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MISCELLANY

A SIMPLE PLAN TO SECURE AN

AUTOMATIC ELASTIC ASSET ENIERGEVI (URRENCY
To Be Had on Demand and Retired When Not Needed.
By LEONARD MA'1"PIIEWS, St. Louis, Mo.

Assume an agreement between the United States and the
various banks, state or national, and the trust companies
members of the various clearing houses of the country can
be arranged. To do this the United States must agree to
keep on hand and furnish on demand legal 'tender currency to any clearing house in the country, and the various
clearing houses collectively must agree to become liable
for any losses made by any individual clearing house to the
United States. Three steps only are essential to this reformation of the currency:
1st. The United States Treasurer shall be required to
loan ally clearing house in the United States, any amount
of money demanded to be placed in any city where wanted.
2nd. All clearing houses shall be held liable to the
United States for any loan made to any individual clearing
house.
:ird. Laws and regulations must be made to enable the
above to be carried out.
This scheme would require no bonds or other tangible
assets as security for money loaned, thus saving valuable
time and possible loss in selling bonds or other assets when
retiring the loans, or perhaps save the failure of a bank at
a. critical moment.
The clearing house should charge such rates' of interest
that would insure a speedy return of the loans, graduating
the rate according to the usual rate of interest charged in
its section of the country, making it. high enough that the
borrower would pay it back as soon as urgent demand
ceased, but not later than a fixed time. No doubt in time
the interest received on these advances, less a reasonable
amount, to be paid the United States for expenses incurred
in preparation for the plan, would more than cover the
losses likely to accrue, and accumulate a fund with which
to form a central national bank, if it. should be deemed wise
to do so.
In case of loss on any loan by a
clearing house, a
greater proportion of the loss should be assessed on such
clearing house, to make it careful in accepting securities offered. Sometimes cases may arise when it would
he important to sustain a failing institution to prevent. undue excitement, even, if the security offered should not be
deemed sufficient. In :--uch event, with the approval of a
committee, to be appointed, the loss, if any, should be
divided, in proper proportion, among all the clearing
houses.
By the plan proposed legal tender money wiil be obtained current everywhere, in contra distinction to local
clearing house certificates, used only with losal banks.
Loans will be obtained on demand, without publicity,
and
returned as soon as possible, and disge•aceful rates of
interest being charged as recently seen in the market will not
occur again.
It would be an absolutely automatic elastic asset
emergency currency, issued when wanted, and retired
when not
needed, and if desirable, the volume of the currenc
y now
outstanding, could be reduced in vicv
the fact it could
be so easily increased to meet temporary unusual
demands.
It may be objected that banks and trust compani
es in
clearing houses would be unduly favored, but
as soon as
hey are relieved, they in t urn would loan
their money to
their customers and thus the whole country
would be relieved.
This scheme would not prevent panics, but it
would reduce their force and frequency, and render
it unnecessary
to keep up so large a reserve fit ml ;Is
twenty-five per cent.




Por illustration, suppose a bank or trust company in New
York, St. Louis or San Francisco, needed assistance. It
would apply to its local clearing house, which, in
turn, would, after satisfying itself as to the security
offered, wire the Treasurer
at Washington to place
the amount. to the credit of the party applying for the loan
in any city where wanted. This would afford instantaneous relief. No circumlocution in putting up bonds,
etc., but instead the combined assets of every bank in the
various clearing houses would be liable, beside having the
best ability of the whole country to manage it. To do this,
there might at first be some difficulty in selecting parties
best fitted for the duty, but after a few trials the writer
feels sure the right men would be selected to suggest the
many details necessary to perfect the plan.
It won hl be necessary for the Treasurer to heee bills
on hand ready for emergencies, but in denominations of not
less than $100,000.
If this scheme prevail, state banks and trust companies
members of the clearing houses, to obtain the assistance
needed, should be required to conform with federal laws
governing national banks, as far as this scheme may render it necessary.
As the government is constantly deranging trade and
finances by its absorption of money through its custom
and excise duties, it is only fAir that this plan should have
its sanction and support, and it will be an important step
toward taking it out of the bunking business.
There are many details in perfecting this scheme unnecessary to mention here. •
It 'has been said if we did not have n Wall Street,
we would have no need of emergency currenc
y. This
may be so, but the fact remains we have a
Wall
Street, and many of them. and they will continu
e as
long as time lasts. A system like the above,
governed by
the best minds in the naticsa, would have a tendenc
y to
correct many evils, restrain over-speculation and prevent
undue expansion. As to a permanent currency based
on
asset security and the formation of a great national
or international bank (suggested '.)y some), plans have
not been
formulated, hut either may I e feasible, under similar
pro
visions, though of questionalile propriety. If
the above
scheme is adopted, should it be deemed wise to
establish
such a bank, the government should own one-half ,of
it, to
be paid out of interest received on loans to
banks.
The foregoing plan was submitted to our Secreta
ry of
the Treasury by the writer in January. 1906,
and seems to
have met with favorable consideration by the
special committee of the Chamber of Commerce of New
York, which
says, on pages 19 and 20 of its report to the Chambe
r, under
date of October 4th, 1906:
"It has been suggested to the committee that
a practical method of iiiitting into operation the
principle of a
bank note credit currency would be to have
Congress recc•gnize this principle by authorizing banks,
through a voluntary association of I heir own, to make
such issues within
certain limitations and subject to a joint
guaranty by participating banks; the details of such guarant
y and the provisions for safety to be devised by the banks
themselves,
subject to the approval of the Comptroller
of the Currency.
Your committee see practical difficulty
in securing the representative judgment of the bankers to devise
the detail.;
of such a plan, but we are so clearly
convinced of the desirability of the application in some form
of the principle
of a credit currency that we
would heartily endorse this
plan if Congress and the banking
interest approve it."

THE CRISIS AND THE REMEDY.
AN OUTLINE OF A PLAN FOR CREATING AN
ELASTIC CURRENCY.
BY A. E. STILWELL,
President of the Kansas City, Mexico & Orient Railway Company.

A number of years ago I foresaw that sooner or later the country would
inevitably suffer from the financial condition which now exists. The following plan occurred to me as being a feasible way of relieving the situation, and,
after taking the matter up with President McKinley, who looked upon it with
favor, I sent an outline to a number of prominent bankers, senators and congressmen. They all agreed with me that the plan could be carried out with
success, but as there was at that time no disturbance in business, they did
not think it necessary to change existing banking methods, and the matter
was dropped. I have thought over the plan continuously since that time, and
I believe that if the idea embraced herein were put into operation, the banking interests of this country could be placed on a sound basis, so that we
would have the best banking system in existence. This would result in
restored confidence, and the present stringency would immediately be
relieved.
THE PLAN.
Have congress pass a bill incorporating the United States Bank of Discount, to be a bank of issue, with a capital of three hundred million dollars.
The functions of this bank will be:
1. To issue circulation.
2. To discount with its capital the paper of National banks.
3. To insure the deposits in all National banks.
Have the National banks subscribe for the stock exclusively, and provide that the stock can be used with the United States government in order
to secure circulation, in the same manner that government bonds are now
used, every National bank to be required to invest one-fourth of its capital in
the stock of this bank; provide that the stock shall draw interest at the rate of
three per cent, and that if the interest is not earned (a remote contingency)
the government will make up the deficit.
The United States Bank of Discount will select one representative from
the board of directors of the various National banks. This representative
will be a resident of the city in which the bank is located, and it will be his







duty to report to the United States Bank of Discount any irregularities which
he sees in the management of the bank.
The United States Bank of Discount will have the right to examine all
National banks, just as the government does now, as this bank insures all of
the deposits, and, for this reason must know the risk that it takes. This
examination simply adds to the safeguarding of the banking system.
The United States Bank of Discount will issue its currency in the following way only:
Every National bank will have credit with the United States Bank of
Discount for an amount equal to its surplus and capital. This will encourage banks to pay in a large surplus, making an additional safeguard to the
entire banking system. This credit may be used as follows:
When the crops are to be moved, additional money is required. Suppose,
for instance, a bank at Topeka, Kansas, has a capital of a quarter of a million
dollars, and this bank wishes to avail itself of the credit which it has with
the United States Bank of Discount, the amount being equal to its capital
and surplus, $450,000.
The Topeka Bank takes to the Kansas City Clearing House, which is the
representative of the Bank of Discount in the section, four hundred and fifty
thousand dollars of bonds; the clearing house approves the collateral, and
gives a certificate to the Topeka bank stating that it is entitled to $450,000
worth of bank notes, to be issued by the United Sates Bank of Discount. The
Topeka bank sends this certificate on to the United States Bank of Discount,
and receives four hundred and fifty thousand dollars of circulation, paying at
the rate of 5 per cent. per annum while out. One half of this issue must be retired in six months and the balance in one year, or the bank must be liquidated if it is unable to retire the issue in that time. When the bank wishes
to pay off the $450,000, it sends this amount of National bank notes (not gold
or silver certificates) to the United States Bank of Discount, and its collateral is returned by the Kansas City Clearing House, on order of the United
States Bank of Discount.
This plan immediately creates an elasticity to the currency of the country
equal to the capital and surplus of all the National banks in the United States.
It will be to the interest of the National banks to build up their surplus, in
order that they may have a discount reserve at this bank.
Instead of keeping so much money in New York, they will buy high
grade bonds, such as the Massachusetts Savings Banks buy, and will keep
these for the interest which they earn, knowing that they can be used at any
time to secure currency. The United States Bank of Discount would publish
each year a list of high grade State, City and Railroad bonds in which all
National Banks could invest and hold to secure circulation when needed.
This would create a market for a billion or more of high grade bonds that the
banks would buy and hold, first, for the interest, and second, as they are the
basis for the issue of currency by the United States Bank of Discount.
One of the most important features of the United States Bank of Dis-

••••••••••••••11.91

p.

passcount will be the insurance of all deposits in National banks. In the
be inserted:
books issued to depositors in National banks, the following might
nt
"In case this bank should suspend or fail, the United States Bank of Discou
will pay all depositors in full, within ten days."
In case of suspension or failure, the United States Bank of Discount will
have the following ways of reimbursing itself:
1. The assets of the suspended bank.
2. The double liability of the stockholders.
3. The insurance fund created by collecting from each National bank
one-fourth of one per cent of its average balances for the year. At the end
diviof every three years the United States Bank of Discount will declare
uted to
dends equal to one-half of this insurance fund, which will be distrib
buted.
the National banks in proportion to the amount which each has contri
The National banks of each State will elect one director of the bank.
have
These directors, in turn, will elect an executive committee, which will
the entire management of the bank.
It should be noted that this plan does not contemplate any change whatsoever in the present National Banking methods or in the relation of the National banks to the Sub-Treasury, but is an auxiliary plan, not calculated to
cause the uneasiness which radical changes would be apt to involve.
THE RESULTS WHICH THIS BANK WILL ACCOMPLISH.

0




1. An elasticity to the currency, which will enable the banks to take
care of the needs of the country during the time of moving crops.
2. A stability to the National banks, as they could at all times call
their
upon the United States Bank of Discount for currency to the extent of
capital and surplus.
3. The insurance of all deposits would result in keeping a large
amount of money in the banks which is now kept in safe deposit vaults. This
would add largely to the currency in circulation, and at the same time would
prevent runs in time of trouble. This insurance of deposits in National
banks is as important as fire or life insurance, as safe and proper banking'
facilities are a necessary element in the business world.
4. This bank could never become a monopoly, as it does business only
to
with National banks, and not with the public. Its business will be limited
busithe issuing of its notes to the National banks for discount. The only
ness which it will carry on will be the making of loans to the government and
the insuring of the accounts of National banks.
5. This bank will be located at Washington, and will not be under the
al
control of any one political party, but will be controlled by all the Nation
banks of the United States.
6. It will receive no deposits except those of the government.
g
7. The whole country cannot then be made to suffer by the fightin

•

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among the men who have been caught in Wall Street. Each bank will know
what it can depend upon in time of need. It will not be affected by stock
gambling, and will not be dominated by men who have been carrying on
their business on a stock-gambling basis.

If this bank should be incorporated, I am convinced that it would solve
the problem now confronting the country in regard to the banking sys+ em. If
at the same time a bill could be passed in congress, making the short selling
of stocks, wheat, corn or cotton, punishable by fine and imprisonment, one of
the greatest menaces to the business interests of our land would be removed.
The people who own the land and grow the crops ought to control the prices,
and not the people who speculate for their own profit.
We have recently read in the papers that a New York man has made a
profit of $5,000,000 by the short selling of stocks. The owners of the stocks
did not make these low prices, but men who did not own them forced the owners to sell. When timid people see the stocks which they own rapidly falling
in price they are seized with fear, and immediately dump their stocks on the
market, thus giving an opportunity to other persons to sell short at a great
profit. If it is a crime for one man to sell property which he does not own,
but some day hopes to own, why is it not a crime to sell the cotton or corn
which he does not own, and thus force prices down, compelling the man
who owns the cotton or corn to sell at less than the real value of the commodity? Think of the great harm which can be done in times like these, by rich
speculators, who have never done anything to build up the business of the
country! The men who, knowing that some concern is struggling to continue
its existence, take advantage of this extremity and begin to sell the stock
short, are of the greatest harm to the business interests of the land. The stockholders, knowing that the company is having a struggle, begin to fear for the
safety of their investment; they see the quotations of the stock going lower
day by day, not knowing that the quotations are created by people owning
none of the stock, so they immediately begin to dump the stock on the market, thus creating the opportunity which the stock speculator has been looking for. The officers of the struggling corporation have outstanding loans,
with the company's stock as collateral, and in order to save their own credit
they are compelled to refuse assistance which otherwise, they could give to
the company. As a result, the company fails because of the short selling of
some unscrupulous speculator, who is only waiting, like a vulture, to devour
the unfortunate. The protection of business which would result if such a
method were punishable, as it should be, would be of inestimable value to the
entire country.




A. E. STILWELL.

CURRENCY REFORM
lit our specific requirements. Our circulation must follow the ways of our development.
New X ork city is the financial heart of
the nation and all outside banks are the
arteries. The New York Clearing House
banks are the great central reserve depositories for the banks of the whole country.
When financial stringency is greatest, panics
begin at the New York heart, and unless
An Elastic Currency Preventing stopped they naturally spread over the nation. To prevent panics in New York City
Financial Stringency.
is the grand achievement, for it saves the
nntion financially—and it can be done by
Congress in a very easy way, by authorizA Rewritten Suggestion, Pubikhed Dee. 10, 1906.
ing the issue of Treasury Certificates.
The terrible and disgraceful condition of
our finances is certain to continue unless
TREASURY CERTIFICATES.
there is legislative action.
Let Congress authorize the Secretary of
Congress, with its record for sound money
will not now authorize an unsound currency the Treasury, at his discretion, and all As—there will be no disastrous credit note cur- sistant Treasurers under his control, to receive government and other authorized bonds
rency.
As a permanent United States bank is im- and securities, as collateral from national
possible in our Republic, the only other fi- banks, as the Treasury is doing now, and
nancial institution is one we already pos- issue therefor Treasury Certificates, subject
sess—the Treasury Department with its to call.
equivalent branch banks, the Sub Treasuries
The principle is sound; circulation based
in the Eastern, Western, Southern and Cen- on government bonds, exactly like national
tral States. A United States Bank would banks; the government, in emergencies, to
change our whole National Bank system on include other bowls and securities.
which rests our national debt. Government
Practice creates a system; Postage
bonds would then fall like British consols. stamps developed Fractional currency, and
The United States could never again bor- l'learing House certificates A‘ ill develop
row money at two per cent.
Treasury certificates. It is the evolution of
the fittest.
FINANCIAL STRINGENCY.
These Treasury certificates state that the
Our financial situation is peculiar. For required government and other bonds and
about eight months in a year, the nation securities are deposited with the United
has plenty of money, owing to our increas- States Treasurer, and are receivable for
ing per capita circulation, so abundant that all the purposes authorized by Congress,
we often have one per cent. money, but in who will determine their denominations,
the other four months there is always a and interest charges.
stringency caused by the extraordinary deAN ELASTIC CURRENCY.
mand for money, required by larger Fall
business, moving the crops, and great inUnder this Certificate plan the United
dustrial expenditures and financial re-ad- States Treasurer and all Assistant Treasurers throughout the nation, most especially
justments.
foreign bank- at Now York city, will, under the direction
All the foregoing shows that
ing systems, suitable for foreign nations, do of the Secretary of the Treasury, supply

TREASURY
CERTIFICATES




or up in the Treasury vaults until required to
the daily and legitimate demand, issuing
supply a new and urgent demand for money.
withholding issue, or calling loans, to reguctly
CURRENCY REFORM.
late the money rate, thus creating perfe
ic government money.
elast
Now, when these certificates are supplied
sury becomes a Bank of Issue, to the New York Clearing House banks,
The Trea
Bank.
the chief value of a United States
through the New York Clearing House Asd on gold; silver
Gold eertifivates are base
tion, by a Treasury of unlimited issue,
notes socia
certificates on silver; national bank
confidence is strengthened at that great cennt bonds; Treasury certificates ter at once, all financial requirements and
on governme
securion government and other bonds and
re-adjustments are completed, and panic is
ress.
ties authorized by Cong
nted.
bank preve
Treasury certificates and national
The issue of these sound Treasury cerboth isnotes, both based on securities, and
tificates to prevent a panic is vastly suit of national banks, should
sued for the benef
r to issuing three per cent, certificates
and be perio
be receivable for identical purposes
of indebtedness after a panic.
ar in appearance.
simil
The present unavoidable, (minplicated,
ify, faeilitate and quicken the cumbersome, clumsy and unlawful financial
To simpl
the Clearduties of fhe Assistant Treasurer,
methods between the national banks and the
arrange and
ing House Associations could
would be simplified, harmonized,
to De- Treasury
it the collaterals to conform
subm
and legalized by Treasury certificates.
instructions. In a word, the napartment
This, then, is the sound principle of curwould get Treasury certificates rency reform—not to inflate our increasing
tional banks
Aisociations.
through the Clearing House
per capita circulation, inching it more unClearing House certhus illustrating how
reason of its inelasticity, but,
cer- controllable by
proates would develop into Treasury
tific
for periods of financial stringency, to
h
If this plan becomes a law, any
tificates.
vide temporary Treasury certificates, whic
Treasury certifieates is
one can see, as
the advantage of security, elasticity
he prevented. have
money, that money panics will
and unlimited issue.
The procedure for issue is very easy. The
REDEMPTION.
officials of the New York Clearing House
Treasury Certificate plan the
Under the
n will confer and arrange with the
on the re Associatio
redemption is completed at once
of the Treasury to supply
the Treas- Secretary
turn movement. The Secretary of
for the New York
cer- Treasury certificates
will announce a date on which the
ury
Clearing House banks, which, being Corwill commence to be called as istificates
of national banks throughdates of respom tents
sued, or otherwise, graduated by
country, will afford instant
ned securi- out the
the loans. Payment for the retur
superior to the delay in a United
kind of relief—far
ties will be in certificates and any
.
$100,000,- States Bank
money conveniently at ham I. Say
New York clearing House Association
The
issued, then
000 of certificates have been
is the rock on which to build our refuge
returned to
*100,000,000 will be promptly
from financial storms.
Any stray certifithe Treasury as called.
The Senate Finance Committee should
to
.
will quickly find their way back
cates
not forget that action of sonic kind is vital
under the g,nidance of the inthe Treasury
great dangers ahead—a new war
anged RS There are
terested national banks, and exch
y Treasury and a deluge of
r the debt, an empt
received, exactly as is now done unde
!
the gold greenbacks
law in redemptions on account of
W. H. CONKLE.
,000 of
reserve; and the en tire $100,000
Dec. 2, 1907.
locked
Treasury certificates will be tightly







The Urgent Need of an Expansion Joint in our Monetary
System or the Consequences of Doing Business
With an Inelastic Currency
A Paper Read to the Passaic Board of Trade by Robert D. Kent, President of The Merchants Bank of
Passaic, Passaic New Jersey, June, 30th, 1910.
My excuse for this paper is a general banking experience of thirty-five years and during the last ten years
of that period a somewhat thoughtful consideration of the special questions involved.
The expansion joint is a well known device in mechanics. If you should walk over the Brooklyn Bridge
you will see a place where steel plates slide over each other in the roadway, and if you should ask the purpose
they serve you will be informed that it is an "expansion joint," to allow for the effect of heat and cold in expanding and contracting the metal of which the bridge is built. Your watch has in it a device known as a
"balance wheel" which is an expansion joint to enable it to do its work correctly regardless of the expansion
by heat or the contraction by cold. Please note that while the name is "expansion joint," the thing really is an
expansion and contraction joint.
Bear with me for a little and I will endeavor to make use of this idea of the expansion joint in mechanics
to illustrate some of the ill effects we experience because we have no expansion joint in connection with our
circulation of currency or because in the terms of the old, but I fear not generally understood expression, "our
currency lacks elasticity."
Last year the value of our principal crops amounted to 4,632 million dollars. Practically all of this is
harvested and marketed in the fall: hence we require great amounts of money to "move the crops." We hear
that term very frequently but I do not think many of us realize what is implied by it. Several years ago I was
.
in Nebraska, and with some other men NAV.1c St21 “11g to drive out into the country from a. town. on the r'Ailroc%cl
One of our party who lived in the town called our attention to a man driving into the place with several hogs
in his wagon. Ile said, "that man will sell his hogs and get twenty-five or thirty dollars for them, and will
spend five or six dollars for groceries and supplies, and take the balance of the money back into the country
to his home ten or fifteen miles from the railroad. The next week he will repeat the operation. The money he
takes back with him each week will go to make up a fund which will last him for his family expenses until the
following spring." I then woke up to the fact that several million farmers were doing the same thing all over
our broad land, and I had a larger conception of what it meant to fumish money to "move the crops"—the
cereal and other products of the West and the Cotton of the South.
If the farmer had a bank account and deposited his receipts to his credit with his bank, such money could
be used over and over again, and when the active shipping to the East was over the surplus money in the banks
of the western and southern towns would in a comparatively short time find its way back to the money centers
of the country, and the banks of these centers would send their surplus supply to New York.
We can have no accurate statement of the amount of money needed each fall to move the crops, nor just
how long it will be before it gets back again to the money centers; but a fair estimate would be that 200 or
300 million dollars is required each fall for this purpose, and that in January, libruary and March nearly all
of the crop-moving money will he restored to ordinary circulation.
Now it is in order to inquire where the large amount of money needed eacl: year is obtained, and at what
cost.
To a very limited extent do the banks at the money centers carry much cver their legal reserve from
which to contribute. They do, however, have considerable in demand loans wl.ich are called in, to the disturbance of the security market. Next they refuse much needed accommodatioo to merchants and manufacturers to whom they would willingly lend at other seasons of the year. This helps some more. The banks
also collect—all maturing time paper which may have been purchased from coaimercial paper dealers from
April to July. In other words, financial strain is caused on every hand.
If by such efforts in our own country, money enough is not obtained, we aiso disturb the money centers
of Europe, as I shall show later.
In a short paper such as this must be I can give only outlines of processes. Intelligent bankers and business men can fill in the details. So far I have dealt with the trouble caused by lack of the ability of our currency to expand when special funds are needed. Now for a few words on the r,sults of the inability to contract when money is unduly abundant.
In the Spring and early Summer of 1909 when the crop-moving money had all been returned to the
I' 2 to 2 per cent. In the
money centers, there was a considerable time when call-money was plentiful at f
discussing the increased
early spring I was in the office of a Stock Exchange House in New York, and
supply of money with a member of the firm,.he remarked, "In two or three week., the banks will he crazy with
money"—his idea being that almost any rate would get it, and that the banks woold not be severely critical as
later than this, the
;
to the character of the collateral required. For a period of two or three montl,f a




dealers in Commercial paper were going about among the business houses of New York, and. probably elsewhere, offering amounts of from $25,000 to $100,000 or more on the single name paper of the firms at 31 per
/
4
cent. It needs but little imagination to see how this condition would lead to. undue inflation of. the prices of
securities, to the flotation of unwise ventures, and to the undue use of credit by the commercial and manufacturing community.
James B. Forgan, President of the First National Bank of Chicago, in an address says, "In the long run
.
commerce suffers more from periods of over abundance of money than from those of scarcity.
he origin of
each recurring period of tight money can be traced to preceding periods.of easy money. Whenever money becomes so overabundant that bankers, in order to keep it earning something, have to force it out at abnormally
low rates of interest, the foundations arc laid for a period of stringency in the not far distant future, for then
speculation is encouraged, prices are inflated, and all sorts of securities are floated."
During one part of the year we are distressed to supply 200 or 300 million dollars extra currency During the other part we do not know in what legitimate way to use a considerable portion of it when its.special
service is over. In other words we do a volume of business vastly changing in size with practically a fixed
quantity of currency. Does not this show the need of an expansion joint?
In support of my statement that in our annual needs we disturb the money centers of
in full a special cable dispatch from London to the New York Times published March 19th, Europe, I will quote
of this year. It will
be found full of instruction for us, and is under the heading—"To Steady the Money Market."
"London, March 18.—In connection with the Bank of England's advance in the official
week, The Statist will, in to-morrow's issue, draw attention to the action of one of the mostdiscount rate this
joint stock banks, which if pursued systematically and on a requisite scale, may have considerpowerful English
able influence on
the future course of the money market. Last Autumn, when the American demand forced the Bank
of France
to conic to the assistance of the London money market, the joint stock bank in question sold
freely of gold
which it previously accumulated, thus diminishing the demand on the Bank of England.
"As it did previously when the metal was cheap, the bank this year is again buying gold.
The Statist outlines various reasons which may be actuating the Directors, but inclines to the belief that
their main object is
to steady the rates, instancing the claim of the Bank of France that by not greatly varying
the rates it conferred incalculable benefits upon French trade in all its forms."
"If the joint stock bank to which we refer," adds The Stalls!, "can succeed in preventin
g the extreme
oscillations in the rate of discount to which we have long been accustomed, it unquesti
onably will perform a
great public service."
"In conclusion, The Statist urges co-operation among the London banks to secure
has a peculiar point at the moment, when there is a wide-spread belief that the Bank this object. The article
of
able to make its official rate effective, for up to the present the discount rate in the open England will not be
market has not responded to the increase in the official rate."
The other nations of the world do not have such agricultural crop to handle each year
as we do. They
11C ed, for an elastic curreiley.
The:A- lev.v.er need, however,
this statement I will quote from a recent issue of the I Vail Street Journal in is provided for. In F upport of
Question was being considered. It says, "Every country in Europe having a which the Postal Savings Bank
ing system which prevents panics and specie suspension, and affords inexhaus Postal Bank has a central bankof note issue and its relation to foreign markets, for meeting unusual demandstible resources through its power
."
It is not entirely correct to say that we have no expansion joint in our
method of relief is Clearing House Certificates, hut we never use that method currency system. One such
until the case is so desperate
that a panic is upon us and we face disaster. These certificates have been resorted
to but three or four times
in forty years, and have averted financial catastrophes. But they fall short of
serving us to the best advantage
even when issued, because they do not go from city to city, and because
they are not issued in small denominations for wages and, small transactions, except as they were so used in
a few cities in 1907 in direct violation of law.
Clearing Ifouse Certificates as generally used, while not in Niolation of
law, are not authorized by it.
The present Emergency Currency law is an earnest attempt to furnish us with
elasticity, but it is not
zidapted to our comparatively moderate extra needs each fall. It is more for the purpose
of helping us to recover after we have been seriously hurt. A few changes in the law would, I feel sure,
make it extremely useful.
During the past two years we have, as a people, made considerable advance
principles governing the circulation of currency. Many bankers and economists arein our knowledge of the
studying the question, and
undoubtedly some adequate form of relief will ultimately be devised.
In order that the proper solution of the situati(m may be arrived
at it is necessar
ness men become Posted on it; that they form clear ideas of the troubles we endure y that bankers and bit;ifrom our present faulty
syste, and of what is need ed i n the way of relief. An intelligent public opinion
m
is necessary in order I lult
wise leaders may be followed, and the plans and remedies of unwise leaders avoided.
The Monetary Commission has devoted much labor to the question, and while its
views have not been
made known, it has collected much valuable informati(m.
The opinions of banking and currency experts on the question arc instructive. I
attention fo a few who have written on the subject and 11 ave, in my judgment, shown will therefore call your
a comprehensive grasp
of it.
Mr. Paul M. Warburg, of Kuhn, Loeb & co., has written ably on the question
and
plan of central bank. William A. Nash. the President of the Corn Exclmnge Bank of,Nev presents in detail a
Y()rk. wrote a vain possibilities of the enlarged use of clearing house certificates
able paper on the
which was published in tile
New York Times of Feb. 14, 1910.
Mr. Victor Morowctz has written a hook on "the Banking and Curnlic y proldem of
the Lnited States."
It contains valuable information, and proposes a plan of relief.
Mr. A. J. Frame, of Waukesha, Wisconsin, iii several speeche.: and papers has ably
presented some of
the important points involved.

