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START Collection tle Papers rich Series/Volume Shelf/Accession No:11 / / 1 4 5 : 1 / LC 77-38 (1/7C) 71 Aldrich, Nelson Wilmarth, 1841-1915. Papers, 1777-1930. 58 ft. (ca. 42,500 items) U.S. Representative and Senator from Rhode Island, financier, and philanthropist. Correspondence, diaries and notebooks, material relating to tariff rates and legislation (1880-1915) and the National Monetary Commission (1907-12), financial papers, speech file, and printed matter, chiefly relating to Aldrich's career as U.S. Senator (1881-1911). Papers also include a group of biographer's research materials containing correspondence and notes of Nathaniel W. (Continued on next card) Aldrich, Nelson Wilmarth, 1841-1915. (Card 2) Stephenson and Jeannette P. Nichols, and some diaries and engagement books kept by Aldrich's wife, Abby Chapman Aldrich. Correspondents include Joshua M. Addeman, Edward B. Aldrich, William B. Allison, Abram Piatt Andrew, Henry B. Anthony, George E. Barnard, Jr., Robert W. Bonynge, Jonathan Bourne, Jr., Charles R. Brafton, Theodore E. Burton, Adin B. Capron, Jonathan Chace William E. Chandler, LeBaron B. Colt, Samuel P. Colt, Charles A. Conant, George B. Cortelyou, Henry P. Davison, Elisha Dyer, Jr., Henry W. (Continued on next card) Aldrich, Nelson Wilmarth, 1841-1915. (Card 3) Gardner, Eugene Hale, John E. Kendrick, Philander C. Knox, Charles Warren Lippitt, Henry Cabot Lodge, Stephen B. Luce, Orville H. Platt, Aram J. Pothier, Theodore Roosevelt, John P. Sanborn, William Howard Taft, Henry M. Teller, Edward B. Vreeland, Paul M. Warburg, George Peabody Wetmore, William Whitman, and Nathan M. Wright. Finding aid and inaex in the Library. Information on literary rights available in the Library. Gift of the Aldrich family, 1944; John D. (Continued on next card) Aldrich, Nelson Wilmarth, 1841-1915. (Card )4) Rockefeller, Jr., 1955-56; and the Seminary of Our Lady of Providence (Rhode Island), 1970. Formerly NUCMC MS 60-464 1972 MICROFILMED LIBRARY OF CONGRESS PHOTODUPLICATION SERVICE 58 CONTOINER Collection Title Nelson Series/Volume Shelf/Accession No. I ci 1) NELSON ALDRICH Wave 41111111111111PPORPA FeL-uar. - 22, 11C. IT: DISCOUNT SYS= An illuminating discuocion of one of the features of bankins policy Which is closely linked in ::urope with the central bank system is presented in a monograph written by La'. 2aul Li. ;arburg, of the banking firm of Kuhn, :ioeb - Comp any, of New York, and just made public by the rational :Ionetary Commissi on. The monograph is entitled "The Discount i%rsten in Europe," and begins by stating as a general principle of sound bankinz policy that "with the present system of immense deposits payable on dena nd, and by right payable in gold, at the option of the payee, only that structure is safe and efficient Which provides for effective concentration of cash reserves and their freest use in case of need, and enables the banks, When necessary, to turn into cash a maximum of their ascots with a minimum of disturbance to general conditions." In this respect, 1:r. Warburg declares, recent events have nado it clea r that our system is an unqualifiod failure, and that it is now gene rally acknowledged :;7.1at the end of 1007 witnessed one of the most impr essive victories of the central bank system. it is declared, however, that it was a vict ory of the discount system of handling comm ercial paper, because the central bank is only a component part, alth ough a most vital one, of the discount system. A careful description of What this system is, in contrast with the Lmerican system of advances on securities and single-nano paper, forms the subject matt er of flr. Varburg's monograph. lik -2- "Discounts," it is declared, represent, -- or, li;:e our promissory notes, out always to represent, -- temporary indebtedness Which is 4 c) be paid off by the liquidation of the business transaction for the carryinr out of Which the loan was incurred. A bill may be drawn for cotton while it is being harvested, or While it is in transit for :;urope, or While it is being manufact:red into or While the merchant that purchased the finished article continues to owe the nanufacturer therefor, or posoibly even while the i'iniFhed article is bein,: shirTed bac]: to the same country from which the raw product oric.inally came. Tc bride each of these periods a long bill may be drawn by the various parties who, each in turn, handle the goods on way from their original state to their place of final distribution. ?he length of the bill will dupend on the underlying transaet;ion; in ::ngland, Tftkance, and German:: it varies, as a rule, between two and four months, i'ho vast maiority of such vapor being issued for three months. Ath us the promissor:, rote is, cenerally, one-name paper, while In :urope sinr:ae-name paper is looked upon with distrust and is scarcely purchased at all by to banks. The Thropean baxi,:er be- lieves in having several oftznaturen on the bill that he buys, thus securing M020 than one guaranty. Furthermore, e0(litional eina- tures are evidence of the legitimate character of the paper and dhow that The money was taken for a temporary transaction, not for permanent investment. Through the acceptance or endorsement of the merchant's note by the bank or banher the -oromissory note, from being a dead instrument and a nonliquid asset, -- becomes a liquid asset part and parcel of the system of tokens of cr;:colilan'e ii;hich serve as a su'ostitute for money or as aumiliary currency. :he old promissor:: note is notn but the evidence of a commercial crodit, the grantinz: of which entails a material business risk and must remain an inaividual trannacticn only to be concluded noe R.116 are wi1lin7 credit. .he issuor o.P the re 71 nocluainte 1)7 the few "dho happen tc a..ze the huzufa of :rantin c that ?articular :11, ..-ouh the aiJAition of the banker's eignature the 0,17estion of the naker's creait is eliminated an mere evidence: o the note instead of being a an advance, is transformed into 9 stanetar0 izrvest- ment, the - urchasc and cab o cf which will be :Joerlied only by the question of interost. Jie investment commands the broaaeot possi- ble f . ,arket. Aecc )taneos arc ;iven. by European banT7s and baners mainly f0:2 hro 11.:10LI of arafts: thc documentary bill, the commercial credit 'era, and the finance bill. 2hc those three. will aocunontary is probably the most important of if an Araerioan merchant* Inly2 coffee in an Paolo, he enerally pay for it 1)-)openin:_7; for the shipper a documentary credit in i.urope; that is to say, thq American rurchaser nlaes an arraArpment with the Muropes.n banker, by rihich the latter f.;rees to acce'i,t let us say, a tYreo-mcrths' bill arawn on him with shipping 8.11 docamonts attachoJ, coverinz a certain shipment of coffee, the amount to be drawn being the ocr,iivalent of the amount aue purchaser to the 3out1, ‘rrAorican sbippur. the :,nerican The shaper will have no difficulty in selling to a bank in San 2aolo his bill drawn on a first-class :uropean banking house, and thus will promptly secure the money duo him for the goods sold. The local bank in San .11aolo will buy the bill wnhout hesiiation, bccutuoo it :mows that need only send t'hi2 forei,n 7,111 to 7,16.1and, kionr.f1.11:/, or France, tt• :Jny be, vhiere, owia1,3 to the oTztensive disco- mt :ace rkit 421 the).le colln- -, repay, can immollaCel./ rei3eo.lnt tie 1)±11., thus ;10,1ri ; iJo, 1, mont in cash for the anoll_i% 1n7r1W. Indeed, if t'lo .73razilian bank fors to lo so, it can at :no moment of ihIpment, by caLlin-: to Itc aisoLInt rae it Ville:. the bills will be discounted Ikpoy. uhcir arrival 1.1 :':)rope. hen tho nill r:acl-es FAirope, the araree puts his accept=c€ CL it, and having thus obligated himself to pay the bill when duc, the c!ocuments are in nost cases 2.010=0 and sent to the American 1,uro1aser o: - he goods, wic opened the credit wjth the OZ core, ihc ,American I,urohaser :-ay "JaLLer for tho reraerod. L)ta;Idilic of the purchaser ai oropean bank. a commifIcion to the lluropoan 7.72,e componeatl.on depend on the In ,art on tN) question of Whether or not tho documents are to be released upon acceptenon (t/le Anerican parohaser oblioatin h:Insalf to put the banlz in 4'itna7 before the bill calls due, or Ilhoth-f or uot tho looumelts are only to be given up by ae accepting burf( acainot cash -rnymont b7 the purr:haser. It may -5.- be said that the average compensation for such acceptance is between a quarter of On cent. up to three-querters of one or cent. for three months, accordik: to the conditicns of tl,e case. :he majoritL, of all shipments of merchandise, particularly those of raw materird, aro everywhere "fintnned" in this way by docImentary bills on 77.1e-or,e. how goo(1 It is Interesting to note that no matter 1): the ;eqit Gf the Amerinnn rrrnhaser or ALiorioan bL.nk, whe Acr;nptan3,-: the purchls :ouu;1 JImrica, or 7.1:12rop:I, no ;Jill, as a eneral MF1. or any offer to the ship- hipr in smoh countries take the anaeltanne of Anorican bank or banker, bacauo th2! Anori an bill ias no roa,ly nar;:et, thilo ;Ie '.iuxopean bilj is of wl.ry or?.1o. It is inossible to estimate *Ji(r,; larty) a 31;_m !..3rioa pays cvar7 year to sion -1.7.rol-)e by way of commis- for accopting sudh aocumentar:: lill,4.11"TrtemeTrtrr-bellikommetk yetoormorommkerTm414 bi.t the figures rvn Into manv millions. in importance to the lecumentary bill troe montlLs' till 'Ira.= "tian2.: or IvIner as a commercial credit E2ranod by the accoptor tc the customer. paraLivaly uiftple • s the two or 771,is tronsaction is a cora- It means that the "!ropean banlmr permits his costDmer, -ehother resiaing in the banker's crn country or abroad, to MM. dro.w on him -.7.1: two 07.7 three mont11p' sight, with the understanain that th cuvtomer will pt the Dccepting banker in funds be- fore to 11111 frIlls clue, en thit the drawee will not be called upon t*, varce ary carh. %/3 7e merely i7ives his eirnature to an accept- t17o c-!toncr F7err 7-Ider discount, ernployInç in his ON. business the cash thus realized. The privilege of renewinr, the bill at maturity is often agreed upon at the outset, and the use to Which the customer may safely and legitimately put the money realized from such a credit will in part depend on this feature of the arrangement between banker and customer. Large business firms will, as a rule, have such accommodas tion at their disposal in several countries and they will draw against their credits on such countries as have the lowest discount rate for the tine being. They may use all, foreign credits at the same time when the interest rate at home is higher than the rates ruling abroad, and, conversely, they nay at tines cover all their foreign credits and use only the financial acconmodation offered at home, if, for the time being, the home rate is lover than the rates abroad. The vast majority of these commercial credi'L; bills are dram without collateral, but there are many instances where the drawer of the bill gives security to the acceptor by the pledge of his ern bills receivable or of claims against his customers or of merchandise or similar collateral. The total volume of bills representing commercial credits given by one country to any other is relatively unimportant as tompared to the amount of documentary bills issued, but large nuffuers of such bills are dram by the home customer on the alone usiJec- ially in France and r_lermany. Since the rate for a three-months' cash advance is very much higher than the discount rata for three-months' pills, it12 tho nearly always more avantatseons for the customer to draw on flaition, trz.n27er and to pay the collaniion fo-s: acceptance ana l in st the European stamp tax, rather that to /a:. the r.Ao of intero charged for a three-nort cnsh advance. This heavy difference between the discount rato ho different r03e. for cash advances most eloquontly illustrates the vrtLzntion v.rplied by the 71roper-n banker to an investment of eL.sy sale, -- thr discount, v..1) :3ach for o.s compared to one that even tho comTarativoly short timo of three months in a nonlicitid asset. Mere are nreo 7.7inde of rarehasers of aiscounts in all inportant financial centers: One is the centrL1 tank of each coun- try; the second is :11o. lan7I7inc; community at largo, AhiCh nouns banks, bnnkers, and brokers, 14ho fern te regular investors; the third is the irrocular investor within tAna without tho countrr. The rlationfthil) betwoon the central ban': and. the (2.1zoount market is a not important one. proportl.on of to bus4nosF i? 't'is 04 CRW'V (?ver, While in normal tines only a small one by the centl.c.1 ha2r, tLe czistence finrIncial str7;xtvxc, nll-iriportrnt to maes it ^ not tc reaiscolmt with the independen: of this cnritr^1 bar:17 nne ir its general inst..tr4;tnn, fact remaipsJz n (2,3.cv rnaiscoluit with tbo central bank nvor:: ne t cun nevertheless 7:cth tankers' . lejitimate i1l1 re7resents a or reroartiln annertance, so that evcr:" quick asset, on the realisstion of .7/hi& ever:- bank or banker can always rely. Consequently no investor bank) banker) private capital- ist) or fina=1::.1 LIctto ;r1l over 1-ecitate to buy rood bills. Purthormore l there will not 1)e in critical tines any rush to sell goocl hills) as everybody in these countries knows that there is no 1 ecause for no other investment is there better and safer investment) . an ually reliable market. It is this confident reliance that creates the cnornous discount rmrhet in modern financial economies nnd )ossible for untol rcndors it , chaire hand s daily, sometimes illions of discounts to any ollnncp whatever of rate or else with fll)ctuations of only ono-si7tonnth or one-eighth of ono per cont. or nnYmm. February 24, 1910. TOW CIMTRAL BAXTB IUFT=CE THE MO= LTARY=. The manner in which the central 1.-an1s of Diirope, by control of their note circulation, maintair filo reserves of the contry and check violent flwItuations ir the moncr.i mar7,cet, is ono of the interestin phases of the renn:rayih cf which has just been made public y the 7311.1 Wyrburg, atInn.P.1 rbnetnry lonmission. Mt. Warburg begins this part of tIne discussion IYJ declaring ttl_at it is one of the main duties and -nrivtlels of Vie gcivernmeat banks to Ge7x4-rte buy legitimateA paper, 1,9x been nTeeptel or end.orsc: b lankors. As the government banks from time to tine 7.-.7;y t•his 4„aper, the volume of their circulatinf ,rotes, t!lich they issue in payment, increases, while, on the other hand, 7ihon they collect paper at its maturity and thus refluce their 11:11d1ngs of discounts their outstanding circulation decreases. :his means that they exaand or contract according to the requirements of trade, becaase discounts represent proilTessive stages in the proons7. of connerco -nd inaustry. However, thts 19 not n noroly autonntic process, for when those entrusted with the mana,jement of ;he central bt,, see the necessity of exercising a restrainin:-- influence on the 1)8iness comunity, they raise the rate at vthidh the ban:: will discoun, and in thiE they are f7enera11y followed by tho other banks of the country. -2- as The government banks consider thenselves more or less part i. custodians of the national reserve, ready to take an active the nation's business only in tines of emergency. The distinction crisis should, however, be carefully observed between the abnornal e ically in and What mirmayfIcal the normal emergency, arising period t nts or the consequence of certain economic changes, like crop moveme s, particular requirements for special industries at fixed period which, as experience &ors, subside as regulaxly as they occur. When those normal emergencies arise, the central bunks do no ordi- narily raise their rate, but, for a time, meet all the requirements at the usual, or at a very slightly increased, rate and allow their circulation to increase with the result that tN, reserves go down. When the government tanks anticipate, however, that more than a normal emergenc;, 72111 liave to be dealt with, they successively raise re in order to protect the reserve and to force liquidation, and in order to deter all branclIns of industry from entering upon far-reaching obligations. Each governrent bank has a very decided interest in keepin Is o)d as large an possible and in preventing the 6.01a from leaving t77e country. If an aumerted demand for money nding, and. urerAt 5,oconnoftation !.ncronsen the anntult of notes outsta only to enthe government ban]:, by raising its rate, purposes not the general collrago a gare:::a contraction of business and to force -oarL:0 of aa ocrontr7 4L---L,-; your:I-irk/ Ty.7 contrrIct, hut also to attract foreign money inrinement of the Iliher intorost return. liont of the central banhs in normal times accumulate large amounts of foreign bank paper. pose: This is done for a two-fold, pur- Yirst, in oraer to withdlea Amda from '.1,c; ,olno maret 1-+. a time of ease, thus creating a reserve; seconalj, for the purpose warding off rildrr.77als of geld by Ilse of the foreign bills then forcign onnbane rates approach the gold exporting point. In the United States it is not only a central 119.11;r .eich iv lr.ckinf7, but a discount system which creates accontancoc: cn-)a1,1c of rcad7 sale in the money marl:et. The fluctuations in the demand for money cause distrbance on the stock exchange, becallse that is the only market for call money. Our own system being absolutely inelastic, we huve 1)ecolro accustomed to use as a sul.,stitate the porer of OUT Eulto-po av banking comminity to bor-ow in :;urope. ;7(1 tl-_uB use n au.dliary finamia3 mac'the; but -Je forot that our weidvt has 'become 00 roat s to '6111'oaten the safoty of the -uro-oean machinery when ue are coml)elle, to Itse it to its utmost capacity in order to provide for our needs. lurope, in shear se1E-definsc, re- fuses under those circumstances to let us borrow, and by the simple means of refusing our finance bills renders useless our reserve of elasticity. Thus, instead of , ,oc,riqc, additional means of usr:,.ct- ance at ths mo3t critical moment, we find ourselves sndden1:7 forced to dispense with a most important parL of our nacY.iner;., 1-pon vep_ich we were mont to rely in normal times. the panic (:11 1907. 2his is that hap,enea luring In -1111ro-rie the plus and minus of money requirononts are adyested by t7ne uso of the discount nar:zet, -- that is to say, in a final anal:fsis, by purchase or sale of hills. 721 , a" ana]ysis this means that in reurope attempts to liquidate are pr::.marily al-)peals to the whole nation to liquidate its temporary commercial investments, the brunt of such liquidation beins borno by the entire community, and the pressure being constantly subdiviaod, --dnity thus elrery member of the eorn:. .tIng his share. As a majority of discounts re -present goods in process of production or on the way to consumption, liquidation with them primarily expresses itself b- falling off in new production, While the consumer: on the other hand, cannot stop consuming ara nuert therefore continue to pay. The brunt is thus borne by the whole nation and adjustment follows without violent convulsions. Of course, general liquidation in Europe includes a liquidation of securities, just as liquidation in the United States also includes liquidation of commercial paper as it natures. But the difference is that in Europe bills will be the main factor and securities will play a much more subordinate part, While with us jur3t the reverse is true. lo naintain the right proportion between the demand cash oblic;ations of a nation and its holding of actual cash is a tank requiring the minutest study and the most constant care. In Europe this is the function of the central bank, wLich concentrates its attention and enerc?;ies almost exclrsivel:, on this duty, and which ..5 should therefore be kept free from too intimate and direct contact with the ..