort has the decisive act, there could not be any objection to it; but where you divide the responsibility among a number of people, each having equal power, you are liable to not work out as good results as where you have simply a consulting board instead of a single authoritative head. Mr. Fowler. Do you not think as a matter of fact if it should turn out some such bill was adopted, all the banks of this country, now amounting to about 10,000, iState and national, representing approxi- mately about a billion dollars of capital and about five billion dollars of deposits, would be far better under the supervision, when a system of branch banks is included, as you recommend, of three men, than under the supervision of one man who may leave his office the next day after the Administration comes in — we hope you will not — or may die in the midst of a bank panic or in any great crisis, but leaving the office i:)rac- tically without a man efficient and able to conduct if? Mr. Eckels. Well, it would depend entirely upon the character of the act under which these men were operating. It is not so difficult to administer an act if the act is not too complex, and, I take it, when you get a bill which you will hope to get, that is as near perfection as possible, 412 FINANCIAL AND BANKING SITUATION. it will not be a difficult bill to adiniiiistor, and, therefore, one man given tlie power, with the right to call iu others in consultation who are suggested for that |)ur])ose, would do, I believe, a great deal better than seven men, all being given equal i)ower, Mr. Fowler. There are three here and they do not have equal power. Mr, Eckels. Well, whatever the number, tliey are given equal power, and thereby is established a divided responsibility. 1 do not believe as much has been accomplished by permanent commissions in the conduct of bureaus as has been accomplished by bureaus with one person in charge. INSURING DEPOSITORS AGAINST LOSS. Mr. Fowler. Inasmuch as you have stated that in your judgment the supervisioji of the banks should be conti-olled by the (Jovernment, I take it you approve of paying to the Government a tax for the redemp- tion of notes in case of banks failing? ]\Ir. Eckels. Yes. Mr. FowLi'^R. If the actuary of the Treasury can inform you, after an examination of the records, that the national banks since 1S(!3, by paying one twelfth of 1 per cent per annum upon the deposits into an insurance fund, could have protected all depositors, do you not think it would be advisable to have the national banks of the United States insure their depositors against loss? Mr. Eckels. I do not believe it is any business of the Government to guarantee bank dei)0sits. Mr. l^'owLER. 1 do not say the Government; but I say, do you think it would be a wise thing to do ? Mr. Eckels. That is a business proposition which the imlividual banks should determine, and I would not uudertake to express an opinion upon it. Mr. Fowler. In your judgment, what do you think? Mv. Eckels. J do not think that I care to answer the question. There are a nund)er of institutions which have been created for the pur- pose of insuring county treasurers' funds and all that sort of thing. It is a business matter, and it is not a matter with which the Government ought to deal. JNIr. Fowler. Let me ask you this, then. If the fund of 5 per cent, which you said in your judgment was more than am])le to redeem the notes of the banks failing, was paid into the Government, and if the banks of the United States actually did insure the depositors against loss by paying a necessary amount to an insurance company, do you not believe that bank ])anics would be ])iactically ended? j\fr. Eckels. No; because you would have to comi)letely reform a large portion of mankind. A'ou can have all the ])recautionary meas- ures you may desire, but fear at times will manifest itself among tlie peoi)le as to tlie safety of tlieir property. You (!an not do everything by law, and you ought not to attempt it. bank panics IN OTHER COUNTRIES. Mr. Fowler. Do you know how long anv bank panic has lasted in Scotland? Mr. Eckels. They are free from panics. Mr. Fowler. They never last to exceed three or four days, or a week at the outside? FINANCIAL AND BANKING SITUATION. 413 Mr. Eckels. No; they are very short. Tlie people liiive the utmost conlideiiRosius. That is to say, if you diminish the currency, you diminish the se(;uiity of the depositors. Mr. KCKELS. There is no question about that. Mr. Brosius. Do you think this business into which the Government of the United States shall go, to establish banking institutions, to sanc- tion them, inviting you and me to deposit money there, and after that is done to authorize them to issue a currency which shall be a first lieu upon the money you and 1 deposit there FINANCIAL AND BANKING SITUATION. 419 Mr. Eckels. The theory of all laws on the subject is that the note holder is the one to be protected as against tiie (le])ositor. Mr. Brosius. I Icnow, but he should be protected without sacrificing the depositor, if that is possible. Mr. Eckels. And should be given the greater number of rights. Mr, Brositjs, Our system is to protect the note holder without sacri- ficing the depositor Mr. Eckels. You diminish the depositors' assets by just so much by tying up an amount in bonds for the benefit of the note holder. The Oovernment, it is evident under the present law, acts on the theory that the first man to be looked after is the note holder. Mr. Brosius. You do not mean to say that the assets are diminished by tying up the bonds. They are still the property of the bank. Mr. Eckels. They are property of the bank specifically set aside at the expense of the depositor for the benefit of the note holder. Mr. Brosius. Ought he not to have the benefit? Mr. Eckels. That is the point I make, but you say the depositor ought to be looked after. Mr. Brosius. I say the note holder should be first looked after, but in such a way as not to destroy the security of the depositor unless it is necessary. NOTES ISSUED AGAINST ASSETS. Mr. Johnson. I want to ask one question with a view of getting a final statement from the Comptroller as to his i^ositiou on one point. Is it not your opinion that in whatever form of banking and currency law may be devised, a portion of the circulating notes issued by the banks should be issued on their assets alone? Mr. Eckels. Yes; it is within the limits of those notes that is to be found what is termed the elasticity of bank issues. Mr. Johnson. Do not the statistics show that if the 1 per cent tax on circulation on national-bank notes had been applied to the payment of the notes of the banks that have failed from the time of the organ- ization of the national-bank