a




In the Banking Law Journal beginning with November, 1909, Mr. Maurice L. Muhleman gives a
of
a central bank which shall be free from political control on the one hand, and from speculative interests planthe
on
other.
These writers are all thinking in the right direction, and while differing in details, all clearly see the
necessity of and aim at an expansion joint.
Andrew Carnegie says: "Americans have many advantages upon which we may plume ourselves as being
in advance of other nations, but we have at least one humiliation to lessen self-glorification. Our banking
system is the worst in the civilized world."
Mr. James G. Cannon, vice-president of the Fourth National Bank, of New York, in a paper published by
the Monetary Commission, quotes, and apparently with approval, the remark of a prominent banker and economist who says: "The truth is that responsibility for the panic of 1907 lies at the door of our currency system.
No other adequate cause can be found. We do business by the modern system of bank credits, but we have
failed to supplement this machinery with the means for readily converting bank credit into cash."
In an editorial under date of May 10, 1910, the New York Times says: "Only a little time ago we repeatedly called attention to the fact that the volume of our hank notes persisted in increasing unnaturally. The
depressed conditions of trade and the money market called for reduction of the volume of credits and currency, yet our bond-secured currency persisted in coming out. The banks held two per cent bonds.on a basis
which necessitated making them earn something more than their interest yield, and the notes based on them
were forced into circulation under the most unwholesome conditions."
In an editorial review by the same paper of Mr. Paul M. Warburg's plan for a Central Reserve Bank, on
March 25, the following occurs. "It is now understood that what used to be referred to proudly as the best
currency system in the world is not worthy the name of system, and bears no likeness to banking in any civilized country. Americans know no better way of moving the crops than with a permanent supply of currency
and credit, maintained at great expense in idle times, only to be inaccessible and inadequate when time of need
arrives. It is plain how turning idle resources into the security market inflates them abnormally. It is equally clear how the withdrawal of those resources for use is as disturbing and conspicuous as possible. Not only
money market experts watch our security markets, everybody watches them. We are made a nation of security speculators against our wills. We are constanly making and unmaking security bargains to supply ourselves, or our customers if we arc bankers, with cash when we or they want it, and to absorb idle funds. Rarely do foreign banks move more than a fraction of one per cent. Our money rate doubles or triples itself, and
sometimes it reaches cent per cent. People used to a staple market cannot reconcile such antics with solvency
or sanity."
Mr. Warburg in a pamphlet entitled Thc Discount System of Europe says, "Our own system being absolutely inelastic, we have become accustomed to use as a substitute the power of our banking community to
borrow in Europe. We thus use Europe as an auxiliary financial machine, but we forget that our weight has
become so great as to threaten the safety of the European machinery when we are compelled to use it to its
utmost capacity in order to provide for our needs. Europe, in sheer self-defense, refuses under these circumstances to let us borrow, and by the simple means of refusing our finance bills renders our reserve of elasticity useless. Thus instead of securing additional assistance at the most critical moment, we find ourselves
-suddenly forced to dispense with a most important part of our machinery upon which we were wont to
rely in normal times."
Congressman Fowler, of New Jersey, has for some years been an enthusiastic currency reformer, and with
persistency and eloquence his impressed his views upon us. He is strong on the expansion side but when he
proposes methods of contraction he seems to he at sea and beyond his depth.
One very serious result of our present system is, that on the approach of bad business times each individual wisely managed hank begins to accumulate cash and reserve by contracting its loans in order to be prepared for anticipated stringency. Thus when the business community is in special need of accommodation the
banks lend less than usual. As a result conditions are made worse. The banks are not to be blamed for such
action. Indeed it is necessary for the protection of themselves and their depositors, as they have no central
banking system to which they can apply later on for relief when help may be urgently needed.
The consequences of an unscientific monetary system are widespread. When undue contraction results
from a previous expansion, as shown by Mr. Fargan's statement, merchants with falling sales have to sacrifice
stocks to realize funds to meet obligations, and the weaker ones frequently fail. Manufacturers curtail production, and discharge hands. These, unless thrifty and with means to keep them going art reduced to poverty. Their purchasing power is cut off or diminished and in consequence retail merchants, find their business
seriously lessened. Many men who have made small payments on the Purchase of a house through failure in
business or loss of employment, are forced to relinquish their investments, and lose what had been put into
them. in other words, society is so interwoven that all classes suffer when bad financial and business conditions prevail.
The writer has a plan to propose, and while it does not cover all the ground, it will go a great way in
checking the evils of our over-supply of money at one season of the year, and our shortage at the other, and
until we have a Central Bank or some other system to answer the same pnrpnce. will greatly help the situation. Indeed, it will be beneficial even after a more comprehensive plan is put into operation.
Something greatly in its favor is its simplicity. It could be put into operation by four or live gentlemen
in New York at a fifteen -minute conference; and yet I challenge any banker or writer on economics to prove
that it will not be greatly helpful!.
The plan is that not lc,: than froir (o- five of the leading New York banks unite to discourage the accumulation of money in New York in on ;Wont March to September, by lowering the rate of interest they will
pay for balances from out-of-town 1,anl;: and others to whom they pay interest to the extent of one-half or
nue per cent or more if necessary. and that from September to February they encourage the shipment of
.-rnt)ney to New York by raising the rate to correspond with its supply and the demand there may be for it.




If four or five of the larger banks in New York would adopt
the
suggested the others would be forced to follow their example. This policy of changing the interest rate as
cago and St. Louis, the other Central Reserve Cities, to take similar in turn would compel the banks of Chiaction. The banks in the ordinary Reserve Cities—Philadelphia, Boston, Albany, Pittsburg, Cincinn
tion, and would be compelled to govern their methods accordiati, and the rest would feel the force of the acngly.
To indicate the wide fluctuations in the rate for call money within
the past three or four years, I would
state that the average rate for November 1905 was 8 2-3 per cent,
in December of that year WA per cent, in
November 1906 101 per cent, and in December 151 4 per cent.
4
/
/
per cent, and December over 12 per cent. As a contrast to this In 1907—October 201 2 per cent, November 16
condition, there was a period of six months or
more in the spring and summer of 1908, when the
average rate was about 11 2 per cent and for six months
/
in 1909 the average rate was about two per cent.
Under these widely varying conditions in the money market
change in the rate of interest which they pay for bank balances. the New York banks practically make no
Not having lowered the rate when money
was almost a drug in the market, they are not in a position to raise
it in order to attract funds when they are
greatly needed. How much better for themselves and for
different policy were adopted! How different this condition the general business interests of the country if a
is from
ed regarding the Bank of France, which claims that by not greatly that shown by the statement I have quotvarying its rates it has conferred incalculable benefit upon French trade in all its forms!
The estimated per capita circulation for May of
for the year, it would seem that $33 per capita would this year was $34.59. If that is about the right average
be correct for the Spring and Summer, and that about
$36 per capita would serve our purpose in the Fall
and Winter. What we need to do with the unnecessary $3
in the Spring and Summer is as far as possible, to put
tion of ninety or one hundred millions of people to keepit out of business, or compel each one of our populafor use again in the Fall. But no, its owner must have it in his or her pocket or stocking, and bring it out
mately it goes to New York, attracted by the interest, interest on it, and so it goes into his bank, and ultigested blood in the human circulation, leading in one and there becomes congested and breaks out like concase to unhealthy speculations, and in the other to various bodily disorders.
I believe that the policy I advocate would pay
method, and the interest received by the out-of-town each individual bank in New York better than the present
but even if there should be some slight loss in either banks would average about the same as they now receive,
by the advantage of doing business on a more stable direction, it would be compensated for many times over
basis.
If we individually have any money to invest in standar
d securities we may investigate the history and operutions, and the ability and honesty of the management of any
the conditions connected with it entirely satisfactory, hut after railroad or other large corporation, and !Ind all
all this is done our investment becomes largcly
a matter of betting on the money market.
It is sometimes said that strong financial
rency circulation in order that they may make interests desire the continuance of the present system of curlarge
Of this 1 have no proof, but I will say this: that profits out of the violent changes in the money market.
a basis the present currency laws and the practice if strong financial operators desire to do busintss on such
of the New York banks will greatly aid them in accomplishing their purpose.
A few years ago we heard much on the subject
It cannot look forward to that distinction until our of New York becoming the money center of the world.
do business on broad lines and in harmony with the currency laws are perfected, and its banks are prepared to
proper share in steadying the money market of the laws of supply and demand, and are willing to do their
world.
It is imperative for the best results in business that
legislation be enacted to eliminate the evils incident to
our present rigid supply of currency and credit.
Business men who realize the hazard of commercial operations as now conducted should urge the remedy—the
Central Bank under strict governmental control. Meanwhile. the interest-regulating coalition such as I
have suggested would provide immediate relief and would
constitute as well a valuable permanent feature of our
machinery of monetary regulation.




The Bache Review
A SUMMARY OF THE GENERAL FINANCIAL
AND BUSINESS SITUATION
PUBLISHED EVERY WEEK BY J. S. BACHE & CO., BANKERS

Vol. 7

NEW YORK, DECEMBER

2, 1911

No. 22

CURRENCY REFORM PROGRESS. — STRENGTH OF U. S.
TREASURY.—IMPORTANCE TO OTHER COUNTRIES OF
A SOUND SYSTEM HERE.— FAVORABLE FACTORS IN
THE PRESENT SITUATION. — OBSTACLE TO REVIVAL
WHICH EXIST.—THE TURN.—THE NI ARK ET.
Currency Reform Progress.
The Bankers' Convention at New Orleans last week, approved by a
practically unanimous vote the National Reserve Association plan. The
bankers have never before agreed upon any one remedy.
The importance to the country of this approval can hardly be overestimated. Without such co-operation the enactment of legislation could
not be effected. It is fair to say that the several thousand bankers present were, at the end of the sessions, convinced of the remarkable adaptation of the system to existing conditions, whereby 20,000 separate banks
might unite in and control a Central Institution, and still retain each its
own independence. The plan was widely discussed outside of the sessions by individual bankers among themselves, each seeking to ascertain
how his particular institution would be affected and benefited. The commendation ,)f the plan by the bankers to their customers throughout the
country will have good effect in educating the voters, and eventually the
politicians, in favor of legislation.
It is a reform which will really benefit the people from high to low
more than it will the banks, as far as direct, as well as ultimate, profit is
concerned. The prevention of panics alone will save the country thousands of millions of dollars. The liquefaction of credit produced by
allowing banks to accept customers' drafts under proper arrangements,
instead of discounting their notes, will put life into millions of otherwise
dead assets. The acceptances can be turned into cash at central discount markets, where the money of the world will seek them, while
under the present system the quick assets of the country in the shape of
good business notes to an enormous amount lie a dead weight in bank
vaults, awaiting maturity. The United States will be placed upon a
modern and sound basis for doing business, and its enormous bankable
resources will for the first time be made available to give us the prominent financial position we are entitled to.




Strength of the U. S. Treasury.
vflie London "Statist" called attention recently to the fact that the
accumulation of gold in the United States Treasury exceeded anything
ever before seen in any country. The total gold held amounted to more
than 1,200 millions and the silver to nearly 500 millions. This is the
largest amount of gold held by any institution in the world that does a
banking business. The Russian Treasury is the next largest holder of
gold, at 690 millions. Next comes the Bank of France, with 615 millions.
The holdings of these last two institutions otgether amount to only a
little over 88 millions more than the gold in the United States Treasury
alone.
A very large amount of our gold holdings in the Treasury is, however, idle, as far as any assistance it gives the country's business as a
basis for credit.
And the correction of this is one of the great benefits which will
accrue to the country from the adoption of the National Reserve Association plan. A good portion of the gold holdings of the Government
will be deposited in the Reserve Association and will become at once a
source of strength to the whole banking system; and will also safely
expand the banking facilities of the United States to an enormous degree.
Importance to Other Countries of a Sound System Here.
This in turn will be of the greatest advantage to all the other commercial nations. One has only to read the standard financial journals of
(a her countries to note that our progress and condition is watched with
the keenest attention and that great prosperity throughout the world
depends upon a favorable situation here. This is no reason for being
puffed up, but rather shonld make us ashamed at the enormous waste
and danger of our Currency system. Nations are now so close together
that for some years our unprotected reserves and the general unsoundness of our banking position in time of stress is as much a source of
anxiety to others as to ourselves.
Favorable Factors in the Present Situation.
The strong position of the Treasury is one of the factors making- for
rapid recovery from lagging business progress.
We have also in our substantial foreign trade position another elemcnt of encouragement. The balance of trade is heavily .11 our favor
and e,,utinnes to grow. The heavy loans which New York has made
to 141.1M , tand as a reserve for easy money after the first of the year.
;
Two years ago the country switched gradually from extravagance to
economy and the latter ii a been prevailing- increasingly ever since. The
country as a whole has learned how to get more out of each dollar and
each pound of effort. These are lessons which should last. Fortunately
they have niq had to bc learned under the privation of hard times. Without prosperity, the country's business has continued, through a comparatively depressed period, in quite large volume. ltusiness for a long
time (part (4 the economy lesson) has been conducted on a basis of not
carrying an ounce or a yard more of "stuff" than was needed to keep
customers gi.ing. The result has been to get stocks of goods down to
the basis of conntry-store specifications—just enough to take care of
(lay to day 1,tlyers. The effect of all this must be, some time, to start
I hings up with a rush.
Obstacles to Revival Which Exist.
Such a movement cannot take place until wise, conservative business men can see the way ahead clear to pursue their business without
danger of happenings which will be liable to obstruct the path and stop
progress.




The obstacles in view at the present time are few in number. limy
formidable they are is worth considering.
Those obstacles outside of our own country, are concerned with the
question of the Italian-Turkish war, the Chinese revolution and the rt,ction left over from the Morocco settlement. War and revolution are
like fires in the underbrush. They may go out very quickly or they
may burst into flame. The probabilities in the present cases are for a
gradual smudging- out, free from general disaster. The Morocco seL lement has left a sore situation between (iermany and England, with prf)spects of gradual healing.
If we had no troubles of our own, it is probable that the incidents
enumerated would have more weight. We here, however, are more
acutely concerned with two things—the outcome of the Government's
Anti
-Trust campaign with Congressional accompaniment, and more remotely, the final results in Tariff changes and the Presidential contest.
There is little doubt that the former has been the main obstruction
to revival of confidence until very recently. The apparently firm resolve
of the Administration to complete wide dissolution of trusts and so restore old-fashioned competition with all its dangers, for a time overshadowed all other disturbing factors. It is apparent that a change has
come in the acute character of this anxiety. The turning point was the
declaration of Mr. Roosevelt, which distinctly discredited the attitude
of the Administration in unmistakable terms.
The Turn.
Here was the Originator of the active Anti-Trust movement, declaring that the policy of his successor was too severe, too sweeping,
and altogether unwise.
Previous to thic declaration there seemed to be no hope. The highest Governmental power was apparently determined to force combination
wide open and to re-establish antiquated and destructive competition.
Mr. Roosevelt has a very large following. His trumpet blast has called
a halt. Confidence, whether well founded or not, has begun to reassert
itself. This is shown in all directions. General business is feeling it.
If business once more gets a fair start, its progress will be irresistible.
Tariff changes will not stay it, and even the Presidential contest, provided both parties name good candidates, may not affect it.
The Market.
The broad view of the situation shows a much more confident feeling in all directions than has been manifested for some time. This has
extended to the business world and buying movements in Steel and Iron
and thorughout the various other trades, are beginning to be of more
substantial volume. The course of money after the first of the year, it
is expected, will be toward ample supply. The meeting of Congress is
looked forward to, as always, with some misgivings and tends to keep
sentiment conservative with regard to any new enterprises. There is,
however, a feeling that the scares here will be produced mostly by loud
sounds, without material injury. If, as is believed, the turn has been
made and the worst is over, the trend of the market should be very
gradually upward, with irregular reactionary interruptions of longer or
shorter duration, produced by political events.
J. S. BACHE & CO.




J. S. Bache & Co., Bankers
Dealers in investment securities, 42 Broadway, New York. Members of the New
York Stock Exchange and of other leading
exchanges. Private wire connections with
important cities in the United States and
Canada. Branch offices: Philadelphia, Atlantic City, Albany, Saratoga, Troy, Buffalo,
Rochester, and Montreal, Canada. Cable
address, Julebache, New York.

Lists of securities or suggestions for investment or reserve purposes, forwarded
upon request. Corre9ponderce solicitc
Quotations furnished for the purchase,
sale or exchange of Government, State, Municipal and Corporation Bonds, Guaranteed
Stocks and other Investment Securities.
Travelets' Letters of Credit iss.ted available in all p,,rts of the world. Foreign Exchange. Cable Transfers.
Funds awaiting investment accepted and
interest allowed.
Commission oniers executed in all markzts.

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illrleehlp financial 1Review

"THE BACHE REVIEW"
Vol. 15.

NEW YORK, MARCH 11, 1911

No. 32.

The Review is sent on application to those interested, for
a reasonable time without charge. Those desiring to receive
it thereafter regularly, may subscribe, paying postage only,
Namely, 52 cents per annum. It is, however, sent each week,
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J. S. BACHE & CO.
BANKERS
NEW YORK
THE MEXICAN SITUATION.—TARIFF PLAN.—CURRENCY HEARINGS.—FOREIGN REVIEW.—THE
OUTLOOK.
The Mexican Situation.
This swing of thousands of heavily armed soldiers to the
Mexican frontier is exciting and picturesque, and naturally
stirs the imagination. As far as it is for the purpose of discipline and practice, it should be very effectual. The speed and
the precision with which it is being effected is reassuring as
to the good quality and condition of this one-quarter of the
whole army, and as to the workings of the new methods,
which have been introduced since the Spanish- merican
War.
The official explanation of the movement at first was that
this was a mobilization of the troops to test the magnificent machinery that has been built up to respond to just such an emergency, and which has been long in preparation. It may be
said that everything is working with the utmost smoothness,
eight thousand officers of the State militias have been invited
to witness the manoeuvres, and that there is nothing to Conflict with the manoeuvre theory.
That the place chosen for the demonstration is the Mexican
border is very praiseworthy. This near-war demonstration
will have a salutary effect upon the conduct of the Mexican
insurrectos and gives them notice that no nonsense will be permitted. It also helps to stop aid and ammunition from crossing
from Texas to Mexico. If President Diaz is well and continues to stay so for three or four years, or longer, all the
better. If not, and through his death or disability, anything
threatens the lives and property of Americans and of other
nations in Mexico, the troops will be a first aid.
Outside of the manoeuvre proposition the navy is taking a




hand by concentrating near the Mexican coast a fleet of warships of some importance. Thus far, all this is police business,
and plenty of good police are like an insurance fund. If you
are well insured you rarely have a loss. It is part of wisdom
to have the police and to have them on the right spot.
It is estimated that there are 75,000 American citizens and
$1,000,000,000 of property, that they and other American citizens own. A widespread revolution in Mexico would place
the citizens and the property in great jeopardy.
English,
French, and to some extent German interests there are also
large. The slow-burning insurrection which has been going on
in that country for a year or more, unlike former spasmodic
risings of this character, has been increasing instead of being
snuffed out as has heretofore been done by the strong hand
of Diaz. The real reason why the revolution is not ended is
that over the thousand miles of border between the United
States and Mexico, there has been a continual flow of arms,
ammunition, and men to give constantly renewed inflammation
to the running sore. It is time for the United States Government to stop all this and the action now taken will accomplish
this promptly.
Tariff Plan.
If the plans for tariff revision have been arranged as indicated by the Washington dispatches, the outlook is favorable for a reasonable minimum of disturbance. It is reported
that the Tariff Board will co-operate with the Ways and
Means Committee on the schedules which the latter may
decide to take up. Within a few days the Ways and Means
leaders and the Board will begin conferences at the offices
of the Board and go over the material that is available. This
is practical co-operation between the President, who absolutely controls the Board and its information, and the Democrats. This is not politics, but it is common sense. The
Board, it is expected, is to form definite ideas as to what the
tariff rates should be. These ideas will represent the President, and if approved by the Ways and Means Committee,
will be adopted and passed. Bluntly speaking, any other
course will court the President's veto. For those schedules
demanding action, it is said the Democrats are settling down
to three; cotton textiles, wool and woolens and iron and
steel. Protection has become so intergrown that changes in
one class will affect many others to a degree. Rates are interlaced. It is like an old garden. Cutting out one tree
dips the roots of many growing things. But this is inevit:able. The wounds will have to be allowed to heal as best
they can and the ultimate results accepted. There is no
.other way. To expect an American Congress to revise the
whole tariff scientifically is beyond the possibilities.
harmony on these three schedules, and dependable agree..ment to limit action to these, would rob the extra session of
.much of its power to harm by reason of unsettling discussion as to the whole tariff.




Currency Hearings.
The Monetary Commission is holding meetings with
reference to arranging hearings at which banking bodies
and individual bankers may appear, and possibly also representatives of Chambers of Commerce. It is not definitely
announced that the Aldrich plan, which is only unofficially
before the Committee, will be the subject of the hearings.
It would be a mistake not to have this plan the prominent
basis of discussion. It is the first concrete business proposition for currency reform on scientific lines, and especially
adapted to the needs of the United States, which has ever
been presented with high authority, and it possesses the
elements on which the Currency and Banking laws may be
remodeled with eminent success.
It is no argument against this method of procedure that
the Commission itself has not officially adopted it. That is
really an advantage because, as it is, the Commission is
supposed to be advocating no set plan, but is in the attitude
of the open-mindedness of a high court.
The hope of action eventually depends upon keeping the
question out of politics and for that reason, as the proposition of Currency Reform is entirely a business one, the
Chambers of ammerce and Boards of Trade of the whole
country, if organized, would be especially equipped to exert
their influence for the passage of a perfected measure.
Foreign Review.
The Revue Mensuelle of the Swiss Bankverein is just at
hand, covering the month of February. The situation in America is reviewed in the following, which is a liberal translation:
"The economic situation expresses itself in improvement
and the reaction which set in in the course of the second half
year of 1910 seems to have touched bottom ground. Industrial
slackening, in conjunction with the good crops of last year, and
the large export of agricultural products, has already created
a great monetary abundance in New York. Besides, in the
course of the last week, American securities have found an
outlet more easily on the European market and a number of
new issues has already been completed with success, while
many other operations are still in preparation. To this we may
add that in the leading circles of American economy they do
not despair, in spite of all the difficulties of a final understanding with regard to the various problems in suspense (trusts,
tariff, freight rates, banking reform, etc.) and that they will
probably succeed in finding an equitable formula that may not
hurt beyond measure the reasonable interests of the capitalistic world. In consequence thereof, the Wall Street market
has been more animated of late and a marked improvement has
little by little accentuated itself under the influence of greater
purchases by the public. Various new groups have recently
come forward and plans of gigantic extension are being studied
by certain railroad companies, such as Union Pacific, Pennsylvania. and New York Central.




-To a certain degree, the publication of the,clauses of the
new commerce treaty, based on the principles of reciprocity
submitted for the gratification of Canada and the United States,
has likewise stimulated; this agreement tales into account primarily an economic rapprochement between the two great countries of North America; in the meantime introducing preferential duties which will facilitate, above all, the export of agricultural products from Canada to the t inited States and the
This
import of manufactured Yankee articles to Canada.
is, in fact, being animatedly discussed in the parliaagreement
ments of Washington and Ottawa, but in spite of the violent
opposition made against it, it is probable that after a little it
will receive the sanction of the respective assemblies. For the
moment it would still be hazardous to attempt to appraise the
whole economic import of the treaty, but it remains certain that
this convention of reciprocity, if ever ratified, will not fail favorably to influence the development of the external commerce of
these two countries, and while these factors may be diametrically opposed to the cherished plans of the apostles of Britannic
imperialism, the proposition has nothing astonishing in it, inasmuch as it has now for a long time been notoriously public
that Canada would pursue her own ways before she would
consider imperialistic interests."

The Outlook.
The monthly report of the Steel Corporation shows unfilled
orders totaling 3,400,543 tons on February 28th against
3,110,919 on January 3ist—an increase of about 290,000 tons
for the short month. This indication of the continuance of a
satisfactory trend is in line with the developments in general
business, although many industries are, like the stock market, in
waiting attitude, but expecing better things. The reduction
/
of the Bank of England's rate from 31 2 to 3 per cent. coincides with the freedom of money all over the world. The total
bank clearings for February show a reduction of about 2,200
million dollars from January, but this includes Stock Exchange
transactions and taking these into account, the figures are about
normal as to general business. Taken in conjunction with the
money situation, this proves that we are able to do a normal
volume of business and still have large reserves of idle money
for financing at the right time, and forecasts most satisfactory
financial conditions whenever other matters right themselves.
The market holds remarkably well considering the various
uncertainties hanging over it and gives indication of a rise ultimately whenever these are cleared away. Speculation is largely
invisible and the pending trust cases, combined with the possibilities of extra session disturbance, keep both investment and
speculative sentiment conservative. All this is reflected in the
quiet of the market. Whether or not the supreme Court decisions will cause much of a break is now a question, but we
believe that good stocks bought on any recessions and held,
will show good profit.
J. S. BACHE & CO.




September 30, 1911.

THE FINANCIAL AGE.

is immediately reflected in the raise of the
discount rate, and this will continue until
the equilibrium between business and the
capital to adequately care for it is re-established.
It may be seen from this illustration that
credit will expand and contract, and safely
do so when properly mobilized for the.necessities of business. Foreign countries
have long practiced this custom successfully, while we have relied solely upon the
cash represented in our widely scattered
reserves, or our ability to assist each other.
A

CENTRAL INSTITUTION.

It has been believed that it would not
be possible to devise such a large financial
institution which would not be dominated
by speculative interests, and it has been
feared a central institution would be controlled by politicians.
It has been argued also that it would
promote inflation, and that such a central
institution would prove a serious competitor for existing banks.
The objection has also been raised that
the plan which would finally be submitted
would be one for the benefit and protection
alone of the large city institutions, leaving
the banks located in the intermediary
money centers and in the country dependent entirely upon the benevolence of banks
located in the large cities.
The latter we have always maintained
would bc manifestly unfair. and would defeat the economic principles involved in
the subject, and also the passage of such a
bill.
We find instead that Mr. Aldrich and the
commission have met the most progressive
thought of the day, and have popularized
their plan by tiL,king tlik_ proposed ast•oelation so representative in character as to
conform in many particulars to our present form of general government. This will
be particularly noticeable in the method
of choosing its directors, which not only
gives due representation according to capitalized interest, but spreads the representation over all parts of
territory, giving
to the various commercial and agricultural
interests their proper representation
It is recognized that the beneficia effect of such a system will be extended into
every branch of business in the country,
including that of banking—giving a stability and liquidity to our commercial credits, and thereby place the business of the
country upon a more economical and substantial basis, enabling us to compete with
foreign countries and ultimately occupy a
leading place in the financial world that a
country of such unbounded resources, ingenuity and (wry should enjoy.
PROVISIONS OF THE PLAN.