-7eneral business of the country. be !3eneral ban::s, on the other hand, organized to be money-makinf:; concerns and devotin6' their energies, as tho do, to takini; care of the requirements of the c;enerni public, cannot be expected individually to watch this problem of the cash reserves of the nation. Moreover, such a duty cannot possibly ho z;erfornecl by 21,C00 competing institutions, Which can only protect thomzolves by attackim7 one another. Mere must be one central reserve to thich all unemployed cash will inevitably return, and to which everybody can apply, an fl.cute denand for cash will unavoidably bring forth heation to pay in cash, as happened with is "Curini; the last crisis. Hesitation in pc4n3 cash only increases the drain, thich each bank can meet on17 by drawin3 on tlic reserves o17 1-.7re other bunks, and if to these -aboarnblo conditions thoro is tLdaou a foolish law (unavoidable unor a decentralize'l. s:Totem` which, by making it obligatory to keoy, 25 per cent. of the el.oposio in caz;h 0 renders the cash reserves asolute14 useless, there car 7:,n only one conseouon-e 7 ViL., runs by '6110 rr.blic, :erns by the banks, hoardinc; by the and by the ana finally a 7eneral anks pen. - a...7ter n )7rclongea droup4ht n thunderstorm threatens, 72 What would consequence if the wise mayor of a town should at- tempt to moet the dancer of fire by distributing the available water, 0:iv1ng each house owner one pailful? .ohen the ligktning strikes, the unfortunate householder will in vain fight the fire with his one -6- pailftl of writer, the other citizens will all frantically hold on to thoir own little upp1y aaner. their onl, d.?fense in the face of The fire will s-dread a:Id resistance will be impossil,le. If, however, instead of uselossl dividing the water, it had re- mained concentrated in one reservoir with an effective system of pipes to direct it Where it was wantei for short, enere;etic, and efficient use, the torn would have been safe. 7:c have parallel conditiom in or currency system, but, ridiculol:s as neso may appear, our br-ue condition is even more pro- cstorous. For net only io the viter -doeleselj Li3tributea into 21,000 pails, are permitted, to 1,so Uhe wz).ter only in small -,:ortion:3 at a tIL3e, in proportion as the house burns down. Totcs is;.raed L -aiaist uisco.cnts mean elastiolty based on the chan:;inc deriv.nds of comnerce and trade of the nation, While notoc. Thse0, .;-overnmont 'bonds mean constant expansion withou4, con- traction, inflation based on the requiromehts of the ',.overnment witho-.1t connection of any kind with the temporary needs of the toiling nation. Requirements of the ;Tvernment shorild 1.0 net divan', or indirect taxation or 1):7 trle sale of' p.overmiliont bonds to the )oog.o. , Ett to use L-ovornment bonds or othor -)ermanent investments as a basis for note issue is unscientifi2 and dangerous. If the Panama Canal costs C500,000,000 we shall have 500,000,000 adqitional currency, whether the nation needs it or not. But that sane 1;erson can be found to make the currency of the nation dependent on Whether or not we build a canal? And why should we -7- l canal rather have more currenc:: if we decide to build a sea-leve If ve were not so well protected by our immense than a lock canal? exportin catas-power, we should suffer even worse and more frequent ining a troPhes throuh our system of issuing notes without mainta and through safe Proportion betweer gold-secured and uncovered notes ments and our device of a circulation not based on temporary invest therefore incapable of contraction. a continuance of rler. a syote ! doubt that ; 211,ero cannot 13ean. Tho economic must prove be aalal;i dislaw that 1-)nl :=ey al7fayt:J drives out .;-ood mo1i4 oi,rinot offect will dhow regfl7aea, and it i? only a questicn of time 1,71u itself. yre compare the not results of the dikicoluit system with .1:11.ro the so of the bond-secured system, we find that in terest fluctuate within cormaratIvely small rtoEi of in- While the out- s within wiao standing circulation constantly contracts and exl)and Thn outfstandini; clroula-U.)n, "M.th wi it if= the rovr;rse: ranms• inonc. it is iss7le, renains fairly stationary, 1j.hila te-ont f11:.ctuatc violently fron 1 to 20^ per reat. its Me discount system onaTdas the oountry to concentrate ngs about a clear reserves r111.(1 to use them frccly vihen nooi"ed; itTJ.ri and. the thin seneral distinction I:etvmon thercrl:inE,; 77oserves c? or t1)(1 aotilal cash reserves needed to protect the circl.11tion E.71(1. (v.-,x reWith ur such. a line of 4.emarention cannot be cla7aw71 elsolutely unavailserves become hopelessly decentralilea and prove able in tines of stress. -8- Tho discount system reeoc:nizes the fact that issuing money and making lacyLiA are two entircl :listinct functions, Which are at tines antsuaistic to oach othcr. It is the duty of the money-isbank suino restrain the noney-main!_; ban3.: When the latter wams to go too fa:, or to !7ast. Therefore note issliing and general banking aro 3e1)aratela in Europe, thn power to issue notes being more or less centvIlizod. 71th us, on the contralry, ,7eneral-banking power and noto-loouLic: power arc lodgel in the same ban, and the note-issutftg power 1:-7 not cortY:Tlined. , IA. ta :) ".1.• p • r.f Mr. Aldrich. I desire to state to the Commission the subjects which I think it necessary to investigate and the class of people that I want to take hold of things with us and for us, with a view to getting the best possible result. There are a larr:e number of men who have been studying the various phases of the currency question alo'u, different lines. In the first place, 'Professor Davis R. Dewey, of the Institute of Technology, -_.oston, has been placed in charge by the Carnegie Institute of the subject of the banking history oi the United States. He is willing to put the material that he has gathered at our disposal if we are willing to give him some clerical assistance - say that of some young men (students and college graduates) thorities, etc. who can assist him in looking up au- It seems to me that this would be a very uable thing to do. val- The work he has in charge is a history of banking in America before the nivil War. a-ea-0 There haveA been a number of young men who are at work on various subjects whom we can employ to do different parts of our work in tais country. I should like o have some one make a special investigation of the safety fund and free banking system of New York. Mr. 3ailey. I question the authority of the commission to investigate general bankin conditions. Mr. Aldrich. I will cal the senator's attention to Section 18 of the Act of May 30, 1908, which is as follows: Mr. Bailey. I protest against obtaining information about savings banks and the ordinary banks of discount and deposit, and think we should limit our invesItation to the banks over which the Government has control. Mr. Aldrich. The questions concerning which I am now suggesting that the Commission inquire into led up to the formation of the national banking system. Mr. Bailey. And that was purely as a means of selling bonds. mr. Aldrich. It 1:Lay not be profitable for us at this moment to enter upon the discussion of what were the reasons for the formation of the national banking system. I do not agree with the senator from Texas, but that is not important to decide now. Mr. Money. I think it is very important to know now what our work is to be. I understood that the prime object was to inquire into the monetary system of the United States, and that would embrace the banking system as an important part of our inquiry. . Bailey. I do -01: question the propriety or the power of the Con:mission to conduct any_nvesti€,rations of the existing national banking system. What I protested against was the statement of the Chairman that he wanted information about the safety fund and free banking system of New York. (Af or some further discus 0 . ry) 4, Zer/t-t).1_ 1 iww 6,44-01- c • Mr. Aldrich. I am in hopes that some tine in July, or per-tt- ore4-7/1- haps before, we will be able to present the complete report of the information collected in England, France and .• - ermany. o say U I• A2i4) wA.N4-44.31,7, partisan in the information which we obtain,and the preliminary reports \vi1.1 contain simpl:r facts and not theor- ies or conclusions. T.r. Hale. If you can get the information you speak of into shape by the end of the extra session of r' ongress - the complete state.'qents of the systems of the three countries referred to - that will be an immense step in the direction you have in mind. Mr. Money. be Is it necessary for the entire Commission to engaged in this preliminary work of obtaining information? Mr. Aldrich. I will be glad to go ahead withoort tite-qpiono- prw-rAL, zagirogrirrn if the members of the commission understand and approve of what I am going to do. I will be glad to consult with the Vice-Chairman and with61 1Nc member of the ("omission from time to time. Mr. Vreeland. I agree vith the Chairman that this infor- mation will be worth ten times what it will cost. Mr. Weeks. (Addressing the Chairman). If any consider- able expense is to be incurred, I think, for your own protection, some formal action should be ta':en by the Commission, granting you the proper authority, Mr. Aldrich. I entirely agree with that. I should be glad to have a subcommittee created which wuuld have authority to pass on questions of expense. 1\Mr. Hale. I would su:-gest the Chairman and Vice-Chairman. Mr. Aldrich. That would be most satisfactory to me, but I would be very glad if Senator Teller could be associated with us. Mr. Teller. Mr. Hale. I am willing to trust you in the matter. 4.44Kn e I move that the employment of agent, or a sist4_4 44LALLee-ea, /t ants in investigation, and the expenses of the same, be comA. mitted tc; a subcommittee consisting of the chairmar!l o.ftd ViceChairman, and senator Teller, this subcommittee to make such reports to the full Commission frcJrn time to time as they may deem essential. This motion was agreed to. Mr. Hale. My understanding now is that it is left en- tirely to this subcommittee to exercise authority regarding expenses and to scrutinize the same, and, whenever they deem essential, to report to the full Commission. (After some further discussion). Mr. Aldrich. In connection with the visit of the sub- committee abroad, I desire to say that our Ambassador to France, Mr. White, rendered most valuable assistance to us in the prosecution of our work. Mr. Weeks brought up the question of foreign and domeuic exchange, suggesting that he regarded that as one of the most important questions that the commission would have to deal with. Mr. Aldrich stated that when the members came to read the report of the investigations of the subcommittee abroad and their interviews in foreign countries, they. would see that the subcommittee made that one of the principal branches of their inquiry. Mr. Weeks. I wondered if you. had it in mind to employ SOMR one to investigate this question. Mr. Aldrich. I am very glad you spoke about that. I cer- tainly think we ought to do it. You will find that we exam'cA-1-4^-e7 this subject. in ined Lord Swayt Thereupon, at 1 o'clock p.m., the mommission adjourned. The National Monetary Cammiasion took up this moreing the questtion of suggested amendments to the administrative features of the banking laws. Secretary Cortelyou, who was present, asked to have the hearing on t'e1.3 subject postponed for the reason that the forma. recommendations of the Department had not yet been completed, and the Commission decided to take the matter up for further consideration on Wednesday morning, December 2. The Coevei.;sion have communicated with the President of the American Barkers' Aseociation and suggested the presence here at that tine of the legislative committee of that Association, consisting of five members. In order that the various sections of the country should be more fully covered by representative officers of national banks, the Commission decided to invite the attendance of the following gentlemen: Wm. H. Porter, President Chemical National Bank, New York; Thos. P. Beal, President Second National Bank, Boston; Ernest A. Hamill, President Corn xChange National Bank, Chicago; E. F. Swinney, President First National Bank, Kansas City, Mb.; C. E. Currier, President Atlanta National Bank, Atlanta, Ga.; J. T. Gannon, President New Hibernia National Bank, New Orleans, La.; C. K. McIntosh, Vine-President San Francisco National Bank, San Francisco. They have also asked the President of the American Bankers' Association, Mr. Geocge M. Reynolds, President of the Continental Bank .3f Chicago, to be present at that time. PROCEEDINGS OF TH)3 NATIONAL MONETARY e0'UTISSI0N. Hotel Imperial, Narragansett Pier, R.I., July 20, 1908. Pursuant to the call of the Chairman, the Commission met at 11 o'clock a.m. Present: Messrs. Aldrich (Chairman) Hale, Teller, Money, Weeks, Bonynge, Smith, Padgett, Burgess, and Pujo. At 11:30 a.m., after the coruaission had been in session about half an hour, Mr. Overstreet appeared. In calling the meetin,L to order, the Chariman stated that one or two of the members, including the Vice-Chairman of the Commission, Mr. Vreeland, had not yet arrived, and he suggested that formal sessions of the Commission should not commence until they were present. He stated, in a general way,what the Commission had done up to the present time. (This will be found in the min- utes of a preceding meeting of the Commission and $ subcommittee thereof). He further stated that, in his opinion, it would be impossible for the commission to make a full report at the next session of Congress, and that probably the only subjects that could be successfUlly taken up would be such amendments to the administrative features of the national banking laws and of the Act of May 30, 1908, as could be agreed upon with practical unanimity. Minutes of July 20. 2. He also stated that the Secretary of the Treasury had been requested to recommend necessary or desirable changes in the administrative features of the national banking law, and that the Secretary had been invited to appear before the Commission during the week, at which time he would probably submit such recommendations as he had decided upon. One feature of the Act of May 30, 1908, which, in the opinion of the Chairnan, demanded early attention was the regulations governing the formation of national currency associations, the particular objection which had arisen since the passage of the Act being the inability of a bank to withdraw from the association, once having formally become a member. The Chairman also called the attention of the Commission to the immediate importance of giving some attention to the subject of postal savings banks, on account, first, of legislation on that subject being on the calendar of the Senate, and, second, of its having been recommended in both the Republican and Democratic national platforms. This statement was followed by an informal discussion by the members of the Commission of the general subject of postal savings banks, and, at 12:50 p.m., the Commission adjourned to meet again at the call of the Chairman. PROCT-IDINf.'rel Or TTE-1 NATIONAL 11011MARY COITITISSION. 7Tote 'raper i liarragansett Pier, R.I., July 21, 1908. Pursuant to the call or the Chair:awl, the colrassion 2:iot at 10 'elock a.m. There ....Toro pr-erd'ent, in addition to the members who attended :,.rer,t3rd's sennion, Messrs. Bu -rows, Daniel, and Vreeland. In discunsing the scope of the investic tion to be undertaken by the Connif;sion, the Chairman said that its inquiries coltid be divided into the following senora:1 subjects: 1. The money question, 5poakin in the broadest possible sense, 1nc1udin5 note isauos in our own and foretik countries, by w,ion and under that conditions, and a zrea.t many kindred questions. 2. Nulks, national, savings, state, and trust companies; !Iinutos July 21. eta. postl 5avin6s no:;mstir; and int c)rnktt, exnha.r1 . Tho r1a,10fl of t%:1 ';ovorwient to tlio vollmo of money 4. bi rik,00n of t7if) no1.1.31tion, handain, and disbursement of the revonues. st 101i 1-)e fore +.,he Co; vission was, V71I.tt Tho S st way to malbe .4 ()aroful stud.;, of t;e av.L110.1is ma- te •ial with ro 4'oronno to th9se (firtstions. In an5wer to an in(r.ziry Iv 'Ir. 7)ani el, the Chat mian stated tLtt 1t tas tit; rtonnonnur, of opinion th.t ;..);entr.- 1 so fox as wac; oonr)ornod, f,alowin, :„ this meet irk; then would bq no othur meat in„, unt*.1.1 after tho ((lotions her, bu!', should the Y. o on n ':oven- work of ,repard.tion subeolanit to*);,- the irid1vicua1 vietabers and by the oxerrItive.!or) of thr, (7o1D-11. f;sion. Thi. 6t,htomnt of tic Chd.trl Ian was non nurrod in by tho CO iiitssion. This preparation, iii t'to opinion of the Ch.ttrman, should !.:inut(is July 21. consist of t;ottini; toLethor literature and statistics On the sqbjects above refcrred to and investiatin,; the expertenceS Of the principal con. iorcial countries of the -vorld, so that ,elon the Corclission should assemble in t,ho Thi1, the; d hi!.ve a library in W.vr,I.inL;ton for their ovn use, w%lich wilJ cover the es:-,ential juostions which must come before .t,Y.e Com- mission for eonr..idoration. The chairrian annoltncod th.t the subcolulittee which met iii 'Iew York in Jane took- thc responsibility of employin6 Profes:or A. P. Andrew, -..ho was at th.t time Assistant Professor of -;(10r1011iC3 ricrided to :Tarvard, and was very stron,,-1:; recom- to Conninnion by President 7,11ot, of Itarvard, and others. suested The chainlan f;Irther xtalmat t7.at the host way for the Co:lrlission to obtain infor:lation in rer;are to forein nountries iii ht be to oriploy an expert 'IroEut 1ritain, n each country - say cOtland, Ireland, C:.nacia, ormany, and T;lrance - to write a history of the various phases of the development 'linutes Jul:, 21. of th •i're sent banking and none:: systons in these c ,)untries, and a:1.5° a synopsi s of tlioso s:sistens as the: r'i) sent. The C ha mail a).s ,) stated that ho would like the ro:rinisF.;ion to ecIthorizo a sna-',1 subcoruliti.me to take up this ,vork of preparation, possible, ti-lc Co ith a vixJ t ii carr:Tin6 t forward Xxximg as ion to fix thr; scope of the inquiry as to coli.ntr es and subjects, ,aid to leave to the subconnit tee carr _. int.s; out or th details. At this point (12 o clock neridian) t:a() Cori; liss ion took a recoss to 3 Wh0:4 1.110 (tlock p.n. fiSiOn reconvened at 2 0,c7.ock, the dir-;- rriss..on of t - ,e tiuostion of obtain in; 1.nfornation in fore iJn countries was resuned. it 'as f inally decided the folios:in the ini ry sho id embrace ctmntries: The 77nited. ntittes, (71k-ulada, 7nclztnd r;cotland , Ireland, 7rance, .1.ernan:r, 74,, .veden, and r7-litzerland. that perhaps Professor clamor, of The Chair:Ian su,;,,osted 5. !linutos Jul': 21. Yale, wo.;t1d be the 1-,of-,t rian to, ,trit ; for tho CoHmission, in hir,tor:f of bankir.L; and conde11s(3 forn, ,rronn:f in the Unt next, 30; line of ioulci. uncle 1.to.ke t.tod t 7rie ChaThlan .on of the Con:Aosi.on, 1 V i) -"on 4. , tt) fornulato 30M0 bo fore t.,he :;eneral covcr tlte scope of the i.nquiries ro- 1atin6 to t'o) countries refor-ed to. The Chai mian %ion, it ..vas t'oasible, in nii.k•r2;:rin.). on ..fhet,er, the .