act to the present time there would have been left a very large balance? Mr. Eckels. Yes; there would have been. Mr. Johnson. Can you tell the total amount of notes of the failed banks, the total amount of the tax on circulation, and the balance? Mr. Eckels. The total amount of outstanding notes in circulation of all failed national banks to the date of the last report, October 31, 1896, was $19,(341,909. The tax collected on bank-note circulation by the Government was $80,007,905. The statistics will be found on page 109 of my last annual report to Congress. Mr. Johnson. Might not the credit of the Government De below par and at the same time the credit of the bank in that country be good? Mr. Eckels. Yes. ^ Mr. Hill. Can the same liberal provision of issuing credit currency be safely given under a general law that could be given under a system of special charters, where there was an examination into the bank in each case — into its location and as to the men having it under control? Mr. Eckels. You would have to have a general law on the subject to make it of general benefit. Mr. Hill. I admit that, but can the same general provisions be given under a general law as could be given under a system of special charters ? Mr, Eckels. No; of course not. 420 FINANCIAL AND UANKING SITUATION. Mr. ITiLL. I mean, Avould it be safe to j;ive them where any three meu coiihl organize a bank '? Mr. Eckels. 1 have no doubt you couhl have more safety })rovided under special laws makiiiii- recjuisite si)ceial iiuarantys, but 1 do not see how such a thing would be practical. The law would have to be general in its terms and ])rovisi()ns. Mr. Hill. \\'hich wouhl you prefer, one redemption point for all banks, or numerous redemption districts, made com[)ulsory, or such points as eacli bank may choose under such regulations as each bank may make for itself l' Mr. Eckels. 1 would leave it largely to each bank to select its redemp- tion center, but I would liave the regulations made by the Government's supervising oflicer instead of by the l)ank. Mr. Hill. You mean as to tlie reserve Mr. Eckels. 1 mean as to the manner of redemption. Mr. Hill. When I speak of the choice of the banks I mean in selecting their own redemption points. Mr. Eckels. 1 would leave it largely to the banks. TWO FORMS OF REDEMPTION. Mr. Hill. Do you tliink well of any system that redeems one note of the bank by another note of the same bank of a diiferent form? Mr. Eckels. You mean Mr. Hill. Having two classes of notes and redeeming one note in another kind of a note? Mr. Eckels. 1 would have the notes redeemed in gold and gold only. Mr. Hill. Yes; but on general principles, would you think well of any system that redeemed one form of its notes in another form of the same bank notef Mr. Eckels. No; I would not. No redemption is made if the redeeming money has itself to be redeemed. Mr. Hill. Do you see any necessity of keeping a 15 per cent reserve against circulation if fffle half of that reserve is not redemption mone^^? Mr. Eckels. 1 would i^refer to keep a smaller reserve and have it redemption money. You estimate your reserves against deposits, Mr. Fowler? Mr. Fowler. The same ai)plies to the notes issued, Mr. Eckels. 1 think you estimate your reserves too high. Mr. Fowler. What do you mean — reserves against redemption? Mr. Hill. JUit he cuts it down by liaviug half the money not redemption money. Mr. Fowlj;r. That would not make any difference. The Chairman. Mr. Hill has the tloor. Mr. Hill. That is a question on his bill. I think Mr. Fowler ought to be given an opportunity to answer. Mr. Eckels. A nuich less amount of redemption money is necessary to care for the notes than for the deposits. Mr. Fowler. One half as much? Mr. Eckels. Certainly as low as that. Mr. Fowler. Then, Mr. Hill, you are answered. Mr. Hill. 1 am answered; but in your judgment there would be no necessity of keeping a 15 per cent reserve unless it was redemption money ? Mr. r.CKELS. I would have all the reserve against notes in money which absolutely redeems. Mr. Hill. And 1 understand from the gist of your remarks that you FINANCIAL AND BANKING SITUATION. 421 would object to the redemption features of tlie Fowler bill ;md the Walker bill, on the same ground that yon object to mine — that there are two forms of redemption ? Mr. Eckels. I would reduce all redemption money to one form — that of gold. Mr. Hill. As I understand you, you would have one form of note only. I want to see if I have your oi)inion right. As I understand you, you would have one form of note only, pnrtly secured by guaranty or Government bonds or in some other way, and partly issued against assets, but not distinguished in its form, and all redeemable in gold only? That, as I understand, is the gist of your recommendation. Mr. Eckels. Yes, I would have a portion of the notes issued against security or with guarauty, and a portion against assets, but 1 would have them all redeemable in gold. So far as there being a different appearance in the notes issued against the assets and the notes issued against securities, that wonld not cut any figure as long as they were redeemable in the same thing, but if they were not redeemable in the same thing I wonld not permit the two classes to be issued. Mr. Hill. How is the note holder able to ascertain whether the note he holds when a bank suspends is secured by tlie guaranty or by the assets of the bank other than the guaranty, and if he can not tell wherein is the extra confidence which is given by having any of them secured by a guaranty'? Mr. Eckels. Under Mr. Walker's bill all the notes are guaranteed by the Government and under Mr. Fowler's bill they are guaranteed by the safety fund. Under your bill, Mr. Fowler, does the Government immediately pay all tlie notes outstanding of failed banks"? Mr. FowLEK. They draw 5 per cent until the holders are notified to present them. Mr. Eckels. Under Mr. Fowler's bill there would probably have to be some distinguishing feature in the bills themselves. Mr. Hill. You would not approve, then, of a different form of note indicating on its face which is secured by a Government guaranty and which is secured by the assets of the bank only? Mr. Eckels. 