The plan proposed by Mr. Aldrich involves the establishment of the Reserve
Association of the United States, chartered
for 50 years and capitalized at from $150,000,000 to $300,000,000, of which one-half
is to be paid in and the balance suhject
to call of the managing board.
The amount of capital varies somewhat
with the timber of banks who may become stockholders, as such banks are reqnired to sulcribe for an amount equal
to 20 per cent. of their capital. A bank
cannot sell or transfer such stock, hut if
it should go out of business the Central
Association is obligated to redeem its stock
at its fair valuation; hence, it will be secn
that the control of the institution is placed
safely beyond any influence of Wall Street
or speculative interests.
Washington has been named as the
proper place for the location of the head
office.
*lb k
41°6'
o.




11

It is provided that the country shall be
divided into fifteen districts, with a branch
of the Reserve Association located in each,
bringing the Central Association within
ready access to all of the banks of the
country. thereby avoiding delay in the
transaction of any business with the association.
The plan also provides for local associations in each district, which shall be composed of ten of more banks.
The Central Reserve Association, the
branch associati,in and the local association are each contr,,lled by their own
boards of directors, and the ingenuous
method provided for the election of these
directors is an effectual safeguard against
any possible control of the Central Association by any individual or any class of
hanks.
In each of the boards two classes of directors are provided for. The first class
constituting a majority are voted for without reference to the amount of stock held
by the bank in the Central Association, one
vote being cast by each bank. The second
class, constituting a minority, are voted
for by the banks upon the basis of the
number of shares of stock held in the
Central Association; hence, the larger
banks would have a larger voice in the
election of the minority members of the
board.
However, in order that the Reserve Association may have the benefit of the advice of those engaged in other lines of
business than banking, it is provided that
additional directors shall be elccted to represent the industrial, commercial and agricultural interests of the country, and in
We
the wide scope of the rrnposed
1,1an, it being intended to serve every intert st in the country on an equal hasi;—
still further placing the bank beyond the
c‘litrol of designing persons.
In the Central Association the governor
and two deputy governors, the Secretary
of the Treasury, the Secretary of Commerce and Labor and the Controller of the
Currency are ex officio directors. However, it is proposed the governor shall be
elected by the directors of tbe central
Institution for life, unless removed for
cause, and this places the bank beyond
any possible control of politicians. The
deputy governors to be appointed by the
President of the United States.
The profits of the Central Association
are limited to 5 per cent. to member banks,
the remaining profits after providing for a
surplus go to the Government. It will be
seen that the plan is not one which makes
profit-making a vital or primary feature,
but is more for the general good of the
entire public.
The organization of banks to conduct
business in foreign conntries Is also authorized. The stock of such an institution may be held by. National banks, but
the amount of stock so held shall not exceed 20 per cent, of a bank's capital.
It is very important that an avenue be
opened to permit American banks to finance their vast foreign business instead
of continuing the plan of permitting foreign banks to alone enjoy the profits of
this business.
It is not intended that the Central Institution shall accept deposits except from
the Government and such banks as are
members of the association ; nor is any interest to be paid hy it upon deposits,
though it has been wisely provided that
such deposits with the Reserve Association shall count as reserve for depositing
banks.

613
There never was any reason why the
Gove..nment should take the money out of
the cl. arnels of trade and lock it up, nor
why
hould on the one hand finance itself through the National banks, and on
the other refuse to handle its business
through them. The country has time and
again seen the bad effects resulting from
the expansion and contraction resulting
therefrom.
Instead of the Reserve Association being an active competitor of other banks
of the country, it will be able to lend most
valuable aid to such banks at all times by
the purchase of notes and bills representing commercial transactions.
Paper of this character which has only
28 days to run may be rediscounted direct
with the Central Association, bearing, of
course, the endorsement of the selling
bank, and while it may be suggested that
the paper held by a country bank usually
has a much longer time to run, and hence
this provision ‘vould be of no avail to such
a bank, yet it must not be overlooked that
though the paper may have originally had
a longer time to run, the country banker
can arrange his maturities exactly the
same as the city banker, and have paper
with a maturity of not more than 28 days
coining in daily, so that should he find it
desirable, he can substitute one for the
other until such time as lie has been able
to make collections and retire his paper at
the Central Association.
The amount so discounted shall not exceed the capital of the bank, nor any one
loan exceed 10 per cent. of a bank's capital and surplus.
Commercial paper maturing within four
months may also be sold to the Reserve
Association by member banks, who roust
endorse it, and it must be guaranteed by
the local association of which the bank
is a member.
In times of unusual stress the Central
Institution may accept the direct obligation of a depositing bank, gna-anteed by
its local association, which shall be properly secured by collateral. But such loan
shall ri.)t exceed three-fourths of the value
of the collateral.
It is provided in the proposed plan that
the rate of discount shall be uni form
throughout the country; hence, it will be
seen that the plan operates with fairness
and equality to all, and that every bank
in the country would have access to and
enjoy equal privileges of the association.
It will be noticed that in the plan it is
recognized as a proper and necessary function of banking to temporarily, at least, assume liabilities in the ordinary conduct of
their business, in opposition to the restricti% e policy now enforced both by law
and cestom in :his country, whereby banks
are wont to resort to subterfuge rather
than rediscount their paper, or Lorrow
money, on account of the .possibility of
criticism from the department or by the
public. I believe it perfectly prpper for a
bank to exercise this function, to meet
the legitimate requirements cif ;its customers, and the fluctuating condition of its
business.
The Reserve Association is also authorized in the plan to discount accept ances,
issue votes, buy bullion and tran, a foract
eign exchange business, and National banks
are authorized to accept short time commercial paper drawn upon them.
In the authority given to the Reserve
Association tu buy acceptances and the
power given to National banks to create
such paper is one of the most important and
necesf;ary changes in our present system.

614
Continuing, Mr. Reynolds enters it to a
comprehensive and detailed expositio i of
the Aldrich plan, the features of • Mich
are, in the main at least, familiar to the
readers of TIIE FINANCIAL AGE. Discussing the changes in the methods of conducting business which are likely by the
adoption of the plan, he says;
Distinction will lie made between commercial and investment enterprises, and the
two will no longer be indiscrimnately
merged in one evidence of debt as is now
the case with promissory notes.
It may be difficult in the beginning to
break through the cordon of long usage
and ancient custom, but the progress of
business shows little regard for the antiquities, and a perfection of any new system
will naturally introduce innovations.
It will also be noticed that it is the purpose of the plan to place the funds of
banks in assets which will be liquid in
form ; that is, that loans will be male upon
existing values which, when turned, will
meet such obligations. In other words, it
is fundamental in any system which has
for its purpose the regulation of the flow
of currency in its expansion and contraction to meet the commercial needs of the
country, that loans which are to be substituted for such currency shall be made
only to borrowers who can pay at maturity, thereby guaranteeing the ultimme retirement of the currency.
In the promissory note system, wliich is
in vogue in this country, it has been demonstrated time and again that too little
thought had been given to the ability of the
borrower to meet his obligation at maturity, hence placing the banker in the
unfortunate position of being unable to
meet the demands made upon him, thereby disturbing public confidence in him and
the banking business generally.
The banking business in this country has
been one of its ,greatest developing forces,
not excepting any other element. The
bank has accepted deposits and has loaned
the funds into all channels of business and
development, standing in the breach between the depositor and the risk entailed
in extending the credit to the borrower;
hence, it is proper and fundamental that
all of its loans should be put upon the
safest basis possible, with the widest market, in case of need, for rediscount, and
that its paper should bear such names as
have the reputation of meeting their obligations when due.
As a logical and necessary sequence to
the establishment of a central association
such as is suggested, must follow the maintenance of a discount market, or system
for the handling and distribution of the
various evidences of indebtedness which it
is expected will come into use and displace
largely the unliquid form of credit now
embodied in the promissory notes.
For a complete and convenient method
of making such credits available, without
awaiting their ultimate payment, the bill
of exchange has for a long time, both in
the country of its origin and for fordo
use, p-oven its adaptability. By its use
the banker adds his credit to that of Lis
customer's and all previous signer, and a
debt which in the first instance was a contract between two parties only, and in that
stage tied up and withdrew from activity
the amount of capital it represented, now
becomes a fluid and quick asset in the
hands of the holder.
Wh(re formerly the dealer in any line
exerted his credit by the use of the promissory note, either through his brol er or
directly with his bank, and renewA his




THE FINANCIAL AGE.
outstanding indebtedness from year to
year, thus covering losses and concealing
his true condtion, such practices will now
decline, as the weeding out process will
begin by inspection and scrutiny of bills
of exchange offered on the open market.
The open sale and certainty of market
for such bills will afford an avenue of investment to the country banker in safe
and liquid bills available for the purpose
of strengthening his reserve without depleting that of his neighbor or city correspondent, and without the discredit to
his business that now attaches to rediscounting his paper under our present
system.
As a corollary, the general financial situation in the entire country will be maintained in a more nearly normal condition
at all times, for if the country banker in
quiet times in his locality can find safe investment in bills on the open market, his
surplus will be so invested instead of accumulated in the hands of his city correspondent at an unprofitable rate of interest
to him, while its plethora acts as a temporary expansion in the locality holding it,
and gives an abnormal impetus to speculation.
A greater advantage from the use of
bills of exchange as contemplated will accrue in our foreign commercial relations,
even than what we may expect in our
domestic transactions. If bankers' bills be
legalized, they can be made equally attractive to foreign investors to those now
used between European traders in tneir
international business.
Under existing
conditions we have no form of commercial
investments to offer the foreigner, and
hence can have no rate analagous to other
countries; our rate being for promissory
notes made by individuals, firms or corporations that may or may not have ratings accessible to foreigners, they cannot
with safety handle them.
If, now, bank acceptances in the same
manner that promissory notes are now
used were made legal, the foreign banker
and investor would be in a position to
accurately determine the desirability of the
offerings, and an immediate market for
them would appear. Brokers would at
once commence to purchase such paper,
first for their bank clients, and for private
investment, and probably last on foreign
orders when rates made it inviting for
the foreign banker and investor, or the
conditions of exchange warranted the use
of cash in that way.
No legal enactment or organization will
be needed to authorize or empower such
a market to do business. The selfish opportunity to make a legitimate profit in
commissions will be sufficient to initiate
and maintain it, if the Government will
liberalize the banking act to the extc-t of
permitting banks to accept paper for their
customers.
This would give to these bills an international character and be a passport for
them to the money market of every foreign
nation.
Such a feature in their use, while not
only opening to our commerce the use of
foreign capital. will also assist in placing
us on a parity with foreign nations in
maintaining our gold reserve, a functiol
which will be required of the Central Association.
That the proponents of the plan had this
always and clearly in view is not at all
surprising, as it is the vital thing to be
accomplished when we seek to so arrange
our business relations as to place ourselves

Vol. XXIV., No. 14.

on a par with other nations in the competition for business.
The only international legal tender is
gold, because when settlement of balances
due from the individuals of one country
to those of another is required, that alone
is accepted.
When, therefore, the commercial interests of the United States, having exported all the surplus grain, cotton or other
products that the home market can spare,
still finds a balance due the foreign traders or their bankers who have accepted
bills for account of Americans, the settlement must be made in gold, unless foreign
investment in our stocks and bonds will
make up the deficit.
If, now, bills of the character described
were offered, their rate of discount, owing
to the very conditions herein described.
would be sufficiently high to attract foreign
investments, and our balance would be
settled in bills instead of the basic money.
The interest, therefore, is the fumiamental factor in the transaction and the discount rate fixes the amount of compensation the investor receives as interest.
In answer to the objection that operations under the note-issuing power of the
Reserve Association might result in undue
ii,;lation, Mr. Reynolds says that the same
condition exists at the present time, but in
a worse degree than could exist under the
iv °posed plan. Circulating notes besides those issued in lieu of the
pr.sent National bank notes will be
issued by the Central Association only
against assets arising from commercial
transactions, and their issue will only occur after the commercial transactions
which call them forth have takm place,
and remain out only as long as the debt
which called them into existence will exist. When that is met, the association will
receive in its payment either gold which
will immediately become an offset against
the notes, or its own IlUttS in extinguishment of the debt, in which latter case such
notes will be retire,.:.
The only inflation which can result is by
an increase in the gold reserve. This is a
healthy condition of finance and arises
normally from conditions of demand and
supply in trade and commerce, and is not
recognized as currency inflation in any
sense of the term.
It must be remembered that the same
rate of taxation on circulation will remain for that part outstanding which is
secured by bonds of the Government. and
a tentative plan is proposed by which the
Government will tax the further issues
when in excess of a certain specified
amount and then only in proportion to deficiency in the gold reserve held against the
issue.
As long as the issues are confined to
the needs of actual commercial transactions, they will either retire themselves by
completion of the trade and payment of
the debts, or return an equal . amount of
gold to the reserve. In either case, their
use has been for legitimate business, and
no tax will be necessary to keep them within proper limits; hence, none should be levied by the Government.
In conclusion, Mr. Reynolds said :
The plan proposed would enable banks
to convert commercial paper into cash at
any time, operating through the ordinary
channels of trade, the contraction and expansion exactly meeting commercial requirements.
Bu‘iness would 1)- handled
upon a more comprehensive basis, and the
needs of industry, commerce and agriculture would be properly met without dis-

4
1411

ALDRICH'S "CENTRAL BANK"
SCHEME DENOUNCED.
“Central Bank in Disguise, Says exSecretary—Means Wall St. Control."
"SPECIAL TO THE NEW YORK TIMES.
"

"PHILADELPHIA,Jan. 18 119111—Leslie M.Shaw,
ex-Secretary of the Treasury,regards as vicious Senator Aldrich's new bank reform plan. In an interview
to-day Mr. Shaw said that the Reserve Association
of America, which Mr Aldrich makes the principal
feature of his plan of revision, is in fact "
the same
central bank which Mr. Aldrich and all the interests,
Wall Street in the lead, have favored for years." 4 *
'

“How the INTERESTS Will Control."
"Suppose a bank at Spokane needs help. It will
submit its commercial paper to one committee after
another until it finally reaches Washington. Here
it will be passed upon again, and, if accepted, currency will be shipped. This ought to reach Spokane
before the receiver makes his final report !!I,
but help need not be expected under thirty days.
"The plan is not intended, however, to help Spokane. If Spokane wants help it should ask its New
York correspondent, and its New York correspondent
may get help from the central institution.
"A steel plant is being built in Seattle; it owns
large deposits of iron in Nevada and in British
Columbia, and very large coal deposits in the vicinity
of Seattle and on Graham Island. Does any one doubt
that if this company develops into a rival of the United
States Steel Corporation its credit will be good and
unlimited at every bank in touch %NW) the central
institution until it has become somewhat extended,
when suddenly, and at a critical and opportune
time, its paper will be no better than was the paper
of the Tennessee Coal and Iron Company in 1907?
History will repeat itself, and another possible competitor will lw absorbed.
"Such an institution can fix the price of cotton,
wheat, and every other product. It can enCOUrage t lw lmnks to loan 15 vents iwr pound on
cotton or Iliscournge their loaning more than 7
cents. It Call 4.14tablitiil or ruin the credit of any
indivklnal or corporat kin dependent. upon credit.
Such an institution, whatever its name, puts the
business of the United States of A merica abmolutely
and irretrievably in the hands of Wall Street.
"I am personally very fond of the Senator from
Rhode Island. I have eaten at his table, slept beneath his roof, and I have planted a tree in his magnificent park. He is a mail of extraordinary ability.
His family connections are very distinguished and his
business affiliations are of the best. As an adroit
legislator, as distinguished Inin) a eonst ructive st at Osman,I think he stands without a peer in the history
if the United States. Iiis new currency plan is admirably adapted to CONCEAL its purpose." * *

A Notable Proverb from Farther India.
II. that knows not and knows not that he knows
fool. shun him.
not
Ile that knows not :111(1 knows that he knows not is
ignorant. teach him.
He that knows and knows hot that he knows is
asleep, wake him.
He that knows and knows that he really knows is
wise, follow him.




"CURRENCY CONFLICT"
—Said (;1RP71:7.1) in 1876.
The following is a brief excerpt from an exhaustive
article (18 pages) entitled "THE CURRENCY CON-.
LICT from the pen of PRESIDENT (;ARFIELD.—At"
'antic Monthly, February, 18Th:
" * * * Third. A legal-tender note not redeemable, but exchangeable, at the will of the holder, for
a bond of the United States bearing 3.65* per cent.
interest, which bond shall in turn be exchangeable, at
the will of the holder, for legal-tender notes. In order
that this currency shall be wholly emancipated from
the t yranny and barbarism of gold and silver, most
of its advocates insist that the interest on the bonds
shall be paid in the proposed paper money. This
* * is regarded as THE GREAT discovery of our
era. *
"Mr. Wallace P. Groom, of New York, has characterized this currency in a paragraph which has been
so frequently quoted I hat it may fairly be called their
creed. It is in these words:
"'In the interchangeability (at the option of the
holder)of national paper money with government bonds
bearing a fixed rate of interest, there is a subtle principle that will regulate the movements of Finance and
Commerce as accurately as the motion of the steamengine is regulated by its 'governor.' Such PAPER
MONEY TOKENS would be much nearer perfect measures
of value than gold or silver ever have been or ever can
be. The use of gold or other merchandise as money
is a barbarism unworthy of the age.'"
*In 1876 3.65 per cent (equal to 10 cents per day on
$1,0(N) was a judicious rate. Interest on such "interchangeable" bonds should NOW (1911) be equal to, say,
4, 5 or 6 cents per day, on $1,000—W. P. G.

Food for Serious Reflection.
and the interest added to
If (INE dollar he in
the principal annually not semi-annually, as in Sa vin.fs Banks),the follow ing results, as the accumulat ion
of one hundred years:
*I, 100
do
do
do
do
do
do
do
do

1 per cent. per annum,$
2X
3
do
19%
66
6
do
3403
44
12
do
84,675
do
21
2,551,799,404

at

Creditor vs. Debtor Nations.
Crud i tor Nations "grow fat" under false systems
of finance which rapidly impoverish DEBTOR nations—unless the latter are large owners of virgin
soil, etc.,etc., which may give 'TEMPORARILY )
practically unlimited natural resources. That
DEBTOR nations should STIF l'I DIN permit creditor nations to obtain possession so largely of their
products w it bout properly reducing their aggregate
indebtedness, indicates crass ignorance on the part
of tbe former.
The fact that the value of exports of the United
States, for many years past, have exceeded the value
of our import s by hundreds of millions of dollars, annually, and that at the same time our indebtedness to
foreigners remains stupendous ( through the payment
of usury at excessive rates—the outgrowth of FALSE
finance ) is a matter of which a civilized people ought
to 1w greatly ashamed.—WALLACE P. Gttoom.

The Science of Money BRIEFLY Set Forth.
From the N. V. Mercantile Journal, July 3, 184j5.

'In the interchangeability (at the option of the holder) of
National Paper Money with Government Bonds bearing a fixed*
rate of interest there is a subtile principle that will regulate the movements
of Finance and Commerce as accurately as the motion of the steam engine is
regulated by its 'governor.' Such Paper Money Tokens would be much
nearer perfect measures of value than gold or silver ever have been or ever
can be. The use of gold or other merchandise as money is a barbarism unworthy of the age.--WALLAcE P. GROOM.
"
*Subject to

change after due notice."

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,0

Poverty, with its resultant environment, has been,from time immemorial,
the basic cause of greater demoralization, misery and wrong-doing than that
chargeable, primarily, to the crime of drunkenness. WALLACE P. GRoom.




Some EXCEEDINGLY Important Facts.
Since .it is a fact that National Governments (only and singly) have the
recognized right to "coin" (i. e., fabricate) Money, it therefore becomes a solemn,
an inoperative duty of such governments to use and to safeguard this important
function and thus provide necessary Legal Tender for the discharge of monetary
obligations throughout the several realms, respectively.
Paper has been found, in practice, to be thoroughly-well adapted for use in
"coining" (i. e., fabricating) Money. The value of Money "coined" (i. e., fabricated), of paper, will be uniform and as stable as the National Government which
coins it, and adequate for the use of all the people properly interested therein. Its
volume will exactly and constantly equal the Currency Needs of Commerce in
every "nook and corner" of the National domain—provided such Money tokens
are made interchangeable in sums of, say, one thousand ($1,000.) dollars, and
multiples thereof, at the option of the holder, with bonds of the Government
coining it, said bonds bearing an equitable rate of interest. Money tokens of this
character will be found, beyond comparison, a sou nd,honest,justice-prom otinglabor-sa ring Currency—in times of peace and in times of war.
A National Government should never enter into the banking business. It is
wrong for Governments to lend money or credit in any form or in any degree
whatsoever to individuals or private corporations while it levies taxes of any
description for revenue.

An IDEAL Use of Superlatively-Good Money.
The United States, coining superlatively-good Money as fully set forth elsewhere, may properly loan to each of the several States, upon requisition therefor,
a maximum of, say, ten dollars per capita, receiving for the loan bonds of the
States, respectively. Said bonds should bear interests at three (3) per cent, per
payannum (or less), payable periodically. The principal may wisely be made
say,
able at the option of the maker as well as payable on demand of the holder,
ed)
two years after formal notice. The use of Money thus "coined" (i. e., fabricat
to the several States, may be restricted to
by the U. S. Government and loaned
rate of
retiring outstanding bonds of the respective States, which bear a higher
works.
interest, and for payment for doubly approved public
All of the Money thus coined by the National Government, being interchangee rate of
able at holder's option with Government bonds, hearing an equitabl
available as an ideal "Reserve."
interest, would make such bonds

Facts--Mathematical— ofGrave Importance.
National affairs) of 100 years, can surely
"If capital, for a short period(in
interest (formerly called usury) added to the principal yearly (less
have simple
set forth below:
frequently than by Savings Banks) it will increase as
Per Cent. per Annum

Increase No. of Times

Times Greater than at 1 Per Cent.

2)4
One
19
Three
124
34034
Six
30,791
84,675
Twelve
927,927,056
2.551,799,101
T wenty-four
in the increase at the several rates of interest'
"The very great difference
worthy of largest consideration in connecnoted above is a marvel of marvels. It is
tion with the Currency Question.
interest,' when the element of risk
"If it be true that an equitable rate of
insurance for the return of the principal—not rent
(which should be considered as
is less than 3 per cent, per annum,
for the use of Money) is positively eliminated,
and upward on large sums of money in ordinary business
payments of 6 per cent.,
bankruptcies. Hence the very great need of
affairs must, as a general rule, lead to
nts by the Government which will surely
wise and equitable currency adjustme
rate of interest to the great benefit of lenders as
maintain(not by usury laws) a just
by all that to put the latter (the geese
well as of the borrowers, for it must be conceded
commission is to cause great loss to the Nation.
which lay the golden eggs) out of




NOTABLY-WORTHY PULPITS.
Unle s own ha ve commendable desires and suffi,
cient knowledge of mundane a ffa ins, affecting everyday life, to cause them to be fairly-robust and true
citizens, they cannot adequately till "Notably-worthy
Pulpits." The teachings of men who allow themselves to become so obli SI MIS of important matters,
terrestrial,as to lack practical knowledge thereof,
will not, in the nature of things, receive much considera Om by intelligent men—regarding ANY subject.
Preachers accept the sacred service of teaching
and by so doing SOLEMNLY promise to seek
WISDOM, and seek diligently, that they may he
ABLE to teach (to radiate) truths relative to rational duties of men to the7r fellows--and thus their
duty to God. The Master Faith: "Inasmuch as ye did
it not to one of the least ol these, ye did it not to me."
Those who ought to know and doubtless do know,
make exceedingly sorrowful 04410tements to this effect:
Of each 1,000 persous who die In New York City, more
than 300 die prematurely their lives being shortened
many years by over-work and semi-starvation combined, the result of dire 'raven y. More than 100 of
each 1,000 ( performing little, if any. USEFUL service) also die prematurely as the result of over-eating
and various indulgencies. These unfortunate conditions grow chiefly front exceedingly unjust distribution of the products of labor promoted by FALSE
finance which is the natural outcome of injusticebreeding Currency, loosely called Money.
Rabbi Stephen S. Wise, doubtless having in mind a
LONG line of weary and disconsolate human beings
who stand in the street and WA IT at midnighthours, almost regardless of weather, for a dole of bread,
recently remarked at a notable public gathering, as
follows: "The pitiable thing in New York is not the
An-ead line but the dead line- whk-h you cannot see."
The preachers, who are thoughtless as to ter=
restrial affairs and therefore fail to recognize the
very grave significance of these vastly important
matters, are GRIEVOUSLY at fault.
Important benefits would result if Pulpit-teachers
should earnestly ponder the subject and then cooperate, at least to the extent of writing a few words
to U.S. Senators and tot heir respective members of the
House of Represent at ives,* urging the exceedingly
simple, 4•01114NrVIllive and SORELY needed Legislation asked for in a letter written by Mr. Wallace
P. Groom, under date of October 3, 1911, to "President
,
William H. Taft and members of the Congre s of t he
United St at is'' addressing them as "Honored cogu ard ians." To facilitate the iii port ant work,copies
of this letter are inclosed herewith. THINK ! ACT!
It will be noticed, doubtless, that Mr. Groom
emphat icany declares, in substance, t hat the in
ion of a "Sound, Honest, and in every way Just icepromot ing Currency." so greatly transcends in importance all other Secular matters, which need t he
earnest at tent ion of mankind, as to be beyond con:pa rison. With equal emphasis he states that the Legis
* And to President Taft, also.

lation required to establish a practically'perfect
Currency in the United States, under conditions existing at this time,is simple to the last degree. This
highly favorable condition is evidently due to earnest
and potent work done in the Sixties, Seventies and
Eighties of the Nineteenth Century. Some say it is
Providential. It is certainly VERY fortunate.
In another connection Mr. Groom states that "boys
while in their teens ( if fairly-free from blinding prejudices, and simply possessing mediocre brain power)
should te able to understand the Currency Question
promptly when set forth ( even very briefly) by strictly
honest. men of average intelligence."
In the letter of which copies are herewith enclosed,
as stated above, the metal gold seems to have been
ment lotted quite incidentally, if not intentionally ignored. It is fair, however, to assume that the writer
thereof is specially gratified that Thomas A. Edison,
the Sage and greatest expert in Metallurgy and the
uses of metals in the arts and manufactures, declares
that gold is almost without intrinsic value and
that he has, through the press, also suggested that
its appropriate use is the gilding of picture frames.
And further that Mr. Edison has called attention to
the fact (which should be known by all instructors)
that the commercial value of gold is, in very large degree, artificial, the current market price thereof being
almost solely due to the laws directing the unlimited
purchase of that metal and its Coinage by the United
States and Great Britain at figures designated by
those laws which most absurdly make gold, when
coined, Legal Tender throughout the respective
in
of the two Governments named.
With the foregoing facts in mind little need be said
regarding the exceedingly complex, impracticable
and grotesque mechanism of the proposed Central,—
What-do-you-call-it ?" 1. e.,
The Aldrich Plan."
It will be countenanced only by the thoughtless, out'side of this ex-Senator's U. S. Monetary Commission,
its paid emissaries and others who hope to become
direct beneficiaries. Promotion of the unholy scheme
underlying the work of that Commission has, thus
far, cost the United States, directly, MANY thousands of dollars. It is unworthy of commendation in
any of its features. Only condemnation of the monst msit y is due. The ends sought by ex-Senator
Aldrich (and his partners in this scheme) are not
permissibIe in a country of enlightened freemen.
It is earnestly hoped that the Preachers, far and
near, may recognize it to tle a bounden duty to gi‘e
earnest considerat ion to the matter of being robust in
true citizenship and that they may consequently
render active service in promoting education along
lines of practically-applied common sense, and thus
honorably till"Notably-worthy Pulpits." It is firmly
believed t hat by properly-developed, thoroughly- \
Christ ian, act hit y regarding terrestrial a ffa irs men- N.
timed herein, that the hold of the Churches upon
the masses would be strengthened. GREATLY.