•70 tcd to the nenbers of te Co:Jlission r3:: of ilivestiation, t;) rolect certain queotions for examination , and to c:ploy :;o:lo trained econoni st f.tral lox i to take up these tiistionr, %vith the literature cr (:;-•:,onr;:r , Conni3oion the d.r3u.ients on both sides, to- and Dive f'71 references and citations to the ai)thoritiGs. gether Actinz upon thic. mi,:„:,or,tion, :Ir. vfooks noved Th.at the bo ,ottiorixed to appoint a con- mit tee of six, of wIlich ho nl-,11 be One, to 01 Idoy a person, or porsons, dlzty it :1 -;,L!:1 be to prepare a compilation of arolaients and ro fere:icon for and ELainst the establishment of a nontr.41 bank, and those who have il.iven carefiti consider linutes of .1141r , 1) at ion to this s'abj e et be inv it ed to subni t their vie 0/5 lzpon $Que .4%) th: corclission in wri This not on ,z.l.rter be in r. Burgess 000ndod by was unanimousl: ad_op ted In the di s(tur,oiQ he f.trii .•thi eh foil owed as to thc; Nen who wolild th this sub(tt, the f31:1.0-in ested: :lessrs. ld.oIy, naltpis were suc,- oberts, 71 ..irrlhild, Joseph Tlninch Johnson (or the 'jo':,"Iork 'Jniversi ty), and warber3, )we The Ch,lin-lan stiLtod heun th,) lo..11)aration or The Chi. kstXPL*14.at OH .00ncy. Li hi I o3raphy O fizrther :3t.ted that it 'tlitd ;,eon his inten- tion to ruest of Con,;ross Professor Andrew had a ready ,r. ri:rrin, the 3 tIlio L,rapher of the Library to api ea.r boforo the Comission at this meet int; on ini'tir tiiis tine. TT. 1.7'1:fin, Y. was found that lir. The chain Ian had hoped to sere he advi no of n consul t[ition with Prate ssor .', ,.ndrew, as to what bo:-)ks not now in the Library of ConL,ro sirable to rf in was abroad ouro for the library or the it ..io;z1d be de- Tone tary Cotrini Minutes of July 21. After s3me discussion of this question, Mr. Burgess moved that the commission civo to the Chairman authority, with the assistance of Professor Andrew, to secure for the Commission a z.od workint,library of the best authorittes on banking and currency in this and other countries. ?Ir. Hale seconded this :41on, and it was unanimously ado)'',ed • The C'in.irman st:i.ted that at the meotint; of the subcommittee in New York certain rooms had been selected for the use of the Commission in thn Senate Office I-balding, and that the Soorotary was directed to communic...te with Mr. ivoods, the Superintendent of the Caritol, with a view of having these rooms assigned to the Commission. The 13uild1ni ,cola/As:don, in charee of the Se ,Jate OVine Tht11dir, advised Ni'. "oods that it had no authority, under the law, to assign any rooms in this bn.ilding, their duties boirk., limited to the construction of the building-. The chairman sui:;;ested tht the Committee on ?inane., as 8. 'anutes of July 21. one or theload in. nommittoos of led to rooms in the flon.Ite Of1 for used library, 1,02ap02-41.1-411: r,enate, would be entit- iiidin th:) - .) ror horinc,sid socured, r:oul(1 be rooms, ti .t ;. .1 t 1 .6 Comission until suit- able rooms (I )1( bo assined b'br Con yess for tile 1110 of ti-io COIuJIi5fliOfl. r. Overst-t4et :loved t:-b.t the w!Lole iiuestion of r;e- ,:or•inL; ;.Iiit,ble rooms in '.70.;ViinL;ton for the u;;e of t:ie commissi.on, either in the 7,finate Ort'f.7i4e where, be de1o6a.ted to thr) 1111:1(Ln,:_; or else- with al2thority to act on boh(lif of the co:imission. This riot on was secondod and adoptod. The Co:lnission then, at 5 o'(:lock p.m., adjourned until WodneF,da:, Jul': 22, 19,0, at 10 o'illock a.. PROCIMINGS O VP, 'TAT TONI:, TIONTITAR'y' rote' inporial, 7arragansett Pier, I.I., July 22, 1908. The 0QiItriOI 1Li C.alOd to r-111ttod t..1; ho, UL; t.M. toi;other wi th ..!r*. Vreeland vorG rt.4i(1:1-- to p :*4-)nen t a ,y3rie ral out). the and !!r. 01r)rfArc or n“,i o-dor at 10 0•;)t.,1.: currency -1:,rot%-uiti.011 ri:f3t,0;a5 1.,‘,creuLlon in recard of the leadin :.;)nt to the hank- coyillernial nations. tLc Th; j;encral pu rpose of tho CoA,1 c1on Lein„, to make an exhaustive the varbus bankino WO WO comprehensive in,90.ry into currency s:,s toms 01 are in opera- t ion in the leacanz cora in rola?. nations of tlie co;iret- out pc)tenons should he employ/A in each of sucli couptries to prepare for the informati oil or the Commi r;sion non oi se rate hi3torie3 of the development countries, or should iritiude a statistical information rolative to ften11- ex st1n,3 sz'*toms in sttch important historical and hi swim; such informa- tion in re , ,vi.rd to these various countries to follow, as far as pos6ib7.s, sirillar may he comparahlo onoria lines, in order that ',lit) revilts 2. ::irilltos of ,Tly 22. ;;- e(loild.1(7_ '1' doptorl plan iO novad }Ir. motion ur1zLjoL; Ov ,)rstrGat t*:-.“;r1 th,,t i'.1Toint- ed by tiho Chairvtli, of ..11);,17.1 510)c:oil/1 t tee tho CI-lair:Jan of the Oot;tcw3hia 1 -tA; thf: F.ttropeitti c;ap i tals as V;;T o(1_,4opiceil /lc nor;r)t,a7 411(1 pratlt i cable t)011.10 -,an to -11.-4.:00) prop ().1. 4nrazie.A.. tontv. ft) e!tt pqrsonr, j1z3t ivz -r,horizod, n.t ,14,01 . 11 (:k) thorized to vit, rtch xtit of l t-prio ch invo st ions Of i,..c,11tit,t) fksi t'' 1;1.0 propev .1.?* -,,vorti of fill(' cort:i1;-:..ion. Titil; wa;:, t... r(ldit Lou to the ,:lostions te;1 (h he ik441 1;10) t,id vious(.4.;) in.,:0;-,ti,;1.,ion h:. sfdon , there were the Co: -1 1. The Tao:Ate:1 o ox t'.oui hank dt-r, onit5. ht onsiciered safety-fund s:.:1 4,4;:l In 7o-; "ark, tho fro 0-biaLk int; :;;;, st,ert of MI !linutes of July 2. York and the 3. A 7fo1k synte;i of :%4,5sii.chirsett5. 34r. ":1;tr,;frsr.tt th-t nor's !!ajazine t! ere :las it.:1 ; :11.111)er of r'.(Iri b- article Ly ::r. Laut3hlin opposin,; the L;.t.k.r.,...ntp- of banlz do:- sits It ,.4s alr.;o st.;.tocl that ::r. Por ,an, of Chic:J.3o, was ;2.ti r- haps a, ,;(),-)d man to 'trite in the nti ;Ltiv,,) oil t i 2. F;titte ,nestion. nkin. laws .1.110_ statistics. t 1:i.; •-to :',,-)ction the Chair:via/1 t': (Lt 1-1(1htd alre-dy caltsed lett(Jrs to be :;ent to the h.nk tho v.i.rious st-tes exaniners of noplosof t..e 1,resont St,:tte la.:5 on th: slb.,:ect of hankinz. The question of holdin,, eirferent, pctrts of the United, Stilt os at ;.- L;r1:: fi,:ture 1, moral-Ars of ',110 00:1:11 ;;:lion that perhaps this each sulicorauit o be;In no112. Was 611—listed ty one rpilnbor be done thro't,_;1, subconilitte,;s, anni6nod a (to '1",itin country in which to hold hearin,,s. opinion, ho rover, t:,:;.t it .ts discw,,!4ad by 1,11e ;;Ontion of the The chalruan was of the mid have a bet imr of rpict, on the linutes of July 22. 4. d I rferent localities visitcr! if thit ;re -; commission should hold thl hearinzs, an thc diussi.on 17olloed develop- ed this to be the conoria opinion of the Commission. ; u..londt cri `;:; to the adninistrat I vs features su(it tint of the lational 13ankinc, (11',E4,rioo the Chairma.n said there was one elh certainly wzcht t be riadn at; 1,1to rirst oppor- tunity, n,4,mely, that national bank oxaminers oucht t. be compensated by r,ropor slar I :Er; paid by th ati nal G-vernment instead of by fees paid by the banks whic;i they examined; that they should 1.)o - von more power than they now possess; and that an endeavor should be made to get a better class of men. It was su ..;ost,)0. that bank eNaninors should have ljpeaka authority to examine banks in the national nu P-renny 413s0 oia- tionts 41athorized the Act of IIity 30, 1906. It was also suczented that it nizht be wise to appoint a subcomnittle which would take up this question between now and the next miltins ofthe full Commission, and perhaps consider other chances in the administrative features of t141.0atiina3. :linutes of July 2,2. 5. 'Ranking Law. At this po'nt (11:45 a.ra.) the commission took a recess until 3 o'clock p.m. ‘:11:en the) commission reconvened at 3 o'clock, the chairman sue,. e6tc.10 that a:; tli ' , tor° co.isidering the several chances in the administratIve foaturos of the National Bariking Act , the commission might adjourn until 10 o'clock toAorrow :norning,when the Secret.try of the TrGaeltry 'o (?.d appear before them on this subject. The su„'—estion wan adopted, and thereupon the commission adjourned to Thltrsday, July 25, 1908, at 10 a.m. -4 PIZ007,7)ITY1 0 1 T!'ll 71.A..TIOTTAT, TIONETARY coincirsIoN. !Ire 1 Imp erita 1 Narraowisett Pier, R.I. 2 1 Tho ui31O 247 ) 1:)0( calle4 to order At 10 Se,tmtary or the Trfatsitr:, Seretitry sist,tnt (11:0,17UI ikid il,,)paarod co:t on The Sor!rot.:./-: o.r t1.0 in rerd n t,ho 1L.Ld 14.-tr.;n ide :t.90t;: ‘,11(.)/ic tn it)zit. iii Ca!'ryi11,31t1:nt: Aftl, ',aws, 1 the sd nort.Lin (letstro,1;le tent 9. At, 12 o nlo .0)1 1,hC : lerid13.n, the conlvission t CO41i i on onvInof' to-, 2 • •; • 3 rHrte, 't)? t) r;0 - t iiry of the Trtvonry 7•03foro for pj()7g .Ort t th va.r.tous rit(1,). :endationf: Na1ona nankin‘.; -Aws. Minutes of July 23. 2. Cop .es of the statements and ri)co; riendations of the Senoetary will be attache(' to those minutes as 4.4 part of the ro coed ins "'hen the Secretary no:1(0110.0d, l'reolanct, the vice Chair tan of the conni:;sion, took the chair durin,; the temporary abs ow 0 of the chaiman. nr. 'looks rived that a subcommittee be appotnted by the Chair to consider Chanzen in the 7ational 71.v.ikint; TA 03 and especially those :31rittld by the So.:rotary s)f the Treas ury, and Lo reliort its k;onniusions to tho Commission at it next mi$tat Before thr: discussion of this motion Was concluded, the 00:.u.l1.ssion took a rece3s until 8:50 1).m. 8:0 p.n. the Comission roconvened : rionator Al- drich in Via ohair. After sone further discussion, the mot ion of ?Tr. reeks was 46-rood to, and thy) Chair ari, inted the follo"vine, subcom ilingtes of July 23. mitt: 3. Senators Allison, Burrows, Teller, 77onti l and 'Iatley Ropr4iontatirem riooks*, 'ionynze, riit1t,Tlur3ess, and Pujo. Upon notion of Senator 1:oney, at 9:30 p.m., the eonnisslot) took a final adjournment, ,tvin to the lhatrAn the au- thority to detornine the timo and plane of next meetine. Triperial l t Pier, R. I., July 25, 1908. At ,tn r•,w!fororirle of tn't rionhors or the cortlis- sion as %Tor- F;ti11 irmL7-'i4-4.1-P-ii,;:;aisett Pier, the following stitt,c)lct., t •fo- ti:() 0.,:;reed. to: S5 W:15 S'1hAi t; tod by tho c}ii-tirriiirl 0,nd Corriis si t on Of t,he v.'.riotts pl-ito;€1 i a8stc20-.0 t.,4; iteri d ,41 1)011 4411., , c"..tr Iat;Ii Lr;1')I o r 4,ht- important work vort ion A 1..r 1); 1,11,! .kol. of 14.klf 301 190 up in nonsidaring plans for so cur- of the :the '-L4$ bac3/4 ri ;.1".117.illii.t,o report to oonL,re ine informition upon whicli' 1. Ti, saao de •xf.od or tile u tilos t. import„tnne that ate')s h4.1 t en to se(rues of thii 1.ein6 exam twit ion of tho rioneto.ry and b*wkin, eorimornittl nti.tionz,*. to 810)(101111 t Preparation for work Wea.5 ntru F). tt;c1 ..noz; corir,, trAin; or -•.e.)44.1.t-,,-,/.3 Aldrich, 74.1 q3. and Rol)ri r,ent„;ivo s 'inteland and exh.sats t Lye qear its po si3tb1o tlloros.42;h and , Overstri.:0, 111,rton, . rind Th s r.,t)ok to 5scure fron r.orti, t 4int arid 001.11:1 r• 1 tative r,ottreo s a.1.1 available hi. sto r'I 64.1 (led (;...1i, 41.th ref():nne to ti 'iri ta.in 31, 0. I 41 currently rwij, and Prioloo. x..imirult toti of the 4.7 CO tch, arict u s tat 1st bit/a:AIL; exi,tir The:" (t.niditn, ..e 1 it). so 11441, s- and 9wed sh titi 07, ialw the nharizes which 1-1.0/0 r# emtiy boith adopted in zerl.Lne . It 15 the intcr,t, oh Of Ade, (At, 441 ourl: day fo the f zu. Coruo 1 Bs tort to visit (3.AL xitri- the imr.,080 or 1 n(At ion into the fsanadian f5ystsn. In the p ro fse(rat.1 on of tlio ir .. vork tho 8141.null lit ts -;1't 1. 4tbroad in the near flitttro, sitiltni; on Vol .1 -"rottir1ll4e:in eettilie on the 4th of u,pr.t. m):1::,int triJ of '4tk.tOJ'A All i twit , Another subnoril t 1114 tyro ,rfs 're 11 r 7 Tor 7.1ort,;(116o, Tgqith "Pa r114 :3(1 $ o , :trie P fion 5,(1.(rAti.;)n 1.110 1140:It A. r t 1.1•'s 1.1111,,,riAt=ir o AlthtiOrrilt 1.11, :1(.3 ; 1:1:1 htt e )ff,1-4) riP .;441 t.,021.; tr. i 1-1:.I5 1.* ")(11t1 l'Ii.r11101•110113 4 41 vizaim-a s. Ate ho able. 1-,o (101,1141 t,r'exetinc to 11or1':(1V0/111r...r Tr, •te: t tt>tt on it tho Corrti Y4 - t,ilitt no arion(;!* rit,a3 3 (1.Y.1)041t thfjr l'Of::)170-o*Ite.iat I.on:Irs ttø so ere Lary 1.1% (:0 rtfttri-itle.a sifl illt h rorel re?!cte itLif3d tuirind t6t)tt,s t.%) t 1114 :r.' lotto of t,hto ?roa3t-41%7 ,JI) tiro, tve re 4t t, .rtft:;orI otia.1 LI hfl 34)11 tat /Yr)01 W0t3k feti 6.1 -Y. to 4 1';ay 25 The quo st Jai 0 r the noxt Was dtsnizisod, tLat the 01-„..1r.a1 !t, ioot n,; of t}t fuJ; (mint ssion opin ;on of all those present cule, o.• thc nex t ...,!o,veral),ir 1.0 r the con190E;. ‘,.ilitr.rtilr; TT-17, ON 0? 71-17, PROCI'17:7)ING To Till IzT:17-IIITIIATI7N Air:m.)777,74:ln ri-lATITIT,M 0? f.Z:T.'1 NV:770'TX; 1dlY ACT. tol DA, al. '4trrit04! et t or: 13.7., July 25, „ b;lor.•E ut larre aro ".-;et Ato r $3 All tot, t7:,t1 .4rtct llonynzo, 74"Iii#1 Rweriulentic-iivors %rooks, ;ale. tit h, roar;or.n, 2.:.11 ?IQ°. Prtisonhthe :v.: o tInc: fldflL371ur,;asr., Thurrow 5, Tol ler mrs 7 •16)( and Fttjo. fileeptin; '7,43riatt.ir Allison The Chat.rt*uk and Tlreztortt:ttivo ,rne%ri Vimo (711.tirt.tiAtt. Tho 0013v,ittelo tzr.);t: 111- the flow;ilieration ot' 1-Jvi •ot.,; : ..esttons :1,4da 11:! the f.f)nret:.kry of the) Trotovtry .rele4tivii to tilt; the fliinret ary to (1,)13p.7. f, 446 dotc!rviined to reili4.est bat11.1: c";anqs in tls,t1 tho Fov- t on s o eitbriit the or.•orqltnity to cto - he had revisod st.i.te;ient3 to the oorraittoe an noon tS:,4)slgible; but; if possible, as tutrJ.:: as Nazitnt 13. Tho oorriittoo dotorninIrt to :rorotnut to nal:10 4.41 lm,11%.)r53 ;;Z:: olianes in t:141 tut.t tonal Of tho 0,!;airilar., list ore ic(tistgiont; or.43 on c.'4,t-t,.#.1.)1 6435 Ircio ty, 1,-ct r 1Vi5 et 44,nd novulit,tite, nolts:(stine, %opl-onitnt.c.iver; :s3on:ings, ;143$ ..voro 4;)1,0int4,,t1 to attend the ;:ieetiti6 of the Atleriandrotri, (an ' .14.tn.l.to ra t Anfiociat ton, t;- ) be held at Colorado !-'11,rin;s4 the wook of lepteriber 27. !linlates Of Jtaj 25s After nu:el:red .4nd nompiled from thi)ntitri- al 'makers t,) the Ttfar.tionn subrattifict: it in proi-;osod corliat toe publi ho I.:16 5 in son() of tht &nit t v.; 311hr:01:till t ties, it5 inforv-v:.tion on t,htisii mihjocts. to mkt (.140 I rbo r t11.; r (nuttnian. itdj cpArypi(I subject to till) IT ilk ,w, May 29, 1910. THE FIRST AND SECOND BANK'S OF THE UNITED STATES. The difference between the character and status of the first and second banks of the United States, incorporated early in the country's history, and the conception of a central bank as developed under modern conditions in Europe, is brought out in a forcible manner in a volume just made public by the National Monetary Commission. The volume consists of two parts, -- a study of the first Bank of the United States, by Dr. John Thom Holdsworth, of the University of Pittsburg, and one of the second Bank of the United States, by Dr. Davis R. Dewey, the author of "A Financial History of the United States." The essay of Dr. Holdsworth recounts the plan of Hamilton to found a bank for the purpose of aiding the government, which became law in 1791. It is declared by Hamilton that a national bank was not "a mere matter of private property, but a political machine of the greatest importance to the state." Thus conceived as a po- litical machine, it is declared by the author that the bank "never threw off entirely its political trappings, and it finally died as the result of political enmities and jealousies." The capital of the bank, mut which was fixed at 00,000,000, was allowed to be subscribed to the proportion of three-quarters in United States stock bearing six per cent. interest, and the President of the United States was authorized to subscribe on behalf of the government $2,000,000. An equal amount was to be loaned by the bank to the government, which was to be repaid in ten equal annual installments. It is obvious, from these details, that the capital was raised more largely by bookkeeping transfers than by the actual payment of specie, at a time When specie was extremely scarce. The de- vice by which Hamilton carried through the government subscription is defined as "an ingenious example of financial juggling." Shorn of technicalities, the government paid for its stock by bills of exchange on Amsterdam, then it borrowed these bills and gave its note for $2,000,000, payable in ten =mit equal annual installments, with interest at six per cent. The practice thus instituted by the gov- ernment itself of paying subscriptions with stock notes was followed widely, and in numerous instances with disastrous effects in the next fifty years. The central office of the bank was in Philadelphia, on the present site of the Girard Uational Bank, and of the first board of twenty-five directors eleven were from Pennsylvania and six from New York. Hamilton was not in favor of branches, but they were soon established at the leading commercial centres of the country and entered into clearing and other relations with the local banks. The government soon availed itself of Hamilton's original project to borrow freely from the bank, and these loans proved to be larger and for a longer time than was at first expected, causing embarrassment to the Treasury and uneasiness to the bank before they were finally settled. This indebtedness amounted within four years to $6,200,000, or nearly two-thirds of the capital of the bank. The loan of so large a proportion of its funds crippled its services to commerce and manufacturers and made it difficult even to continue the temporary loans required to facilitate the financial operations of the government. Ultimately the loan was repaid, partly from the proceeds of the sale of the government holdings of bank stock. As these shares were sold at a premium, in some cases as high as 45 per cent., the government made a profit of $671,860, exclusive of dividends received to the amount of $1,101,720. The first Bank of the United States did not have the exclusive privilege of note issue, but customs duties were made payable in the notes of the bank, which gave them a wide circulation. The bank, moreover, exercised a salutary restraint upon the other banks by presenting their notes promptly for redemption when received over its counters. The passing of the political control of the country from the hands of the Federalists to those of the Democrats at the beginning of the nineteenth century, it is declared by Dr. Holdsworth, had no immediate effect upon the interests or fortunes of the bank. Though always regarded as a Federalist institution, and managed largely by men of Federalist leanings, its affairs were administered in the main with an eye single to business and profit, and it never became embroiled in political controversies as did its successor, the second Bank of the United States. Only once did the Treasury, under Demo- cratic administration, apply to the bank for aid, and then it was as cheerfully and generously given as under earlier Federalist administrations. Jefferson never gave up his antagonism to banks in general, and to the Bank of the United States in particular. He permitted Gallatin, his Secretary of the Treasury, however, to support the recharter of the bank, and the failure of Congress to authorize it was a disagreeable surprise for the business community. The renewal of the charter was indefinitely postponed in the House on January 24, 1811 by a vote of 65 to 64, while in the Senate the bill failed by the casting vote of Vice-President Clinton. The bank liquidated its affairs as promptly as possible and its buildings and a large part of its assets were taken over by the private bank established by Stephen Girard. In recounting the history of the second Bank of the United States, Which was chartered in 1816, with a capital of 035,000,000, Professor Dewey pursues the plan of analysis by subjects rather than a narrative of events in the order of time. He points out that many of the difficulties of the bank and of the