1 should greatly prefer to have the bills similar. I think it would facilitate the circulation of them. Mr. Hill. One more question. Would you approve of one large banking institution in the United States that would take up all the United States Government debt and manage the subtreasury business, instead of its being carried on by the Government'? Mr. Eckels. I think the Government might very properly finance its affairs through banks. Mr. Hill. I do not mean to say through the banks as now organized, but substantially the old United States Bank. Mr. Eckels. I am not pre])ared to answer a question like that, but I think the Government could a great deal better finance its affairs in different ])ortions of the country through certain established institii- tions than it does through the present subtreasury system. The Chairman. There are some gentlemen who have not asked any questions, and if they desire to ask them they are now entitled to the floor; and after that Mr. Fowler can take the floor. CREDIT OF the GOVERNMENT. Mr. Spalding. I have a few questions I would like to ask. In one of the questions asked by the chairman of the committee, Mr. Comptroller, there seemed to be a reflection on the credit of the United States currency. I do not know whether it was intended or not. 422 FINANCIAL AND BANKING SITUATION. The CnAlRMAN. I am no respector of persons. 1 seek only truth. Mr. Spalding. Is it true that there is any hiek of credit in the (lov- erument currency, inasmuch as the bonds of tlie (iovernment, drawing 4 per cent interest, stand at a premium to day of I'li and 2.'>? Wouhl not that indicate that the Government security is as good as any Gov- ernment on earth, and better than any bank in the world? Mr. Eckels. 1 do not think that the chairman has any reference to the currency issues which were secured by bonds. Mr. Spalding. 1 am talkin*;- about the credit of the Government, which is bonds, selling at 22 premium to-day. Mr. Eckels. Yes. Mr. Spalding. Would not that establish credit beyond peradventure of a doubt, equal to almost any government on earth? Mr. Eckels. Yes; that was a demonstration. IJut it has required these frequent public demonstrations to show that its bonds would sell at a good price, and always up until the very day when they were sold nobody knew what they were going to sell for. Tliese demonstrations, with their attendant discussions and doubts, have been exhausting. Under a ju-oper system they would not have been necessary. Mr. Spalding. Is iu)tthat the case with anything? Mr. Eckels. No; it is not. Mr. Spalding. 1 think it is. For instance, the Baltimore and Ohio Eailroad stock or bonds — they would not know what that stock or bonds would sell for before it was sold. Mr. Eckels. But you know, Mr. Spalding, that it "was, from the passage of the Sherman Act, a question of discussion by those abroad dealing with us and by ])eople at home and by the Government officials at the Treasury Department whether the Government under existing circumstances would be able to maintain redemiition of its obligations in gold, and that the Secretary of the Treasury, Mr. Foster, himself called such fact to the notice of Congress. Mr. Spalding. Politics. Mr. Eckels. No; no politics in this; simply the fact; Secretary Fos- ter himself felt that with the present laws and the present powers of the Secretary of the Treasury the Government did not find itsell" in a position to maintain its credit, lie insisted that provision should be made, bec^ause of the addition of the Sherman notes, to increase the gold reserve from $I0(),0()0,0()() to .$150,000,000. Mr. Spalding. The laws of the Government are substantially the same as they have been, and there has been placed, as I understand it from an ollicial communication from the Secretary of the Treasury, $00,000,000 of gold in the Treasury for greenbacks in the last six months. Mr. Eckels. Yes. Mr. Spalding. And that there has been placed $195,000,000 v. ithin the last four years'! Mr. Eckels. Yes. Mr. Spalding. Of gold that was put in for the credit notes of the Government of the United States? Mr. ICcKELS. And tliere has been drawn out a good many times $195,000,000 by persons who held those notes, for fear if they did not obtain gold on them they would not be redeemed in gold when they were finally presented. As a matter of fact, the (|uestion is not whether the credit of the Government is actually all right, but whether or no it has not been doubted. That is the point. Mr. Spalding. The conditions are very similar to what they were a year ago, are they not? There has been no change, has there? FINANCIAL AND BANKING SITUATION. 423 THE ELECTION OF 1896. Mr. Eckels. jSTo; there lias been no cluiuge except that the public, because of the result of the Presidenthil election, came to the couclu- sioii that we were not g(''"g to be brought to a silver basis. The extraordinary influx of gold through the demand for our agricultural l)roduce has also had an eflect iu evidencing the fact that more gold was in the country and more in the Treasury. Mr. Spalding. The cause of that demand was the suffering and depressiou in India and short crops, which gave us an increased demand for our products. If 't had not been for the sufi'eriug in India, we would not have had that? Mv. Eckels. That is so. Mr. Spalding. Then it was caused by a short crop in India, causing gold to come in. Otherwise we would not have been able to sell our wheat for so much as we did. Would it not have lessened the security to the depositor and also to the note holder if the currency of the bank was based ou its assets aloiie^for instance, a bank with a $100,000 capital, with a deposit of $300,000, and an issue in currency of $100,000. The depositor and note holder would be less secure than he would be uuder the present law? Mr. Eckels. Not at all. If the bank was properly conducted, it would be just as secure, because a bond is an asset of a bank. Mr. Spalding. Ko; this is a mathematical proposition; and he must be that much less secure; would he not be? Mr. Eckels. What security has the note holder or the depositor now, outside of the liability of the shareholder, beyond the assets of the bank? The assets of the bank consist of its bills receivable, its stocks, its bonds, its cash, real estate, and other items constituting its resources. Mr. Spalding. I think that you and I understand each other. That a bank with $100,000 capital, having $100,000 4 per cent bonds to its credit, with $90,000 worth of bills issued, is perfectly secured, because the bonds are at a premium to day of 2L>. Now, the difference between $22,000 and $10,000 in circulation would give them $32,000 over and above the assets of the banks. That would not be less security, would it? Mr. Eckels. We are proceeding on the theory that the bank, instead of having the bonds in the Treasury, would have them in the vault as an asset. It would have just as large an amouut of assets to meet its obligations. The question would be, whether the assets should be kept in the bank or kept by the Government. Mr. Spalding. Supposing they were kept in the bank, they would be secured, of course, if a bank was run on that high plane that you talk about — which no bank ever has been run on, even the