Expressions of opinion by Preachers relative to the matter set forth in this paper
or con) is especially desired by the Education Promoters Association—
correspondence office, 104 Fort Greene Place, Brooklyn, N. Y. City.
One hundred ($100)dollars will he paid by this Association to the first person who
•ucceeds in submitting to it a clear demonstration of material error in Mr. Edison's
s tement in re the intrinsic value of gold as mentioned above. That the whole truth
of le matter should tw widely declared is important to everybody. Will also pay
$10 .00 to the person who first delivers, say, an mince of material, it
or imported,
properly certified to be a TRUE"
Stand ard of Value."

t
,
(pro
‘ill,




Respectfully submitted, tea c,orpt

4cizza2-6-57?

,0771,0 4,d/
J2
) 1 alZ0-'saktto-ni

Brooklyn, N. V. City, October

rd, 1911.

President William H. Taft
and Members of the Congress
of the United States
Honored "Co-Guardians":
Thanking he President and many
Members of the Congress for kind
consideration shown, permit the undersigned to address you, collectively, regarding- the Currency Question, yet
again. As the inauguration of a stable,
justice-promoting Currency is the
mos/ in/PO/Ian/ SECULAR matter that can
engage the attention of mankind, it
should receive the very best attention
from legislative Co-guardians—honored
by election to service of high degree.
Neglect of duty, on your part, as such
Co-g-nardians, in the matter of establishing a Currency upon an honest,commonsense basis is a VERY serious matter.
Pardon the writer Nu adding the
declaration that all ',ally worthy Citizens, of notable intelligence, will naturally seek to know, also to teach, the
TRUTH in relation to this subject of
PARAMOUNT importance ; corn bating
erroneous and injustice-breeding practices in connection therewith, however
ancient they may be.
Kindly note, with care,par/ of a letter,
of comparatively recent date, addressed
to the President by the writer or this
letter and repeated here, in sul;tance,
for convenient reference in connection
with further observations, to wit :
"The tiovernment should hasten to
accord to holders of U. S. Legal Tender Notes, now in circulation, the
right of option to exchange such currency at pleasure, in sums of $1,000,




and multiples thereof, for U.S. Bonds.
(it these Legal Tender Notes, au thoi ized by Act of Congress, March 3, 1863,
there are now in use, say, $346,000,000.
To promote the best interests of the
people the proposed U.S. Bonds should
be made payable on demand with accrued interest in U. S. Legal Tender
Notes. The interest should be, say,
5 cents per day on each $1,000. The
right to change the interest to, say,
6 cents or to 4 cents per day per $1,000,
or to any other rate, upon due notice,
should be reserved by the Government.
Under the simple method.
outlined here, an inherent
briefly
subtle principle will regulate the
movements of Finance and Commerce
as accurately as the motion of the
steam engine is regulated by its
'governor' to the VERY GREAT BENEFIT of mankind.
"The Legal Tender Notes thus received by the Government, in exchange for Bonds, iniv:ht he used
wisely and justly in paying off, at par,
U. S. 2 per cent. bonds (now usable
by the National Banks in obtaining
notes for circulation) and also in paving Panama Canal claims and other
duly recognized obligations of the
Government but in no case with
added premium.
"Inasmuch as it has been conceded
to be right and proper, by the Congress, for more than TWO SCORE
YEARS,to have more than $300,000,000
of Legal Tender Notes in circulation,
there CANNOT HE CONSISTENT Ftli:FI'S.11.,
by the Congress at this time, to authorize the issue of other notes of similar
character to meet any semi-emergency

*
demands, for Currency, if such de- of Seven Billions, Four pundred '
and
mands should be made by holders of Twenty-eight Million'($7,428,000,000)
United States Bonds issued in exchange Dollars, in round numbers, as shown
for the Legal Tender Notes now outby the official statistics to be the "balstanding.
"The right reserved by the Govern- ance" in favor of the United States
ment to change the rate of interest on for Exports in ExcEss of Imports
the Bonds, as set forth herein, upon during the last 20 yea rs "."1'he imdue notice, gives to Governmental portance of the question looms very
management all the control over the large when
it is remembered that the
outstanding volume of Currency, issued
combined indebtedness, public, corin adjusting Government indebtedness, that can be, righteously, desired porate and otherwise, of the United
--practical uniformity in debt-paying States to foreign countries continues
power (and in purchasing power also) to be stupendous.
being maintained AUTOMATICALIs it not a fact that our EXPORTS for
LY by interchangeability with U. S.
Bonds at holders' option. It is con- the period named were made up as.
servative to declare that the blessings theretofore, chiefly of Cotton, Wheat,
which would flow from such adjust- Corn, Meats, Butter, Cheese and nument of the Currency would be so merous other products having notably
diversified and great as to he beyond INTRINSIC
and stable values? And is
computation."
it not also a noteworthy fact that the
For the purpose of g-iving emphasis IMPORTS
consisted, in major part, of
to the great importance of a Justice- merchandise
which LACKED the elepromoting Circulating Medium, let ment
of INTRINSIC value, IN LARGE DEthere be brought into juxtaposition
;R E ? What response can be made,
with Currenc v-facts some exceedingly honestly
as well as intelligently, to
valuable statistical information fur- the
foregoing queries? Is not the
nished by the Government regarding
matter of excessive usury (i.e., interest )
the large volume of Imports and Excharges on deferred payments of
ports of the United States. Here is
monetary obligations and the oft remuch food for thought. It is an alarmpeated, though indirect, renewals
ing "condition, not a theory, that is
thereof ( in multitudinous ways) a
confronting the nation.HIGHLY IMPORTANT factor? By what
These statistics show that the EX- means can this SERIOUS
BURDEN be reCESS of EXPORTS over IMPORTS
moved, never to return ? Is there a
for 20 years (1s90 to 1909, inclusive) remedy for this bad
economic condireached the Colossal sum of Seven tion? Answer: Yes;
and it is very
Billions, Four Hundred and Twentyiii EVERY RESPECT JUST, SURE!
eight Millions, Two Hundred and
Let pertinent suggestions as to
Forty-eight Thousand (S7,428,248,1100) causes of the
untoward condition be
Dollars a sum in tic 11 larger than the
n te rj c te d here : Barbarous/I, inity/fiTt
value of the entire personal property "Leg-al Tender,"
with consequent
in each of several important States of
m perfect Monetary in et In
has.
our glorious Union. This fact forces from time im
me in 01 ial. given creditors
important questions upon the atten- very large
advantage ovcr debtors
tion of all intelligent Nye]1-w sh rs of throughout the
world. to the GR T
our Country.
INJURY not only of careless debtors.
W hat beca me of t he INTRINSIC values but, in the FINAL analysis, of A1,1,
represented by the remarkably large sum mankind. The way of escape from




the toils, the ONLY way, is through
the inauguration of a Sound, Honest,
Justice-promoting Circulating Medium
-ALL LEGAL TENDER. Such Currency,
National Governments, SOLELY, are
qualified to supply. That co-operation
of individuals or corporations, of any
sort, in the discharge of the Governmental function of supplying a Circulating Medium is NOT permissible, in
any form or degree, either as a matter
of equity or APPLIED common sense,
is the firm conviction of the writer.
Inasmuch as the vast sum of Seven
Billions, Four Hundred and Twentyeight Million (S7,428,000,000) Dollars,
reported, was absorbed in very la rg-e
part, if not entirely, by interest (i. e.,
usury) payments on Bonds and other
indebtedness, together with dividends
on Stocks, etc., held in Europe, this
fact should cause DEEP concern.
As "borrowers are servants of
lenders," America has become a
"Hewer of Wood and Drawer of Water"
for the "money lenders" of England,
France, Germany, etc., etc. And since
the Ravine, in Monetary matters, into
which, as a nation, we have STUPIDLY drifted, is DEEP, it follows
that the most expeditious and certain
way out of the present, very unfortunate, situation should be adopted and
the long, laborious climb begun, without delay.
The writer is firmly convinced, as
the result of VERY earnest study of
the Currency Question, under excellent
opportunities, for more than two score
years antedating the panic of 1857
that the rig-hteous course for the United
States to pursue is plain, the result
certain and in every way .11JSTICEpromoting. It ileS EXCLUSIVELY with
the National Government. It ALONE
has the right to coin(i. e., fabricate )
money a "Circulating Medium,"
aptly called the "Life Blood of Com-




merce." And it is the IMPERATIVE
duty of the Government not only to
safeguard this important and EXCLUSIVE function, but also to use it to the
EXACT EXTENT of the Currency NEEDS
--at ALL times—of the people over
whom it has jurisdiction.
That the important function of coining (i. e., fabricating) money by the
National Government is conceded to
be EXCLUSIVE is indicated by the fact
that the right of the National Government to levy, annually, a tax of TEN
(10) per cent. on all circulating notes
(
of "State Banks" and upon all other
a Circulating M ed Rim
possible forms of
UNauthorized by the Congress) has
NOT been contested —not questioned.
A just and wise mode of procedure,
under existing conditions, the writer
claims is indicated in the foregoing
paragraphs of this letter. It is also,
incidentally, declared that there n(zer
()nal
has been and never rcill be "Illternali
MONEY"- i. e., before the Millennium—and further, that there is neither
present or prospective need in that di rection
Brief reference should be made here
to the United States Legal Tender
Notes of the Sixties and Seventies.
To demonstrate the need of change
in the wording of the declarations and
promises inscribed upon them, and
for another purpose also, the writer,
in March, 1873, caused one of these
notes (for S100 ) to be protested at
the U. S. Sub-Treasury, New York
City—the place where it was made
payable. This note was again protested
March 21, 1873, at the office of the
IT. S. Treasurer, Washington, I). C.
General F. E. Spinner. Nv ho had then
S. Treasurer for about 10
been
years, was at first great/y displeased.
However, upon further consideration
of the object of the protest, as explained in an address by the writer, in

1

a Public Hall,in the evening of the same
day and printed in full (5 columns)
in a Wasnington, D. C., paper, Treasurer Spinner became a vERY EARNEST
advocate of the Currency reform herein urged. lie was a noble co-worker
(as were many others) and continued
till death a very warm personal friend.
One object had in iew was promptly accomplished by the protest. The
Secretary of the Treasury withdrew,
on behalf of the Government, LARGE
ORDERS for wrongful purchases of
"U. S. 5-20 Bonds," such as had been
made at premiums ranging from 15
to 20 per cent. and increasingly higher
figures. Millions of dollars, however,
had been thus wrongfully paid, in addition to the principal of the "5-20
-year
Bonds," notwithstanding the 5
by the Government,
option, reserved
had matured.
For excellent reasons, the declarations and promises inscribed upon
U. S. Legal Tender Notes should be
again changed somewhat,as all ground
for legal protest, under any circumstances, should be obliterated. The
fact should be mentioned, in this connection, that these Legal Tender
Notes have been practically held at a
premium over gold and all other forms
of Circulating Medium during the
larger p-trt of the last thirty years.
The only exception has been ( and for
SPECIAL REASONS) the circulating notes
of FAILED "National Banks" of
former days. Premium on the circulating- notes of "BROKEN" NATIONAL
RANKS of those (lays (for UNIQUE
reasons) often reached more than 5
PER CENT.- over COINED gold.
Much of the time, during the thirty
years as stated. the premium on U. S.
Leg-al Tender Notes,publicly recognized,
has been chiefly a strong preference in
addition to sa% ing in matters of storage
and cost of transportation. It i; well
kno‘‘ n, of course, in the "Financial
World " that in the panic-years, 1893
and 1907,'the demand was so strong




,
for all classes of "Circulating Medium" authorized by thet. S. Government, excepting only pennies and
nickels, that sales thereof were made
in large aggregate amount, at premiu ins ranging from two to five per cent.
Sellers received therefor checks on
National Banks, certified "Good
through the Clearing House."
That the legalized "CirculatingMediums" of the world are a disgrace to the Nations is apparent.
And as related to the United States,
especially, has been often so declared,
publicly, by members of the U. S.
"Monetary Commission," ex-SeLretary of the Treasury, Lyman J. Gage,
Andrew Carnegie and many others
within the hearing of the writer. The
people of the United States of America
can be freed from this disgrace and from
the SERIOUS burdens which barbarous
monetary conditions impose. This
freedom may be secured through conservative, thoroughly honest, common
sense legislation A LI. in harmony
with the foregoing.
Large consideration is given, these
days, to "Conservation." That genuine Conservation of Timber, Coal,
etc., etc., is of large importance, all
will admit. However, it should be
U nderstood that the highest-grade-andlargest-benefit "Conservation," may he
realized by HUMANELY conserving the
innate powers of animals—Men and
Beasts. This ability for service of
men and beasts should NOT be unnecessarily diminished either by overwork, by unemployment, or by underfeeding. To best conserve the rights
of ALL, it is necessary that Commerce should be nourished by an
adequate, AUTOMATICA l L Yregulated, supply of sound, honest
Currency. Therefore, a stable, JUSTICEpromoting Currency is truly, as the
claims, the greafrs/ sEcuLAR need
of mankind.
Respectfully, etc., etc.




CONDENSED REPORT
OE THE CONDITION OF THE

Kentucky State Banks
AND

Trust Companies
OF KENTUCKY

At the close of Business December 5, 1911.

BEN L. BRUNER,
Secretary of State.

COMMONWEALTH OF KENTUCKY
oFFIcE or

•

SECRETARY OF STATF,

Abgtracts of Reports of Condition of the 473 State Banking Ingtitutions
of Kentucky, at the close of business December 5th, 1911.
RESOURCES.

Loons, discounts. overdrafts
Bonds and securitie
,
flan ki ng house and real estate
Furniture and fixtures
Ca.,;11 on hd
an
Due from banks
ENclunige for Hearing house 1111(1

.

itti1,1•4

10,4 ;..i,(155
- 3 953 1 87
956,234.
4,783. 1:11.•21
1* ,3-18,972:0
)
1 1 )
I51
,) )
1

ou e
.‘11 othor resrcs

2!

.

)
:i4 10 1.9' 1).7f

Total

1')

LIABILITIES.

Capital stock
Surplus
I 7n(1ivided profits
IZeser% ed for Taxes
I )(posits
Due to hank.4
Bills payable and rediscounted
AB other liabilitie.4
Total




$20,846,0:1 2 . tr )
)
G.101.121.0',
2.193.4 -10 .(r)

12:;,m1:1 .7i)
6 07s.I 52 .7),
,
1,25f;..`i•)2.. I;
3,389,180.5,,
1,728,8f;7. Y)
$101,920,7(12 .4(i
BEN L. BRUNER, Secretary of State.

BANK EXAMINATIONS, STATE AND
NATIONAL.

WASHINGTON, D. C., December 15, 1911.
To the NATIONAL MONETARY COMMISSION,
Washington, D. C.
GENTLEMEN: We have been asked to consider the question of bank examinations, both national and State, in so
far as they may relate to the National Reserve Association,
and after a careful consideration of the question, we beg
to submit our views.
In considering the question in a broad way we have had
in mind two points which seem to us very essential.
First. To avoid the added expense to the banks of
building up the machinery for an entirely separate and
additional system of examination.
Second. To utilize, in so far as possible and practicable,
the existing machinery for bank examinations as established to-day for both national and State banks.
It was necessary to carefully consider three important
points, as follows:
First. It is possible that the examinations as they exist
to-day, both State and national, might not meet the requirements of the directors of the National Reserve
Association.
Second. There are a few States where there is no
State supervision of any kind of State banks.
Third. There are a few States where there is State
supervision of State banks, but the executive officer
is not privileged by law to disclose information regarding
banks under his supervision.







We have considered each of the above points and,
in our opinion, the plan we present obviates each difficulty and utilizes, without additional expense to the
banks, the present machinery of bank examinations,
both State and national.
We therefore make the following recommendations:
That the National Reserve Association shall for all
member banks accept copies of the reports of the nationalbank examiners for national banks and copies of the
reports of State bank examiners for State banks and
trust companies, where the furnishing of such information is not contrary to law; provided, however, that the
standard of such examinations, both national and State,
meet the requirements of the directors of the National
Reserve Association.
That in all cases where the standard of examination,
either national or State, is not up to the said requirements, the directors of the National Reserve Association
shall make or cause to be made independent examinations.
That the Directors of the National Reserve Association
have the right to examine or cause to he examined, at
any time, any member bank, by its own representatives.
That the national and State examiners be allowed such
additional compensation, to be paid by the National Reserve Association, for making extra reports to it, as the
directors thereof may consider just and equitable.
The plan which we recommend will in a large measure
avoid the additional expense to the banks of building up
another organization for their examination; it will give
to the directors of the National Reserve Association, to
the branches thereof, and to the local associations the
information which is needed, and it reserves to the National Reserve Association the right to make independent
examinations whenever the directors thereof desire to do
so. The plan is simple, practicable, and workable from
the start.

In addition to this it will have a tendency to standardize on a higher plane all bank examinations.
Very respectfully submitted.
J. L. MOHUNDRO,
State Bank Examiner for the State of 117ashington.
ARTHUR B. CHAPIN,
Bank Commissioner for the
Conzmonwealth of Massachusetts.
F. E. BAXTER,
Superintendent of Banks for the State of Ohio.
0. L. GILL,
State Commissioner of Insurance and
Banking for the State of Texas.
GEo. C. VAN TUYL, Jr.,
Superintendent of Banks for the State of New York.
E. F. 1:()REBEcK,
National Bank Examiner for the City of New York.
GILES L. WILSON,
National Bank Examiner for South Carolina and Georgia
and formerly State Bank Examiner for South Carolina.
14.kwi:ExcE 0. MURRAY,
(
(. imptioiier of the Currency.




0

BANK EXAMINATIONS, STATE AND
NATIONAL.

WASHINGTON, D. C., December 15, 1911.
To the NATIONAL MONETARY COMMISSION,
Washington, D. C.
GENTLEMEN: We have been asked to consider the question of bank examinations, both national and State, in so
far as they may relate to the National Reserve Association,
and after a careful consideration of the question, we beg
to submit our views.
In considering the question in a broad way we have had
in mind two points which seem to us very essential.
First. To avoid the added expense to the banks of
building up the machinery for an entirely separate and
additional system of examination.
Second. To utilize, in so far as possible and practicable,
the existing machinery for bank examinations as established to-day for both national and State banks.
It was necessary to carefully consider three important
points, as follows:
First. It is possible that the examinations as they exist
to-day, both State and national, might not meet the requirements of the directors of the National Reserve
Association.
Second. There are a few States where there is no
State supervision of any kind of State banks.
Third. There are a few States where there is State
supervision of State banks, but the executive officer
is not privileged by law to disclose information regarding
banks under his supervision.




20351-II

2
We have considered each of the above points and,
in our opinion, the plan we present obviates each difficulty and utilizes, without additional expense to the
banks, the present machinery of bank examinations,
both State and national.
We therefore make the following recommendations:
That the National Reserve Association shall for all
member banks accept copies of the reports of the nationalbank examiners for national banks and copies of the
reports of State bank examiners for State banks and
trust companies, where the furnishing of such information is not contrary to law; provided, however, that the
standard of such examinations, both national and State,
meet the requirements of the directors of the National
Reserve Association.
That in all cases where the standard of examination,
either national or State, is not up to the said requirements, the directors of the National Reserve Association
shall make or cause to be made independent examitiations.
That the Directors of the National Reserve Association
have the right to examine or cause to be examined, at
any time, any member hank, by its own representatives.
That the national and State examiners be allowed such
additional compensation, to be paid by the National Reserve Association, for making extra reports to it, as the
directors thereof may consider just and equitable.
The plan which we recommend will in a large measure
avoid the additional expense to the banks of building up
another organization for their examination; it will give
to the directors of the National Reserve Association, to
the branches thereof, and to the local associations the
information which is needed, and it reserves to the National Reserve Association the right to make independent
examinations whenever the directors thereof desire to do
so. The plan is simple, practicable, and workable from
the start.




3
In addition to this it will have a tendency to standardize on a higher plane all bank examinations.
Very respectfully submitted.
J. L. MOHUNDRO,
State Bank Examiner for the State of Washington.
ARTHUR B. CHAPIN,
Bank Commissioner for the
Commonwealth of Massachusetts.
F. E. BAXTER,
Superintendent of Banks for the State of Ohio.
0. L. GILL,
State Commissioner of Insurance and
Banking for the State of Texas.
GEo. C. VAN TuvL, Jr.,
Superintendent of Banks for the State of New York.
E. F. ROREBECK,
National Bank Examiner for the City of New York.
GILES L. WILSON,
National Bank Examiner for South Carolina and Georgia
and formerly State Bank Examiner for South Carolina.
LAWRENCE 0. MURRAY,
Comptroller of the Currency.




0

MANAGING

•\-'

EDITOR

PRESIDENT

AND

EDITOR-IN-CHIRF

FAMILY

EDITOR

Do you realize that 1912 promises to be the best
year in the history of American agriculture?
Ample fall rains have put the ground in ideal condition, while demand promises
to be better than ever for soil products. You can make more profit with less work
during 1912 and get more pleasure out of life if only you operate efficiently.

EFFICIENCY IN FARMING —
also in the Home, is the vital aid which will be
stinP1i.c.flaatZ.YireL 3unlialy Iithót iiiidrcis to iuis

Nuts, Mushrooms, Dandelions, Tomatoes, Maple
Sweets and others. Closely allied to these will be our
,
d ep aar
rtitr ttte"Fir m
f',-Ktia ntires
. .
and Fertilizers.
WHERE TO LIVE will describe the advantages for
homes of many sections, north, south, east and west,
and help the land hungry to find farms and homes
.
The department of ORGANIZE AND EDUCAT
E
will continue to treat of many of the newer probl
ems
of marketing, social and political matters, rural school
s,
new ideas and suggestions to make life more
livable.

THAT RARE QUALITY, LEADERSHIP
Form
timie tn
isttc. ens' editorial page is
Its

Horne's chara.-tk_i-

famous for bold, fearless, able, level-headed, incorruptible championthe good things coming, for they will mean
ship of the people.
DOLLARS to YOU.
Its editorial policy is CONSTRUCTIVE, not
"Know-how" farming is scientific, saving
destructive. It builds up the right, tears down
labor, money, work, worry; increases profits, fun,
only the wrong. It shows how to progress, it
progress. Every line in Farm and Home will tell
leads the way!
the HOW of things, how others have done it, so
TO UTILIZE RURAL CREDIT is Farm
you can do it. That is what helps us, one and
and Home's newest campaign. It is the biggest,
The Live Stock Departments
all—practice, not theory; facts, not fancies.
The experience, observations and results have always been given a large space in FARM AND best, most practical, most needed of all reforms.
obtained by the leading scientific men, successful IIOME and promise to be of greater interest and value. Land mortgage banks to make farm bonds marfarmers and housewives will make Farm and These will include The Dairy, Marketing Milk and ketable like government bonds; rural credit
Cream, Live Stock
Home a cyclopedia of farm practice and manage- Swine Keeping, The Problems, Feeds and Feeding, unions to furnish cash and credit! The new sysSheepfold, Horses and Horsemen. tem Farm
and Home is fighting for will make
ment. Only a few of the fine things in store
THE VETERINARY ADVICE by Dr D. McIntosh
it easy for farmers to get long-time loans and
for 1912 readers can be mentioned:
has been of untold value to our readers with
sick
shorter term "accommodation."
animals. Animal Physiology, a new depar
tment
Special Feature

Articles

to appear in early numbers will show HOW—
they're
object lessons in efficiency by men and women
who are
themselves successfully efficient. Such as "Farm
ing in
Foreign Lands," by George Cecil; "What Moder
n Machinery Means to the Farmer," by Day Allen
Willey;
"Reclaiming the Desert," by A. R. Kanaga;
"A z000Acre Garden," by Wm P. Doyle; "Women Who
Manage Big Farms Successfully," by H. Croy; "Mak
ing
the Marsh Land Pay," by George E. Walsh; "Bird
s as
Friends of the Farmer," by Orin Edson Crooker;
"The
Street Front," by E. P. Powell; "The Possibilitie
s of
Rape on the Farm," by M. F. Greely.




A Wealth of Departments
will cover all phases of farming, all sides
of life and practice on the farm and in the
home, east, west, north, south. The old department,"ALL ABOUT THE FARM," will treat
of the many and varied farm crops and operations. Special articles by Prof John M.
Scott of Florida, Prof G. I. Christie of
Indiana, W. M. Kelly of New York;
W. H. Underwood of Illinois, George
Schoenknecht of Michigan, E. L. Vincent of New York, E. P. Snyder of
Ohio and other successful farmers.
SPECIAL MONEY CROPS mean
much to all farmers and will include
Tobacco, Asparagus, Onions, Ginseng,

started last year, will contain articles on the cure and
prevention of disease and care of animals, by Drs
McIntosh, Leslie M. Hurt and Ward Giltner.

Mechanics and Buildings
IIANDY DEVICES, which save time and
labor,
will be continued.
MODEL FARM BUILDINGS will include: A
round
barn in Minnesota, An up-to-date Maryland hog
house,
A model stock and farm barn in Massachusetts,
An
Oklahoma stone house, A delightful New Mexic
o
bungalow, and An attractive New York home.
THE ORCHARD AND GARDEN are among
the
most valuable parts of the average farm, while
they
supply the chief income for many specialists.
Leading contributors will be Prof R. L. Watts of Penns
ylvania, J. M. Smith of Oklahoma, Roy B. Buchanan
of
Tennessee, Charles A. iTmo,
elle of New Jersey, H. L.
Tompson of Massachusetts, Marie Seacord of Illino
is,
and M. Roberts Conover of New Jersey.

A Great Poultry Paper
The superb Farm and Home POULTRY ANN
UAL
February z issue, will be only one of the stron
g features of the poultry department for 1912.
A few of
the contributors will be J. H. Drevensted
t of New
York, Prof Homer W. Jackson of Pennsylvan
ia, T. M.
Clematis of Ohio, Joseph Tolman and
Charles H.
Latham of Massachusetts, Miss Franc
es P. Wheeler
of New York, H. H. Stoddard of Texas
, Dr Otto W.
Maurer and Prof T. E. Schreiner of Kansa
s and Mrs
B. S. Hislop of Illinois.
Pigeons and Pet Stock as well as The
Apiary will
also interest many readers.

HOW TO CO-OPERATE—an Inspiring
new department, will teach just what to do and how
to do it,
so as to enable YOU and your neighbors
to reform
rural finance, improve marketing, buy togeth
er and
sell together. The time is ripe for the comm
on people
to unite for uncommon benefits. Farm and
Home
blazes the way!
THE BUSINESS SIDE OF FARMING gives
a wide
sweep of the business horizon, a keen sense of
not only
local but world-wide conditions and a careful
analysis
of the situation when most timely. We have
at our
disposal the widest possible range of
domestic and
foreign crop news and advices, hence arriv
e
at a close approach to true conditions everywhere. Twice a month Farm and Home assembles, assorts, crystallizes, presents. The
markets, the record of crop movement, the
prospects and conditions are covered so that
you may know all the facts exactly as
they are.
TALKS WITH OUR LAWYER gives our
subscribers the best legal advice free of extra
cost. CHAT WITH THE EDITOR—pertinent suggestions, answers about personal, family and farm affairs.

The Family Features
Literary Departments, etc., etc., are
described on another page in Farm and
Home December 15.