country were caused by the deficiency of specie and the excessive issues of notes by the local banks. During the period of expansion after 1811, and the speculat- ive profits which attended specie suspension and unwise local legislation, state banking had assumed proportions which were beyond control. If the Bank of the United States had been organized when commercial operations wore normal and banking methods were sound, the bank would undoubtedly have had a different history. Established, however, after the local banks had enjoyed a free license for their operations, it was well nigh impossible for it to do its work without mkashing with local and selfish interests. The pressure of the bank and the national Treasury threatened to force resumption of specie payments by the local banks, but their resistance delayed resumption until the summer of 1817, after a conference in February with representatives of the banks of New York, Philadelphia, Baltimore and Richmond. The Bank of the United States itself made mistakes in speculative loans, difficult to avoid in an undeveloped country, and allowed the branches, especially in the south and west, to extend discounts beyond the margin of safety. The political conflict between President Jackson and the bank Is not discussed at great detail by Professor Dewey, because of the fullness with which these aspects of its career have been discussed in political histories. Fe declares, in summing up the lessons to be drawn from tLe history of the bank, that "the circumstances which gave rise to the establishment of the second bank wore altogether different from those which have brought about a discussion of the question of a central bank at the present juncture; that the bank in its final operations was nothing more or less than a large commercial bank with practically the same functions as other hankF3 established under state charters, and differed from them in little save size and enjoyment of a few special privileges; that the bank began its operations during a period of commercial demoralization and developed its practice during a period of crude banking methods, as measured by curTent standards; and finally, that the bank in its closing years, was subject to a political attack, violent, Indiscriminating, and even unscrupulous in -6- its character. It is difficult, therefore, to find in the experience of this institution, any lessons of importance which may be of special service in the preparation of a plan for a large national central bank at a later period, when business methods have been transformed by the railroad, the telegraph, and by the development of corporate enterprise, to say nothing of the change in barking law through the general substitution of national supervision for state control." May 20, 1910. MONETARY STATISTICS OF TIE 'UNITED STATES. The most complete collection of statistics regarding the financial and economic progress of the country during the past generation has been embodied in a large volume coOpiled by Dr. A. Piatt Andrew, now Director of the Mint, for the National Monetary Co/mission. The statistics are divided into four parts, mm those dealing with the general growth of population, wealth, business, production of minerals, leading food products, cotton, wool, and similar matters; those dealing with the banks; those dealing with the amount and movements of money and. exchange; ama those dealing with the Treasury and the public credit. The banking ;tatistics cover the entire history of the national banking system from 1867 to 1909, and the available facts regarding commercial banks, trust companies and savings banks. Among the data presented are the weekly statements of the clearing-house banks of New York City; loan and discount rates; balances duo between banks; dividends paid by national banks; and statistics in regard to the movement of circulatioh. The data in regard to money shows the export and import movement of gold, rates of exchange, both foreign and domestic, and the interior movement of money, both from New York and Chicago. The figures in regard to Treasury operations give the facts in regard to bond issues as well as receipts and ,lisbursements, and the prices and -2- net return of government bonds in l'Anland, France and Germany, as well as in America. Many of the figures presented go beyond the usual routine of such statistics and are intended to answer questions as to the effect of the crop movement on the money supply and rates of interest, and other similar problems which have been repeatedly raised durin:, the discussions before the NatJonal Dmetary Commission. rApril 27, 1910. EV01,UTI011 OF CRIMIT ADD BALKS IN FRANCE. A stri7P-in review of the 7-liannr,r in which the Bank of France has attained the dominatir.: position which it occupies iv French finance and its relation to the joint.stock banks, has Jost been made public by the National ;,o.cietarj Comiseion. Thc mono- T7raph on the sutjlct lc thititled "Evolation of Credn apd T..^,:177: in Trance," and 10 writr.,)n Trd Au1r4 Licsse, Professor at the Nqt1-173,1 Consorvotcry of Arts and TraD$ ana Sciences. t hc Sohool of Pclitica1 ,iesse .;,:t3s up ;he ovo1ulo-1 of banking in Professor - France in three periods, from 1800 to 1848, when the business of the Dank of France wqc 'restricted larelzr to Pf2,ris, the period from 1848 to 1875, when the bank became truly a national institution by the absorption of the departmental banks of issue, by its aid in the extension of the railway network, and by its rasterly conduct of the neo;otiatiOns for the payment of the urent war indernity to Gerrany; and fror 1875 to tlx Ilresent time. The narrative i verLr far fror br.in more historf.cz-.1 - the development of the 11k of France itself, bu4- -!,- 1-twes eummnry c" the manner in which the bi credit cerpanies p;row up with tie ,owth of Frencl- capital an(1 its distribution at hone and abroad, and the manner in which they have leaned in emer7ehcies upon the central bank. The Bank of France appear' an the friendly cruardian of the market in tidinc-7 over the period of stress caused by the failure of the Union Gen6ra1e in 1882, 1;..lo collapse of the copper corner and the liquidation of the Conrptoir DTBsconrpte in 1889; the reaction of the Baring fai1:17f.° in LnE;land. the crisis of 1890 the Ban in JJ;00; and the crisis of 1907. In of Englan.d borrowed of the Bank of Prance 75,000,000 francs (115,000„000) the stress in the Enp,..lish market. with which to relieve The Bank of France, it is de- clared by M. Liesse, "was not affected at all. by this ernortation of coin." The avere reserve in fact in the year 1890 was about 500,000,0A, corirpoL:ed almost equally of gold and silver. Bank of England had been ablo In order to meet If the o issue notes for 75,000,000 francs, he difficulties of the crisis, there would not have been, M. Licosa declares, the slightest need of an appeal to the credit of the Bank of France, and since the latter was willin7 to Fl.vet. credit to the Bank of Englord, the citizens of Enraand would have done so equally by accepting its notes. The pressure in the money market in the fall of 1906 was of English paper. , met by the Bank of France by the liberal :li.sconting This policy, it is declared, was much more economic, in the high sense of the word, than the rather arcliaic one practiced :!'orieriy of making discreet loans of ;:old to th., 71ar.1: a? year, 1907, the crisis i7ew worse. In the following Discount at the Bank of France - per cent. and then to 4 per cent.ipmemompl4M9—emm---' ! went up again to 3? The Bank of France intervened a second time, discounting English paper. The report of the operations of the bank for 1907 states that in this way a ready capital of more than 80,000,000 francs in Arerican ,:.•r)10, was 1- (arnieheit to the .;.- 01:ton market. In another direction, the BanIr cr.: France opposed no 07,stacle tthe shinmentfl of French ola to Now York, which were farthered by '1:30 : its normal commercial discount. bank's makin: Finally, 1io isoolirt rate reimined 3 por cont. lower in France than ix,. Erglanei or Germany. hio way, .,he action of ae 'Jank made itE.elf felt, rot In only on the French market uut also on the inrnatiornl, and. ptxticu;lish market. larly the MaT:ing discounts 311 foreixo paper rrut be constderad, to-aay, a volv normal means of e.stahlishIns nseftl !rein. betweon the aifferont niarts, and of applyinr: thc law of sup- tin ply and demand of capital in an intelligent and pro -Pi:table manner for the country which furnizhes its capital. Not rak-inc forei;:r discounts is L. deficiency which the Dank of Enclana adds i“1 its lnck of einstioity of iccuc. The Reic'hebalik Me a forein "portfolio" vA,Ach creassa in impc -tance fron year to year. The Bari,- of Fran(;e ho the right to discount forei:m paper, and hae used it very ably, tbarks to tho enlightonod airectiun of its 2:overnor, M.CooTrjes Pallnir. ,7 of events, Y. Lieso decl,?res Commenting upon this ser1e, that the alliance of all tYe banks of :.7-1-c.) fsested after tie panic no Eire, w1c1i rns ar, arcs :Allister, 1.907 by an eminent Itali rocf6ire to bo consurria':od by any officiel netion. There ic no neod of official intervontion, of contracts with binding c3auses, to create a solidarity between those establishments. This solidarity is eutollis1,11 wl/cr noceosf....r:- either airoctlar, if the brInks or issue have the privileo of disoount forei[T commercial paper, or indirectly, by 110 creal coL.')ETIles or Me Intermediary banks. The intervertion of one or another of the banks of issue in favor of a foreign market is therofore free, and so much the more usefIll on that account, because this actlnli i2 Tnsponse to a solidatity (notated , - ,erfomA by the positive interoct that the ban" has in intervenin7, since it dcxivos profit from sc Sting up what has been accomplished by the big credit companies ir developing the inaustries anj financial resource Agnnc;e, supporte of as they have boon by the central 1,1nk, M. T'iose says: n2hey 3radual1-J extend their Letivity in Franee 117 7).eans of numerous ITanch offices or aL:encies. The Bank of ?raroe follows the sane movement, either of its oral accord or by reason of conditions imposod by the overnitiont. The present organimation of erealt begins , grown in importance; to take shapo; the role of thc credit con7aninc, thej adapt thenBelvez to the -temper of the colIntr7 and. of their depositors; they engage preferably i iscountTh, in short.date operations; they make avery effort to rordor available by means of suitable investmonts the capital ontrustoa to them, Tlhich they receive at sicct in :cinch grer:ter amounts than on timo. Finally, tbey take root on For- eign soil and help to invest Pronh caT,Ital (which woul0 be iale in France) L. forei'L;p secizrittes. 7mrce, always eco.monical, inveTts abroad in this way savino to the amount of 7eme tbirty-odd billions. This siLvaticn ::.kev France s er0.1tor of rany nations and Plves it almoct ccrutantTy .or th Bani-. of i,braii(:e (77711-ar-;e r!Ite. It nals it -possible t-par7x I7c) the prril.ert -c-,-)rotary po1.ic7 inaugu- ratee by amn SPy, to -).(1(1-almlate a forridav p.old. reserve. Bank of France thus Locos a ecyter of supply, not only for the ere1j o: PraLc0, but for ar inportant rict3.hborinc: narhet, tlmt of :Jordon." kt"f crlMarch 25, 1910. ERMAN IRIPER IAL BANKING LAWS. Special interest is given to the translatioil of the "Imperial Gorman Banking Laws," which has been prepared under the authority of the National Monetary Commission, by the fact that an Ufrel 4 introduction bas0.49,wevislred by Dr. R. Koch, who only recently resigned as governor of the Imperial Bank and has long been considered the foremost monetary authority in Germany. The laws then- selves include the original bank act of March 14, 1875, which brought unity out of the heterogeneous mass of notes and systems of different types in Germany and the subsequent laws by which the charter of the Imperial Bank has been amended at intervals of ten years. Among the latter are included the law of June 1st, 1909, which resulted from the special inquiry instituted by the German Imperial Government during the year 1908. Dr. Koch, in his introductory re- view of these laws, declares that the conditions which prevailed in Germany, not much more than a generation ago, with regard to the circulation, coin, paper money and bank-notes, striking picture of our political conftsion." "afforded a Efforts to secure a uniform coinage system, by co-operation among the German states, including Austria, had brought no satisfactory results. Paper Txney had been issued by the governments of several of the states, which became known as "wild bills," which could be passed beyond the limits of the states which issued them only with difficulty and loss. Paper which was more acceptable, althouzh not considerable in amount, was issued alF'o upon special concessions by railroad com panies, municipalities, and other corporations. Practically in Prussia only were conditions tolerable, where the Bank of Prussia, which was vested with the unlimited right of note issue in 1856, had been able to render great services to Ger-aan commerce in the 3rises of 1857, 1866, and 1870 and had developocl into a central note bank for the greater part of Germany. "acre were still, however, nine private note banks in the old provinces of Prussia, and other German sovereigns f-ade very liberal use of their authority of granting the privilege c) note iSP110, and often on a scale quite exceedin:, the amount requirod by the extent of their state4. to protect herself by forbidding The effort of Prussia he circulation of those foreign notes was unsuccessful, especially in ridOle Germany, because of the varied and changing business relations of the territories. The cir- culation which was uncovered by bullion, excluding Bavaria, increased * &wordily,' to the monthly records, from about 15,000,000 marks ($3,575,000) at the beginning of the fifties, to an average of 202,296,000 marks in 1867 and to 400,284,000 narks (05,000,000) in 1873. The far-broaching genius of the non who had. brought about the political union of Germany soon realized that such conditions could not be longer endureerMaitAMM-1044gimalmerWOTIF-160444%* Already, the constitution of the Borth German Confederation of July 26, 1867, had provided for subjecting such matters to the supervision of the /11.13•11 Confederation. Further issues of notes by the states were sus- pended, except with no u..0 riy o2 a reaeral law. The coinage re- form was first taken up as a preliminary to the unification of the banking laws. By the Goentre law of July 9, 1873, the gold standard was adopted and a coinage provided for all of Germany uniform in character and denominations, although permitted in some of the stater to bear the distinctive stamp of t'Ee local sovereign. The coinage having been unified, the government set about the reform of the banking system on lines which suggest in some respects the history of the United States. Provision was made for re- ducing the circulation of -overnment paper and a committee was appointed to investigate the subject of uniform and more careful restrictions upon the banks. The issue of notes below 50 marks (412) was prohibited after July 1, 1875, and the banks were required to publish monthly reports. A bill embodying further reforms, includ- ing a duty of four per cent. on uncovered notes above a certain amount, was submitted to the Reichstag on Tovember 5, 1874. The dis- cussions on the subject, however, compelled recognition of tile general desire for an imperial bank to be established in the public interest. So strong was this sentiment that the discussion was adjourned until a bill could be prepared, establishing the Reichsbank and providing for . Its gradual absorption of the note-issuing function throughout Germany. This bill became law on March 14, 1875, and with some modifications in 1889, 18 pire. and 1909, is still the fundamental banking law of the em- This act rested, accordin:: to the analysis of Dr. Koch, on a compromise of the central bank system with the system of a plurality of banks, Which latter had its root in the existip;_; conditions. First of all, it created for a number of years a transi- tional stae, freed from the most pressing evils, in order that ultimately experience would load to the adoption of an adequate uniform system. New mote privile3es could be cranted only by imperial lop:islation. The Reichsbank thus appears, though in a moderate sense, ar the contrra vote bank of Germany. The economic and po- litical position on which its special ri::hts and duties rest, is shorn not only in the classification of its public duties but also in the close connection indicated by its name with the institutions of the empire. , rnent must not be governed solely, or oven Its nanaue chiefly, by considerations of gain. Thus, owir to its capital and the netrork of branches acquired from the Bank of Prussia in virtue of the authority ziver, to it by the bank act, which secured the immediate support of the whole eimpire, the Reiohcbank forms, especially in bad times, the stronhold for no credit of the country. It aids the whole syster of exchanc;e, not Drily by the imaxplems purchase of short time bills and other paper, but also by its collection, deposit and disbursement business, and chiefly by its enormously developed Lro or transfer operations. Thus, according to the narrative of Dr. 1:och, Germany passed through somewhat tho sane transitional stages as are now being discussed in the United States, --a currency isruod by a {-Teat variety of institution, which were not co-ordinated with each other in such a manner as to neet the pressure of crisiss and whose condition led to the demand for more drastic regulation by the Imperial Government and finally to the :rant of c7eneral powers of direction over the money narhet to a single groat institution. AMR t̀k TIE. RZICHSEIIITK ALT TNT, GLRLIA: JOII:T STOCK BA=3. analysis of the manner in Which the big German jointstock banks have developed the commerce of aermany, while supported by the Reichsbank, the central bank of issue, is made in a special treatise on "Development of the German Banking System," which was prepared by Robert Franz, editor of "Der Deutsche Oekonomist," for the Ilational 14bnetary Commission, and just submitted by then to Congress. It is declared by Herr Franz that the Rei6hsban7,: forms one of the principal supports of the German credit system and of German economic life at large. "In this capacity," he continues, "It has proved its value repeatedly, especially in the period of great depression at the beginning of the century. The collapse of a number of larger banks which until then had enjoyed a good reputation caused a profound shaking of confidence and threatened to precipitate a severe credit crisis. Such a crisis would have involved disastrous consequences for the entire business life of the country had not the Reichsbank at that time supported the tottering confidence by a liberal though at the same time prudent extension of credit." Turning to the development of the joint-stock banks, :err Franz declares that the business of industrial financing and stock issues was part of the program of the oldest joint-stock banks, founded as early as the middle of the last century. -2 The development of the railroad system beginning about the middle of last century, which caused a considerable demand for and circulation of capital, and the greater extension of state credit, induced the banks to turn to the flotation and issue business. The period following the founding of the German ;//27pire witnessed a vigorous development of German industry, especially of the mining and (beginning with the nineties) of the electrical inAt dustries, Which required a continuous inflow of new capital. time the sameAGernnn foreign commerce, particularly with oversea countries, .:ept on steadily increasing. The banks furthered this do- velopmenl; by forming stock companies, granting long-term credit, assuming shares and bonds, placing the new industrials on the stock market and selling them to the public. There is no doubt, Herr Franz declares, that but for their policy of furthering the industries, the economic development of Germany would have taken considerably longer than has been the case. It is true that the larger part of the increase in capital is the result of industrial production. But normally the fresh in- crements of capital can be turned into industrial channels as reinvestments only through the medium of the banks. The placing of capital in industrial investments in Germany proceeds as a rule as follows: The bank extends a certain amount of credit to the industrial corporation, which is used by the latter successively in proportion as its enterprise develops. 