Baring Brothers or any other bank — and the assets did not shrink in value ; but when a bank fails its assets necessarily shrink, the same as when a part- nership fails the assets are distributed and never fully paid. The depositor and note holder would be infinitely less secured. Mr. Fowler. Infinitely less means nothing whatever. Mr. Spalding. A great deal larger. I am glad to see by the answer of the Comptroller that we have estab- lished the credit of the United States. Mr. Johnson. I think the testimony of the Comptroller has been exceedingly clear and interesting and speaks for itself. Mr. Eckels. There has been no attempt made to discredit the credit of this Government. I have only undertaken to point out the fact that the Government maintains a financial policy which makes its credit a 424 FINANCIAL AND BANKING SITUATION. questiou of discussion. That there is something wioug in a i^oliey which so results, I think, nuist be patent to anyone. Nobody is discussing the general organization of tlie (lovernment, because everybody thinks it is sound. Xobody is discussing our i>ub]ic school system, because everybody accepts it as sound. Nobody is discussing the general sound- ness of the fuiulamental laws upon which our institutions are based, because they are accei)ted as sound. But the very fact.that everybody isdiscussing the(]uestionof our monetary system and the(|uestionof our banking system and the question whether or not the Government will maintain the payment of gold or silver, or whether the (Jovernment will maintain the redemption of its obligations in gold, in and of itself, demonstrates the fact that it is not up to the level of what it ought to be. It all results in doubt, and, rightly or wrongly, the Government in its fiscal operations sutlers, and the business interests of the country also do. Mr. Spalding. Is not that same thing being discussed in (Jermany, in England, in France, and in every country on the face of the earth, almost as much as it is here? .Air. Eckels. Nobody is discussing the credit of England, or discuss- ing the credit of France, or discussing the credit of Germany, but nuiuy have discussed and are discussing the question of whether the United States Government would be able to redeem its obligations in gold, and to that extent the credit of the Government has been injured and the credit of the people as well. This has been manifested in the withdrawal of foreign investments and the failure to make domestic ones. NOTES A FIRST LIEN ON ASSETS. Mr. Fowler. Can you see any dilFerence between the Government taking possession of a sufficient amount of the assets of the bank to secure the note holder and giving the note holder the first lier on the assets of the bank? Mr. Eckels, It amounts to tiie same thing. I suppose the first lien on the assets of the bank would operate for the note holder by the Government taking possession of the assets for him. Mr. Brosius. I would like to ask you whether you think it would be fair to give the note holder the first lien on the assets. Isn't it just as fair to give the note holder the first lien on the assets as it is under the national banking system for the Government to seize upon about $120,000 of the a'ssets to secure $90,000 of its notes? Mr. Eckels. It amounts to about the same thing. Mr. Fowler. Is it not a fact, or is not the fact presumed, that when the notes of a bank are issued under the credit system they will bring an e(]ual amount of assets, just the same as if you loaned out a corre- sponding amount of the deposits of the bank? Mr. EciiELS. Certainly the notes are not going out except for some- thin g in return. Mr. Fowler. So that there is absolutely no diifercnce, is there, between ,1 bank loaning its deposits and a bank loaning its notes f Mr. Eckels. No. It loans deposits and receives promissory notes of borrowers, against whicli it issues its bank notes. Mr. Fowler. Is it not true that the experience of the national banks since 1803 shows that all those banks wliicli have failed and been closed out liave returned 75 per cent of the lial)ilities? Mr. EcKKLS. Yes; about an average of 75 per cent. Mr. Fowler. As between the creation of a safety fund, that is shown FINANCIAL AND BANKING SITUATION. 425 by experieuce to be adequate to redeem notes, and guaraiiteeiug the uotes by tlie Government, which do you think wouhl be preferable? Mr. Eckels. The Government would run the less risk with the safety fund. Mr, Fowler. In your Judgment that is the proper system — to have a safety fund created tlirougii a tax; and would a percent be sufticieiit"? Mr. Eckels. It has worked very successfully wherever that has been tried. It would be an additional safeguard and guaranty to the note holder. Five per cent ought to be sufticient. CIRCULATION OF SILVER COIN. Mr. Fowler. Your idea about the present amount of silver money circulating with safety among the people is based on the fact that peo- ple would virtually find use for that much, and that our silver money, in the form of coin instead of certitlcates, would not be gathered as silver and presented for redemjitionl Mr. Eckels. I do not think they would be. Mr. Fowler. It would not facilitate its presentation when it is in the form of silver money? Mr. Eckels. It would be rather an expensive luxury to be sending the silver to a redemption i)oint and paying the express on it both ways. Mr. Fowler. That is the i)oint. Mr. Eckels. It is not unlikely that the people might be able to -use that amount of silver in the country. They would be unable to use any more. The amount which we already undertake to use is a very large amount. NOTE redemption. Mr. Fowler. In answer to a question by Mr. Brosius, in which he referred to the redemjjtion of notes, you said you thought the redemp- tion of notes ought to be reduced to a minimum — reduced to a mini- mum in times of redemption, I suppose you meant. Were you then referring to the redemption of national-bank notes or were you referring to a system of credit currency? Mr. Eckels. I was referring to the redemption of the currency upon the ground of doubt as to its goodness, which I stated ought on such account to be reduced to a minimum. I coupled with that statement the statement, as I now remember, that of course it would be redeemed whenever business needs did not require it to be outstanding. The jjoint in Mr. Brosius's first question was that the fie(|uency of redemp- tions would be indicative of the doubt of the holder of the note as to whether or not it was a good note. Mr. Fowler. But as to its goodness; would it ever be brought in question if the notes were redeemed by the Government in case the banks failed? Mr. Eckels. No; certainly not; if redeemed as at present. Mr. Fowler. Therefore the only thing that would send it home would be the self-interest of other banks to get their own notes out? Mr. Eckels. The wish of the individual note holder, the self-interest of other banks, and the fact that there was need of it in the demands of business. Mr. Fowler. That is it. The actual reason that other banks do not want it in their community and the bank itself had no use for it in circulation. 