Old P. T. Barnum used to say:

1L,Aok41-A

9

JP -ceo
)

The people voice the sentiment—they know whether a
thing
bad or indifferent. They praise it if it's good and condem is right or wrong. They know whether it's good,
n it if it's bad. The opinion of the people is worth
a hundred times more than the opinion of the man who
owns the proposition that's being talked about.
An awakening is here. With it has come determination by
the farmers and their wives all over the country to make up for lost time. So it comes to pass that farm
women are now eagerly searching for the better
things that are theirs by right of conquest. There is every
indication that they will soon stand abreast with
their progressive farmer husbands

Farm and Home, the great national semi-monthly
published for just this class

is edited and
of farmers. The people on the farms and in the
homes of America
subscribe for, pay for and renew their subscriptions to
Farm and Home strictly upon its merits.
what they want and they know they will get it in Farm
and Home—brimful measure and running over They know
every issue.
Bushels of

unsolicited testimonial letters sent by enthusiastic subscr
ibers to Farm & Home
come to our editorial department every year. We

cannot print them
received. They express feelings in relation to Farm and Home all, but present herewith a few very recently
better than the publisher himself can
These letters show that the subscribers to Farm and Home
become devoted and enthusiastic over their do it.
little semi-monthly.
beloved
Its Editorials Are Great
I have always been interested in
your Farm and Home editorials. They
put new life into us. I am pleased
especially with your great editorial
December 1. It is magnificent. Our
farmers are ready to follow your leadership and to work together for larger
prosperity. Continue to give us all
the information you can, especially
about co-operative land
mortgage
banking and rural credit unions. With
such banking facilities, farming will
go forward wonderfully.—[B. G. Morrison, Cornplanter, Warren County,
Pennsylvania, December 4, 1911.

The Heart of the Grain
It is my honest opinion that Farm
and Home, compared to other farm
papers, is as tile
• .
the hull, and for this reason we of our
family feel that we cannot afford to
be without it.—[Alexander Krueger,
Colville, Washington.

Helpful and Inspiring
Agriculture is too important to be
trifled with. We need more and better
farmers, and for this reason alone
Farm and Home should be in every
home. It is a clean, helpful and inspiring paper, with a word of cheer
for every member of the family.—
[Mrs W. H. Ladd, Route No 4, Sante
Fe, Tennessee.

How to Get Results
Farm and Home tea.ches me how to
get the best results from my farm for
the least money; it shows me how to
manage the live stock, garden and orchard to make money; it helps me in
the rearing of my children and in the
beautifying of my home—in short. it
Only/At m:I Limy tq rmsky.,ttie
.pppt of my
could afford to be without its helpful
advice and inspiration.—[J. \V. Robinson, Dover, Georgia.

The Most Important Business

Pleasure and Profit
Farm and Home is so original, so
Interesting, that it stands out prominently among all the other farm journals. To read Farm and Home is to
combine pleasure with profit, and that
Is why I subscribe for it.—[14% A. Grinnell, Mount Riga, New York.

Much for Little
I subscribe for Farm and Home because it gives me the very information
I want pertaining to the farm and
the home. Besides this, it always has
a good story and other reading for
Sunday, and does not use up space
with long and dull articles. To cap
the climax, it gives us all this wealth
of good reading matter at an exceedingly low price.—[Clifford E. Davis,
Pox 12, Route No 2, Cumberland,

Maryland.
Clean and Breezy
Farm and Home is an educational
journal, for it supplies information
that is invaluable to the veteran
farmer as well as the beginner. The
fiction is clean and breezy and to tho
point, and very restful to the tired
mind.—[Clay Davidson, Route No 4,
Cameron, Missouri.

Farm and Home has shown us that
farming is the most important business in America. The stories of Farm
and Flume are good, its politics are
sound, and, while it preaches better
manhood and womanhood, it does not
overlook the children. Its veterinary
and legal advice alone are worth many
times the subscription price.—[William Bacchus, Danbury, Connecticut.

A Square Deal
As an old subscriber T can testify
to the fact that Farm and Home
stands for progress and a "square
deal" for all. Every article in its pages
is of value to some member of the
family. Its iiction is good, its poetry
inspiring, and its advertisements always reliable.—[Mrs R. II. Hoss, lone,
Oregon.

The Best Merchandise
What
I appreciate particularly
about Farm and Home is that the
best class of merchandise and supplies can be found advertised in its
pages, and it stands for a square deal
for every reader.—[F. L. Burt, Hazardville, Connecticut.

More and Better
We seem to get more and better
information from Farm and Home
than
from any other farm paper,
and it
costs us less. I particularly
appreciate
the stand its editor took in
regard to
Sec Wilson and Dr Wiley. The
advertisements are not the least interesting
part of the paper. I have been a
subscriber to Farm and Home for
some
time and would not care to be
without
it.—[C. P. McCall, 3 Delta
Place, Atlanta, Georgia,

It Is Different
We like Farm and Home
because it
is different from all other farm
papers.
It is progressive, dealing
with the
Problems of the day and looking for-

ward hopefully to the future.
It eaters
to the real needs of its
subscribers,
•-•
•- -

no matter where one may be located,
one may learn from its pages something useful that tits his own individual case.—[Henry B. Mitchell, Athens,
Georgia.

For the Busy Man
Farm and Home is the paper for
me, because it prints useful information at the time of the year such information is needed, and it is so condensed that a busy man has time to
read it. Not the least of its attractions is that it carries a line of practical advertising.—[J. Graham, Pine
City, Minn.

Sparks from the Anvil
As for me, I can truly say Farm
and Home fills the bill. Anyone who
buys or sells will find its advertising
indispensable.—[John
columns
A.
Vincent, Route No 5, Ionia, Michigan.
What makes Farm and Home particularly interesting to me is that it
is always up to date and gives one a
comprehensive idea of progress in
farm and home matters.—[Mrs G.
W. Chase, Route No 24, Oconomowoc,
Wisconsin.
We take Farm and Home because
it is what its name implies—a paper
for the farm and for the home—reliable, clean, and always interesting.
[Edgar H. Parkhurst, South Canterbury, Connecticut.

THE CHRISTMAS, DECEMBER 15, NUMBER
of Farm and Home is a wonder. The features for all the family are even better than usual, including stories
and poetry, holiday entertainment, needlework, homemade candies and boxes, Yuletide sermonets, the junior
Climber's Club, homemade garments and indoor toys, seasonable recipes for cookery.
The Agricultural Departments of December 15 number teem with seasonable hints in the following departments:
Field and Farm
All About the Farm
Horses and Horsemen
Organize and Educate
Dairy
Business Side of Farming
Handy rapper
The
The
With the Farmers
The Poultry Yard
Where to Live
Sheep and Swine
Editor's Chat
Woodlot and Forest
Handy Devices
Home Butchering
Veterinarian
The Orchard
Stock Feeding
Farm Buildings
Talks with Our Lawyer
Home interests all the family on the farms and in the rural homes of America all the time. That is why its subscribers are so enFarm and
thusiastic over the merits of Farm and Home that they are renewing for it even better than previously. And that is why it pays advertisers.

THE PHELPS PUBLISHING COMPANY, Myrick Building, Springfield, Mass.
315 Fourth Avenue, New York City

1209 Peoples Gas Building, Chicago, Ill.

601 Oneida Building, Minneapolis, Minn.

Aberdeen, South Dakota

NEW YORK

MAIN

CHICAGO

ASHLAND BUILDING

UF F

(.LI

SPRINGFIELD

PEOPLES GAS BUILDING

MYRiC.K

MASS

BUILDING

MINNEAPOLIS
333 PALACE BUILDING

ABERDEEN
SOUTH DAKOTA

Oultione
PUBLISHERS

PUBLISHERS
,FARI

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A NATIONAL

HOME

FA H.1

HO

A NATIONAL SEMI-MONTHLY

SEMI-MONTHLY

EASTERN& WESTERN EDITIONS

EASTERN& WESTERN EDITIONS

.44

plamtgAil

rf
AN

OPEN

LETTER

TO BUSINESS MEN AND ADVERTISERS UPON THE 33d YEAR OF FARM AND HOME

Christmas, 1911
New Year's, 1912
Gentlemen:
In all the thirty-two years of Farm and Home which conclude with our December
15 number, I have never known the underlying and fundamental natural conditions to be
so healthy as they are today. American agriculture is going into the New Year with
more promise than ever. Therefore, business should be less adversely affected by
politics during 1912 than for several presidential campaigns.
Farmers are preparing for the new season with renewed confidence. Taking
the country as a whole, farmers will receive more money for their crops of the past
year than for the labors of any previous season. Higher prices compensate for reduced
total yields where they have occurred. This situation partly explains the unprecedented enthusiasm now existing among farmers over the future of their business. The
farmer is waking up to the fact that to supply the consuming demand, the United
States must have:
Better agriculture, better farm and home buildings and equipment, better
homes, better schools, better everything.
lo enable farmers to bring about such better
ed conditions is the high
purpose of Farm and Home for 1912. To this end it
employs every resource of experience,
science and success in all that pertains to
practical farming, home life and rural
progress.
But the largest efficiency of the forward moveme
nt in agriculture requires
still more. The well-nigh universal need of
farmers is MORE CAPITAL. They have sufficient assets, but the means are woefully
lacking for employing these assets as a
basis of credit when needed. Farm and Home
seeks to supply this want by adapting to
America the system of co-operative land-mortg
age banking and rural credit unions,
which is so astonishingly successful in German
y. (See my article on Page 3 hereof
from Farm and Home for December 15, also editor
ial in December 1 issue.) Such rural
finance obviously will enormously expand the
farmer's buying power for the many things
required by better farming and better "home
-ing."
I am doubly inspired in this great effort
by the enthusiastic co-operation,
interest and support expressed by Farm and Home's
subscribers and advertisers. Our
readers are singularly "close" to Farm and
Home, perhaps more
so than is the case with any other periodical.
This accounts in
part for the excellent results obtained by so many
of our adveriil'eTscan 61R Yeelce
tisers. Since farmers subscribe for Farm and Home
on its merits,
since it has earned and won its subscribers by
thirty-two years
BY HERBERT MYRICIC
of honest endeavor, since it admits only reliab
le advertisements, its increasing patronage by subscribers
*Derwentwater. 4 July, 1911
and advertisers
is a logical result.
Amid the trials of life—

Failures and discouragements.
The honors of victory
As well as weight of defeat
There is ever at hand:
Repose for mind and soul;
I4'or body also. peace!
Harmony's omnipresence—
Visible in storm and calm.
Potent in forms and actions.
Pervading both life and death
Is an object lesson:
Nature is rich in Peace
That may be shared by Man!

Now, strengthened by this kn(m1
edge—
Fed by the Ever Prpsent,
Inspired by glorious faith.
Quickened by work and play
Enjoy peace with those wliu
Master adversity.
Conquer prosperity!
*The charm of the English lake country! Who can
ever forget It? The lessons of nature, the associations
if Wordsworth, Mouthey and other choice souls.
What
eonirnst it all was to the cacophony of our own
land! And in the stress of our strenuous American
life, la it not well to grasp an occasional moment of
repose to live in poise?
Ili. M.




Permit me to express, in this personal way, not only
my own appreciation for your patronage, past,
present and future,
but equally so for the co-operation of your powerf
ul influence
in the great campaign for better rural life and
improved
rural credit facilities to which Farm and Home
will devote itself
during 1912—its thirty-third year.
Wishing you and yours all health and wealth,
happiness
and prosperity for the coming season, believe
me
Sincerely yours for better agriculture,

ffelk4
Editor-in-Chief FARM AND HOME
President THE PHELPS PUBLISHING COMPANY

ADVANCE SHEET
FROM DEC. 15 NUMBER

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Vol XXXII No. 685

Massachusetts

Western and Eastern Editions, December 15, 1911

evoluti

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11)1eagro,

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By Means of Co-operative Land-Mortpape
Banks

.•

114 TheT,helps Ph

Ore

Just How to Organize Local Land Banks---How to
Them Into Central Banks---How to Make Farm Federate How to Get Money on Long Time at Reasonable Rites of
the Basis for the Safest and Most Marketable MortgagesInterest—How to Pay Off the Principal "Without Feeling
of
It"---How to Adapt to the United States the
---How to Supply that Greatest of All Rural Needs, Bonds
Method of
AvailAccomplishing All This, Which Has Been so Successful
able Credit, Permanent or Temporary
in Germany for 150 Years
By HERBERT MYRICK, Editor-in-Chief Farm
& Home, President The Phelps Publishing
Company
Land is the basis of all PERMANENT WEALTH, but it has remained
for Germany to perfect a plan whereby land becomes the basis for MOVABLE CREDIT.
This German method is the outcome of 150 years' experience. Its
success has been so assured, the law
of 1899 has made it so perfect, that
this method should now be introduced throughout the United States.
Only in this way can be solved the
all-vital problem of supplying credit
and cash to farmers in efficient form
and sufficient quantity, with such
ample safety as to make farm bonds
1

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airvc

ketable. The German method could
be adapted to American needs as follows:
Local Co-operative Land Banks
Each state should provide by law
for the incorporation of small local
co-operative land banks, the same to
be subject to oversight by the state
banking commissioners. Each little
bank should have its capital stock
paid in by its local shareholders. This
capital is the surplus to guarantee
Americans
the bank's obligations.
prefer to thus put up some money,
instead of each member personally
becoming jointly and severally liable
for all the obligations of the bank,
as is the custom in many European
co-operative societies.
All of these little local land banks
in a state are to invest part of their
capital in the shares of one central
land-mortgage bank, into which they
are all federated. This central bank
has a trustee in each local bank. The
central bank for the whole state
should be under the closest supervision and regulation by the state.
The whole affair is strictly co-operative. Each member has one vote, regardless of number of shares held.
Each local bank has one vote in the
meetings of the central bank.
Function of the Local Land Bank
Let us suppose that such a system
is in use in Iowa, and that 100 citizens at Boone have formed the
Boone co-operative land bank, each
putting in $100 in cash. It thus has
$10,000 paid-up cash capital, of which
$2500 is invested in shares of the
Iowa central land-mortgage bank.
Now the Boone bank receives an
application from Farmer A, who
wishes to borrow $5000 on his note,
secured by a first mortgage on his
farm, which he thinks is worth $10,000. The bank's committee looks up
the property, to see how much can
be safely loaned on it. The state law
is that not over 00% of the true value
may be loaned and provides strictly
against either over or undervaluation. The bank also wants to be
careful not to jeopardize its capital
or reputation by making a bad loan.
So the committee is conservative,
gets all the evidence possible, including the character of the borrower,
whether he is likely to succeed,
Finally the
whether reliable, etc.



committee recommends
a loan of
$4000. The full board of directors of
the Boone bank, after reviewing
the case, approve the application.
Farmer A therefore signs a note for
$4000 in favor of the Boone bank,
and executes a mortgage upon his
farm as security. The mortgage is
payable to the trustee in the local
bank who represents the central
bank.
The Central Bank Issues Bonds
Now for the next step, for Farmer
A has not yet received his money.
The
Boone
bank
hasn't capital
enough to make the loan itself. But
used to insure that the loan is a good
one for all concerned.
The Boone bank applies to the
Iowa central land-mortgage bank for
$4000, offering as security the mortgage on Mr A's farm. The principal
and interest of said mortgage are
guaranteed by the Boone bank, it
keeps Farmer A's note in its own
safe, and has the right to get back
the mortgage it deposits with the
central bank's trustee upon payment
thereof.
The local trustee at Boone certifies
to the Iowa central land-mortgage
bank that the loan, mortgage and
guarantee are all right. The committee of the central bank verifies
the papers, approves the loan, and authorizes the issue of $4000 in bonds.
These bonds bear coupons for the
interest which, together with the
principal, is guaranteed by the Iowa
central land-mortgage bank.
These bonds may also be registered
in the office of the state treasurer
as yet further proof that they are
all right.
Marketing the Bonds
These land-mortgage bonds, thus
triply secured—by first mortgage on
a conservative basis, by guarantee of
local bank and by guarantee of the
central bank, should then be listed
upon the stock exchanges throughout the United States and foreign
countries. The bonds then can be
readily sold, because they will be

made one of the most attractive
of
all investments, by virtue of the conditions below described.
The central bank issuing the bonds
sells them and remits the $4000 to
the local bank, and it turns the
money over to Farmer A. Thus the
borrower in the local community,
who at present is unable to get in
touch with the great money markets,
is enabled to mobilize his land
as a
basis of permanent credit.

Characteristics of the Bonds
These bonds should le exempt
from all taxation, national, state, lops.). a‘ The 1ftnsl pays the taxes, and
,
.

borrower should not have lo pay so
high a rate of interest on his mortgage as to oblige the holder of the
mortgage also to pay a tax on that
Investment. Such double taxation is
entirely avoided by the proposed exemption. Of course, these landmortgage bonds would be subject to
inheritance taxes, which do not tax
the land twice, since only the equity
in land pays an inheritance tax.
Federal and state laws should recognize these bonds as the safest
things to be invested in by trustees,
societies, savings banks, insurance
companies and other institutions. The
laws should provide that a minimum
proportion of the surplus of national
and state banks of discount might
also be invested in these land-mortgage banks.
In this utterly simple way these
land-mortgage bonds become the
most attractive of all investments.
The market for them becomes incredibly enlarged. The demand for them
will alv.ays be keen, even at a low
rate of interest.
In fact, under normal conditions in
the money market, these bonds can
be sold at par, even if they pay only
3, 31 or 4% interest. They will vie
/
2
with both state and national bonds
In stability, value and salability.

would be about 4% where it is now
or in that proportion. He
would also pay at least 1% each year
toward the reduction of the principal.
By means of the compounding of
interest and the steady reduction of
principal, the result would be that
in the course of 30 or 40 years,
the
principal of the mortgage would thus
be automatically
wiped
out. Of
course the farmer would have the
privilege of paying up on the principal more rapidly if he so desired.
Thus a total of 5% per annum, including not to exceed 4% interest,
and the balance on principal, would
entirely wipe out the debt on a man's
5 to 6%,

Thus

tilt
,

security

of

the

bonds

would be improving constantly, because of the payments upon the principal. And these payments would
enable the system to go on and make
additional loans upon other farms as
needed. It is an endless chain of
help, thrift, convenience, investment
and co-operation.
Not an Experiment

Please bear in mind that this plan
is not an experiment. It has proven
successful during a century and a
half's use in Germany.
It is not paternalism. It is not socialism. It is based primarily on the
co-operation of individuals. The local society or co-operative bank is
composed of individuals, and it is to
the interest of each member of the
local society or co-operative bank to
see that the original mortgage is absolutely right in every respect. By
the means described, this mortgage
becomes the basis of a universally
salable bond, which can be converted
into cash at almost any time or place,
or used as collateral. In both respects, it is like a government bond.
This plan is not a trust. It is not
a combine.
It is co-operation made simple,
practical, effective.
What the Borrower Pays
It is common-sense association of
The rate of interest which the land and people, cash and credit.
It has stood the test of time-150
farmer pays on his mortgage note
years' successful experience with this
method has perfected it for application to the needs of American
farmers.
y
TH7HIFE0 m
It is safe, not speculative, yet the
iTiCIANS‘ralEAL TICKET
method will profit every dollar invested.
TICS icj,THE PO
POLI
HE TICKET PUNCH.
BUT YOU HOLD T
To Nationalize Thia Plan
AND SAVE. THE
"IT'S ALLRIGHT TO GO FOR TH
The foregoing plan may be carried
SAYS JIM LIMPS. UT
COUNTRY AT E LE CT oN
out in any state under proper state
la t
v
PA7 RIOT I Sri THAT
THIS HERE GROCE.NY 5TORE_
FtELD5 IN THE
ELL ER OUT OF HiS
KEEPS A F
But there is nothing to prevent
LISTEN NONE L IK E
WORKIN' SEASON DON'T
congress providing for similar insti:
iJTh TO ME.
tutions under federal laws. There can
TICiAN LL
AINT IT AWFUL WHAT tk Pot..
In' such a system of national landI' UP. AND
PROtAISE wHEN HE'S ALL HE
mortgage banking, which need not
HIS Mr..11'141 FAILS klC,H
A‘NT IT SAD HOw
interfere with a like system under
AFTER CLEC,T ION?
state authority.
'POLITICS CSAYS JUDGkE LIMP,"
The two can work along side by
Ts1-4i5— BEFORE ELECTION
IT'S LIKE
side, just as commercial banks now
ELECT
RAM! ESANG:1 1:3A7-00!— AFTER
operate under either national or
SH—SH-5H.HUS H."
state charters. The national system
would have the advantage of starting
the method more uniformly throughout the United States.

THE CRISIS AND THE REMEDY.
AN OUTLINE OF A PLAN FOR CREATING AN
ELASTIC CURRENCY.
131 A. E. STILWELL,
President of the Kansas City, Mexico & Orient Railway Company.

A number of years ago I foresaw that sooner or later the country would
inevitably suffer from the financial condition which now exists. The following plan occurred to me as being a feasible way of relieving the situation, and,
after taking the matter up with President McKinley, who looked upon it with
favor, I sent an outline to a number of prominent bankers, senators and congressmen. They all agreed with me that the plan could be carried out with
success, but as thcre was at that time no ciistu.-Ince in business, they did not
think it necessary to change existing banking methods, and the matter was
dropped. I have thought over the plan continuously since that time, and I
believe that if the idea embraced herein were Ina into operation, the banking
interests of this country could be placed on a sound basis, so that we would
have the best banking system in existence. This would result in restored
confidence, and the present stringency would ininiedia tely be relieved.
THE PLAN.
Have congress pass a bill incorporating the United States Bank of Discount, to be a bank of issue, with a capital of three hundred million dollars;
have the national banks subscribe for the stock exclusively, and provide that
the stock can be used with the United States government in order to secure
circulation, in the same manner that government bonds are now used, every
national bank to be required to invest one-fourth of its capital in the stock of
this bank; provide that the stock shall draw interest at the rate of three per
cent, and that if the interest is not earned (a remote contingency) the government will make up the deficit.
The United Siatcs Bank of Discount will select one representative from
the board of directors of the various national banks. This representative will
be a resident of the city in which the bank is located, and it will be his duty to
report to the National Bank of Discount any irregularities which he sees in
the management of the bank.







The National Bank of Discount will have the right to examine all national banks, just as the government does now, as this bank insures all of the
deposits, and, for this reason, must know the risk that it takes. This examination simply adds to the safe-guarding of the banking system.
The United States Bank of Discount will issue its currency in the following way only:
Every national bank will have credit with the National Bank of Discount
for an amount equal to its capital and surplus. This will encourage banks to
pay in a large surplus, making an additional safe-guard to the entire banking
system. This credit may be used as follows:
When the crops are to be moved, additional money is required. Suppose,
for instance, a bank at Topeka, Kansas, has a capital of a quarter of a million
dollars, and this bank wishes to avail itself of the credit which it has with the
United States Bank of Discount, the amount being equal to its capital and
surplus, $450,000.
The Topeka bank takes to the Kansas City Clearing House, which is the
representative of the Bank of Discount in the section, a quarter of a million
dollars of its best paper or bonds; the clearing house passes upon the collateral, gives a certificate to the Topeka bank, stating that it is entitled to
$450,000 worth of bank notes, to be issued by the United States Bank of Discount. The Topeka bank sends this certificate on to the United States Bank
of Discount, and receives four hundred and fifty thousand dollars of circulation, paying five per cent on the currency thus issued. One-half of this issue
must be retired in six months and the balance in one year, or the bank must be
liquidated if it is unable to retire the issue in that time. When the bank wishes
to pay off the $450,000, it sends this amount of national bank notes (not gold
or silver certificates) to the United States Bank of Discount, and its collateral
is returned by the Kansas City Clearing House, on order of the United States
Bank of Discount.
This plan immediately creates an elasticity to the currency of the country
equal to the capital and surplus of all the national banks in the United States.
jIt will be to the interest of the national banks to build up their surplus, in
order that they may have a discount reserve at this bank.
Instead of keeping so much money in New York, they will buy high grade
bonds, such as the Massachusetts Savings Banks buy, and will keep these for
the interest which they earn, knowing that they can be used at any time to
secure currency.
One of the most important features of the United States Bank of Discount will be the insurance of all deposits in national banks. In the pass




books issued to depositors in national banks, the following might be inserted:
"In case this bank should suspend or fail, the United States Bank of Discount
will pay all depositors in full, within ten days."
In case of suspension or failure, the United States Bank of Discount will
have the following ways of reimbursing itself:
1. The assets of the suspended bank.
2. The double liability of the stockholders.
3. The insurance fund created by collecting from each national bank onefourth of one per cent of its average balances for the year. At the nd of
every three years the United States Bank of Discount will declare dividends
equal to one-half of this insurance fund, which will be distributed to the national banks in proportion to the amount which each has contributed.
The national hanks of each state will elect one director of the bank.
These directors, in turn, will elect an executive committee, which will have
the entire management of the bank.
THE RESULTS WHICH THIS BANK WILL ACCOMPLISH.
(1) An elasticity to the currency, which will enable the banks to take
care of the needs of the country during the time of moving crops.
(2) A stability to the national banks, as they could at all times call upon
the United States Bank of Discount for currency to the extent of their capital and surplus.
(3) The insurance of all deposits would result in keeping a large amount
of money in the banks which is now kept in safe deposit vaults. This would
add largely to the currency in circulation, and at the same time would prevent
runs in time of trouble. This insurance of deposits in national banks is as
important as fire or life insurance, as safe and proper banking facilities are a
necessary element in the business world.
(4) This bank could never become a monopoly, as it does business only
with national banks, and not with the public. Its business will be limited to
the issuing of its notes to the national banks for discount. The only business
which it will carry on will be the making of loans to the government and the
insuring of the accounts of national banks.
(5) This bank will be located at Washington, and will not be under the
control of any one political party, but will be controlled by all the national
banks of the United States.
(6) It will receive no deposits except those of the government.
(7) The whole country cannot then be made to suffer by the fighting
among the men who have been caught in Wall Street. Each bank will know




what it can 'depend upon in time of need. It will not be affec
ted by stock
gambling, and will not be dominated by men who have been
carrying on their
business on a stock-gambling basis.

If this bank should be incorporated, I am convinced that
it would solve
the problem now confronting the country in regard to the bank
ing system. If
at the same time a bill could be passed in congress, making the
short selling
of stocks, wheat, corn or cotton, punishable by fine and imprison
ment, one of
the greatest menaces to the business interests
of our land would be removed.
The people who own the land and grow the crop
s ought to control the prices,
and not the people who speculate for their own
profit.
•
We have recently read in the papers that a New
York man has made a
profit of $5,000,000 by the short selling of stock
s. The owners of the stocks
did not make these low prices, but men who did
not own them forced the owners to sell. When timid people see the stocks whic
h they own rapidly falling
in price they are seized with fear, and immediat
ely dump their stocks on the
market, thus giving an opportunity to other pers
ons to sell short at a great
profit. If it is a crime for one man to sell prop
erty which he does not own,
but some day hopes to own, why is it not a crim
e to sell the cotton or corn
which a man does not own, and thus force price
s down, compelling the man
who owns the cotton or corn to sell at less than the
real value of the commodity? Think of the great harm which can be done
in times like these, by rich
speculators, who have never done anything to build
up the business of the
country! The men who, knowing that some concern
is struggling to continue
its existence, take advantage of this extremity and
begin to sell the stock
shirt, are of the greatest harm to the business inter
ests of the land. The stockholders, knowing that the company is having a struggle
, begin to fear for the
safety of their investment; they see the quotations of
the stock going lower
day by day, not knowing that the quotations are crea
ted by people owning
none of the stock, so they immediately begin to dump the
stock on the market, thus creating the opportunity w!tich the stock speculat
or has been looking for. The officers of the struggling corporation have
outstanding loans,
with the company's stock as collateral, and in order to
save their own credit
they are compelled to refuse assistance NAl-ich rylicri.R. ise,
,
they could give to
the company. As a result, the company fails because of
the short selling of
some unscrupulous speculator, who is only waiting, like
a vulture, to devour
the unfortunate. The protection of business which woul
d result if such a
method were punishable, as it should be, would be of
inestimable value to the
entire country.

CLEARING HOUSE ASSOCIATIONS
Quincy, Illinois, .lanuary 10, 1911.