3uch "in- vestment" credit, owing to its very nature and purpose, cannot be 0.0.4 refinaed within a short time. It is granted from the start with a view to being converted into capital of the inaustrial corporation (through the increase of capital stock) or into long-term amortization credit (through bona issues). In order to repay its debt to the bank: the industrial corporation issues new stock or bonds. The bank must for the time being take over the additional new securities by changing the "book-credit" into "issue-credit." This, however, enables it to shift the risk, assumed by the granting of the original credit, to the wider spheres of the investing public, and to recover, above all, the invested capital. Only in this manner can the bank retain its power of action, and it must be admitted, Herr Franz declares, that as a general rule the German banks have operated in this regard with great skill and circumspection, so that they were able both to meet their own obligations and to satisfy the demands for short-term working credit. In order to obtain the means for granting industrial credit and to dispose of the enormous amounts of newly created industrial MXIX1A securities, it was and. is necessary to attract in as large a measure as possible the surplus funds of the community available for capital investments. For this purpose the joint-stock banks spread a network of deposit branches, destined to serve as reservoirs for the inflow of available funds, and at the same time as distributors for the industrial securities created. With the sane end in view the large Berlin banks, either through the acquisition or exchange of stock -4- (for permanent investment), entered into friendly alliances with the pro vinvial banks. This latter development, representing a centralization of capital, though not of operation, is to be regarded as part of the general process of centralization applying to industry as a Whole. It was particularly strong during the last decade, but seems to have abated somewhat during the last years. The concentration in the German banking system, the growth of the large joint-stock banks, and the extension of their sphere of Interest by means of branches and deposit branches, and by their alliances with medium-sized small banks in the provinces, was furthered by certain extraneous circumstances. One of these was the stock exchange act of June 22, 1896, which, by restricting trading in options, secured considerable advantages to the strong, large banks at the expense of the weaker banks or private banking firms. It is probable that this development re- ceived its first powerful impetus as early as 1891. At that time several private banking houses failed and these failures revealed, in a number of cases, the wrongful conversion of deposits. caused deep commotion among wide circles. This Public interest became aroused on the subject of bank deposits, and the amendment of the existing XifIT civil, criminal, and economic legislation was undertaken. The result was the bank deposit act of July 5, 1896. This did not, however, completely allay the suspicion once aroused, and the disastrous experience with small private bankers helped to no small extent to turn the confidence more and more to the large joint-stock banks, which offer a much greater security for the money and. securities entrusted to them. The most important factor, however, was the fact of the simultaneous capitalistic evolution of industry proper, Which necessitated, a parallel development in the banking field. It goes with- out saying that this evolution, considered in its entirety, cannot be ascribed to chance or the arbitrary action of individuals, but is largely the result of economic forces. Herr Franz declares that it is the undisimted merit of the persons at the head of the banks that they appreciated those endeavors and supported them by advancing the requisite capital, oftentimes incurring great risks for the banks. The progressive industrialization of Germany and the large increase of its population caused on the one hand increasing imports of industrial and auxiliary materials as well as of foodstuffs, and on the other steadily growing exports of industrial products. As a result 1I Germany's share in the world's com- merce shows a rapid growth. Until the seventies of the last century the financial regulation of German foreign oversea trade had been aimost exclusively in the hands of London banks. The establishment in 1870 of the Deutsche Bank at Berlin meant a turning point in this regard. charter adopted the following program: The bank in its "It is the purpose of the corporation to do a general banking business, particularly to further -6- and facilitate commercial relations between Germany, the other European countries, and oversea markets." The founders of the Deutsche Bank had recognized that there existed in the organization of the German banking and credit system a gap Which had to be filled in order to render German foreign trade independent of the English intermediary, and to secure for German commerce a firm position in the international market. It was rather Oifficult to carry out this program during the early years, the more so, because Germany at that time had no gold standard and bills of exchange made out in various kinds of currency wore neither known nor liked in the international market. The introduction of the gold standard in Germany in 1873 did away with these difficulties, and by establishing branches at the central points of German oversea trade (Bremen and Hamburg) and by opening an agency in London, the Deutsche Bank succeeded in vigorously furthering its program. iliamplommitliater the other Berlin joint- stock banks, especially the Disconto Gesellschaft and the Dresdner Bank, followed the example of the Deutsche Bank, and during the last years particularly, the Berlin joint-stock banks have shown great energy in extending the sphere of their interests abroad. Larch 31, 1010. REITEWAI, OF REICT'SBAn. CHARTER. The latest developments and discussions in regard to bankin in larmany are erbodied in a monograph just made public by the Eational Monetary Commission under the title, "Renewal of Reichsbank Charter." Senator Aldrich and the other members of the Connission had the -lova fortune to be in Germany at the moment when a special commission was sitting to consider the revision of the charter of the Imperial Bank, Which is made at regular periods of ten ;Tears. orl They have had translate0 for the use of Congress not the text of the discussions in this commission, made up of the ablest bankers and economists, but also nuch of the discussion which took place in the financial press before the enactnent of the lar of June 1, 1909, and the reasons civen by the 1e7is1ative cormittee for the provisions of this law. The subject was ruch dis- cussed whether the strain imposed upon Garman banking facilities in the crisis of 1907 would have been mitigated if the Iuperial Bank had possessed a larger eapital. This vier was dismissed by the comrittec which reported the nor law with the demonstration that tie capital and surplus of the bank were larger than those of the Bank of France, the Bank of Austria-Fungary, or the Bank of Russia, and were second only to the capital resources the Dank of England. In deciding the question as to whether a further increase of the resources of the Imperial Bank was desirable, it was declared by the committee that it should be borne in mind, that in the case of a central bank of issue, its own funds are of less importance than they are in the case of other briking institutions; they serve principally as a guaranty fund for the creditors of the bank while the working capital is created through the notes issued and the funds deposited in the bank. prove this. The experience of all the banks of issue As a guaranty fund for the creditors of the Reichs- bank its present capital is fully sufficient. The banl- does not require an increase of its resources for the task directly laid upon It as a bank of issue and for the sake of the bulk of its businesc resulting from this capacity. The other point to which the greatest attention was given by the legislative committee was whether the system of limiting the volume of notes in circulation, by inrposlng a tax of five per cent. on the amount of notes above a fixed limit, when the note' were not fully covered by gold, was upon the whole a wise one. The commit- tee found that the system had been shown to have worked perfectly well by the experience of the many yearn that have elapsed since the establishment of the Reichsbanl:. Although a certain indirect connection between the limit of untaxed note circulation and the action of the Reichsbank in regard to the discount rate muct he admitted in so far as the exceedirr; of the contingent and the raising of the discount rate presuppose increased demands upon the Reichsbank, a direct influence on the discount rate through the fixing of the note continent cannot be expected. In fact, the management 3- of the Roichsbank has never allowed the tax imposed on the excess circulation to have any decisive influence on its discount policies. As therefore the discount policies of the Reichsbank would not be favorably affected by the elimination of the continent, no reason was found for abandonin this system. On the other had., it was declared by the committee, it seems altogether desirable to maintain the contingent system, as the exceeding of the continent has more and more developed into a danger signal heeded by business men. The former amount of the tax-free note continent was not, however, regarded as sufficient. The fiures for 1906 proved the inadequacy of the contingent, showing that it was exceeded seventeen times, wiTh a maximum excess of 572,644,757 marks (136,000,000), and this conclusion was strengthened by the events of the year 1907. That year showed no less than twenty-five instances, of which the excess reported on December 31st reached the amount of 625,974,363 marks, a maximum never reached before. At the sane time it happened for the first time in 1907, by reason of the large demands of business, that the Roichsbank had a note circulation which even in its yearly average exceeded the contingent, by more than 58,000,000 marks. Although these two years could not be accepted as a general demonstration, because they wore periods of exceptional financial strain, it had become evident that the old contingent of the Reichsbank was insufficient for the increased demands of business due to the increase of population and the accelerated economic development in Germany. In establishing an increase the fact has to be reckoned with that the demands on the Reichsbanh are regularly made to an especially large extent at the quarter days. The condition, resulting from cus- tom, that at the beginning of a quarter large liabilities have to be met, -- for instance, in regard to mortgages, rert, interest, and salaries, -- causes at those times an extraordinarily heavy demand for instruments of payment, which-, ii is the Reichsbank's unavoidable obligation to meet. In accordance with this view the new law in- creased the limit of authorized issues, covered bu a reserve of onethird, to 550,000,000 marks, and in addition provided that this issue might ho permitted to rise to 750,000,000 narks ($178,20°,000) at the close of March, June, September, and December in each year. Another important point in which the new law departs from the old charter of the bank is in making the note': of the bank legal tender. There was a strong disinclination to this policy when, the bank was established, which is explained by the earnest desire then prevailing to do away with the existing paper metallic currency on a firm foundation. r6gimo and to place the This air has been realized to such an extent that at the present time Germany's metallic circulation, and particularly that of gold coin, is abundant for all demands of trade. On the other hand, bank-notes also are regularly taken in payment, and for payments of large amounts they are used almost exclusively. In vtow of the fact that the legal status of this mode of payment was somewhat uncertain, however, such institutions as had to make nunerous payments, banks especially, generally felt obliged for precautionary reasons to provide themselves with a considerable stoc77 of gold in order to be prepared for any demand for gold that they might have to meet. In proposing this measure the new law followed the examples of England and Prance. In England the notes of the Bank. of England have been legal tender since January 1, 1834. In France the notes of the Bank of France were invested .vitl-, this quality by the acts of August 12, 1870, and August 3, 1875. The conferring of the legal-tender quality upon the Reichsbank notes does not in any way affect the maintenance of the gold standard, as is proved by the example of the Bank of 'England. In order to emphasize this more strongly, the words "legally current Garman money" in the paragraph relating to redemption of notes, have been replaced by "German gold coin." This expresses beyond a doubt that even a single note of the denomination of 20 marks nust be redeemed in gold, although the amount of 20 marks comes still within the limit up to which imperial silver coin is decreed a legal tender by the currency act of July 9, 1873. Thus, the new law, while expanding the legal limit of the untaxed circulation, provides for direct redemption of rotes in rold at the bank and gives uniformity, as far as possible, to the paper circulation. Another important provision of the law authorizes the bank and also the private banks of issue to purchase checks. Since the act of March 11, 1909, in relation_ to checks, nad:it possible for .s- a holder of a cheeL to obtain legal protection for his claim, just the same as tIe holder of a bill, the committee declared that the fundamental objections to the rurchaeo of checks were removed. By permitting their purchase by the Reichsbank the 'folder of a check payable in another city could got cash for it at any moment by having it discounted, whereas under the old method the amounf; was paid only after the check had been collected, -- that is, after a lapse of several day:, and no liability was accepted by the bank for the presentation of the check for payment within the legal tiny, limit. The discounted chock, in accordance with its intrinsic purpose, would be presertod for collection by the bank as quickly as possible ana its equivalent put at the aisposal of the party present- ing it by means of the cire (his account current being credited with the amount), the necessity of a cash remittance being thus avoided. It is exlpected that the purchase of checks by the Reichsbank will stimulate the use of checks and in general promote monetary intercourse without the employment of cash. March 26, 1910. THE SWEDISH BANKING SYSTEM. The method by which the issue of bank-notes in Sweden was transferred from independent local banks to a central institution is the subject of a monograph made public to-day by the National Monetary Commission. The document was prepared by Prof. A. T. Flax, who has given much attention to the economic development of the Scandinavian countries, and includes brief sketches or the bank.. ing systems of Norway and Denmark, as well as Sweden. Special in- torest attaches to the banking experience of Sweden, because she adhered to the system of isolated local banks of issue longer than any other European country except Switzerland. It is only since January 1, 1904, that the right to issue bank-notes in Sweden has been brouttt under the control of the Riksbank or Royal Bank, and it was in October, 1905, that Switzerland, after twenty years of discussion, authorized the creation of the rational Swiss Rank, whose history is told in a monograph already made public by the Lonetary Commission. Interest is also Oxen to the history of banking in Sweden by the fact that the first use of the bank-note is attributed to John Palmstruch, under a charter granted to the Royal Bank on November 30, 1656. The ex- change department of the bank conducted a deposit business, and under certain conditions depositors could transfer to others sums standing to their credit or could withdraw them, the document used for the purpose being designated a bank-note. The Royal Bank thus occupied -2,- from two and a half centuries a (1.o1ratinp: position in Swedish banking, but notes were issued by another type of institution, known as thu enskilda banks. These institutions were corporations whose capital vas divided into shares, but the liability of the principal shareholders was not limited, although there might be associated with them silent shareholders with limited liability. The first of these banks was founded in 1831, and as late as 1857 only 12 were in existence, with total assets of about $15,000,000. Several effortc were made to bring then under uniform rules in regard to the issue of notes and the character of the assets held. By the mint law of 1873 the notes of these banks, which had formerly been redeemable in the notes of the Royal Bank, were made redeemable in gold, in accordance with the policy of establishing the gold, standard firmly in Sweden. Notes for 5 crowns (0..30) were suppressed at the close of 1879, in order to leave room for the circulation of gold coin. Both the Royal Bank and the enskilda banks grow rapidly with the expansion of business during the latter part of the nineteenth and the beginning of the present century. A movement for centralizing the note issue gained ground under these conditions and was embodied in a law in 1897. The aim of this law was to give greater security and uniform- ity to the note issue, without impairing the resources of the enskilda banks for granting local credit. The notes of the Royal Bank are legal tender and are redeemable in gold on demand at the head office. The capital of the bank is 50,000,000 crowns ($13,400,000), and thA metallic reserve is required to be in 7:491d. The minimum reserve is 0.1 34.11 fixed at 40,000,000 crowns ($10,720,000), or 40 per cent.ii of the authorized circulation of 100,000,000 crowns, but any additional amount may be issued when fully covered by gold or foreign balances. In order to protect the country against any reduction of credit facilities by taking away the function of note issue fron the local banks, several duties were laid upon these banks and several privileges were granted to uhem. The number of branches of the Royal Pank was required to be So increased that there sheuld be one in each of the 24 districts into whiele