426 FINANCIAL AND BANKING SITUATION. Mr. Eckels. It is (juite impossible to keep a dollar in circulation beyoiul the needs of business. Mr. Fowler. Mr. Brosius made a distinction, or an attempt at a dis- tinction, between the reeople to generally accept them. This regu- lation it can rightly carry to the extent of guaranteeing them. Upon these arguments are based the correct and scientitic theory for the Government's assun)ing to regulate and care for bank-note issues. It is exercising financial police powers, justified l)y public necessity and the need of })ublic protection. The guarantee of the Government would simply be a form of this power, having the efl'ect of making the note holder feel absolutely secure. The Government, through other means ])rovided, Avould be held harmless of loss. Mr. Fowler. It is really the moral elfectyou seek, without responsi- bility. Mr. Eckels. And the safety fund would be for the protection of the Government. Mr. Calderhead. I have some questions to ask about the subtreas- ury and clearing house. Mr. I'^CKELS. If Mr. Calderhead will i)ut his questions in writing I will be glad to answer them, and the questions and answers can go in the record. Mr. Calderhead. I will be glad to submit my questions in that way and have them, together with your answers, go into the record. Upon motion of jMr. Hill, the committee, by a rising vote, unani- mously tendered its thanks to the Comptroller for his kindness in appearing before the committee and so fully and clearly replying to the questions asked him. Thereupon, at 1.30 p. m., the committee adjourned. [The following are the questions asked the Comptroller of the Cur- rency by Mr. Calderhead, in writing, with the replies of the Comptroller thereto.] QUESTIONS BY MR. CALDERHEAD. Mr. Calderhead. What were the respective amounts of legal tenders and national bank notes in the year 1878? Mr. Eckels. Tlie legal tenders outstanding on June 30, 1878, were $3-10,081,01 (I, and the national-banknotes outstanding on June30, 1878, were $322,919,810. Mr. Calderhead. What amount of each below the denomination of five-dollar notes'? INIr. l^CKELS. The legal tenders, denomination of one dollar, are $20,929,874; legal tenders, denomination of two dollars, $20,910,948; national-bank notes, denomination of one dollar, $4,059,830; national- bank notes, denomination of two dollars, $2,820,132. Mr. Calderhead. And what became of these notes of less than $5? FINANCIAL AND BANKING SITUATION. 431 Mr. Eckels. Iu 188(5 the Department began tlie redemption of one and two dollar legal tender notes and tlie siibstitntion of silver certiti- cates and later of Treasury notes of like denominations. The issue of national bank notes of the denomination of one and two dollars ceiised after eJanuary 1, 1879 (see sec. 5175, Kev. Stat.), and were canceled as l)reseuted. Mr. Oalderhead. What ap])arent effect on the amount of national- bank circulation did the coinage of silver (!,79.'). Silver certificates issued under that act (June 30, 3890), a301,53!),751. I can only make the same reply heretofore given as to the latter ]iart of the question, IMr. Calderhead. AVhat were the respective amounts of legal ten- ders, national bank notes, and silver certificates m circulation in 1890, at the time the silver purchasing act of that year was passed? ]\Ir. Eckels. The legal teuder notes in circulation on June 30, 1800, were $323,046,82(1: the national-bank notes in circulation -si 8 1,390, 823; the silver certificates in circulation §297,210,043. Mr. Calderhead. What amount of Treasury notes were issued under that act! Mr. Eckels. The Treasurv notes issned under the act of 1890 were $155,931,002. Mr. Calderhead. What amount of silver dollars and silver certifi- cates have been issued under that act? Mr. Eckels. Silver dollars issued under the act of 1890 were $61,201,026. There is no record of the silver certificates issued under the act of 1890, but when these silver dollars are returned silver cer- tificates are issued thereon in the same manner as other silver dollars, and no separate account is kept of these certificates. Mr. Calderhead. What ettect, apparently, did the issue of Treas- ury notes under that act, and the silver and silver certificates, have upon the amount of national-bank circulation ? Mr. Eckels. I have already answered this, giving mj^ judgment of the matter. Mr. Calderhead. When did the subtreasury begin to pay its bal- ances at the clearing house in New York in gold, and how long did it continue to do so ? Mr. Eckels. From September, 1880, to September, 1882, payments were made in gold coin, United States notes, and silver certificates. From October, 1882, to January, 1886, in United States notes and gold certificates, except in February, 1885, when $100,000 silver certificates were used, and in August, 1885, when $2(50,000 gold was used; from February to July, inclusive, 1886, United States notes were used exclu- sively; from August, 1886, to July, 1890, United States notes and gold certificates only were used ; from August, 1890, to July, 1892, payments were made in United States notes, Treasury notes, and gold certificates, with the excoi)tion of about $62,000 of silver certificates used in the Spring of 189J ; from August, 1892, to June, 1893, United States and Treasury notes were nsed in addition to about nine million of gold cer- tificates during the months of October and November, 1892, and .lan- uary, 1893; from July, 1893, to February, 1894, the settlements we're mainly in gold coin and some United States and Treasury notes. The use of gold coin which began in July, 1893, and closed in February, 1894, was the only time since August, 1885, to September, 1896, that it occurred; from March, 1894, to December, 1894, United States and Treasury notes were nsed, and since that date United States notes only. Mr. Calderhead. Did the stock of gold increase or diminish in this country during those years, and how much? Mr, J'^CKELS. The stock of gold in the country for various reasons FINANCIAL AND BANKING SITUATION. 