TO THE NATIONAL BOARD OF TRADE:
GENTLEMEN: The undersigned joint Special Committee representing the QUINCY CHAMBER OF COMMERCE and the CLEARING HOUSE ASSOCIATION, Quincy, Illinois, appointed to consider and prepare a paper
containing suggestions on the National Monetary question, begs leave to report as follows:
The IIonorable A. Piatt Andrew, Assistant Secretary of the Treasury and Special Assistant of the National
Monetary Commission, Washington, D. C. read a paper in November, 1910, before the American Academy
of Political and Social Science. We state substantially a few points made in his paper.
"About three years ago most of us found ourselves in a country where business was conducted by curious
methods. It was a large and prosperous country whose people had long prided themselves upon their achievements in business and upon the superiority of their commercial and financial equipment; yet, singularly
enough, in all of the leading cities of the country coin and legally authorized currency circulated at a premium;
while the usual means of payment were inconvertible notes issued without sanction of law, by Banks, Railroads, Mining Companies, firms and many other organizations. Obligations were met by such issues and
not in cash—nothing like them seen in this or other countries. Twenty-five thousand Banks suddenly curtailed the facilities which they usually extended to the public. These Banks for the most part unrelated
and independent of each other, and simultaneously engaged in a life and death struggle.
"Harvests were plentiful, yet dealers in produce were refused credit when it was indispensable.
"Railroads were burdened with idle cars, thousands of men were thrown out of employment, thousands
of firms went into bankruptcy; trade came to a standstill; the credit system ceased to operate. This too in
the United States—not in South America or Islands of the Seas.
"In the panics of 1873 and 1893 banks suspended specie payments as well as in 1907, and inconvertible,
illegal paper money took the place of coin and legal tender.
"In Europe no such general collapse of credit and general suspensoin has ever taken place, except in
times of revolution and war."
Bankers and Banking Associations have endeavored to change such menacing conditions; Congress,
however, has paid but very little attention to their suggestions. Political measures and Tariff schedules
have taken precedence, and currency reform movements have been set aside. As a result panics have come
on, enormous losses have been sustained and foreign and domestic commerce have become disorganized and
their development retarded. It is reported that Senator Aldrich put the losses in the panic of 1907 at two
dollars.
At last Congress has appointed a National .Monetary Commission and a partial statement of their investigations has been printed in many books, which men in active business will have but little time to read. Much
of foreign banking methods cannot be made applicable to our own country. It is well that the Commission
is authorized to take several years in making its investigations and final recommendations.
It is our opinion that the present Congress should not attempt to pass a measure which, like the so-called
Aldrich-Vreeland Bill, will be inadequate to meet conditions which will recur under our present mixed, rigid
and unscientific currency system.




Commercial bodies in the leading cities have been asked to submit to the meeting of the National Board
of Trade to be held in Washington January 18th, suggestions as to the legislation needed to avert panics,
and such conditions and losses as have been hereinbefore mentioned.
The Aldrich-Vreeland Bill has, at the suggestion and urgent solicitation of the Honorable Franklin Mac
Veagh, Secretary of the Treasury, brought into existence a small number of National Currency Associations
comprising a comparatively small number of National Banks. Such National Currency Associations do not
even represent all the assets of National Banks, to say nothing of the very large assets represented by State
Banks, Trust Companies and private Banks comprised in our present Clearing House Associations, and the
assets of many large banking institutions scattered over our great country, not now members of Clearing
House Associations.
Many Bankers cannot realize the amount of currency which is absorbed in the west and south during
the crop moving period. We should avail ourselves of our full banking power to meet such situations, especially as State Banks and Trust Companies, as well as private banking institutions are increasing more
rapidly in number, capital and deposits than National Banks. To illustrate, we make the following comparative statement of the number of deposits of State and National Banks of North Dakota, South Dakota,
Minnesota and Iowa, for the past twelve years:

No. of
State
Banks

DEPOSITS

1898

780

$ 90,823,000

288

1909
Gain

2473
1693

389,856,000
$299,033,000

824
536

YEAR

No. of
National
Banks

DEPOSITS

000
$ 79,477,
390,222,000
$310,745,000

Total
No. of
Banks

1068
3297
2229

DEPOSITS

$170,300,000
780,078,000
$609,778,000

On December 31, 1880, the deposits of National Banks of the city of Chicago
were
$ 44,634,000
On December 31, 1908 they were
378,197,678
•
On December 31, 1891, (when the new State Banking Law was adopted)
the deposits of the State Banks of the City of Chicago were
$ 44,442,399
On December 31, 1908 they were
362,165,080
This we think will prove that the business of such sections of the country will require
assistance and
immediate relief through issues of Clearing House Associations and that they should not
be compelled to
rely solely upon the bond secured issues of National Banks, which cannot respond to the business
demands
of the country; restricted, also, in using their reserves in times of stress; and whose currency
issues are not
retired when not needed—thus encouraging speculations, with the low rates of interest
prevailing in congested centers.*
Considering our vast and sparsely settled country; the great variety of climate, soil
and seasons of production; traditional prejudice against Government Banks, and therefore against a
great Central Bank, is
there not something else to be considered? We think there is.
Congress should provide for the incorporation of Clearing House Associations under
federal law, clothing
them with larger authority than they can posses as private bodies; and give them the
power of issuing Clearing House Notes, as well as Clearing House Certificates. Then the Clearing Houses would
do legally, for the
*NOTE—At present business is comparatively slack. Notwithstanding this fact, there is a
redundancy in National Bank circulation as compared
'with a year ago, to-wit:
November 16, 1909, total National Bank circulation, $668,300,000.
November 10, 1910, total National Bank circulation, $680,400,000.
Illustrating that under our present system National lank circulation is not retired and
redeemed when not needed.




benefit of the community at large, what they now do in the issue of Clearing House Certificates extra legally and
for their own benefit. (Chicago issued both Clearing House Notes, and Clearing House Certificates, in the
panic of 1907, to the great advantage of all interests in this section of the country).
This object might be attained by amending the Aldrich-Vreeland Bill and giving to the Currency Associations therein provided for the additional powers necessary to enable them to act as Clearing Houses.
Membership in such Associations should be enlarged to include State Banks which should be required to carry
reserves on demand deposits equal to those required in the National Banking Act of the various classes of
National Banks.
This would prevent, what we have at present, namely the centralization and congestion of money in
commercial centers, and speculation as an inevitable consequence. As things now are we contract credits
instead of expanding them in times of great financial revulsion. This is precisely what we could avoid by
issue of Clearing House Notes as well as Clearing House Certificates. Thus interest rates would be more
uniform in all sections, and ample preparation could be made for the issue of currency based upon the assets
and joint guaranty of Clearing House Members. Situations in the movement of crops or other unusual or
extra-ordinary emergencies could be anticipated. Such Clearing House issues, based only upon business
transactions, could be made to operate immediately and automatically, that is to say; furnished when needed,
and retired and redeemed when not required.
How slow, expensive and ineffectual a method of obtaining circulation would it be, for individual banks
in every section of the country to send securities to a central eastern point to be used as a basis for currency
issues.
Instead of such a bungling method, Clearing House Committees—in all sections of the country—could
daily, and hourly, if necessary, pass upon the value of the assets of Bank Members (chiefly commercial paper,
bonds, mortgages) as a basis for credit and note circulation. There is too much pyramiding of deposits in
financial centers. Banks should have more gold and currency available in their vaults. If we are to have
but one issue, secured by gold and a deposit of Bank assets as security, to be periodically redeemed as were
the note issues of the New England Banks through the Suffolk Bank, Boston, and without loss; then it would
seem with our vast extent of territory that Federal Clearing I louse Associations, combining practically all
the banking power of the several States and Territories and banking experience of practical men; entirely
disassociated from political parties, could more readily and safely put out circulating notes, to both National
and State Banks, under limitations, as to the amount to be issued, and provision made for their redemption
—than a so-called Central Bank not centrally located.
Central and Government Banks in England and on the Continent have world wide business connections
and fix the rates of interest; we have not even developed banking relations on the Western. Continent, nor
in the Orient.
Clearing House Associations originally organized to facilitate daily settlements between Banks in times
of financial disturbances, might gradually be developed to enter these fields also. If the system of the subtreasury were changed they could secure the deposit of government revenues in the banks. Ultimately the
demand issues of the government might be retired through their agency. Clearing House Associations even
now are gradually developing many other most important banking functions to-wit:
A—The installation of a system for the collection of country items. The first step in this direction was
taken by Boston, and the example was soon followed by other Clearing House Associations with satisfactory
results.
B—The introduction of a Clearing House Examiner, with power to examine, and without notice, the
condition of its members. This movement was first taken up by Chicago and later followed in other centers.
C —The systematic investigation of commercial credits is another developing feature in the bankin,,
world. The co-operation of individual Banks with the Examiners of local Clearing House Associations, as
well as the interchange of credit information between the Clearing house Associations of the different cities,
will come in time, and greatly minimize, if not almost completely prevent losses, inany ,tinie, occasioned
by the lack of information regarding the condition of borrowers.




44.

The New York Clearing House Association issued Certificates in as many as eight panics as follows:
$ 7,357,000
In 1860
22,585,000
1861
11,471,000
1863
17,725,000
1864
22,400,000
1873
25,000,000
•.
1884
'6,000,000
1890
41,500,000
1893
Although an attempt was made in 1907 to handle the situation without the assistance of Clearing House
Certificates, the New York Clearing House finally issued a large amount of them. In almost every instance
the Clearing House Certificates were retired within four months after their issue.
Respectfully submitted,
E. J. PARKER, Chairman.




F. W. OSBORN, President
C. F. PERRY, Secretary
THOMAS A. BROWN
JOHN J. FISCHFR
T. C. POLING
JOSEPH W. WALL
E.J. PARKER,President
H. G. RIGGS,Secretary

Chamber of Commerce, Quincy.

1

- Clearing House Association Quincy.

ADVANCE PROOF

NOTICE: Our monthly financial
ktur will be sent regularly, without charge,to those applyingfor it.




It

Editors may make such extracts
as they see fit.

Ott

k of
Chicago, May 1, 1911.

THE ALDRICH PLAN
N OUR opinion, the most important subject now before the American people is not the
with
forthcoming Supreme Court Trust decisions, nor the treaty for Reciprocity
Important
Canada, nor even the possible revision of the Tariff by the Democrats.
s no matthough these questions are, this country can continue to be great and prosperou
securities are
ter how they are settled. But we cannot long enjoy established prosperity if our
banks. Thereto be depressed and our credit impaired by the periodical suspension of our
System,
fore, the most important subject of the day is Reform of our Banking and Currency
Aldrich.
and the practical form in which it is before us is the plan suggested by Senator
general
OUR experience in 1907 proved that under present conditions we may have
reserves
panic and suspension while our banks are sound and well managed, while our cash
gold is
are on a higher percentage than those of any other country, and while our stock of
conas large as that oi several of the other leading nations combined. Our panics are always
rs
fined by our national borders. Neither our American neighbors, nor our European competito
system
have similar experiences. What, then, do their financial systems possess which our
lacks? Briefly, four attributes:
I. ELASTICITY OF CURRENCY. Our banking currency being secured by governdifment bonds, is rigid. It neither expands nor contracts with the changing needs of the
ferent seasons or sections. In our currency a gold dollar never counts for more than a dollar.
In Germany, for example, a gold dollar is sufficient basis for the issue of three dollars of currency, the gold in the Reichsbank being merely a reserve of 33 1/3 per cent against its currency
liability, just as our national banks must keep certain reserves against deposit liabilities. In
other words, note issues are one-third gold-secured, and two-thirds asset-secured currency in

I

Germany. Other countries have similar but varying means of ready note-issue, thus providing the elasticity to meet a crisis which our currency absolutely lacks. Bankers who in 1907
had to invest in 2% Government Bonds at an absurd price before they could get additional currency—in some cases as high as 109—and all who remember the certificates of small denominations then issued by the Clearing Houses as a substitute for money, can fully appreciate
this lack of elasticity in our currency.
II. MOBILITY OF BANK RESERVES. When financial trouble threatens in this
country our reserves scatter. In other countries they are massed and can be used where
most needed. Our banks have no system by which they can stand together and benefit from




law, they
the strength which is in union. They are isolated units, and, following a natural
each seek to strengthen themselves, which can only be done by weakening their neighbors.
balThe centres are placed at the mercy of the country banks by the system which permits
ances due the latter to be counted as part of their legal reserves. Every banker naturally
wishes to strengthen his cash on hand in stormy times, and the drain on the central reserve
cities, therefore, culminates at the very time they are least able to meet it. Their only resource
is to call loans--especially stock exchange loans—and the result is falling stock markets,
liquidation, general curtailment of credit functions, and finally panic.
III. LIQUIDITY OF BANK ASSETS. In countries where the banking system is
dominated by a central bank with powers of note-issue, other banks have a place where they
can rediscount their short-time paper and get currency. The note-issuing power of the central
institution enables it to take care of an enormous amount of such business. In addition to
that, if a prime discount market be established by allowing banks to accept time bills of exchange, another source of rapid liquidation of bank assets is available. If a bank has invested
in these prime bills today and requires the money again tomorrow, it can get it by simply rediscounting the prime bills. 'When distress exists in any financial centre the rate of discount
on such bills rises and attracts money from other and even foreign financial centres. All this
is unknown to American Banking. When an American bank invests in a time obligation it
locks it away until the day of maturity. It is true that smaller banks frequently call upon the
larger banks to rediscount for them, but so unpopular has this natural and proper transaction become that the borrowing bank usually tries to arrange such accommodations in a way that cannot be strictly called rediscounting. In this country there is no discount market, and no central organization through which an American bank, in case of need, can quickly liquidate
its short-time investments without loss of standing, or the more or less humiliating process of
asking a favor.
IV. CENTRALIZATION OF BANKING POWER CLOSELY ALLIED TO THE
GOVERNMENT. One requires very little knowledge of finance to appreciate the tranquilizing power that may be exerted in trying times by a dominating bank closely allied to the
government. When the Bank of England, or the Bank of France, comes to the rescue of an
institution or a situation the mere report is enough to stop an incipient panic. All the other
banks follow its lead, and crises can be met and overcome by such united action before the
people know that any danger has threatened. Panic is fear without real cause. It cannot hold
sway in the minds of the people after they know that their great national bank, backed by
their national government, has undertaken to care for the situation.
THESE are the four chief attributes of sound banking that are enjoyed by all the leading
countries of the world, except the United States. To supply them, without radically changing the present system, was the colossal task assigned to the National Monetary Commission.
Its Chairman, Senator Aldrich, after years of profound study, has suggested a plan, which
in our view, solves the problem in a comprehensive and masterly manner. He proposes to
charter "The Reserve Association of America, the capital to be about S300.000,000, the




head office to be in Washington, with fifteen branches covering the entire country, divided
into fifteen districts. Only national banks can become stockholders—each to the extent of
20% of its capital—and the highest dividend they can ever obtain is 5%—all excess profits,
after the establishment of a surplus, ultimately going to the Federal Government. Our space
does not permit of a detailed statement of the organization. We believe, however, that complicated as it may seem on first reading, the organization will prove to be simple in practice,
and will result in placing the best qualified men on the boards of directors, both of the central association and its branches. We also confidently affirm that the organization completely
protects the association from either political or private financial control. This Reserve Association is to be a Bank of Banks, its domestic business being confined to transactions with
its own shareholders—the national banks—and the State and Federal Governments. How,
then, will this institution supply the four chief needs of our financial system which we have
described ?
I. ELASTICITY OF CURRENCY. The bonds securing the present currency, amounting to $700,000,000, are to be purchased, and the currency assumed by the Reserve Association.
The Association may sell not exceeding $50,000,000 of these bonds per year, and gradually
retire the bond-secured currency, replacing it with the Association's own notes secured by onethird gold, and two-thirds good bank assets, following the German plan before alluded to.
All note-issues are to be a first lien on the assets of the Association. In addition to these
$700,000,000, the Association may make further issues subject, however, to a graduated
tax. We do not approve of the tax, but that is a detail. The fifteen branches covering the
entire country will supply the necessary redemption facilities. It will be seen that such powers
of instantaneous issue and automatic redemption of bank notes supply the element of elasticity so much needed in our currency.
II. MOBILITY OF BANK RESERVES. The Reserve Association shall pay no interest on deposits, but balances on its books to the credit of other banks may be counted as
part of their legal reserve. Thus a bank which heretofore has carried, say, $100,000 cash reserve will carry only enough for till money—perhaps $25,000—and deposit the remaining
$75,000 with the Association. This will ensure enormous deposits for the Association. and
the banks will not withdraw them in troublous times on the well-known principle that they
do not want the money if they are sure they can get it. Besides, when a bank must withdraw
part of its balance, the Association can remit the money in its own notes, and without weakening its own reserves. Thus, the reserves of the country will be centralized in one powerful reservoir and used to provide support wherever support is needed.
III. LIQUIDITY OF BANK ASSETS. All the privileges and advantages of the Association are to be equally available to all national Banks which have subscribed to its stock,
whether large or small and wherever situated. The Association will stand ready and able to
rediscount paper of other banks maturing within 28 days at a rate uniform for the entire
country. Longer-dated paper may also be rediscounted, but such paper must be guaranteed
witha
by the local Association of banks. Any solvent bank. therefore, experiencing sudden




••

••• or•Aormir --wow
• .
Neff44 Art:
,

b.

drawal of its deposits will be able to convert its assets into cash
at a fair rate of discount—
provided, of course, that its assets are good. In addition to
this, the plan permits the Reserve
Association to buy and sell Bills of Exchange, and allows bank
s to accept Bills of Exchange for
their customers with not over ninety days to run, to the exten
t of half the capital and surplus
of each accepting bank. Considering our enormous imports,
there is now abundant foundation for this kind of business, and thus an international
discount market for "prime bills"
will be established in this country. This will be infinitely
better than forcing surplus funds
into demand loans on Wall Street, which is our only quick
ly-available loan market today.
IV. "CENTRALIZATION OF BANKING POWER
CLOSELY ALLIED TO GOVERNMENT," will be furnished by the Reserve Assoc
iation because it is to be the Fiscal
Agent for the Federal Government, and the sole depos
itary of government funds. The Secretary of the Treasury, the Secretary of Commerce
and Labor, and the Comptroller of the
Currency, are to be ex-officio members of the Boar
d of Directors of the Association. In
the public mind, therefore, the action of the Associatio
n will be backed and supported by the
government. This means confidence instead of distr
ust, financial peace instead of panic.
THERE are functions and attributes of the proposed
Reserve Association of America which
we have not mentioned because they are of minor
importance and interesting chiefly to bankers. One of the most important of these is to grant
Trust and Savings Banks facilities to
national banks under proper restrictions, thus opening
the door to the State Banks to nationalize on equal terms, and paving the way for a
greater and more uniform American banking
system. The reform, however, in its broadest
aspects is of greater importance to the public generally than to bankers. Bankers can worr
y through suspensions and panics; indeed,
they sometimes make larger profits then than they
make in normal times. The real sufferers
from a panic are the numerous weak holders of
depreciated securities, the ranks of laboring
men deprived of work, and the business men of
all kinds whose bank credit is suddenly curtailed. The need of the hour is an enlightened
public opinion among all classes which shall
be strong enough to carry through the propo
sed legislation.
THE NATIONAL CITY BANK OF CHI
CAGO.
vC. 7 e
'
1,

,
-

A.-

•

'
•

A SIMPLE PLAN TO SECURE AN .

AUTOMATIC ELASTIC ASSET EMERGENCY CURRENCY
To Be Had on Demand and Rctircd Whcn Not Needed.
By LEONARD MATTHEWS, St. Lonig, Mo.

Assume an agreement between the United States and the
various banks, state or national, and the trust companies
members of the various clearing houses of the country cart
be arranged. To do this the United States must agree to
keep on hand and furnish on demand legal tender currency to any clearing house in the country, and the various
clearing houses collectively must agree to become liable
for any losses made by any individual clearing house to the
United States. Three steps only are essential to this reformat ion of the currency:
1st. The United States Treasurer shall be required to
loan any clearing house in the United States, any amount
of money demanded to be placed in any city where wanted.
2nd. All clearing houses shall be held liable to the
United States for any loan made to any individual clearing
house.
3rd. Laws and regulations must be made to enable the
above to be carried out.
This scheme would require no bonds or other tangible
assets as security for money loaned, thus saving valuable
time and possible loss in selling bonds or other assets when
retiring the loans, or perhaps save the failure of a bank at
a critical moment.
The clearing house should charge such rates of interest
that would insure a speedy return of the loans, graduating
the rate according to the usual rate of interest charged in
its section of the country, making it high enough that the
borrower would pay it back as soon as urgent demand
ceased, but not later than a fixed time. No doubt in time
the interest received on these advances, less a reasonable
amount, to be paid the United States for expenses incurred
in preparation for the plan, would more than cover the
losses likely to accrue, and accumulate a fund with which
to form a central national bank. if ii should be deemed wise
to do so.
In case of loss on any loan by a local clearing house, a
greater proportion of the loss should be assessed on such
clearing house, to make it careful in accepting securities offered. Sometimes cases may arise when it would
be important to sustain a failing institution to prevent undue excitement, even, if the security offered should not be
deemed sufficient. In such event, with the approval of a
committee, to be appointed, the loss, if any, should be
divided, in proper proportion, among all the clearing
h oases.
By the plan proposed legal tender money will be obtained current everywhere, in contra distinction to local
clearing house certificates, used only with local banks.
Loans will be obtained on demand, without publicity, and
returned as soon as possible, and disgraceful rates of interest being charged as recently seen in the market will me
occur again.
It would be an absolutely automatic elastic asset emergency currency, issued when wanted, and retired when not
needed, and if desirable, the volume of the currency now
outstanding, could be reduced in view; of the fact it could
be so easily increased to meet temporary unusual demands.
It may be objected that banks and trust companies in
clearing houses would be unduly favored, but as soon as
they are relieved, they in turn would loan their money to
their customers and thus the whole country would be relieved.
This scheme would not prevent panics, but it would reduce their force and frequency, and render it unnecessary
to keep up so large a reserve fund as twenty-five per cent




For illustration, suppose a bank or trust company in New
York, St. Louis or San Francisco, needed assistance. It
would apply to its local clearing house, which, in
turn, would, after satisfying Itself as to the security
offered, wire the Treasurer
at Washington to place
the amount to the credit of the party applying for the loan
In any city where wanted. This would afford instantaneous relief. No circumlocution in putting up bonds.
etc., but instead the combined assets of every bank in the
various clearing houses would be liable, beside having the
best ability of the whole country to manage it. To do this.
there might at first be some difficulty in selecting parties
best fitted for the duty, but after a few trials the writer
feels sure the right men would be selected to suggest the
wany details necessary to perfect the plan.
It would be necessary for the Treasurer to keep bills
on hand ready for emergencies, but in denominations of not
less than $100,000;
If this scheme prevail, state banks and trust companies
members of the clearing houses, to obtain the assistance
needed, should be required to conform with feileral laws
governing national banks, as far as this scheme may render it necessary.
As the government is constantly deranging trade and
finances by its absorption of money through its custom
and excise duties, it is only fair that this plan should have
Its sanction and support, and it will be an important step
toward taking it out of the banking business.
There are many details ill perfecting this scheme unnecessary to mention here.
It has been said if we did not have a Wall Street,
we would have no need of emergency currency. This
may be so, but the fact remains we have a Wall
Street, and many of them, and they will continue as
long as time lasts. A system like the above, governed by
the best minds in the nation, would have a tendency to
correct many evils, restrain over-speculation and prevent
undue expansion. As to a permanent currency based on
asset security and the formation of a great national or international bank (suggested by some), plans have not been
formulated, but either may be feasible, under similar provisions, though of questionable propriety. If the above
scheme is adopted, should it be deemed wise to establish
such a bank, the government should own one-half of it, to
be paid out of interest received on loans to banks.
The foregoing plan was submitted to our Secretary of
the Treasury by the writer in January, 1906, and seems to
have met with favorable consideration by the special committee of the Chamber of Commerce of New York, which
says, on pages 19 and 20 of its report to the Chamber, under
date of October 4th, 1906:
"It has been suggested to the committee that a practical method of putting into operation the principle of
hank note credlt currency would be to have Congress reec,gnize this principle by authorizing banks, through a voluntary association of their own, to make such issues within
certain limitations and subject to a joint guaranty by participating banks; the details of such guaranty and the provisions for safety to be devised by the banks themselves,
subject to the approval of the Comptroller of the Currency.
Your committee see practical difficulty in securing the representative judgment of the bankers to devise the details
of such a plan, but we are so clearly convinced of the desirability of the application in some form of the principle
of a credit currency that we would heartily endorse this
plan if Congress and the banking interest approve it."

4

OFFICERS
PRESIDENT

SAMUEL MCCUNE LINDSAY
Professor of Social Legislation, Columbia

University

VICE -PRESIDENTS
A LBERT SHAW

Editor of The Review of R rview!,
PA u I. M. WARBURG
Kuhn, Loeb & Company
SECRETARY

IIENRY RAYMOND MUSSEY
Associate Professor of Economics, Columbia University
Editor of the Proceedings of the Academy
TREASURER
GEORGE A. PLI M PION

inn & Company, New York
ASSISTANT TO THE PRESIDENT

EM MA S. LAKE
TRUSTEES
konER r 14:KsKt NE ELY

League for I'olitical Education
FRANK

Incorporated 1910

Founded MO

J. GOODNOW

Professor of Administrative Law, Columbia Universitx
A. BARTON HEPBURN
President Chase National Bank, New York
THOMAS W. LAMONT
.1. P. Morgan & Company, New York
WILLIAM R. SHEPHERD
Professor of History, Columbia University
HENRY R. SEAGER
Professor of Political Economy, Columbia Univers', y
EDWIN R. A. SELIGMAN
Professor of Political Economy, Columbia University
MUNROE S MT T
Professor of Comparative Jurisprudence, Columbia University, and Editor of the Political Science Quarterly
FRANK A. VANDERLIP
President National City Bank, New York
ADVISORY COUNCIL

NICHOLAS MURRAY BUTLER
President of Columbia University
ELI II U ROOT

United States Senator from New York
FRANCIS LvNnE STETSON
New York Bar




Zip Arabetny ul tiolitiral #rittire
in tile QItt tif New tork

8

Preliminary Announcement

Program of Second National
Conference on Currency
Reform
October 14-15, 1913

General Topic:

The Reform of the American Banking
System

tiENERAL TOPIC

THE REFORM OF THE AMERICAN
BANKING SYSTEM
EXECUTIVE AND PROGRAM COMMITTEE

Henry l'. Davison
A. Barton liepburn
Joseph French John--oo
Alexander D. Noye.
George A. Plimpton
Henry R. Seager
E. R. A. Seligman
Theodore N. Vail
Paul M. \Val-1)111.g
IT. Parker
SAMUEL McCuNE LI NDSAY, Chairman Ex-uflicio
l. W. NEM u F.RER Secretary
EDWARD J. BUI.I WI N KIN
DAVID M. IIEY \I AN
IIIOMAS If. WATSON, JR.
Assistant Secretaries

FIRST SESSION
Tuesday, October 14, at Noon

THE FEDERAL RESERVE ACT
(New York Chamber of Commerce, 65 Liberty St.)
SECOND SESSION
Tuesday, October 14, 3 p. m.

THE CENTRALIZATION OF BANKING
MOBILIZATION OF RESERVES

AND

(New York Chamber of Commerce, 65 Liberty St.)
THIRD SESSION
Wednesday, October 15, 10:30 a. m.

THE ELASTICITY OF CREDIT
(Earl Hall, Columbia University)
FOURTH SESSION
Wednesday, October IS, 2130 p. m.