Sweden is divided ror local government purposes, excepting the one immediately adjacent to Stockholm, which is served by the head office. ne law or IC)7 was subsequently modified, in respect to the privileges granted the enskilda banks, by a law of Lay 30, 1901. the time for abandoning it This law provided that note issues having been settled by ar- rangemert between an enskilda bank and the Riksbanh, and on condition that none of the offices open on January 1, 1896, should he closed during the term covered by the arrangement, unless with the permission of the Crown on the 1-ecommendation of the manauers of the Riksbank, the enskilda bank might be granted, against approved collateral, loans not exceeding 65 per cent. of its notes outstanding on January 1, DOI, and an open credit not exceeding 10 por cent. of the same fixed at The interest charge on these loans and advances was, pe:e amount. cent. below the three months' discount rate of the Riksbank, though not in any case lower than 2.per cent., and the usual commission on the open credit was remitted. Ftrther, rediscounts up to 25 per COhj o• 7 ';1(, i.oton outstanding on January 1, 1901, might be anted at a rate not exc!eeding two.thirds of that otherwise eklarL7ed by the Ricksbank. At the end of each year, beinnint2; wiro 1903, the vlpoulit of the raxinuni limit of eacli of these special privileges is decreased by one.eighth of its original amount, so that they lapse entirely at the end of 1910. These concessions to the eLs1,-f_1da banks were co liherpT that they led to the surrender o± theiT rights earlier than the Ciate fixed in the law for their definite termination. Several of the enskilda banks availed tbenselves of the privilege of conversion into joint-stock banks with limited liability, but those of both types continued to increase their offices an0 the volume of business done throughout Sweden. At the end of 1900 the Riksbani- had 19 offices, note. issuing banks, 183, limited-liability banks, 96, and people's banks, 32: a total of 330 offices. At the end of 1908 the Riksbank had 25 offices, the unlimited, banks (includin,; one people's bank), 199 offices, limited-liability banks with capitals of at least 1,000,000 crows, 304 offices, and lesser banks, 51 offices, or a total of 579 offices. There was thus an increase in the eight years of 249 of. flees, to which rust be addee those of a number of institutions represorting former people's banls, and a couple of exchange offices of larger banks not Included in the above totals. offices were opened in 1907, and 43 in Doe, so No less than 59 new that the development seens by no neans at an end. Mere was at the end of 1908 a bank office for every 9,300 inhabitant on the avora:r7e, whereas at the end of 1900 there "ere over 15,000 inhabitants for each office. The different 'barks quote rates, both for 1oa7q.s and for (leposits, that are very nearly the sane. The r;x:Icterce brancheo of nore than one bank in ram? PAstricts ineurer this advantage of cOmpetitter. The R7LM.ebAn1:'s disevent rate 7:Ives, in censequence, a meas- ure of the rates current everrWtere, though there renains sore varia. tion in the rates returned by the several banks in the monthly accovrts These fluetuations mny perhaps rerrecont, in part :If not entirely, Pifferenees between the elasses of business secured by the differert institutions. Drring the panic! of 1907, heavy (lentmds were made upon the Royal Rar,h, which reduced. Its foreign balaneee because the bark failed to irroer with. sufficient enerr7 and rromptness the check of em inoreasee: discount rate on the speculative spirit manifested in business circlee. The rate vas raised or rovember 9, 1907 to per cent., when the London rate wat:1 lit 7 per cent., and the nerlin rate 7-7- per cent. The bar:: Tar benefitted, however, by the Mot tlInt pew Swedish Government lopn 1- non erran ed in France for about 013,000,000, arTAnst which the banl: was ennbled to sell drafts per0ing the need for the use of the noney at home. In 1907, over 92 per cent. of the rediscorntr of the otl:er barks were r'Ide with the Royal Ban17 nnd in. 19081 over 94 per cert. n.m/. abort three-fourths ef the J.nland bills held by the Royal Ben17 were obtained b7 rodiscorntin. May 3, 1910. THE BANK OF FRANCE IN ITS RELATION TO NATIONAL AND INTERNATIONAL CREDIT. A striking study of the part which the Bank of France plays in the international money market has just been made public by the National Monetary Commission, in the form of a translation of the work of Maurice Patron on "The Bank of France in its Relation to Natioil and International Credit." It is pointed out that the banks acts essentially as a public institution, pursuing the essential objects of building up and protecting the national gold reserve rather than seeking profits for its shareholders. By increasing its gold reserve the bank, it is declared by M. Patron, is working against the interests of its shareholders and consequently against its own interests. There are two reasons for this: First the ex- penile of maintaining an additional reserve and the cost of issuing 'tt notes againsti‘7epresents a clear loss to the shareholders. If the holdings of gold were smaller, the amounts of assets and liabilities would decrease without interfering with the profit and loss account. In the second place, smaller holdings of metal would lead to frequent rises in the rate of disoount, whioh are the main source of profit for a bank of issue. -2- In spite of these obvious advantages to the bank in getting rid of a part of its great stock of the yellow metal, the gold reserve has been allowed to increase until it amounts to about $700,000,000 and is the largest stock held in any bank in the world. Even the advance in the rate of discount which is occasionally made, It is pointed out, is not for the purpose of safeguarding the reserve, but to avoid the decrease of the money in circulation which would have resulted from the tempting and persistent offers from abroad where discount rates ruled much higher. With these great resources at its command, the Bank of France has, in the opinion of M. Patron, become practically the reserve reservoir of gold for the financial world. As far back as 1839, the bank lent to the Bank of England £2,000,000 in gold and again in 1890, at the time of the Baring failure, £3,000,000. The Bank of France had just endured without flinching the downfall of the Comptoir D'Escompte, one of the oldest of the joint-stook banks of Paris, but the Bank of England, confronted by like conditions, found it necessary not only to raise its discount rate to six per cent., but to ask for foreign help. The Bank of France was severely criticized in the Chamber of Deputies for making this loan, but this criticism did not deter it from extending similar aid in the autumn of 1906 and in the crisis of 1907 to the amount of 80,000,000 francs, which were forwarded to London in American gold eagles, in answer to a mere telegram. The bearing of this course upon the crisis in the United States gives special interest to the narrative of I. Patron of these events, which he sums up thus: .3- "It was at the time of this developing crisis that the Bank of France was unreasonably reproached with its indifference to the monetary situation in the United States, and with its refusal to give The critics forgot that the bank aid. VW prevented by its statutes from the direct shipment of sums for which the Federal Government refused to become responsible, and that, nevertheless, it forwarded 80,000,000 francs in American coin, which merely passed through London. Certain negotiations took place at that time between the American Government and the Bank of France with a view to dealing directly without the intervention of the London market. It is only because that Government would not or could not offer such guarantees as the Bank of France considered adequate that it made use of the London market, which has a much greater interest than ours In the prosperity of the United States. "The occasions which we have just mentioned are not the only ones in which the Bank of France has had to intervene. In the first days of W I 1906, it loaned 40,000,000 francs to the Bank of England in order that the latter might avoid raising the discount rate. In September, 1906, it sold several millions in American eagles, with the knowledge that they would at once make their way to New York. More recently, in the very midst of the crisis, the bank released many millions of eagles and sovereigns under similar conditions. It would therefore appear that this policy of relief has been definitely adopted by the Bank of France." In view of the many occasions on Which the Bank of France has thus proved the refuge of the great banks of other countries in averting disaster, interest is given to the suggestions of Signor Luzzatti, formerly Italian Minister of Finance, in regard to an international agreement between banks of issue and government treasuries for mutual support. As thus outlined, M. Patron contends that the Bank of France would be forced to adopt, as an obligatory rule of conduct, a measure which after all is employed only as an exception, and at such times as it deems opportune. It is easy to foresee, he deolares, what would happen under such a system. France, financial- ly the strongest country, would have very little to expect from abroad, while it would find its aid urgently solicited at the least alarm among its neighbors: its position as moderator, from being voluntarily assumed as it is now, would become obligatory and subordinate, and this would be evidently unacceptable. In summing up the present position of the Bank of France, with its reserve towering above that of any other great bank, M. Patron concludes that this reserve, admirably managed as it is, affords not only an insurance against crises, but also the surest guarantee against the recurrence of great wars. Upon this point he concludes thus: "We have shown that the fighting power of a nation has now no limit other than the financial effort of which it is capable. It is not going too far to state that the formidable cost which a war would involve has more than once caused our possible enemies to recoil, and that in the settlement of political or diplomatic questions the nation -5— which is richest in gold is always the one which commands the most respect." May 11, 1910. TIX ELCLISE BAICIUNG sYszall. A description of the mechanism of the London money market, in its relation to the Bank of England, the joint-stock banks, and the discount houses has just been made public by the National Monetary Commission in a monograph on "The English Banking System," by Hartley Withers, financial editor of the "London Times." I. Withers begins with an enuneration of the distinctive functions of the Bank of 'England, which he declares to be as follows: 1. Banker to the British Government. 2. Banker to the joint-stock and private banks. 3. (a) Sole possessor of the right to issue notes which are legal tender in England; (b) sole possessor, among joint-stock banks with an office in London, of the right to issue notes at al/. 4. Provider of emergency currency. 5. Keeper of the gold reservo for British banking. 6. Keeper of the gold reserve which is most readily available for the purposes of international banking. These various functions fit into and supplement one another, and though their diversity is sometimes pointed to as throwing too much responsibility onto one institution, it In fact enables the tank to carry out its duties with extraordinary ease, and with the least possible disturbance to the financial community. that it keeps the balances or By the fact the other banks, the Bank of England is enabled to conduct the payment of the interest on the British debt largely by transfers in its books. By the fact that it keeps the balances of the government and has the monopoly of the legal-tender note issue, the bark has a great prestige in the eyes of the general public, which it communicates to the other banks which bank with it. A credit in the books of the Bank of England has come to be regarded as just as good as so much gold; and the other banks, with one exception, habitually state their "cash in hard and at the Bank of England" as one item in their balance-sheets, as if there were no difference between an actual holding of gold or legal tender and a balance at the Bank of England. It thus follows at times when an increase of currency is desirable, it can be expanded by an increase in the balances of the other hanks at the Bank of England, since they thus become possessed of more cash to be used as the basis of credit. For currency in England chiefly consists of checks, and customers who apply to the banks for accommodation, 'by way of discount or advance, use it by drawing a check which is passed on and so creates a deposit; and expansion of currency thus consists chiefly in expansion of banking deposits. This expansion is only limited by the proportion between deposits and cash which the banks think fit to keep, and as long as they can increase their cash by increasing their credit in the Bank of England's books the creation of currency can proceed without let or hindrance. It AO dantertAfrt by liz•,liitherfi,Vatit-the .asse-•-w4,t4 Bank of England ptpvides emergency 9e_ency 0;ives to the Engli banking system the adv,antage of ext,teme elasticity and adap The bank is enabled to aticomplishAhis by the fact that acts as • lythey have in banker to the other banks ard tat every credit whic. its books Is regarded by them. and by the rest of .rie community as "cash to be taken as pract4cally 'equal to so AUch gold. This cash This cash at the Bank ofnglard in the hpeds of the rest of the bankers can he multiplted as rapidly ,p,g the Bank of England is pre.. pared to make advanqes, and as tn.9,,,4iercantile and financial community dan bring it bi1l for discoupt or securities to he borrowed on. of any sort or kind, and the close reThere is no legitl restria*Ion , iations betwen the iary operattons Mk an0 its borroring customers enable the recesbd cart-led Thrtrittet with It-coTrt7- ir111-011* IP tuari- lOilledi?mWeny04sts. in, the Tiastex34....„Liszaiap,bazie„...„ Taking up the subject of the position of the Bank of England in the international market, it is declared that London is the only European center which is always prepared to honor its drafts in gold immediately and to any extent. The Bank of France 1-as the right to make payments in silver, and uses it by often charging a premium on gold, sufficient to check any demand for it, and in other centers measures are taken which make apparently free convertibility of credit instruments optional at the choice of the central bank. Consequently the Bank of England has to be prepared to meet demands on it at any time from abroad, based on credits given to foreigners by the English banking community, and It larl thus to observe the signs of finarciaT weather in all parts of the world and to regulate the price of money in London so that the exchanges may not be allowed to become or remain adverse to a dangerous point. The difficulties of this task are Increased by the extent to which the English banking community works independently of it, by accepting and discounting finance paper, and giving foreigners credits at rates which encourage their further For the low and wholly unregulated proportion of cash to creation. liabilities on which English tanking wors, enables the other banks to multiply credits ultimately based on the Bank of ngland's re- serve, leaving the responsibility for maintaining the reserve to the bank. This it does by raising its rate when necessary, and so, if it has control of the market and its rate is "effective," mommispip ,,,, aguteria.eirialiiitiswevalpti~6044 raising the general level of money rates in London. When its rate Is not effective, the Bank of England finds itself obliged to intervene In the outer money market, -- consisting of the other banks and their custoners, -- and control the rates current in it. This it does by borrowing some of the floating funds in this market, so lessening their supply and forcing IT the price of money. By means of this borrowing it diminishes the balances kept with it by the other banks, either directly or indirectly, -- directly if it borrows from them, indirectly if it borrows from their customers who hard the advance to it In the shape of a check on them. The result is that so much of the "cash at the Bank of England," which the English banking coirmasity uses as part of its basis of credit, is wiped out, money, -- which in London generally means the price at which the bankers are prepared to lend for a day or for a short period to the discount houses, -- becomes dearer, the market rate of discount consequently tends to advance, the foreign exchanges move in favor of London, and the tide of gold sets in the direction of tN. Bark of z]nglardis vaults, and it is enabled to replenish its reserve or check the drain on it. In summing up the relation of the bank to the English money market and to the international money market, it is declared by Mr. Withers that the prestige which makes a credit in its books as good as gold e-ollies fro banking community to expand credits and make check currency as long as it is prepared to lend credit. At the end of the half year it is sometimes applied to for fresh credits to the extent of over twenty millions sterling, chiefly in the -form of advances for a rew days. On one side of its account its holding of securities is expanded by this amount and on the other it on deposits Is similarly swollen. liability At the end of 1902, the last oc- casion when the bankls weekly return was made up on December 31st, and so showed the full extent of the extra credit provided by it at the end of the year, the other securities rose from 227,647,000 on December 17th, to £47,736,000 or December 31st. The other deposits at the same time rose from £36,653,000 to e55,259,000, and this increase in the basis of credit was perlinps used by the other banks for the provision customers. or five to ten times as much accommodation for their A weel7 later the other securities had declined to £29,625,000 and the other deposits to £41,073,000, though reinforced in the meantime by the payment of government dividends; the emergency credit had been wiped out, when no longer required, by the simple process of repayment to the Bank of England of the sums borrowed from It; and the 1-)ank's proportion of cash to liabilities, which had faller to 28 per cent. on December 31st, had risen to 38-3/8 per cent. THT. R7ICIISBANK AND TIL: G:111:AN JO= STOCE BAEKE. An analysis of the manner in Which the big German jointstock ban.l.ao have developed the commerce of Germany, while supported by the Reichsbank, the central banh of issue, is =de in a special treatise on "Development of the German Ban::ing System," which was prepared by Robert Franz, editor of "Der Deutsche Oekonomist," for the National Monetary Commission, and just submdtted by them to Congress. It is declared byerr Franz that the Reidhsbanh forms one of the principal supports of the German credit system and of German economic life at large. "In this capacity," he continues, "it has proved its value repeatedly, especially in the period of great depression at the beginning of the century. The collapse of a number of larger banks Which until then had enjoyed a good reputation caused a profound shaking of confidence and threatened to precipitate a severe credit crisis. Such a crisis would have involved disastrous consequences for the entire business life of the country had not the Reichsbanh at that time supported the tottering confidence by a liberal though at the