not to decide what that currency shall be. The laws of banking govern banking operations whether the currency is silver or gold or an irredeemable paper money. The whole matter of the currency of the Government is outside of the banking question, and the two should be separated and taken up and decided apart from each other. The banking system should not be the battlefield for warring currency factions. Banking and currency are matters relating to corporations created by the Government and relating to the people and to their commercial transactions, all of whom are persons and subjects of the Government, so no apology is needed for asking the attention of the Committee on Banking and Currency to a bill which treats only and exclusively of banking and currency.

BENEFITS OF A GOOD BANK CURRENCY.

While Government and bank currency are two distinct questions, it is also true that a good banking currency will aid the country in maintaining a good Government currency. If the bank currency sustains and protects commercial credit, there would be less discussion of the money question. A good bank currency would give the advocates of silver and fiat money all they are striving for, while they would be grievously disappointed with the result of free silver and unlimited Government currency. The inflation caused by free silver or fiat money would take place once, and that would be the end of it. A few would be made rich, but it would not be the farmer, nor cotton grower, nor mechanic. Can the people of a mining State be sure that those who would amass fortunes would remain in those States to spend them? Would they not come east or go to London or Paris?

But a good banking system would remain in the State to perform its functions season after season and year after year, conveying the lifeblood of commerce through the veins and arteries of the body commercial that are now well-nigh bloodless and paralyzed. Free silver could not benefit a mining State as could free banking facilities. "Credit," said Daniel Webster, "has done more a thousand times to enrich nations than all the mines of all the world." So a bill to protect credit will do more to enrich the United States than its mines can ever do.

NATIONAL-BANK ACT SHOULD STAND WITHOUT AMENDMENT.

Bill H. R. 9279 does not disturb or conflict with the national-bank act. It is supplementary to it. Popular banks are provided for in the national-bank act, and the measure now under consideration proposes that that act shall stand without amendment. The nationalbank act is admirable in all its provisions; it is the flower and fruit of republican banking legislation; it has served the people well these thirty-five years, it has their confidence, and is enshrined in their affections. A change in that act would be most risky and most serious. Moreover, no changes are required in it, for it is difficult to see how a general law could be made more perfect. Also hundreds, and perhaps thousands, of legal decisions have been rendered by the courts defining the meaning of its various sections, and successive Congresses have revised and amended it, and digests have been made of these decisions and amendments until a code of banking law has grown up in these thirty-five years around the national-bank act which is one of the most valuable products of our national legislation. To lose all this, to sweep it away with a new national-bank act, would inflict such a loss on our

people that it should not be thought of except under the direst necessity. No such necessity exists. What is needed is to complete the national-banking system, not to change it. Bill H. R.9279 proposes to do that by incorporating our clearing houses under a Federal law, and thus bring all banking operations under Federal supervision and control.

COMPLETION OF NATIONAL BANKING SYSTEM.

The conception of the framers of the national-bank act is thus fulfilled by taking the last step necessary to bring all the banking operations of the country into the one system. When clearing houses are thus incorporated under a Federal law, it will be safe to give to them special functions which can not be conferred safely on popular banks, chief among which is the power to act as trustees for the public by holding in trust securities pledged by popular banks against which circulating notes may be issued at 75 per cent of their ascertained value, good and receivable at any clearing house in the nation.

This function can be safely given to at least one clearing house in each State, so as to secure a local issue of currency, and the exercise of this function will remedy the only defect in our banking system, which is the absence of the power of self-preservation and of the protection of commercial credit. This change would make it impregnable, and, like our judicial system, the foremost among the banking systems of all the nations of the earth.

THE PROTECTION AND SUPPORT OF COMMERCIAL CREDIT.

If it is asked what is the reason for this addition to our banking laws, the answer is, because there is no provision in the national-bank act and none is proposed in bill H. R. 9725 for the support of commercial credit, and for lack of such support we have seen of late years successive panics march over our land, destroying and prostrating business almost to the point of the exhaustion of the country. Every emergency or disaster, or war or rumor of war, reveals the weakness of our system, which trembles at the first approach of danger, because it is conscious of its lack of protection.

The great business need of our country to-day is the assurance of the protection of commercial credit.

COMMERCIAL CREDIT DEFINED.

The bill which is the subject of this hearing has for its chief object to support commercial credit. By commercial credit is meant the solvency of solvent individuals, firms, and corporations engaged in commerce and finance. To support the credit of solvent parties is to provide means and measures to insure their solvency. Solvency is that state of a sound concern, be it corporation, firm, or individual, in which it is able to provide the money necessary to carry on its business and meet its obligations out of its cash on hand, or upon sales of its notes or property, or by loans thereon.

Insolvency may overtake a concern by reason of losses and misfortunes, or insolvency may occur when the concern has met no losses and has ample bank balances to its credit and its hands full of good assets, but owing to a monetary disturbance it can not draw money from the bank or find purchasers for its property, however low the price may be fixed, or obtain loans on its notes, however well secured by valuable

assets. The support of commercial credit, which this bill contemplates, is that of solvent concerns who can make good and valid obligations, and who can offer abundant assets as security for loans, and of whose credit and ultimate solvency there can be no question.

It might appear that strong parties, individuals, firms, and corporations of the kind described are not in need of protection, but are amply able to take care of themselves, and it therefore becomes necessary to show that our present banking system does not contain provisions to afford this class sure protection to their solvency, nor does bill H. R. 9725 contain such.

CREDIT MAINTAINED BY CASH RESERVES.