FOREIGN AND DOMESTIC EXCHANGE FUNCTIONS
OF THE REGIONAL BANKS
(Earl Hall, Columbia University)
WEED!Nt;S
The addresses, papers and a swum:it y of the
discussion
Al the meeting will be published in a volume as part of
proceedings of tho Academy and distributed gratis to the
all
members.
)rders from non-members for this volume will be received and entered for delivery as soon as issued, if
order is prepaid at the rate of $1.50 per
ing and $2.00 per copy in cloth binding. copy in paper bind-




BANQUET (FIFTH SESSION)
Wednesday, October 15, 7 p. m.

BANKING REFORM IN THE UNITED STATES
(Hotel Astor)
Earl Ilan, Columbia University is near lit t1 Si
Station, Broadway Subway.
3

FIRST SESSION
TUESDAY, OCTOBER 14. AT NOON
NEW YORK CHAMBER OF COMMERCE, 65 LIBERTY
ST.

This metling, followed by an informal luncheon and the
second session, will be held in the Hall of the New York
Chamber of Commerce through the courtesy of the Chamber
extended to the Academy. Admission will be only by special
card of invitation or presentation of membership cards by
memlwrs of the Clipmber or members of the Academy.

Subject: "The Federal Reserve Act."
Addresses by the Honorable Robert L. Owen, Chairman
of the U. S. Senate Committee on Banking and Currency,
and the Honorable Carter Glass, Chairman of the House ot
Representatives Committee on Banking and Currency.

II. Discussion
Edward B. Howe, Princeton, N. 1.
Irving T. Bush, New York City

FOURTH SESSION
WEDNESDAY, OCTOBER 15, 2.30 P.M.
EARL HALL

COLUMBIA UNIVERSITY

Subject: "Foreign and Domestic Exchange Functions
of the Regional Banks"
A Symposium under the ten-minute rule

SECOND SESSION
TUESDAY, OCTOBER 14. 3 P. M
NEW YORK CHAMBER OF COMMERCE. 65 LIBERTY ST.

Subject: "The Centralization of Banking and
Mobilization of Reserves."
I.

Addresses (limited to 20 minutes each):
/. score and Organization of the Proposed Regional

I. Domestic Exchange Problems:
W. M. Van Detisen
Benjamin Strong, J
Joseph T Talbei

II. Foreign Exchange Problems:
Alexander 1). Noyes
(;ardin
John
J. A. Neilson

Banks
II. Parker Willis, The Journal of Commerce and
Commercial Bulletin
A. Barton Hepburn, Chase National Bank
0. M. W. Sprague, Harvard University
-1 he Mobilization of Reserves.
Arthur Reynolds, Des Moines National Bank

II. Discussion (under ten-minute rule):

A. Piatt Andrew, (doticester, Mass.

FIFTH SESSION
WEDNESDAY, OCTOBER 15. 7 P M
BANQUET

HOTEL ASTOR

•

Subject: "Banking Reform in the United States"

THIRD SESSION
WEDNESDAY, OCTOBER 15. 10.30 A. M.
EARL HALL
COLUMBIA UNIVERSITY

Subject: "The Elasticity of Credit"
I. Addresses
t.

The Rediscount l'unctlons of the Proposed Regional
Banks
(Speakers to be antionneed
1 he Note Issue
Toseph French Johnson, New York University
'E. W. Kemmerer, Princeton University




John H. Finley, Toastmaster
President of the University of the State of New York
\hli'. by the lInNORABLE NELSt )N \V. ALI )R

liuests of Honor:
.1 lir Cliait iiir

.e0

•
anking all urrtticy and tliV t n ( t
ii"" 4 riba.4"16111141; eisioSi:e a t)i
.. "
4 "tir
Relit esentatives Committee on Banking and Currency

cunimitt,

5

MEMBERSHIP

GENERAL COMMITTEE
JOHN 11. FINLEY, Chairman
Frank B. Anderson, San Francisco, Cal.
Piatt Andrew, Jr., Boston, Mass.
Nicholas Murray Butler, New York City
John Claflin, New York City
Henry P. Davison, New York City
Davis R. Dewey, Boston, Mass.
Cleveland II. Dodge, New York City
Fred W. Fleming, Kansas City
A. Barton Hepburn, New York City
Henry L. Higginson, Boston, Mass.
Edmund J. James, Urbana, Ill.
Jeremiah W. Jenks, New York City
Samuel McCune Lindsay, New York City
Robert J. Lowry, Atlanta, Ga.
Henry Morgenthau, New York City
John Perrin, Pasadena, Calif.
Lawrence C. Phipps, Denver, Colo.
Carl C. Plehn, Berkeley, Cal.
ulius Rosenwald, Chicago, Ill.
( 7harles F. Scott, Iola, Kansas
I lent v R. Seager, New York City
E. R. A. Seligman, New York City
William F. Slocum, Colorado Springs, Colo.
Robert W. Speer, Denver, Colo.
James Speyer, New York City
Benjamin Strong, Jr., New York Tit y
Frank Strong, Lawrence, Kansas
E. F. Swiney, Kansas City, Mo.
It ank NV. Taussig, Cambridge, MaF. t.
,
Frank Trumbull, New York City
Theodore N. Vail, New York City
Fr;ink A. Vanderlip, New York City
II(airy Walters, New York City
Paul M. Warburg, New York City
Harry A. Wheeler, Chicago, Ill.
. Parker Willis, New York City




Persons interested in the work of the Academy are in tied to become members. Annual dues five dollars. Membei s receive the "Political Science Quarterly" and four
it timbers of "Procee(lings" in addition to invitations to meetings and other privileges.

A()MISSION TO SESSIONS
Admission to all sessions will he by membei ship or gur
Cards.

Members of the Academy will be admitted upon preciit at ion of their membership cards, and may obtain gue,
tt
cards without charge except for the First and Fifth Session,
..
A limit ell number of complimentary guest cards for the
second, third, and fourth sessions are available for person,
Int crested iii the meetings, who are invited to apply to the
Academy for them.

ADMISSION TO BANQUET
Admission to the Banquet at Hotel Astor will be by sou pt ion at the rate of hVC dollai s per plate for members
and their guests.
lid embers who do not wish to at t end the Banquet will be
admitted without charge to the galleries for the speeches at
half past eight o'clock on presentation of their membership
cards, and a limited number of guest cards for the galleries may be obtained at one dollar each.
All checks should be made payable to the order of George
A. Plimpton, Treasurer.
All communications, orders for dinner tickets and ordei
for the volume of Proceedings, should be addressed to Miss
Emma S. Lake, Academy of Political Science, Kent Hall,
Columbia University, New York City.

7
(I

OFFICERS
PRESIDENT
SAM U EL MCCUNE LINDSAY
Professor of Social Legislation, Columbia

Uniyersil y

VICE-PRESIDENTS
ALBERT SHAW
Edit or of The 1:evit w of R rvicw
PAUL M. \VARRURG
1111111, I me?) & Company
SECRETARY
EN RV RAN'MON D MUSEY
C• Professor oi Economics, Columbia University
.1.:(1 it or of the Proceedings of the Academy
TREASURER
(;EORGF. A. PLI MPTON
(;inn & Company, New York
ASSISTANT TO THE PRESIDENT
EM MA S. LAKE
TRUSTEES
ROBERT ERSKINE ELY
League for Political Educat ion
FRANK J. G000Now
Professor of Administrative Law, Columbia Uniyersitx
A. BARTON HEPBURN
President Chase National Bank, New York
THOMAS W. LAMONT
J. P. Morgan & Company, New York
WILLIAM R. SHEPHERD
o lessor of History, Columbia tin iversity
HENRY R. SEAGER
Pi H lessor of Political Economy, Columbia University
EDWIN R. A. SELIGMAN
Professor of Political Economy, Columbia University
MUNROE SMITH
Professor of Comparative Jurisprudence, Columbia University, and Editor of the Political Science Quarterly
FRANK A. VANDERLIP
President National City Bank, New York
ADVISORY COUNCIL
NICHOLAS MURRAY BUTLER
President of Columbia University
ELI II U ROOT
United States Senator from New Y or k
FRANCIS LY N DE STETSON
New York Bar




8

TABULAR SUMAIAR
Bank of England (1694).
$4.g1;65.)

Capital, £14,553,000 ($70,822,175). No reserve liability. Surplus
,
about $17,000,000, but fluctuates from week to week; by unwritcalled "rest,"
ten custom is
never reduced below £3,000,000($14,599,500). (Value of bank
buildings, perhaps
$25,000,000, not carried in account.)

1. CAPITAL AND STOCKHOLDERS.
Amount of capital, reserve liability, and surplus
Legal provisions as to surplus

None.

Number of stockholders

Over 10,000. Number of shares, 145,530 of £100 ($486.65) each, par value.

Capital, 1s2,500,000 francs

Various requirements, incl
the value of central ban
32,442(Dec. 24, 1910).

Character of stockholders
11,312 have not more than
Restrictions upon ownership and transfer of stocks

None.

Restrictions upon voting power.

Stockholder to vote must have 5 shares(par $486.65 each), but can have
only 1 vote,
no matter how many additional shares he may own.

Only 200 largest shareholde
to vote.

Powers of stockholders

Elect. governor, deputy governor, and directors, and vote by-laws.

Meet once a year, elect rege

Restrictions upon profits of stockholders

, None, except that 6,028 s
I
marked "not transferable

None,except that the Gover
count rate above 5 per cc
tioned later.

None (except such as are due to taxes mentioned later).

Average annual dividends, 1901-1910.

9.3 per cent.
r1O=F/rfyo011.1....MINNIP

2. ORGANIZATION AND MANAGEMENT.
Chief officials:
By whom appointed...

13.9 per cent. In 1908, 16

..1,0111•000111/MAIIMMAIr..1.01=111111.11•101MP•11,11MINIMPWC11171ti

mnioraLSIMIOM,

Governor and deputy governor, elected by stockholders (practically
selected by
directors).

Governor and 2 deputy gove

1 year. customarily reelected a second year. Deputy succeeds governo
r.

No fixed period; removable

From what classes or occupations, qualiticat ,ns, etc

From directors(who are generally merchant bankers or financie
hold 40 shares (£4,000), deputy governor 30 shares (£3,000). rs). Governor must

Can not be members of Chain
governors 50 shares each.

Functions

Governor directs general policy, supervises business of head
office. Deputy
governor supervises branch business.

For what time

Board of directors:
Number

24.

Governor directs general po
management.
General council consists of
(auditors).

By whom selected

By stockholders holding 5 or more shares (but candidates practic
ally nominated by
board of directors).
! Elected by 200 largest shareli

For what time

1 year, but customarily reelected; 8 of the directors retire every
year.

From what classes or cccupations, qualifications, etc
Functions

Regents for 5 years; censors

Usually merchant bankers or financiers, but can not be directo
rs of other banks, 5 regents and the 3 censors
bill discounters, or brokers.
regents must come from ge
Meet weekly, serve on various committees (decide with governo
rs upon changes in
bank rate).
Meet. once per week. Vote u

Other committees
10.1111=110111111111191MON

3. BRANCHES.
Number of branches in central city

9.

Number of branches in other cities

9.

The general council (govern°
into 5 committees. The di
holders who are merchants

Number of head branches
Number of subbranches
Number of agencies
Functions of head branches
Functions of subbranches
Functions of agencies

None.

All of same class.
No .ubbranches.
N

o agencies.

Same as of head office.
None.

200 branches and auxiliary bu
128 succursales (branches).
72 bureaux auxiliaires.
312 villes rattachees (agencies)
Same as of central institution.
Same as of central institution e
branch.

None.
Only collect bills.

Managers of branches, how appointed
Measure of discretion allowed
4. RELATIONS TO GOVERNMENT.
Government ownership of stock
Selection of officiulm
Frequency and character of reports required




Selected by governor and directors.
Discretion subject to supervision from head office. Curren
t London rates telegraphed each morning to branches.
None held by Government.
Government has no choice.
Weekly statements required in form prescribed by act of 1844,
but no separation of
loans; discounts, and securities, and no distinction
betwoen bankers' balances

By chief of stPte from 3 candid:
Subject to parent institution
managers are assisted by loca
None held by Government.
Chief of state appoints governor
Quarterly reports required; wet
but with no senara iou of ban

ARY OF THE LAWS, PRAM'
1(

AND STATISTICS 011i
PREPARED FOR THE NATIONAL MONETARY CoiN
[DECEMBER,

Bank of France (1800).
(1 franc-$.193.)

Bank of Sw, ‘,
(1 kron,

Reichsbank (1876).
(31-4.20 marks.)

182,500,000 francs($35,222,500). No reserve liability. Surplus, $8,206,234. Capital, 180,000,000 marks($42,857,000). No reserve liability. Surplus,$16,610,000.

Capital, 50,000,000 kroner ($13,400,00u). _x
1910), $3,350,000.

requirements, including profits from discount rate in excess of 5 per cent,
lue of central bank building, etc.

10 per cent of excess profits over a dividend of 3i per cent assigned to increasing
reserve,

So long as surplus is under 25 per cent ,
be assigned to surplus.

ec. 24, 1910).

18,748(December 31, 1910).

There are no stockholders. Bank belongs to P

ye not more than 1 share each, and 1,468 over 20 shares each.

All classes or occupations, especially banks, bankers, and merchants. (16,628
native, 2,120 foreign.)

No stockholders. Administration under the cl
liament.

cept that 6,028 shares belonging to married women, minors, etc., are
"not transferable."

None, except that officials of the Reichsbank are prohibited from possessing shares.

No stockholders.

i

largest shareholders vote. Foreigners may own stock, but are not allowed

r

e a year, elect regents and censors, who meet usually once a week.

Each share of 1,000 marks gives 1 vote, provided that no more than 300 votes be
united in one hand.
—
--At, annual meeting elect Central-Ausschuss, an advisory body, which meets once a

cept that the Government receives three-fourths of all profit from raising disate above 5 per cent, also certain taxes and royalties on circulation menlater.

Shareholders receive 3i per cent dividends and (from January 1, 1911) only 20 per
cent of excess profits.

No stockholders.

ent. In 1908, 16 per cent; in 1910, 14 per cent.

6.93 per cent.

Average annual assignments to public treasury,

and 2 deputy governors, appointed by chief of state.

The Direktorium, consisting of president, vice-president, and 8 managing directors
appointed by Emperor on recommendation of Bundesrat.

Administration managed by 7 directors, 6 appoi
Crown. From the board. itself 3 members
several departments. Chairman may not be

period; removable at will of chief of state.

For life.

Nominally for parliamentary term of 3 years, p

e members of Chamber or Senate. Governor must own 100 shares; deputy
ors 50 shares each.

No legal provisions.

Chairman of board may not be one of 3 manage

directs general policy of bank. Deputy governors look after details of
council consists of governor, deputy governors, 15 regents, and 3 censors
rs).

month.

The Direktorium manages the bank and fixes the discount rate.

No stockholders.
No stockholders.

! Conduct business of bank.

Central-Ausschuss, 15 members and 15 alternates, all stockholders.

7.

Elected by stockholders.

A special committee of 24 members of both ho
names chairman.

Annually, but customarily reelected.

For the duration of each Parliament, 3 years.

No instructions. In practice, bankers, merchants, landlords, and manufacturers.

During tenure of office may not be directors of an
Can not be members of council of state, or m

e per week. Vote upon changes in the rate of discount.

A consultative body; meets once a month. May limit amount of securities purchased and of loans to Government.

Meet weekly to supervise bank operations. Da'
to transact lending business.

ral council (governor, deputy governors, regents, and censors) is divided
ommittees. The discount committee of 12 members includes other sharewho are merchants or manuiacturers, as well as members of the council•

Curatorium. 5 members, including imperial chancellor, Prussian minister of finance,
and 3' members of Bundesrat selected by that body. Final seat of authority.

200 largest shareholders.
for 5 years; censors for 3 years.
and the 3 censors must come from commercial and industrial classes;
must come from general paying treasurers. Must own 30 shares.

1

central bank in Berlin.

Audit committee appointed by Parliament.
None.

lies and auxiliary bure,le,
.

488 (October. 1911).

26.

rsales (branches).

20 Hauptstellen head offices (1911).

26.

x auxiliaires.

76 Rankstellen offices (1911).

None.

rattachees (agencies).

392 Nebenstellen agencies and auxiliary branches(1908)(including 5 warehouses for
merchandise).

None.

I central institution.

Same as of central institution.

central institution except that all discounts are referred to nearest head

Auxiliary branches and agencies. All business done (discount and loans) referred
to respective head branch.

Same as head office.
None.

ct bills.

(See above).

I AOC from 3 candidates proposed by governor of bank.

Head managers (directors) of Hauptstellen (head offices) by the imperial chancellor
on recommendation of the president; managers of all other branches by the
president.

By central board.

) parent institution as regards rate of discount and important matters;
s are assisted by local board.

Head branches act under supervision of the Direktorium, subbranches under that
of the respective head branches.

Subject to general and special instructions.

None.

by Government.
e appoints governor and deputy governors of bank.
reports required; weekly statements voluntarily published in some detail
A
rn,,,Arto
15) separa 11011 of bankers' halarwes from ntb,br ils.luwifia




None held by Government.
Emperor appoints president and members of Direktorium, also 2 members of curatorium, of which Bundesrat selects other 3.
Weekly statements_ required in.sorne detail, but no separation of bankers' bulaneep.

No stock issued; belongs to legislature.
Directors appointed by a special joint committ
directors. King names chairman of board.
.

ATIST[CS OF THE PRINCIPAL BANKS OF THE LEADI
ED FOR THE NATIONAL MONETARY COMMISSION BY A. PIATT ANDREW.
i)E,T sin, 1911.]
Bank of Sweden (1668).

Bank of 8

Bank of Italy (1893).

(1 krone-26.8 cents.)

(1

(1 llre-S.193.)

180,000,000 lire ($34,740,000). Unpaid $11,580,000. Surplus(ordinary
Capital, 50,000,000 kroner ($13,400,000). No reserve liability. Surplus (Dec. 31, Paid capital, $9,264,000 and extraordinary surplus, $1,930,000.
legal, 1908),
1910), $3,350,000.
(Each share is 800 lire nominal and 600 paid up.)

December 31, 1908: Paid capital, 2
Unpaid capital, $4,825,000.

So long as surplus is under 25 per cent of capital, 10 per cent of yearly profits must
be assigned to surplus.

Must equal one-fifth capital.

10 per cent of net profits, not exceedi
fund, until the surplus amounts to

There are no stockholders. Bank belongs to Parliament.

9,927, of which 9,703 in Italy and 224 abroad.

10,004 shareholders (1910). 23 cant
balance, 44,692, owned by 9,948 i

No stockholders. Administration under the charge of a commission chosen by Par-

All classes, but some of the large credit establishments hold 3,000 or 4,000 shares each.

of capital reserved by law to the
private individuals.

None, except in cases of dispute of heritage; the tribunal must consent to the
transfer.

Individual shareholders must be S
in Switzerland. Every transfer

liament.
No stockholders.

Each share officially registered enti
holder can have more than 100 vo
30 shareholders, representing 10,000
for extraordinary meetings), elect
iuling held at Rome.
Meet annually and select 4 directors. General annual
No stockholders.
sion of 3 members and 3 substitute
— --Shareholders receive 5 per cent dividend on paid-in capital and two-thirds of profits Limited to 4 per cent dividends; t
the rest going to the
until 6 per cent and then only one-half of remaining profits,
surplus, goes to the Government.
No stockholders.
State.
3.275 per cent. During these years profits were being put aside to liquidate old 1907-1910, 4 per cent. Bank orgam
Average annual assignments to public treasury, 11.3 per cent of capital.
obligations.
Direktorium-3 members—elected
Administration managed by 7 directors, 6 appointed by legislature, chairman by the Genera manager and submanager elected by superior council, b ut must be a d
Local manager and subrnanager
Crown. From the board itself 3 members are assigned the management of the
by the Government.
by Bundesrat.
several departments. Chairman may not be one of 3 managers.
No stockholders.

a I

20 shares required for a vote, but one shareholder can have no more than 50 votes.

Nominally for parliamentary term of 3 years, practically longer.

Indefinitely.

6 years.
Bank managers are not allowed to
board of another banking institut

Chairman of board may not be one of 3 managers.
Conduct business of bank.

The general manager is head of the administration of the bank.

Each has charge of one of the three
and note issue.

7.

Superior council of 22 members. (General manager, under general manager, and
superior council comprise the directory.)

Bank council, 40 members.

A special committee of 24 members of both houses of Parliament appoints 6; King
names chairman,

18 elected by the shareholders at a meeting held in turn every 3 years at each
head branch and 4 elected annually in Rome by the shareholders.

15 elected by general meeting and

For the duration of each Parliament, 3 years.

Three years.

4 years.
Must be Swiss citizens; not more t
more than 5 members of governm

During tenure of office may not be directors of any other bank,except savings banks.
Can not be members of council of state, or managers of national debt office.
; Meet weekly to supervise bank operations. Daily attendance of at least 4 is needed
to transact lending business.

Appoint bank staff upon recommendation of the general manager.

General supervision.

Audit committee appointed by Parliament.

loca
Committee of 3 or 5 syndics elected yearly by stockholders to supervise general Bank committee, 7 members;
mission, 6 members.
management of bank.

None.

1 central bank in Rome.

Berne center for administration of n

26.

Bank of Sicily and Bank of Naples are independent note-issuing banks, and have
their head offices respectively in Palermo and Naples.

8 branches (including Berne and Z

26.

11.

None.

None.

69. The bank is obliged to have either head office or branch in capital of each of 69 ' None.
Provinces, and in cities where branches of late Tuscan Bank were located.

None.

22. Many private banks and credit institutions also act as correspondents for the
collection of bills and payment of obligations.

same as head office.

Same as central institution.
No subbranches.

None.
Can not discount directly, but receive deposits, collect bills, redeem notes. Recently "first-class agencies" have authority to discount within certain limits.
By general minager upon proposal of superior council, lie is assisted by a local
board of from 8 to 12 councilors or censors, selected every 6 years by assembly
of shareholders.
Agencies can not undertake discounting operations directly. By a recent modification of the law "first-class agencies' may discount within certain limits through
a small discounting committee.

None.
By central board.

—

Subject to general and special instructions.
No stock issued; belongs to legislature.

None held by the Government.

Directors appointed by a special joint committee of Parliament; other officials by
directors. King names chairman of board.

State does not select any officers, but must approve the election of the general
manager and submanager.




13 agencies (1910).

Agencies reimburse notes, discou
over transfers; act as mediator ii
By Federal Council on proposal o

Confederation not allowc,1 twss
reserved to the Cantons.
Federal Council elects the chair!'
23 other members of the comic
members of general managemen
A",..11

.1 •

Vi

•

ye., rte.".I

I...

TH E LEA DING Co UN-TRIES.--SHEET
Bank of Switzerland (1907).
franc-4.193.)
dus ordinary

ii.

Bank of Belgium (1850).
lfranc=$.193.)

December 31, 1908: Paid capital, 25,000,000 francs ($4,825,000).
Unpaid capital, $4,825,000.

(1908) Capital, 50,000,000 francs ($9,650,000).
$6,860,216.

10 per cent of net profits, not exceeding 500,000 francs a year, i8 set aside for surplus

1. CAPITAL

10 per cent of net profits in excess of 4 per cent per annum is set aside to meet
losses in capital and to insure a dividend of 4 per cent on capital.

fund, until the surplus amounts to 30 per cent of paid-in capital.

No reserve liability. Surplus,

Amount of capital, res
Legal provisions as to s

10,004 shareholders (1910). 23 cantons hold 38,772 shares, 33 banks 16,536 shares; 50,000 shares. 21,221 nominative shares divided among 889 holders and 25,779
shares to bearer (1908).
balance, 44,692, owned by 9,948 individuals.
shares each.
nsent to the

of capital reserved by law to the cantons; A to the old banks of issue, and di, to
private individuals.
——
Individual shareholders must be Swiss citizens, firms, or corporations domiciled
in Switzerland. Every transfer must be approved by the bank committee.

Number of stockholde

All classes.

Character of stockhold

No restrictions as to ownership.

Restrictions upon own

an 50 votes.

Each share officially registered entitles holder to one vote, but no private shareholder can have more than 100 votes.

10 shares required for a vote, but 1 person can have no more than 5 votes either
as a shareholder or a proxy.

Restrictions upon voti

at Rome.

30 shareholders, representing 10,000 shares, a quorum, meet annually (or when called
for extraordinary meetings), elect 15 members of bank council, the audit commission of 3 members and 3 substitutes, and decide all affairs laid before the meeting.

Shareholders' assembly meets twice a year; elects directors and censors. Acts
upon all matters placed before them by the council of administration or censors.

Powers of stockholders.

Limited to 4 per cent dividends; the rest, except for 10 per cent credited to the
surplus, goes to the Government.

Shareholders receive 4 per cent of net profits; 25 per cent of remainder goes to
State, 10 per cent to reserve, and the rest to the shareholders.

Restrictions upon profi

iquidate old

1907-1910, 4 per cent. Bank organized in 1907.

(1899-1908) 15.01 per cent.

Average annual divide

must be ap-

Direktorium-3 members—elected (on proposal of bank council) by the Bundesrat.
Local manager and submanager immediately under direktorium, also appointed
by Bundesrat.

Governor and deputy governor appointed by the King, 6 directors elected by
shareholders.

6 years.

Governor serves 5 years. May be reappointed.

For what time.

Governor must own 50 shares, directors 25 shares; must reside in Brussels and can
not be a member of the legislative body or draw a State pension or belong to
board of any other bank.

From what classes

irds of profits
going to the

JIMMOMIMMEIOMMEM

, Bank managers are not allowed to practice any other profession or belong to the
' board of another banking institution. Can not be members of the Nationalrat.

2. ORGANIZA
Chief officials:
By whom a,ppoin

Each has charge of one of the three departments: Discount and giro, management, Each director is intrusted with control of one or
more departments of the bank.
and note issue.
anager, and

Functions.
Board of direeto
Number.

General council, 14"metnbers (vvorair, 6 dirJ:.:tors, aal 7 ceasms).

15 elected by general meeting and 25 by Bundesrat.

By shareholders.

By whom selected.

4 years.

-ears at each

Bank council, 40 members.

6 years; may be reelected.

For what time.

Must be Swiss citizens; not more than 5 can be members of Federal Chamber nor
more than 5 members of government of Cantons.

From what classes
General council exercises general supervision over affairs of bank, appoints discount committee, etc.

General supervision.
rvise general Bank committee, 7 members; local committees, 3 to 4 members; also audit commission, 6 members.

Other eommitt

Council of censors (7), which audits books, etc., chosen by shareholders for 3 years.

Berne center for administration of note issue; Zurich center for general management. 1 head office or central institution (Brussels).
ks, and have

Functions.

Number of branches

1 branch at Antwerp.

Number of branches i

None.
of each of 69
located.

8 branches (including Berne and Zurich), all coordinate.

1 branch at Antwerp (as above).

Number of head branc

None.

None.

Number of subbranch

_ents for the

13 agencies (1910).

39 agencies and 30 discount offices.

Number of agencies.

Apparently the same as at central or head office.

Functions of head bra

No subbranches.

No subbranches.

Functions of subbranc

notes. Retain limits.

Agencies reimburse notes, discount bills, grant loans agaHst deposits, and take
over transfers; act as mediator in all other business.

Act as guarantors for much of the paper discounted by the bank. They are usually
private partnerships.

Functions of agencies.

d by a local
by assembly

By Federal Council on proposal of council of the bank.

Agents are appointed by the King from a double list furnished by the administrati Vet.
council.

Managers of branches

Discounts are granted provisionally by agents of the bank.

Measure of discretion

None held by the Government.

4. RELATI
Government ownershi

E nug appoints governor and deputy governor; besides, a Government commissioner
is appointed by the State.

Selection of officials.

cent moditimits through
4•11110111MINEIMIW

the general

Confederation not allowed to possess any shares of the bank; hut 4, of capital are
reserved to the Cantons.
Federal Council elects the chairman and vice chairman of the hank council and
23 other members of the council of the bank; also on proposal of the council
members of general management, directors, and subdireetors of branches.
A v•••••••.1 .•••••-•••-•..•1.. 1




.1,

•

HEET 1.