sarn time prudent extension of credit." Turning to tho dcvolopmont of thc joint-stock banlzs, :err Franz declares that the business of industrial financinis and stock issues was part of the program of the oldest joint-stock banks, founded as early as the middle of the last century. .73,e development of tho railroad s:!stem beginning about the middle of last century, which caused a consIderable demand for and circulation of capital, and the ,:reater extension of state credit, induced the banks to turn to the flotation and iscuo business. The period following the founding of the German :mpire witnessed a vigorous development of German indust ry, especially of the mining and (beginning with the nineties) of the electrical industries, Which required a continuous inflow of new capital. At tin* the sameA German foreign commerce, particularly with oversea countries, kept on steadily increasing. :he banks furthered this de- velopment by forming stock companies, sranting long-term credit, assuming shares and bonds, placing the new industrials on the stock market and selling than to the public. There is no doubt, :le= Franz declares, that but for their policy of furthering the industries, the ocunomic developnont of Germany would have taken considerably longer than has ',leen the case. It is Lrue that the larger pert of the increase in capital is the result of industrial production. But ncrrielly tho fresh in- crements of capital can be turned into industrial chanmols as reinvestments onl through the modUal of the banks. The placing of capital in indusrial investments in Germany proceeds as a rule as follows: The bank extends a certain amount of credit to the industrial corporation, which is used by the latter successively in proportion as its eKteriprise develops. such "in- vestment" credit, owing to its very nature and purpose, cannot be Affirm refunde,1 within a short time. It is granted from the start with a view to being converted into capital of the industrial corporation (through the increase of capital stoct) or into long-tern anortieation credit (through bona issues). In order to repay its debt to the ban17 the industrial corporation issues new stock or bonds. bani': must for the time bein :he take over the additional new securities by changing the "book-credit" into "issue-ereait." This, however, enables it to shift the risk, assunea by the granting of the original credit, to the wider spheres of the investing public, and to recover, above all, the invested capital. Only in this manmer can the ban.lz retain Its rower of action, and it must be admitted, Herr Franz declares, that as a general rule the German banlz have operated in this regard with great skill and cirelmspection, so that they were able both to meet their own oblir;ntiens and to satisfy the denalecle for short-term working creait. In order to ctain the means for -:rantir.,:7 industrial credit and to dispose of the enorreo-es amounts of nowl antuu created indr„otrial securities, it was and. is noceecarzy to attraet in as large a measure as posoible the seiplix frinas community available for caottal investments. For this purpose ts jointestoel: banks spread a retlimrk of depoeit traohos, acstinc,f1 to serve as reservoirs fer the inflo•T, of available funde, and at the sane time trial seaurities created. aistribvtore f:)r A.th the cane end in vie Lenin banks, either thrcuL:h the acqvicitior_ or ol,ollancg of stock (for fermanort iv2vestnient), entered into friendly alliances with tIle provinvial banks. This latter 6evolopnant, roprosentik; a centralization cspital, thougli not of oDoration, 1-3 to be rei-„ardod rart of the general process of eentralinatiou F-p-ply1nf2 to industry as a Ourin; tio ls rA,E1 forticoTarl:i dc:cude, 0ocl,o hnv2 abatod semle%41t 2.arinti the last roars. .rns) noncontration in 461:: German ban1:in6 syrte=, the ,:routh 1;19 11trfi joint-stock "aank2) InCL the e-ztous±on of their 0-v1:ere of erbst by :,,eL.nE; of 1 - 1oho3 and ael)osi 1 1,ranches, and by their al- liances Arlth modium-sizo0. snail ban3ts in the 1:ro7iL00 1 was flIrthered ozT (erl;ain oxt-zaneetzs ei:leurstanccw. irlao c)_- those - Tas -Ze stock oxolla2133uc of Juno 22, 1L96, ntleh, by rostrictinG tradind in options, secured %.;onsiderablo advan- at to oxi)onso of the weaker banks tages to the utroh,, lnrge "oan::.s or private banking firns. It is probalol uh&i; this developrie.it re- ceived its first povelqui impetus a2 oarl;y 4411 18(J1. several private bankins hottos 10 Lt that tine and tLese failures re'vealcd, In a number c.„: cases, the wrongful 3ouversion of deposits. causel deep °emotion amont; aide circles. nis :cablie interest ;)0canc arou0ed on the su'oject of bank dol.dosio, 4:1d tho amondment of the existing tall civil, criminal, and oeozonic lcislatio2i was andertaken. ho resulo was the ban: deposit act of Ju1:2 5, r796. hoyever, oompiotel ala not, allai the suspicion once ,roused, and the disas- trous experience with small private bunker .his bel.oed to no small extent -5- to turn the confidence more and more to thc largo joint-stock banks, which offer a much greater security for the money and securities entrusted to them. The most important factor, hownver, was the fact of the simultaneous capitalistic evolution of industry proper, Which necessitated a parallel development in the banking field. It goes with- out saying that this evolution, considered in its entirety, cannot be ascribed to chance or the arbitrary action of individuals, is largely the result of oconomic forces. HO= Franz declares that it is the undisputed merit of the persons at the head of the banks that they appreciated those endeavors and supported them by advancing the requisite capital, oftentimes incurring great risks for the banlm. The progressive industrialization of Germany and the large increase of its ropulation caused on tho one hand increasinG imports of industrial and auxiliary materials as well indusas of foodstuffs, and on the other steadily growing exports of trial products. As a result az Germany's share in the world's com- merce shows a rapid growth. Until the seventies of the last century the financial reguexclasilely in lation of German foreign oversea trade had been almost the hands of London banks. The establishment in 1W70 oi the Deutsche Bank at Berlin meant a turning point in this regard. charter adopted the following program: The bank in its "It is the purpose of the corporation to do a general barkinn business, particularly to urther INN - and facilitate comercial relations 1)otwewi aernany, thQ other :uropean countries, and oversou nar;:ets." ne founders of the Deutsche ,3ank had recognized that there existed in the organization of , 4 he Jerman bunking and credit system a cap Which had to 1,e filled in order to render aernan foreign trade independent of the English 1 orman commerce zL arm position in intermediary, and to secure for , the international narke-c. It =43 rather difficulL to ca,4r %his program during the oarl;" yo3rs, th6 noro so: because Gornany :tt that -t:ine had no told standard and ilis ol- exchange made out in v'rious kinds oc.*- crIrrency wore heithor "1:nown nor liked in the international arket. The introduction of the cola standard in Gernany in I:173 and. by establisliin6 "oranches at the did away wit4 central point eir German overse;J. trade (Bremen and Tallburg) and by opening an t6.onk,ry in .WL,clon, ;he Deutsche 3ank sliwceeded in vigorously furthering Its 1?rogram. -;keirr-istime;pikater the onier Berlin oint- stock banks, especially the Disconto :3-e3ellscha1t and the _--)resdner Bank, followed Glie example of the Deutscho Bank, and aarin 2articalrly, ;Ale erlin joint-stock banks have shown great energy in extending the sphere of their interests abroad. the last years March 15, 1910. rETTERVIEVIS ON SCOTCH BAITIMIG. in case of Dopendence upon the 73an7: of PAngland for (2:old noe ia one of tho Jaliont features bronL7.1:t out by the 7ational in ing syz;tom. inquirio ii reuara to the neotch bank- Interviows with the chief officers of the Royal Dank the 7,11.ion Bank, ana the C;onnoreial o2 3ootlaAd, the 7.3alik of ::coti:.md, Barik wore hol6 by ,.4:nri.tor :adrich, T,:re Vroelana, a710 other nenbers of the Commission iJ Li1O 011/113C7C printeE by authority of tho of 1909, Itillch have just been oiriiion. institution in respect to the Yietho0AJ of The anuuors given at oach cotch banI:ing were silb- flho circulation in Teotland is issud by eight stantially similar. banking institutiuns, the survivor 1845, when the1iti51 of 19 whioh wero in existence in ar1i7ment forbad° the crei:ttioli of any noro banks of issue and fixed the limit of the circulation. The traount of the authorize° circulation of the :.',cotch banks is only:*2,676,350, or about 13,000,00C, '_bove t1ii anount, howevor, notes may be issuet without lint, provideP„ thoy Are oovore pound. fcrpowlil by go10 and the actual circulation ranges up to about l%7,500,000. The cotoh law aiffers from the TInE71ish law in allowing notes to be issued as low as one pounil terling, while the minim= in :.nglana Is -5,5. It was explained :,;() :;.he 3omission by 7:r. rl'ait,,aElshier and generalmftnager of the :;o7f1.1 Bank, that wookly fluctuationo,are chiefly duo to the paynont of wagon, The seasonal fluctuations are at harvest time, at Christma,, an Lew 'foal:, :Inc, to a nuch larger extent at the half-yearly terms of ihitsuntay (May) and. Martinmas (November), when rents are pain, interest on mortgages is collected, and. halfyearly wages are paid. The nysten of cash credits, which was a half century or more ago one of the chief features of the Footch system, is still employed, ut not apparently on so large a scale. It was stated by Mr. Tait that o. customer may apply to be allowed to overdraw such amount as he may require fron time to time up to a specified amount, an he anr7 two or t7,..eo sureties jointly and severnlly become bound to repay tile smeunt that mm7 at any tive bc awilv.:7 with interest, on (banana being made on them. Each obligant is liable to pay the whole sum, lenving iim ;o obain repayment from his co-obligants. the :ootch system is organized upon a basis independent of of Jngland, its policies are governed largely by those of the big British bank. It was stated by Mr. Tait that "the Yootoh ban:;; al allow the same rate, and charge the same rates for discounts an overdrafts, and these arc axed relativel;: to t-le Bank of England rate." The Royal Bank, he declared, had an account with the Bank of ilngland whi3h had been in operation since 1728, and all over Mot. it collects bills and cheeks for the Bank of .Lngland land. This m.lbject was sot forth somalhat more fully by Ar Goorge Anderson, gHneral-manager of the Bank of Scotland, who said: "In oommon wit,1 moot of the 0,71er banks in riondon, all t1-1. Scottish bn1s-s represented there ia)cp accounts at the Bank of England, on Which operations are made ai required, a minimum balance being usually left in the hanas of the Dank of 7-1n71a&.. to recoup then for trouble in keeping the account. Bank of Englana an An arrangement exists between the the Bank of Scotland for drawing drafts on each other and collecting documents, ana the former act as clearing agents in London for the T3an3c of 7.1ot1and... "The Bank of 'Enfraana As the banker of the government; is the largest ismers of notes, issuing its notos when rcquired in exchange for gola bullion una paring netns in [Told coin; and beinFf7 the bankers' bank, the week17 returns as to its position form the best possible barometer of the state of traae an1 credit in the country. The rate of discount announcea by the hank of England from time to time serves as a guiae to the other banks throughout the country in fixing their rates for '1.oan2 anel deposits." The 'cotch system, with its eight large banks, is essentially a system of cloneentr!lteE control at the centre, fIrd the distribution of credit throngll branohe. The :fcetch bank::, have 1,175 offices or branches, or an avorac7e of 3 for every 4,000 inhabitants. Economy in the circulation of cold is l'otnineC, use of the -411 notes which it was declared by Er. Blyth, general-manager of the Union Bank, enabled the banks to dispense with keoping large balances in actual coin at the branches. The managers of the branches are known in Scotland as agents %nd have power to grant advances, but stibject to the approval of the head, office. It was declared by Mr. Bogie, general-manager of the (.3omercia1 Bank: '41:he nJoretion ailoNea io depenaent on the size of the branch and the rulture (1'. the buzinesa fAnd the class of customer, c.nel on the record of tne agent. By our system of reports on advances (weekly, monthly, and ciaarcly) we keep in co:-c touch witL tTle means of borrowers, Rile 'ivances and. ondon Trannili, of course, on different lines, ane, our manager taore has greater powers than an agent at a branch in 3cutliLna, (January 15:1910.) A set of charts, carefully prepared under the direction of the National Monetary Commission for putting in graphic form the progress of American and foreign banking during the past thirty to forty years, was made public by the Commission to-day. The number of the plates is twenty-four and much care has been taken in the arrangement of spaces, lines and coloring, to maim them tell at a glance the story of the changes in banking conditions during the period covered. The subjects are arranged in a logical order of evolution, beginning with the progress in the number of national banks, state banks, and trust companies. They then deal with changes in relative capital of each class of banks and in the circulation of the national banks; changes in the circulation of national banks in their relation to the supply and price of government bonds; the relation of the Treasury balance to deposits of public money in the banks; the movements of the bank circulation in reserve cities and other cities; the relative fluctuations in the price and net return upon the public debt of the United States and that of Great Britain, France, and Germany; changes in discount rates in different markets; and the comparative stocks of gold in leading banks. The first chart shows the progress in the number of national banks from about 1650 in 1867 through the gradual rise to about 3800 in the summer of 1893. Then comes the depression of the line, due to the failures and liquidations following the panic of that year, until the number in the summer of 1899 falls below 3600. czkrw-eet./ Then berme a sharp upward turn, which began in the summer of 1899, apparently as the result of returning business activity, but was sharply accentuated by the act of March 14, 1900, which first permitted the creation of national banks with a capital between $25,000 and 00,000. This upward movement continues practically unbroken until a total of nearly 6700 banks is attained in the summer of 1908, after which the movement is slightly relaxed as the result of the panic of 1907. Even more interesting in some respects are the variations of the line indicating the number of state banks. Starting below 300 in 1867, the numuer is barely above 600 in 1876 and shows a decline to 475 in 1878. From that date to the summer of 1885, there Is a gradual uplvird movement until the number of state banks is only a little under 1000. Then comes a depression to about 850, which suddenly turns in the summer of 1886 into a rapid upward movement, which has never been permanently interrupted. It was in 1893 that the number of state banks began to overtake the number of national banks. The lines of increase in banks of both types had been roaghly parallel down to about the summer of 1888, with the state banks nearly 2000 less in number than national banks. Then began "a stern chase" by the state bank8 to overtake the national banks in number, influenced apparently by the small profit to the national banks on circulation, which arose from the high price of United States bonds. By the summer of 1891 the distance between the two classes of institutions had fallen to less than 1100; by the summer of more 1892, to less than 600; and by the summer of 1893, to a little than kW. Finally, in the spring of 1895, in the face of national d bank liquidations, the line of the number of state banks crosse s that of national banks and began the upward movement which carrie the line at an acute angle from about 3600 institutions in 1896, to 11,400 in the sunner of 1908. A somewhat different light is cast upon these figures by the second chart, showing the amount of capital and surplus funds of different classes of institutions. Here the state banks, many al of them with capital much below the minimum permitted to nation banks, lose the predominance which they derive from numbers. State banking capital and surplus funds in 1867 are shown to have been $100,000,000 0 while national banking capital and surplus funds were about 0480,000,000. By 1880 these funds for national banks risen amounted to about $575,000,000, while for state banks they had only to about 0110,000,000. Then came an upward curve in the line with national of progress of both classes, which culminated in 1893, banking capital of 0930,000,000 and state banking funds of 0325,000,000. The downward dip of the curve, after the panic of 0 in 1899, 1893, carried national banking funds to about 060,000,00 Then began the while those of state banks were about :310,000,000. el rapid upward movement of the past ten years, along almost parall lines, leaving national bank capital and surplus funds in 1909 at 4;1,500,000,000 and similar funds for state banks at 020,000,000. The difference between banking conditions in :aew York and other financial centers. is indicated by the chart of discount rates in Berlin, London, Paris, and New York for the twenty years ending with 1908. The Paris rates are the lowest, ranging above three per cent. only for brief periods at the Bank of France and for still shorter periods in the open market. The London rates, both at the Bank of England and in the open market show frequent variations, but their range, except in the autumn of 1907, is never higher than 411per cent., and in 1895 as low as two per cent. at the bank and below one per cent. in the open market. The Berlin rates show a higher tendency, but only at the close of the year 1899 and the early part of 1900 did they go above five per cent., until on the eve of the panic of 1907. The open market rate in Berlin did not at any tine except in 1907 go above 4* per cent., and in 1894 was at a point below two per cent. The Commissionv in dealing with the New York market, did not take the violent fluctuations in call money as a basis, but only the rate for commercial paper running from two to three months. Beginning in 1890 at a rate of about 51 per cent., this New York rate fell a trifle below four per cent. in 1892, to mount far above six in the panic of 1893, when the maximum Berlin rate was just over four per cent. and that of London just over three. Then came the fall in the New York rate to three per cent., during the depression -5- following the panic, when the Berlin market rate was under two per cent. and the London market rate was under one per cent. The New Yorx rate returned to a little more than 5* per cent. in 1897, and then advanced gradually to about 4.25 per cent. in 1900, and mounted upward after 1901 to about 5.4 per cent. in 1903. Then came a fall to 4.25 in 1904 and a rapid rise in 1906 which culminated in a rate of 6.2 per cent. in 1907. The flew York rate, whether high or low, was in every case higher than the rates, either official or private, in London and Paris, and only during the period from 1897 to 1901, was it lower than the German official rate and during only a brief portion