433 increased, from June, 1893, to January 31, 1894, $123,724,216. The increase i)ri()r to the dates mentioned was very hirge because of foreign trade and investments from abroad and domestic production. Mr. Calderhead. Wliat caused the flow of gold to this country dur- ing those years? Mr. Eckels. The inflow of gokl to this country during the specific period referred to in my previous answer, viz, from June, 1893, to July, 1894, was largely the result of the stringency of money causing high rates of interest in this country. During the whole period of time when the increase of gold has gone on in this country, it has come from pro- duction of our mines, balances paid in gold in trade and commerce, amounts brought or sent here from abroad for investment, and through the purchase of our securities by those living abroad. Mr. Calderhead. What proportion of the revenue from customs duties was paid in gold each year from 1878 to 1892, and in what was the remainder paid? Mr. Eckels. I can only give as my answer the statistics as shown by the report of the Treasurer of the United States. Pei'centage of gold coin, etc., received from customs at Neiv York in June, 1878, to 1896. Tear. 1878 1879 1880 1881 1882 1883 1884 1885 1880 1887 1888 ISK'J 1890 1891 1892 1893 1894 1895 1896 Gold. 5.4 .6 48.8 39.3 68.7 3.3 3.1 . 7 .7 1.3 !i .1 .2 . 2 o' 1.9 .1 Silver. United State.s notes. 1.8 93 18.2 3.6 7.8 7 21.2 33. 3 81.7 13.8 11.1 18.8 2.7 44.6 26.8 53 6.8 60.2 40 Treasury Gold rer- notes. tificates. 60.1 69.4 40 32.5 4.8 72.6 73. 5 74.5 94.5 28.9 12.3 49 1 8 35 7.6 3.4 1.3 Silver certifi- cates. 32.6 6.2 32.9 57 23.4 20.2 35.6 33. 3 12.6 12 14.4 6.5 2.7 14 15.9 12 83.6 36.2 58.7 I also call your attention to Table No. 50, j^yages 142 to 144, Annual Eeport of the Treasurer of the United States, 1896. Mr. Calderhead. How were the payments in gold of the balances from the subtreasury at the clearing house suspended, and when! Mr. Eckels. From 1882, the time of the issue of gold certificates, until August, 1890, the payments of balances at the clearing house were made almost entirely in gold certificates, with the exception of a few months in 1884 and 1886, when they were made in United States notes. After the issue of the Sherman notes under the law of 1890, in the month of August they were for the first time paid in settlement of such balances. Thereafter they formed a very large portion of such pay- ments until the repeal of the Sherman act in 1893. The suspension of the payment of gold certificates and gold coin occurred first in the month of August, 1892, to be resumed again in a comparatively small amount in October and xsTovember of that year and discontinued entirely in December of that year. A few were used in January, 1893, but none have been used since that time for this purpose. The payment of gold coin for this purpose in the autumn and early CUR 28 434 FINA'NCIAL AND BANKING SITUATION. winter of 1803 and 1894 was caused by the currency famine of that year. The receipts of gold certilicates and gold coin from the banks had fallen from about 95 per cent in February, March, and April, 1890, to 12 per cent in June, 1891, and thereafter continued to fluctuate, ris- ing to 0(3 per cent in January, 1S92, but rapidly falling thereafter to but 3 per cent in September, 1892; thence falling to nothing in May and June, 1893. It has continued at nothing since. During the currency panic gold coin reached 58 per (;ent of the total recei])ts of customs duties in September, 1893, but practically ceased within five mouths thereafter. It is thus evident that the suspension of payment of gold in settle- ment of clearing-house balances was the legitimate outcome of a situa- tion caused by the drying up of gold receipts. These balances were paid in gold by the Government a long time after the banks had ceased to pay gold. The last payment of gold coin was in February, 1891. It had at that time only paid gold coin for a period of eight months, which was after an interval of eight years. These gold payments resulted from the currency famine then being experienced. Mr. Calderhead. If the payment of these balances had continued to be made in gold from 1892 to 1895, would the Treasury have been exposed to danger of losing its reserve fund any more than it actually has been exposed during that time? Mr. Eckels. It might have been lost more rapidly, but the reason the United States stopped paying gold was because its gold income had practically ceased, and it was dangerously near the reserve limit. It had ceased because the banks and the banks' customers wished to hoard their gold, having doubt as to the financial credit of the country. This condition came about largely through the possibility of the Gov- ernment not being able to maintain gold payments. Mr. Calderhead. Would it not have been just as easy to maintain the reciprocal relations of the subtreasury with the clearing house of paying balances in gold and receiving revenue in gold as it was to maintain the Treasury during the last four years'? Mr. Eckels. I do not see the exact relations between the various parts of this question. It seems to me immaterial whether the gold obtained by the Treasury was used to pay clearing-house balances or to redeem outstanding notes of the Government. Jf the balances were paid in United States notes they could at once be presented for redemp- tion in gold. Mr. Calderhead. If the revenue were suflBcient now for the current expenses of the Government, what reason would prevent resuming that reciprocal relation between the subtreasury and the clearing house f Mr. Eckels. I do not look upon the volume of the revenue receipts as governing in this. It is the volume of receipts and payments of all kinds in all trade which governs, and not merely the Government's revenue receii)ts. If the banks again get a gold income from the ordi- nary course of business, which would indicate a cessation of hoarding, and they would make gold })ayments to the United States, the United States could then settle its balances in gold. But this must be through the natural course of business, and not forced. It can not come if con- fidence is lacking in the (Jovernment's credit. Ordinarily, in the course of business the expense of handling gold coin, where there is no question of the paper being of equal and inter- changeable vabu; Avith gold coin, is such that the ])eoi)le, to save expense in handling, wisli })a})er instead of gold. This causes the gold to go to the banks, and from the banks to the Treasury. The element FINANCIAL AND BANKING SITUATION. 