Bank of Belgium (1850).
franc-11.193.)
s2.),000).

(1908) Capital, 50,000,000 francs ($9,650,000).
$6,860,216.

year, is set aside for surplus
-in capital.

No reserve liability. Surplus,

10 per cent of net profits in excess of 4 per cent per annum is set aside to meet
losses in capital and to insure a dividend of 4 per cent on capital.

res, :U .banks 16,536 shares; 50,000 shares. 24,221 nominativ
e shares divided among 889 holders and 25,779
shares to bearer (1908).
)1d banks of issue, and ?/ to

1. CAPITAL AND STOCKHOLDERS.
Amount of capital, reserve liability, and surplus.
Legal provisions as to surplus.
Number of stockholders.

Vi te, laut no private shareet animally (or when called
(ouncil, the audit commisirs kid before the meeting.
10 pet cent credited to the

'Itaracter of stockholders.

No restrictions as to ownership.

Restrictions upon ownership and transfer of stocks.

10 shares required for a vote, but 1 person can have no more than 5 votes either
as a shareholder or a proxy.

Restrictions upon voting power.

Shareholders' assembly meets twice a year; elects directors and censors. Acts
upon all matters placed before them by the council of administration or censors.

Powers of stockholders.

Shareholders receive 4 per cent of net profits; 25 per cent of remainder goes to
State, 10 per cent to reserve, and the rest to the shareholders.

Restrictions upon profits of stockholders.

(1899-1908) 15.01 per cent.

or corporations domiciled
the hank committee.

All classes.

Average annual dividends, 1901 1910.
111.11.-

council) by the Bundesrat.
irekt( rium, also appointed

Governor and deputy governor appointed by the King, 6 directors elected by
shareholders.

2. 01WANIZATION .1 NI I) MANAGEMENT.

Chief officials:
ity whom appointed.

Governor serves 5 years. May be reappointed.
profession or belong to the
inbeis of the Nationalrat.
tint and giro, management,

For what time,

Governor must own 50 shares, directors 25 shares; must reside in Brussels awl can
not be a member of the legislative body or draw a State pension or belon
board of any other bank.

From what classes or occupations, qualifications, etc.

Each director is intrusted with control of one or more departments of the bank.

Functions.

General council, 14 mettabers (kworalr, 6 dir.s,.t.)rs, ai(7 et!:14
.

ilinird of directors:
Number.

By shareholders.

By whom selected.

6 years; may be reelected.

For what time.

rs f Federal Chamber nor
Prom what classes or occupations, qualifications, etc.
General council exercises general supervision over affairs of bank, appoints discount committee, etc.
members; also audit corn-

Functions.
Other committees.

1 head office or central institution (Brussels).

3. 111tANCIIES.
Nwillier of branches in central city.

1 branch at Antwerp.

Nuniher uf branches iii other cities.

1 branch at Antwerp (as above).

Number of head branches.

None.

Number of subbranches.

39 agencies and 30 discount offices.

ter I, q general management.

Council of censors (7), which audits books, etc., chosen by shareholders for 3 years.

Number of agencies.

' Apparently the same as at central or head office.
No subbranches.
ay,St depesits; and take

Act as guarantors for min
private partnerships.

Functions of head brandies
Functions of subbranches.

tho papei discounted by the bank. They are usually

Functions of agencies.

Agents are appointed by the King from a double list, furnished by
the administrative
council.
Discounts are granted provisionally by agents of the bank.
bank; but 4 of capital are

Miiiiitgcri of brat:doss, how appointed.
Ivleasure of discretion allowed

,
NUill;

n of the bail.", council and
on proposal I the council
keetAws of bra
I

I

.




11,141 by the Government.

4. RELATIONS TO GOVERNMENT.
Government ownership of stock.

King appoints governor and deputy governor; besides, a Government commissioner
is appointed by the State.

Selection of officials.




Managers of branches, how appointed

Selected by governor and directors.

Measure of discretion allowed

Discretion subject to supervision from head office. Current London rates telegraphed each morning to branches.

Subject to parent in
managers are assiste

4. RELATIONS TO GOVERNMENT
Government ownership of stock

None held by Government.

None held by Govern

Selection of officials

Govenunent has no choice.

Chief of state appoin

Frequency and character of reports required

Weekly statements required in form prescribed by act of 1844, but no separation of
loans discounts. and securities, and no distinction between bankers' balances
and other deposits. No annual reports published.

Methods and mechanism for government inspection

No liovernitictil im,po(tion.

Quarterly reports req
but with no sepa,rat
published with stat
No regular examinati
desires, and no res
the hand of the gov

Participation in profits

In 1910, £186,731 ($908,726) for net profits on note issue in excess of £14,000 000.

General and special
holders.

Taxation

Subject to same local and general taxes as other banks, and to an annual payment of
£60,000 ($291,690) in consideration of exception of hank notes from stamp duty.

Pays general taxes, an
circulation, one-fifti
tive means covere(
special taxes, $289,2

tzhiot

Other payments required by Government

•te from.

Royalty for use of Cre
"productive" circul
- - - $54,040,000—$34,740,
and $19,300,000 fixe

Permanent loans to Government

$53,604,984 (£11,015,100).

Other loans to Government and their limits

About $115,000,000 additional of government securities, including treasury hills,
held by bank in August, 1908.

Disposable governmen

Custody of Government funds, with interest paid

Bank is practically the sole depositary wherever it has branches. No interest paid.

Bank is sole depositar

Further services rendered to Government and payments for same

Manages and pays dividends on public debt, for which services during year ending
March, 1910, bank received £195,242($948,876.12), makestemporary advances, acts
as agent for the mint. (Receives also £200 annually on every million pounds in
securities in issue department.)

Duration of charter

The charter of 1694 is perpetual, but subject to modification or repeal by Parliament.

Charter expires in 192

The bank statements do not distinguish between loans, discounts, and non-government securities. These aggregated, December 30, 1908, $219,413,121. Average
amount, 1908, $114,165.196.

Average, $188,618,900.

Transfers funds, issues

sicaimmainev,siag.mera
-12...armaievimaxim rimairbom arriowasoraMINIINIMINIMMIIII

5. DISCOUNTS, LOANS, ETC.
Discounts:
Average amount, 1910
Average and minimum size

About $5,000. No minimum.

(1910) $119.60. Minn
each.

Average duration

40 to 50 days.

1906, 24 days; 1907, 2
age for 10 years, 24

Maximum duration allowed

Maximum 4 months, exceptionally 6.

3 months, with possibl

For what class'es ill community

Any person, firm, or company having an account (including in reality colonial and
foreign exchange banks).

All classes, but about

Number of signatures required

2 Brit Hi nanie, of which one must be acceptor.

3 names, of which two

Other security accepted
Loans on collateral:
Average amount, 1910

Loan collateral accept.
Not published separate from discounts and non-government securities.

Average and minimum size.

$500 to millions.

Average duration

7 to 90 days.

Maximum duration allowed

3 months. subject to possible renewal.

For what classes in community

Any person, firm, or company having a properly constituted account.

Average for 1910, $106,
Many small. M inim u
Mostly for a short peni
3 months with possibl
All classes.

^

Kinds of collateral accepted

Stock-exchange securities, except mining shares, or exceptionally other securities
of ascertainable value,

Proportion of loan to collateral

Varies according to class of security.

Overdrafts

Not alhmied except under very exceptional circumstances

List published. Prin
cities, and colonies,
Margin varies accord ii
Not allowed.

Loans on real estate _

Have only been granted very except ioniaily.

Securities held:
What kinds allowed

Scarcely any restrictions. In reality the "other securities" are supposed to include
railway debentures, bonds of colonial governments. and some corporation stocks.

Only government sect

Government. securities in banking department, average 1910, $74,266,000. "Other
securities," $146,577,600, include loans and discounts. Other securities in issue
department,1910,_absout $36333.000

December 24, 1910.

Average amount, 1910

18507-11

Not allowed.

' By chief of t • to from 3 caodidstes proposed by governor of bank.

Oil

re.00111111elllittl,
l(PLL

‘,1

csestka.,‘a

preffident.

Subject to parent institution as regards rate of discount and important matters;
managers are assisted by local board.

Ilead branches act under supervision of the Direktorium, subbranches under that
of the respective head branches.

None held by Government.

None held by Government.

Chief of state appoints governor and deputy governors of bank.

Emperor appoints president and members of Direktorium, also 2 members of curatorium, of which Bundesrat selects other 3.

Quarterly reports required; weekly statements voluntarily published in some detail
but with no separation of bankers' balances from other deposits. Annual reports
published with statistics.
No regular examination, but minister of tinance can call for any information he
desires, and no resolution of the general council can be executed unless under
the hand of the governor, representing the State.

Weekly statements required in some detail, but no separation of bankers' balances
from other deposits. Annual reports published with statistics.

--- — general taxes, and special tax of one-twentieth of 1 per cent of "productive"
Pays
circulation, one-fiftieth. of 1 per cent of "unproductive" circulation. (Productive means covered by loans and discounts.) General taxes, 1910, $398,758;
special taxes, $289,229.

Exempted from Government income tax and license fees, but pays real estate tax
and 5 per cent tax on all uncovered notes in excess of $130,900,000, and at end of
each quarter of $178,500,000.

Royalty for use of Credit Agricole equaling one-eighth average discount rate times
"productive" circulation. Amounted to $1,419,901 in 1907.

Until 1925 an indemnity of $444,000 to Prussian Government.

$54,040,000—$34,740,000 without interest, including $7,720,000 for Credit Agricole,
and $19,300,000 fixed government debt, law of June 9, 1857.

None.

Disposable government bonds, $19,228,800.

Treasury bills amounting to $30,500,000 held December 31, 1910.
,

Transfers funds, issues treasury bills, pays coupons gratuitously for Government.

%sax it

i

outtru.

Subject to general and special
No stock issued; belongs to legis
Directors appointed by a specia
directors. King names chair
Weekly principal items belong
detailed statement.

The curatorium, consisting of government officials, meets every 3 months to supervise conduct of the bank. (Accounts audited by Board of Accounts of German Inspected by a select comrnitte
Empire.)
.
committee appointed by Parli
About two-thirds total profits go to Government. Government receives 70 per cent
of profits after payment of 35 per cent dividend. In 1908 this amounted to
All profits not necessary for assi
$5,489,000, in 1910 to $3,826,500.

General and special taxation totals about two-thirds profits distributed to shareholders.

Bank is sole depositary. No interest paid.

y

Bank is sole depositary for funds of the Empire, but not for Federal States. No
interest paid.
Transfers funds, discounts treasury bills, pays coupons.

Exempt from paying government

None. (See preceding.)
None.
The administration of the nationa
balance of 6,500,000 kroner ($40
No interest paid.

Makes all government payments a

, Charter runs for 10 years, but terminable at one year's notice before expiration.
I
Renewed in 1909 for 10 years, to 1920.

Indefinite (i. e., nonterminable).

Average, $188,618,900.

Average 1910, local bilk $114,480,000; remitted bills, $88,805,000; foreign bills,
$33,488,000. Total, $236,773,000.

Inland bills, $31,748,000; all bills,

(1910) $119.60. Minimum, $1 (5 fr.); 55 per cent of discounts less than 180 francs
each.

No minimum. Average size, $165 in 1908; $524 in 1910.

$573.

1906, 24 days; 1907, 26 days; 1908, 25 days; 1909, 22 days; 1910, 24 days. Average for 10 years, 24 days.

1906, 34 days; 1907, 33 days; 1908, 34 days; 1909, 32 days; 1910, 31 days.

About 50 days. (Inland bills.)

3 months, with possible renewal.

3 months—in case of farmers, once renewable.

6 months.

All classes, but about 70 per cent come through banks.

All classes, but about 60 per cent of discounted bills come through bankers. Of
66,700 customers, 2,400 banks, 24,000 merchants, 21,200 manufacturers, 9,900
farmers, 9,200 miscellaneous.

All classes, provided bills represen

3 names, of which two must be of residents of France.

2 names.

Loan collateral acceptable in place of third signature.

Loan collateral not acceptable in place of second signature.

Average for 1910, $106,227,200 on gold coin, gold bars, and securities.

Average, $23,439,000.

Many small.

Average 1910, $7,839. Minimum $120 for bankers and merchants and $24 for
individuals.

Charter expires in 1920, terminable in 1911; last renewed in 1897.

l iiiiiinlm size 250 francs ($48.25).

Must be accepted (i. e., 2 signatur
No regulation on this point.
$5,337,000, together with $1,751,
banks.
$10,713.

Mostly for a short period, not less than 2 weeks.

10 days (1910).

3 months with possible renewal.

3 months, with possible renewal.

All classes.

All classes, especially banks and bankers.

All classes.

List published. Principally bonds issued or guaranteed by National Government,
cities, and colonies, gold, bullion, and foreign gold coins.

Securities, guaranteed by governments, mortgage bonds, discountable bills, merchandise, gold, and silver.

Bonds, shares, or other documental.

• M
Margin varies according to collateral from 20 per cent to 40 per cent.
Not allow' 1.
Not allim
Oriiy

,

Decenik

/ n varies according to collateral--50 and 25 per cent in case of bonds, 5 per cent
i
in case of discountable bills and gold, at most 3 in case of merchandise and foreign
securities.

Not allowed.
' Not allowed.

'met;t securities.

No securities purchased for investment, butgovernnient and municipal bonds bought
for sale to customers, also treasury bills having an average of 30 days to run.

A, 1910. Disposable government securities amounted to $19,228,800.

Average (1910), $27,842,000.




About 45 days.
6 months' certain or in some cases ,

As directors determine.
Open credits, on security, are grant
actually drawn, plus a commissio
Average amount, 1910, $993,000, or
Foreign government bonds, of read ii
and bonds of the general mortgag
the bonds are quoted on foreign
Dec. 31, 1910, bonds held, $3,476,0

tit

of shareholders.
Agencies can not undertake discounting operations directly. By a recent modili' cation of the law "first-class agencies' may discount within certain limits through
a small discounting committee.

'

L.I. 11111 Ul.
, ,

ject to general and special instructions.

Confederation not allowed to possess a
reserved to the Cantons.
-- -Federal Council elects the chairman a
does not select any officers, but must approve the election of the general
23 other members of the council of
special joint committee of Parliament; other officials by State
ectors appointed by a
manager and submanager.
members of general management, dir
'rectors. King names chairman of board.
Annual report, balance sheet, and acco
10 days on model furnished by Governbefore submission to general meetin
belonging to note issue, monthly full balance, annually Annual report. Statement required every
ekly principal items
ment.
ment of assets and liabilities.
statement.
etailed
-A central bureau of inspection at the ministry of the treasury examines the assets. Special board of inspectors, whose o
A permanent commission of supervision also passes judgment upon mooted
spected by a select committee appointed by every regular Parliament. Audit
treasuries, books, and securities are
by Parliament for bank and each branch.
questions.
committee appointed
The remainder of the net profits, after
Government receives one-third of profits in excess of 5 per cent or one-half of profits
of a maximum dividend of 4 per cen
in excess of 6 per cent. In 1910 this amounted to 3,300,000 lire ($636,900).
1 profits not necessary for assignno •at to surplus is disposed of by Parliament.
$254,29ti paid to the Treasury.
—
In addition to general income and stamp taxes, one-tenth per cent on productive
circulation, and graded tax on issues m excess of normal maximum, and 7i per The bank is free from every kind of ta
xempt from paying government taxes on real estate, income, etc.
cent on issues beyond the maximum allowed or not covered by 40 per cent cash.
None held by the Government.

stock issued; belongs to legislature.

Bank contributed $6,000,000 to Italian Credit Foncier, which is now in liquidation.
Bank obliged to pay expense of Government supervision, $14,000 annually.

one.

None.

None.

one. (See preceding.)

None.

he administration of the national debt office is granted by the bank on uncovered
balance of 6,500,000 kroner ($402,000).

- - -Bank of Italy obliged to lend Government up to $22,195,000, in case of need, at
1i per cent.

o interest paid.

Bank is sole depositary. Pays interest of 1i per cent on deposits in excess of
$7,720,000.

Government deposits bear interest.

akes all government payments and collections free of charge.

Helps in issue of loans. Conducts the business of the treasury gratuitously.

Receives for custody, free of charge, s
eration, and handles payments for th
and hoard of alcohols.

30 years. Expires 1923.

20 years; expires 1927.

Inland bills, $31,748,000; all bills, $33,781,000.

$84,881,400.

Average 1907, $10,769,400; 1908, $12,

$573.

Average in 1907, $269.72. 14 per cent were for amounts below $20 and about
70 per cent for amounts between $20 and $200.

1907, $1,403; 1908, $1,201; 1909, $1,26

About 50 days. (Inland bills.)

59 days (1907).

1907, 28 days; 1908, 18 days; 1909, 2

4 months.

90 days.

All classes, provided bills represent real business transactions.

Banks, credit societies, and all kinds of institutions, and at the agencies, industrial
people, agricultural landowners, and small tradespeople.

All classes, including agricultural 1
transactions.

Must be accepted (i. e., 2 signatures at least).

At least 2.

2.

No regulation on this point.

Treasury bills, public warehouse warrants, or loan collateral.

None.

•
$5,337,000, together with $1,751,000 of special advances to former note-issuing
banks.

$18,837,765.

Loans on collateral, $3,606,451, as sho

Indefinite (i. e., nonterminable).
AIMINEMIN.Yr11".•

None.

/•••••••••••••

months.

Average size, 1907, $32,424; 1908, $20,

$10,713.

1907, 15 days; 1908, 11 days; 1909, 1

About 45 days.
4 months on government securities and 6 months on silk, etc. On treasury billb
extendable to 2 years.

90 days.

All classes.

All classes.

Mostly banks.

Bonds, shares, or other documentaa v security, including warrants.

Swiss federal, cantonal, aml communa
Securities guaranteed by governments, silk, warehouse warrants, and pledges to,
quoted in Switzerland; bonds of ti
deliver commodities on a certain date.
bars, coin, drafts.

As directors determine.

From 50 to 100 per cent (the latter on treasury bills only).

On Federal loans, 90 per cent; on can
75 per cent; foreign securities, 70

Open credits, on security, are gran. .1 at the 3 months' discount rate on the amount
actually drawn, plus a conunigenerally of one-half of 1 per cent per annum.
- —
Average amount, 1910, $993,000, ,lbout 19 per cent of the loans.

Not allowed.

Not allowed.

Not allowed.

Title deeds accepted as collateral for

Foreign government bonds, of r. :ly realizable kinds, Swedish government bonds,
and bonds of the general men
bank and other Swedish enterprises, provided
the bonds are quoted on forei i.xehanges.

State securities and securities guaranteed by the State, including Italian rente, not
exceeding $15,000,000.

Interest-bearing bonds of the Confe
temporary investment only; preci

Dec. 31, 1910, bonds held, $3,47,

December 31, 1910, $32,642.283.

Average, 1910, $2.441.000.

months' certain or in some cases 3 months' notice.




1 10.

council.

cations directly. By a recent nioditidiscount within certain limits through

Discounts are granted provisionally by agents
Of the bank.
Confederation not allowed to possess any shares of the bank but
reserved to the Cantons.
approve the election of the general
days on model furnished by Governy of the treasury examines the assets.
also passes judgment upon mooted
cuss of 5 per cent or one-half of profits
nted to 3,300,000 lire ($636,900).

of capital are

Federal Council elects the chairman and vice chairman of the bank council and
23 other members of the council of the bank; also On proposal of the council
members of general management, directors, and subdirectors of branches.
Annual report., balance sheet, and accounts must be approved by Federal Council
befere submission to general meeting. Required also to publish weekly
statement of assets and liabilities.
Special board of inepectors, whose officials are elected by Federal Council; the
treasuries, books, and securities are periodically verified.

The bank is free from every kind of taxation.

Foncier, which is now in liquidation.
cut supervision, $14,000 annually.

None.
None.

per cent on deposits in excess of

E ing appoints governor and deputy governor; besides, a Government comiiiissi
on
is appointed by the State.
A statement of condition of the bank and agencies is forwarded every week to I.
minister of finance and is published in official newspaper.
Government commissioner watches over operations of the bank, has right to exa
me the books, etc.

The remainder of the net profits, after deduction of 10 per cent, for the surplus and
of a !MINIMUM dividend of 4 per cent, is paid over to the Federal Treasury; 1910, Receives all profits from a discount above 34 per cent, together with of excess
net profits after payment of 4 per cent dividend to shareholders, and the prof'
$254,24A, paid to the Treasury.
on bills held for the State; all amounted to $892,470 in 1908.

Nes, one-tenth per cent on productive
eSS of normal maximum, and 74 per
ed or not covered by 40 per cent cash.

up to $22,195,000, in case of need, at

- 111111.1111.111•111!
.

None held by the Government.

None.

Patent tax on gross volume of business (1908, $43,492), stamp tax on notes
(1908
$72,674), tax of
of 1 per cent semiannually on excess of circulation ahoy
.$53,075,000 (1908, $449,096).
A payment of $44,390 toward expenses of treasury administration in the
Provinces
None.
None.
Government deposits bear no interest. Treasury funds in excess of requireme
nt
of service are invested in commercial securities.

Receives for custody, free of charge, securities and valuables belonging to Confederation, and handles payments for the Federal Treat-Airy, post office, the customs,
and board of alcohols.

ess of the treltsury

Government deposits bear interest.

Acts as registrar and transfer officer of the national debt; as custodian
of bond
given by public officers and of various special funds, i winding those of the
lugs bank. Government's deposits above 5,000,000 francs must be invested say
am
profit credited to State.

20 years; expires 1927.
-nonoraiiMmammeigMiran...www.

Average 1907, $10,769,400; 1908, $12,159,000; 1909, $17,007,000; 1910, $21,899,000.
e for amounts below $20 and about
00.

1907, $1,403; 1908, $1,201; 1909, $1,268; 1910, *1,221.
1907, 28 days; 1908, 18 days; 1909, 29 days; 1910, 26 days.
90 days.

utions, and at the agencies, industrial
tradespeople.

Charter extended in 1900; expires January 1, 1929.

roammommk

All classes, including agricultural business, provided bills represent, business
transactions.

Discounts December 31, 1908, $95,237,450.

Average size accepted paper $421 and iionaccepted paper $62.
Average for accepted paper 46 days and for nonaccepted paper 43 days.
100 days.
Nlerchants, manufacturers, and, under eertaie izod ii ions, farmers.

2.
loan collateral.

3; but commercial bills with 2 signatures !flay be admitted under certain
conditions
approved by minister of finance.

None.

Warehouse receipts, merchandise, or piddle fund.- ma,y be pledged in
lieu of one
signature.

Loans on collateral, $3,606,451, as shown by the balance sheet December 31, 1910.
Average size, 1907, $32,424; 1908, $20,458.
1907, 15 days; 1908, 11 days; 1909, 13(lays; 1910, 15 days.
nths on silk, etc. On treasury bills

90 days.
Mostly banks.

;
warehouse wArrauts, and pledges to, Swiss federal, cantonal, and emninunal loans as far as quoted. loans of foreign States
quoted in Switzerland; bonds of first-class Swiss banks, if quoted, etc.; gold in
bars, coin, drafts.
y bills only).

On Federal loans, 90 per cent; on cantonal loans, 80 per cent; other Swiss securities,
75 per cent; foreign securities, 70 per cent.
Not allowed.

Loans sipliblic securities, outstanding December 31, 1908, amounted to
$9,923,890.
Not stated.
10 days to 4 months.
months and 1 extension allowed.
Loans on securities to other than merchants are required to be registered at the cost
of the borrower at rate of
of 1 per cent of the amount of the loan.
National bonds, treasury bonds, and other securities guaranteed by the State.
Securities accepted as collateral for not more than ', of their current market value.
Current accounts of those who overdraw are canceled by resolution of
of administration.

Title deeds accepted as collateral for loans.
the State, including Italian rente, not




Not allowed.

Interest-bearing bonds of the Confederation, the Cantons, or foreign countries for
temporary investment only; precious metal in bars and coin.

N a t iunAl puldie securities and others guaranteed by the State.

Average, 1910, $2.441.000.

December 31, 1908, Government securities, $9,633,291.

lb('

I

y01111111.

Discounts are granted provisionally by agents of
the bank.

Measure of discretion allowed.

MEM,

lc but 4, of capital are
the bank council and
proposal of the council
tors of branches.
ved by Federal Council
publish weekly state-

None held by the Government.

4. RELATIONS TO GOVERNMENT.
Government ownership of stock.

Eing appoints governor and deputy governor; besides, a Government commissioner
is appointed by the State.

Selection of officials.

A statement of condition of the bank and agencies is forwarded every week to the
minister of finance and is published in official newspaper.

Frequency and character of reports required.

Government commissioner watches over operations of the bank, has right to examine the books, etc.

Methods and mechanism for government inspection.

f

v Federal Council; the

cent, for the surplus and Receives all profits from a discount
above 3i per cent, together with of excess of
Fe,leral Treasury; 1910,
net profits after payment of 4 per cent dividend to shareholders, and the profit
on bills held for the State; all amounted to $892,470 in 1908.

Participation in profits.

Patent tax on gross volume of business (1908, $43,492), stamp tax on notes (1908,
$72,674), tax of of 1 per cent semiannually on excess of circulation above Taxation.
$53,075,000 (1908, $449,096).
A payment of $44,390 toward expenses of treasury administration in the Provinces.
None.

Other payments required by Government.
' Permanent loans to Government.

None.

Other loans to Government and their limits.

Government deposits bear no interest. Treasury funds in excess of requirements
of service are invested in commercial securities.

Custody of government funds, with interest paid.

.
les 1,elonoing to Confed- Acts as registrar and transfer officer of the national debt; as custodian of bonds
given by public officers and of various special funds, including those
.
post office, thecustoms,Furtof the sayherservices rendered to Government and payments for same.
nip bank. Government's deposits above 5,000,000 francs must be invested and
profit credited to State.
Charter extended in 1900; expires January I, 1929.
,000; 1910, $21,899,000.

Duration of charter.

Discounts December 31, 1908, $95,237,450.

5. DISCOUNTS, LOANS, ETC.
Discounts:
Average amount, 1910.

Average size accepted paper $421 and nonaccepted paper $62.
Average for accepted paper 46 days and for nonaccepted paper 43 days.

Maximum duration allowed.

Merchants, manufacturers, and, under certain conditions, farmers.

For what classes in community.

3; but commercial bills with 2 signaturea may be admitted under certain conditions
approved by minister of finance.

Number of signatures required.

Warehouse receipts, merchandise, or public funds may be pledged in lieu of one .
signature.
eet December 31, 1910.

A ver:e..7e duration.

100 days.
ills represent business

Average and minimum size.

Other security accepted.

Loans on public securities, outstanding December 31, 1908, amounted to $9,923,890. : Loans on collateral:
Average amount, 1910.
Not stated.
10 days to 4 months.

Maximum duration allowed.

Loans on securities to other than merchants are required to be registered at the cost
of the borrower at rate of 13 of I per cent of the amount of the lmn.
ff

oilier Swiss securities,

A verage duration.

4 months and 1 extension allowed.

i-10a nti I )1 foreign States
if quoted, etc.; gold in

Average and minimum size.

For what classes in communiiv

National bonds, treasury bonds, and other securities guaranteed by the State.

kinds of collateral accepted

Securities accepted as collateral for not more than

Proportion of loan to collateral.

of their current market value.

Current accounts of those who overdraw are canceled by resolution of the council
of administration.
Not allowed.
or ,reitzn countries fur
in.




Overdrafts.
Loans on real estate.

National public securities and °the! , guaranhi‘ll by the State.

Securities held:
What 1;inds allowed

December 31, 1908, Government seen ri t ies, $9,633,291.

Average amount, 1910.


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102