of this time lower than the German private rate. An interesting chart, which shows in detail the number of days during which high and low rates prevailed at the banks of France, IIngland, and Germany, has a maximum line of seven per cent., which is never crossed in any case by the line of actual rates except at the Imperial Bank of Germany in the panic of 1907. The internal movement of currency between New York and interior points, and the foreign movement of gold to New York from foreign countries and from row York abroad, is the subject of a diagram which shows that New York is frequently subject to severe pressure in both directions at the same moment. Another diagram, rep- resenting the movements of cash between flew York and the interior in the form of a wheel, brings into striking relief the loss of currency by New York from August to December, 1907, and the great reflex -6- current of incoming money during the winter and spring of 1908. The mgimun 0:;o3:3 to New York in any one month was in October, 1907, when the amount was 4402:501,000; the maximum gain was in January, 1908, when the amount was c35,729,000. The largest monthly loss recorded in any other recent year was in October, 1906, when the amount was $23,783,000. The last table of the series, giving the average gold holdings of the three principal Iluropean banks and of the United States Treasury, brings into relief the great increase in gold stocks in recent years. The United States Treasury, with over 1,100,0000000 of gold, stands in the front rank of holders of the yellow metal, offering a remarkable contrast with the conditions of 1895, when total Treasury holdings were under ;;,;140,000,000. The Bank of France, although shoving less remarkable variations, discloses a gold stool: which increased from 4;590,000,000 in 1908. The Bank of 300,000,000 in 1892, to nEland and the Imperial Bank of Germany do not show radical gains in gold, but rather the influence of the variation of the discount rate and the control of the exchange market to keep their reserves up to minimum requirements of from 4150,000,000 to 4200,000,000. larch 16, 1910, I1TIRY/11 011 Bair 07 FRANCE, Ws the Dank of France has steered its course clear of political oomplioations and has prevented financial crises by serving as a harbor of refuge for the joint-stook banks is told in a graphic manner in an interview with M, Pallain, the governor of the bank, which was made publics to-day by the National Yonetary Commission, The story was told in a conference held at the Bank of Prance when Senator Aldrich, Representative Vreeland and other members of the Commilselon were in Europe, holding similar conferences with the heads of the great note-issuing and joint-stook banks, The Bank of Prune, was founAel in the year 1800 and its charter was renewed in 1897, expiring in 1920. Almost the first question asked Governor Pallets. was Whether the bank was ever attacked in the controversies between politioal parties. He answered in these words: !ffe Osage has ever been mai* that the bank favored or aided any politioal parlor. There is never any claim that politics enters in any Leers* into the management of the beak. Busiopt for the re- newal of the charter in 1897, no legislation affesting the bank has bees ensetei glass 1847, There is no sentiment for any *hangs in baaciag methods nor for any new legislation. It should be added that neither the Governer nor Deputy-Governor is permitted to be a member of either body of Pantomimic* The government does not own a Share of the capital of 1811,600,000 francs (*36,826,000), but exercises &manly* influence through the appoint of the governor and deputy-governors and one of the boards of the bank. The governor and the two deputp.governors are appointed by decree of the President of the republic upon the proposal of the Minister of PIAMMANN. Their terms of servioe are not fixed, but usually extend over many years. Some light is thrown upon the absence of political hostility to the bank by the number of its branches, the manner in Which it aids small commerce, and the strength which it affords to the banking system of the country. There are about 600 banking offiees smat- tered over France, the more important, to the number of 127, being known as branches, and the others as auxiliaries and agencies. The managers are remunerated by fixed salaries, Whioh does not, however, prevent the bank from letting all the staff participate in the results of particularly productive years by exceptional allowances. There is aloe a pension system for employees, Shish guarantees to saoh agent entitled thereto at least one-half the annual salary after thirty years' service. The bank is not limited to redisoeunts„ but has a line of clients of its own. It was stated by I. Pallaia, that about 70 per cent, of the paper held bears the signature of sems bank as one of the endorsers, but the number of merchants and manufleturers asking for direst &tomato has reeently been increasing. The average ma- turity of paper disoounted during the year 1907 was twenty-six days and the average value of bills diseounted was 732 francs ($141). This low average, obtained from the mingling of bills for very large amounts with smaller ones, is due to the extent to Which the bank discounts or redisoounts bills for very small amounts. The minimum limit admitted to discount was lowered in 1898 to 6 francs (96.i wont.), and the number of small bills disoounted has never ceased to inerease since that time. In 1907 the number of bills be- low 100 frame ($19.30) was more than 3,600,000 in a total of 7,600,000. Anyone Who is known to the bank can open an account, the minimum being only 600 francs ($96.50). After an account is once opened, the depositor may discount paper for as small & wum as 5 francs, provided it meets other requirements. The bank has for many years charged the lowest reit*. in Europe almost consecutively for discounting bills. When I. Palletin was sliced if it would be more advantageous for the bank, considered simply as a bank, to impose different rates under different oiroumm steam and at different places, he made this answer: wiks a banking establishment, if we thought it advisable to apply different rates, we Gould easily become the masters of the market. But in our position of Bank of Prance, organised to serve the interests of public credit in a democratic country, we do not believe ourselves justified to use this option,* Discussing, later on, the method puramed by the bank to maintain its great gold reserve of more than $600,000,000, I. Pallain wit is a principle oonsoorated by =porton** that the eaprene means of defense for an issue bank, to protest its metallic, reserve, is to raise the rate of disoount, and we never lose sight of this principle. However, the extent of our reserves &flan us to coon- template without emotion important variations of our natant° stook, and we only emeeptionally have recourse to a measure Which is always painful for camerae and industry. The stability and the moderation of the rate of discount are considered as precious advantages, Which the French market owes to the organisation and traditional conduct of of the Bank of France." Taking up the relation of the joint-stook banks to the Bank of Frans*, the question was asked Whether, if the Credit Lyonnais needed money and brought to the Bank of France acceptable bills, the bank would. disoount them, "Certainly. rhe reply was: We often do; and this possibility, allays open, immerging to oiremmetames, is an invaluable resouree for credit societies. The eminent founder of the Credit Lyonnais, I, Germain, a very competent maa in these natters, admitted frankly that if the Bank of Frame* &Id not =1st he would close the Credit Lyonnais, in times of crisis.' I. Pallain added, in response to farther questions, that in the joint-044k banks which the Commission would visit, they would find the liquid oadh very mmall in proportion to the transactions. Win Frame," he declared, "we consider that the strength of a bank .5. consists more in the composition of its portfolio, i.e., in the value of ito commeroial bills, rather than in the importanoe of its cash reserves," The reason for this was stated to be that for the French private banks the proportion of sash to liabilities is less significant on account of the facilities offered by the organisation of the Bank of Frazee for the rapid conversion of good assets into ready money. The part played by the central bank towards the pri- vate establishments permits the latter, as has many a time been proved, to reduce to a minimum their cash reserves and to devote, without emeeptional risk, a larger part perhaps than elsewhere to productive commercial operations, In the further discussion of this wdbjeot, the following colloquy took plaoe: wQ4 I suppose the relations of the Bank of France with the other banks are cordial; there in no friction? "A. We have as a principle to be on good terms with everybody, and better with certain persons, Q. Do the balks rely implicitly on the Bank of France to grant them silent when they require it? "A, They know very well that in times of difficulty we are the enprone resew.** "Q, Does the amount and the 4:ammeter of credit granted to other banks depend on the amount and the character of their aosounto at the Beak of Franco? "A, There is no fired rule, and although the balance of the account is not a matter of indifferenoe, it is more especially the quality of the paper presented which fixed the extent of the credit. In periods of crisis, in 1830, in 1848, in 18,0, in 1888, the general council of the bank did not hesitate to some to the assistance of establishments which were in difficulties, but Whioh held assets of unquestioned charaeter and value, by extending to them the largest possible eseititi." Members of the Commission did not spare the most searching questions in regard to the standing of the Bank of ?ranee with the publio and with other institutions. It. Pallain was asked point- blank, wig the Bank of Frame regarded as a bank for banks or as a bank for the people14" To this he made answer time: wThe Bank of France remained for a long time, indeed, the bank for banks, but since it has oovered so much territory wi its numer- our branches; since the minimum amount of all its operations has been lowered; since it has opened deposit accounts to all; sines it has tried to simplify and minimise the formalities required by its special charter, the industrial and commercial world has some to UAO the bank direetly to a much larger degree. At the same time its credit has come out stronger, firmer, more popular from all the politieal and financial crises, so much so that to.day one can reply without hesitation that it is already and that it tends to become more and more, as you ask, -- the bank of all the French publics." In order to determine if the system of monopoly of note issue which belongs to the Bank of Frame was acceptable to the sountry a as well as to the finansial community, M. Pallain was asked if there was in any quarter any agitation for a change in this respect. He replied in the negative, but added that the people were always inclined to ask more from the Bank of France, to open new branches; to extend the benefit of its credit to a larger number of places; and to increase the faoilities of every kind offered to its customers. Pressed still further to say if there was any demand in banking circles for extending the right of issue to other banks, the reply of I. Pallain te this question was as follows: "The unity of issue was achieved in Frame, in l848, and at no time since than has there been any question, in responsible circles, of a possible return to plurality of issue. The ease tenilleney is leading, little by little, to an absolute monopoly in Ragland., Germany, and even in Italy. I think that it would also be interest- ing for you to examine the resent example of Switserland, Which had its note-issue system founded, as in Amorlea, on the plurality of banks and which has now substituted for this system one single privileged bank.. referendum." This transformation has received popular approval by Larch 14, 1910. THE BANK OF ENGLAIM AND THE MONEY MARKET. The changes in fashions and the extension of the week-end important financil transac- holiclay have their effect, as well tions, upon the changes of the bank-note circulation 1..11 ngland. This was brought out in an interesting manner in the conferences held by senator 'Lldrich and other members of the National Monetary :3ennission with the governor and directors of the Bank of England, which are just being printed for Eistribution by the Commission. It was stated by the officers of the 1,an1c that there has been a steaily reauotion of late years in the volume in LonJon on ',aturdays, an f bu3is conducteel the ALount of the notes withdrawn from the bank on that day is now as a geLerl rule very =CA less than on the ether days of the week. The balance outstanding at the close of the day generally shows, tlIel'ofwea, a natcrial shrinkage, On Mondays notes are withdrn in larger quantities than usual in order to replenish tills afte: th,-2 reduction in the amounts hela on the previous Laturday, whilst on Friaays .111sc the withdrawals are above the ,,ve7:age to beet the ieman6.2 occasione,1 by weekly payments, Llich as wages, etc. The increase total at the close of each quarter is oc- casioned. b-0 withdrawals to meet paymcnts fte on the four quarter days, Laclysay, Midcunmor, Michaelmas, an. 7hristmr.2. Inc large total at ths beginring of iklizust, -- of late year generlly the Imximum for the year, for hoTilc.y an iv fte to 17ithdrawals purposee, whil9t thn low fierreo which Ell usually occur in the middle of February may be attributed to the absence of any holiday demand, and to the fact that reaction after Uhristmas, coupled w1t the conrartive l'bElence of visitors to London, causes the retail trade to be less active than in the second and fourth quarters. The conferences brought out the fact that the Bank of England, contrary to meet banking institutions, is organized upon the principle of "One man, one vote," instead of.9;ivin shareholders in proportion to their stock holdings. votes to it is neces- sary, however, for a proprietor, as shareholders are called, to have pe-ofl 500 of stock in order to have a vote and the stock is quoted at A about 267 the markot value of the amount required to give a vote is / There is no limit to the number of shares which nay about $6,600. be held by any one person, but added holdings do not give incresed voting power. There are at present about 10,000 proprietors, and. they are authorized to elect the governor and directors and to nake by-laws for the conduct of the bank, provided the by-laws are not repugnant to the LIvis of the kingdom. The chief legal restriction upon the character of the directorate is that they must be "natural horn subjects of England or naturalized," but in actual practice the selection is confined to thoe who are or have been members of mercantile or financial houses, excluding bankers, brokers, bill discounters, or directors of other banks operating in the United KingThere is no inspection or actual supervision by the governposition. ment, but the bank is required to furnish weekly statements of its dom. Although the bank exercises great power over the 7",ondon money market, its branches are limited to 11, -- 2 in London and 9 in the provinces. The Bank of ngland does not make such a specialty of dis- counting bills for small amounts as is the (v-t.:;e at the Bank of 7Srance and the imperial Bank of Germany. bills discounted is The average period 02 matu-2ity of from 40 to 50 lays, but upon the average their size was estimated by the officers at about +1,0()O. lOwo British names are required upon a bill discounted, one of whioh must be the acceptor, an four months is fixed as the Laximum mciAceitz; except in a few cases, where six months are allowed. 1ho variouL; cla:Lscs narketable securities quoted on the London utoc:k axchazge, with the exception of minin shares, are accepted, uad also with discretion, good socuritics which are not oo quoted when thoir valu0 can he ascertained. All the large London banks, most of the Ilcotch, and ioe of the Irish banks have accounts with the Bank of England. cial Englisli banks an Provin- branehes of ".:iondon banko in tcww: where the Bank of ]Aagland has branches have local accounts with. the bark. The relation of the joint-21'6°01c banks to the Dank of ,r1171,n0. was discussed very eanilidly wit:a members of the Cominigion Tx Sir Felix Schuster, Bart., Governor of the Uniou of London was pointed out that tho jcirt-stock banks Tmiths Finnk. It rrA Terin quite so much unon the central bank as wa;.; the (lase on the Continent, but that they 1:el)t their cash balances at the Bank of Engli7ind and would Discussing the actual position of look to it in case of emergency. the Bank of Enrlana at the centre of the syTtem, Sir Felix me these obnervatiolin: "To Bauk of England is the central reservoir of the whole bank Th.cough their holding the balan- lug system of the United. Kingdom, oe of the joint-stock banka, of the clearing house banks, and the government balances, of course they have obtained very great power, and thoy can control t:Io market by withholding advances, by fixing IX the rr4.to, by borring f-2om tie market when they feel inclined to Om so. 2rctically they have the wliole control of the money market . 11E they are •:.1r;o in touch with general novements In their Ir:,nas, : th4lt ao tIrAnE, place; the the state cf t.:J3 balance aaa XL;c Lotter than anybody oleo fron of the joint-tock banks hcw trade is in the country, whether there is a 'large lomana for Loney', whether those lx,lancea 01ff-I a tndoici to shrixt.z, or wilether they show a torCency to acounnlate. * * * It iz generally assumed that in he Dunk of .21gland. to grant ao- times of trouble it is the 6-at7 of eormorlation to solvert parties who have good security to offer. The Bank of TaigTanl 7c)e; not openly Acknowlodue has never beer officirlly im-cosca upon it, but it 7111,1 up to it, anel were it not so it er of tIle nitimate ',e7lrve an ntrongth an Da 7_,lays acted raison Metre aL: hold- ors' bank would be gone an other arranreerents would teoon3 imperative." duty, which _5_ This obligation of the Bank of England to support the mart in onorr7encies was 7r)forre autie:) of tlie hank. to 17 7ir 7el1x as one of the In response to the question, 7i1iat steps taken are !lost effective in ttractlng X gold or in preventing its outflow?," Felix replied thus: "The raiing of the aiscount rate, and not onlr of the nominal Ban: of !]nc,. 1%nOL rata, but of the narket rate ao well. You often have a condition w7l1ch you ,.escribe as tho opon-narket rate, that is one -!:( tyro per cent. lowe7, than that of the bunk rate, and in those c,ra1ition3 .1:110 ban", Ilar no influerve whatever. What the bank have to Co unor thee conditions if the7 wish to attract goltl and prevent its le.,-LvinF7 is to pay more in ;he ni%rhet for money than other people woula; they must artificially raise the value of money witside; they imeli-,.tely become borrowers and swoop up all the floating snp. plies at a !1i1!hor rate than c. discount broker would pay 113. net do it themselves. In one instance they have done it direct, but in most wtoes they employ a broker. 1;a:1J in bo3o-ne They Ito whey give security for those short ti,o they sweep 11, -. t'Lle aarplu,. effective in raisin.' the iii:lcount rat. influence on fie forelzn oxcanges. an that That again ho.s an It is the foreign exchanges that 1.egulate to olAfler or influx of gold, and foreign exchanges can onl.y o regulated by the value of money."