435 of confidence, of course, enters into this, as does the element of a wish to lessen the expense attendant upon monetary transactions. Mr. Calderhead. If this relation were resumed and maintained, is there any probability that national banks would increase their circula- tion, either under the present law or under either of the bills introduced by Mr. Walker, Mr. Hill, or Mr. Fowler? i\Ir. Eckels. The amount of currency taken out under any bank bill would depend on the margin of profit to the issuing bank. It would be controlled by the conditions of trade, the confidence which the notes issued enjoyed at the hands of the people, etc. It would not be gov- erned by any one cause. I do not think the single factor stated would have a controlling influence, if any. Mr. Calderhead. If the revenue were sufficient for the current expenses of the Government, "what present or future danger is there of a loss of gold from this country sufficient to prevent the subtreasury and the clearing house from making and receiving payments in gold! Mr. Eckels. The same danger that existed from 1888 to 1893, when the gold reserve fell from $lil9,0o9,232 to $80,891,000. The monetary system is at fault, and until it is remedied the banks will not get a gold income. The maximum of the gold reserve was the former figures, but on February 11, 1895, it had fallen to -$11,310,181. Such a decline only could have been brought about by the Government undertaking to maintain a doubtful monetary system. It is a matter which is inde- l^endent of revenue and can not be remedied by mere revenue receipts. Mr. Calderhead. If this relation were resumed and maintained without the purchase of gold except the procuring of it in the ordinary course of trade, would not the whole expense to our peojjle of carrying our money be the interest upon the gold reserve fund and the cost of the national-bank currency? Mr. Eckels. I do not deem it possible to procure gold in the ordi- nary course of trade under present conditions. It certainly could not be so procured during the time when the expense of the system has been most manifest. Gold hoarding is always manifest at such times as there is a financial depression, growing out of doubt as to the sta- bility of the monetary system. The result of this hoarding is to take gold out of the channels of trade, and it can not, therefore, be gotten into the Treasury. Extraordinary methods in the form of bond issues have to be resorted to, with attendant expense and doubt. The expense falls upon the people in the way of increased taxation, and the doubt effects them in disturbing all business relations with consequent loss. Of course, there is loss of interest on the gold reserve, and there is loss to business interests, otherwise, by depriving them of the volume of the reserve when that amount is needed in business. The direct and indirect loss to business through a false system, breeding as it does, panic and speculation, can not be calculated. Mr. Calderhead. What per cent on the whole stock of our money would this be ? Mr. Eckels. It is impossible for me to answer the question as pro- pounded. Mr. Calderhead. If the greenbacks and other Treasury notes were all retired this year, what amount of reserve would be necessary to maintain the silver and silver certificates at par '? Mr. Eckels. That would depend largely ui)on the provision govern- ing such coin and certificates. No percentage is large enough to protect under any and all circumstances issues which, when once redeemed, are reissued for any puri^ose without first requiring a return of the coin they represent. INDEX TO STATEMENT OF HON. JAJfES H. ECKELS. (Page 231.) Page. Accumulation of money in largo centers 368 At'rity 241 established in small communities 251 miscellaneous stocks Iield by 396 no more needed 377 private, issuing notes of 252 profits to, on circulation 252,321 really maintain pari ty of metals 334 redemption safely transferred to 337 safer and better redemption by 330 I II INDEX. Page. Banks should assume current redemption of notes 235 solvency, popular idea of 308 Treasury as an a^ent of 339 withdrawal of gold from 332 with small ca))ital, authorizing 381 would contract and expand currency 241 would maintain gold redemption 240 IJills before the committee 233 iJill 11. K. 171 314, 316, 317, 318, 319, 320, 321 , 322, 324 eflcct of, on silver 342 opinion of Comptroller on 357 persuasive and not mandatory 337 provisions of, advocated bv conventions 33ti H. K. 1999, text of ' 358 U.K. 7247 386 11. K. 9823, text of 378,379,380,381,382,383 Bimetallic standard, elements essential to maintaining 304 Bimetallism 303 an imi)ossibility 304 Biiiietallists, tbeory of the 262 Bismarck on the supjilv of gold 301 Bland- Allison Act .' 239,244 coinage under 432 effect of 261,-322 Bond issue authorized, gold 379 of the Harrison Administration, i)roposed 400 recent 2J5, 260 Bonds as a basis for currency notes 242 circulation increased to par value of 246, 279, 284, 378, 410 secured by 361 issuing, to retire greenbacks 363 investing safety fund in 365 notes i ssued against State and municipal 390 light of Secretary of the Treasury to issue 249 sold to meet current ex])ense8 261 State and municipal, held by banks 395 value of, increased by issue of notes to par value of 283 Bran ch ban k s 250, 252, 256, 275 Brazil and the gold standard 293 Brokerage shoj), the Treasury a 392 Bullion in the Trcasurj', utilizing the 373 Calderhead, questions submitted in writing by Mr 430 Call dcjiosits counted as a reserve 256 Canadian banking system 246 Carlisle bill, tlie (see aho bill II. K. 1999) 399 Ca})ital, angregated, not dangerous 328 authorizing banks with small 381 laborer's, his ability to work 265 Cause of hard times 232 Causes of present danger 388 Certilicates, clearing-house 326 Charters, s])ecial 426 Chase, Salmon P. (Secretary of the Treasury) disbelie\ed ia lirst Treasury- note issue 237 Chcajuiess 322 Checks and drafts, enormous use of 300 create a currency 310 Chicago banks in the panic of 1893 272, 315 Chile and the gold standard 293 Circulating notes, issue of 362 Circulation against assets, limited 282 assets of banks as a basis for 278 (See also Credit currency.) clearing-house 326 emergency 243, 326 increased toi)ar value of bonds 246,279,284,378,410 no i^rofit to banks on 252 of silver coin 425 profit to banks on 321 INDEX. Ill I'ago. Circulation, rediiciug the 365 restriction of 826 retirement of 3S1 secured by bonds 361 security of 363 silver forced into 313, 369 tax on 279, 364, 378, 406 Civil war conducted on a gold bjisis 330 Clearing-house circulation 326 certificates 327 districts 415 payments of 1893 315 provisions 323 suspension of gold payments at New York 433 Coe, George S., jiroposition of 237 Coinage, silver, agitation ended 353 under Bland- Allison Act 432 Coin payments 349 shipments 429 Commercial banks, province of 275 Committee, province of this 266 report, unanimous, essential 324 Comptroller of the Currency, discretion allowed the 332 opinion of the, on H. R. 171 357 purpose of recommendations of 313 recommendations by 312 vote of thanks to 430 Compulsory note issues 279, 280 Congestion of currency in New York 255, 256 large centers 351 Constitutionality of jiroposed legal tenders 353 Consulting board under Fowler bill 411 Contraction, funding would not cause 234 Convertible assets 376 Corn crop in Iowa 252 Cost of bank-note redemption 306 currency 318 redemption of currency 305 transjjortation of currency 306 Credit, bank notes issued against 242 currency 247, 277, 397, 408 as a counterbalance 283 in tbe United States 269, 414 r('dem]ition of 427 xacilities in various countries 287 money, imprisoning the 336 of Russia 288 of the Government 243, 333, 414, 421 Creditor nations 273 Currency, additional, demand for located 310 (bank) should not be a legal tender 256 checks create a 310 congestion of, in New York 255, 256 cost of 318 redemption of 305 transportation of 3i 16 credit, as a counterbalance 283 greenbacks, an expensive 401 bonds as a basis for 242 profits of, vary day by day 318 redundancy of 257, 270 scarcity of, in rural sections . 250 secured, not elastic 314 silver, ] iresent amount of 352 three kinds of, provided 338 volume of 366.431 not the question 232 Current expenses, bonds sold to meet 261 redemption 406 IV INDEX. Page. Curreut redemption, l)auk8 should assume 235 place of 288 responsibility for 327 ridding the Treasury of 316 Treasury relie\ed oi' l78 and iinal redemiition 1)46 Customs payments in gold 133 cessation of 333 Danger, causes of present 388 of the ])resent system 235 Debtor nations -oi) United folates the greatest of 296 Demand for additional cnrreney located 310 Depositors (bank) in this country, number of 300 insuring, against loss 412 Deposits in the banks, amount of 270 reserve liekl against 270 Director of the Mint, report of, for 1895.. 258, 259, 263, 268, 270, 272, 284, 28lc demand new financial 386 of 1890, financial 238 of tiie war, financial 237 Loaning on real estato 375 Louisiana maintained gold payments 237 McCulloeh's bank 259 Maintaining a bimetallic standard, elements essential to 304 Measure of value, gold a stable 30:^ Metallic money, decreasing use of 2sr) function of 267 no demand for 285 Mint. Koport of Director of. (Sec Director.) Monetary system of the United States, doubtful 435 Money accumulates in large centers 368 redemptive, defined 347 Morrill, J. S. (Senator) , on tirst Treasury note issue 237 Morris, Gouverneur, on the Constitution 356 National credit, establish 233 National banks. ((S'ee Banks.) Note issues, compulsory 279, 280 of State banks 276 Note issuing not a function of Government 248 redemjitiou ^25 Notes a first lien on assets 282, 424 Notes, current redemption of. (*S'fe Current redemption.) issued against assets 319, 388, 419 (See also Credit currency.) State and municipal bonds 390 under Government supervision 406 issue of circulating 362 maintaining gold payments of BiO of private banks, issuing 252 redeemable in gold only 426 redeemed in silver 392 silver in place of small 372 two classes of 389 Original purpose of the national bank act 316 Overtrading ^32 impedes business 300 Pacific States, gold coin in circulation in 270 Panic of 1893 238,240 Chicago banks in 272 suspension in 314 ])OSsibilities of another 371 Panics in other countries 412 Paper money of the United States 269 world, uncovered 263 various countries, uncovered 257, 290, 292, 293 Parity, strain of maintaining pa])er at a 251 of metals, banks really maintain 334 Par of exchange 263 lost since 1873 266 maintaining the 266 People demand now financial legislation 386 Place of redemi)tion 319,3.32 Police powers, financial 429 Post])onement not wise 387 Premises, wrong 266 Present system, danger of 235 expense of 234 responsible for high rates of interest 252 works haTdshi]) to agricultural districts 254 Production of gold, increased yearly 295 in 1896 ! 301 Profit, banks are conducted for 243 on circulation, if increased to p.ir value of bonds 284 INDEX. VII Page. Profit on circuhition to banks -. 321 no 252 Profits on currency vary day by day 318 Projjoskions lor relief 388 Protests a ijainst retirement of greenbacks 234 Province of commercial banks 275 til is committee 266 Race, superiority of 266 Kate of discount of Bank of England 273, 301 interest 318 in Tennessee 368 ])resent system responsible lor high 252 Real estate, loaning on 375 ReceTit bond issues 260 Kecoramendations of the Comptroller 312 jjurpose of 313 Redeeming in gold only, effect of 311 silver in gold 416 Redemption agencies 277 agent, (iovernment as a 338 by banks, safer and better 330 coin required 309 cost of bank note. 306 current. (or t of 260 Securities in New York market affected ))y export of gold 297 Security of circulation 363 Selfish proposition, a 331 Sentiment, banking system can not be conducted on 331 Sherman. .John (Senator), on first Treasury uote issue 237 Sherman law '. 244, 245, 261, 269 effect of 238, 239, 323 Shipping coin, cost of 429 Single gold standard 239 standard only in this country thus far 3 5 Silver and silver certificates in circulation, 1878-1896 431 coin, circulation of 425 getting into circulation 369 coinage agitation ended 353 currency, present amount of 352 dollars, demand for paying out 242 effect of H. E. 171 on . - .' 342 forced into circulation 343 free and unlimited coinage of 240 in place of small notes 372 notes redeemed in 392 question 262, 266 redeemable in gold 244, 348 redemption, repudiation, or more bunds 240 certificates, retirement of 381 standard in this country at one time 305 utilizing the idle 391 Small communities, establish V)anks in 251 Solvency, popular idea of a bauk's 308 South American States and the gold standard 293 uncovered paper money of 293 South, rural districts of 275 Source of our financial trouble 233 Specie held by banks under Suifolk system 233 Speculation, unwise 232 Standard, gold the recognized 264 silver at one time in this country 305 single only in this eountry thus far 305 Standard of value, gold 3,54 State banks 276, 373 of issue 275 uote issues of 276 State-bank tax, repeal of 407 State and municipal bonds held by l)anks 395 issuing notes against 390 Stock market affected by nianii)u]ntion 297 Stocks, miscellaneous, held by national l)anks 396 Strain of maintaining paper at a parity 261 Suffolk system 236. 253, 254. 255, 259, 299 redemption under 305, 307, 310 specie held by banks under 237 Supply of gold, liismaiclc on 301 Supreme (,' >&AavHaii^>«^ o ^i:?13DNVS01^ \WrUNIV£Ry//, c^- L 007 183 594 6 UC SOUTHERN REGIONAL LIBRARY FACILITY AA 001 113160 4 .5,WEUNIVE( University of California SOUTHERN REGIONAL LIBRARY FACILITY 305 De Neve Drive - Parking Lot 17 • Box 951388 LOS ANGELES, CALIFORNIA 90095-1388 Return this material to the library from which it was borrowed. 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