It is first necessary to mention the fact that all business is done on the credit system; that every concern or individual having a surplus of unemployed cash will seek immediately to invest in some productive employment as much of its idle cash as may not be needed, retaining only so much thereof as may be required to meet demand calls. This is the universal practice in all business, whether commerce, manufacture, agriculture, mining, banking, or any other employment. Each department of business has its rule as to the safe amount which can be invested in a permanent way and what percentage of cash may be required to insure ability to meet all demands for cash. This percentage of idle or uninvested money each concern calls its reserve. continual question among all corporations and business men is as to the amount of cash which should be kept on hand to insure solvency. On the one hand, there is the necessity of solvency, and on the other the desire to keep all capital employed, and there is a continual strife between the two. The difficulty in arriving at the correct ratio is so great that it has been found necessary to regulate by statute the percentages of reserves which shall be carried by banks and insurance companies.

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THE CREDIT SYSTEM UNIVERSAL.

This survey shows that the whole business community is conducting its business of every shape and description on the credit principle. The basis of the idea of credit is that the business world has confidence that a firm or corporation can conduct its business safely with a cash reserve and that markets and banks will be open for sales and loans to provide all its possible needs.

There is a mutual dependence of all departments of business each upon the other, and if this cooperation does not exist solvency can not be maintained. Reserves must be kept up and be available, or solvency is destroyed. Markets must be open, or business comes to an end. Banks must be able to discharge all their functions, or business must be suspended and markets must be closed.

All business being thus mutually dependent and transacted on the principles of the credit system, it follows that each one and all of the 1,080,000 firms, corporations, and individuals engaged in business in the United States, according to mercantile reports, are doing business on credit, all have a cash reserve, greater or smaller, and all have assets, which in case of need they would turn into cash, either by sale or direct pledge or by making paper against them if their standing and responsibility would enable them to do so.

It can be safely said that there are no firms, individuals, or corpora

tions doing business in the United States on a strictly cash basis; that is, no firms have all their cash in coin in their own custody and pay coin for all purchases and sell only for coin on delivery. A firm doing business in that manner would soon find themselves distanced by competition and unable to make money.

CREDIT SYSTEM MUST BE PROTECTED.

The basis of all business in the United States being the credit system, every business man is vitally interested in having the credit system work smoothly. He first wants to be absolutely sure that his reserve, which he calls his cash on hand, is at all times subject to his demand. This means that the banks which are the custodians of his cash shall be at all times ready to respond to his calls, even if he should ask for the payment of all that is due him.

He wants, secondly, that in case of need he shall be able to increase his cash means by pledge of either his credit or his assets for a temporary loan if the cash reserve he has provided has been diminished or exhausted, and, thirdly, he wants the markets open so that he may sell his property without sacrifice on the basis of a fair return to himself and a fair equivalent to a buyer.

ALL THE NATION INTERESTED.

This describes the condition and business wants of the 1,080,000 individuals, firms, and corporations doing business in the United States. Of these there are about 10,000 banks and 1,070,000 other concerns and individuals.

These 1,070,000 individuals, firms, and corporations represent those who are the owners of the manufactories, trading companies, and firms of the manifold descriptions which go to make up the various occupations of the people of the United States. They are the ones who give employment to the 2,500,000 employees engaged in railroad and other transportation; they pay the wages of the 5,000,000 operators in our factories of all kinds; they hire the 4,200,000 women and men who are engaged in domestic and personal service; they ultimately pay the salaries of the 1,000,000 men and women engaged in professional work. They are the busy, thinking, energetic, active, pushing men who are doing the manufacturing, merchandising, and trading of our country, and the welfare of their employees and dependents, and thus of the whole country, rests on the orderly working of the credit system. If a panic comes to upset that system, then distress is not only felt by the 1,070,000 individuals, firms, and corporations engaged in business, but by all their dependents, and the legislators who can devise and enact a law which will support the credit system will confer a benefit on every man, woman, and child throughout the nation.

This view of reserves is from the standpoint of the 1,070,000 concerns who make up the business community. We sometimes limit reserves to the idle cash held by banks, but in a true sense every business concern has its separate reserve, and it is represented by its bank balance or quick securities. Bank balances should be regarded as the reserves of the country.

PRESENT BANKING SYSTEM PRECARIOUS.

We can now see how precarious is the monetary situation in the United States if the country banks, as they are permitted to do uuder B & C- -2

the national-bank act, immediately lend out from 75 to 85 per cent of these reserves and then send one-half or two-thirds of the remaining cash to reserve agents, who in turn loan out 75 per cent of the cash reserve sent to them and hold the balance, not as a special fund for the benefit of the banks whose reserve it is, but merge it into their common reserve on all their general deposits, and at the same time have no way of repaying the reserves thus confided to them if an emergency arises, except by forcing liquidations on the borrowing public. The banks hold the reserves of the public ostensibly on demand and then put 80 per cent thereof beyond their call. This practice is a distinct weakening of the banking situation if there is no way by which the banks can get back this money except by distressing borrowers.

Suppose it should happen that all the deposit reserves should be called for by out-of-town banks, then a simple calculation shows that the banks in reserve cities would hardly be left with more than 5 per cent in cash on their remaining deposits, which would then amount to about $750,000,000.

This state of affairs would be very alarming in any less intelligent country than the United States, and it exposes even us to a constantly recurring liability to spasms of apprehension and panic, during which the three objects desired by the business community and necessary for the support of the credit system are imperiled, viz, the payment of bank balances in cash, and the granting of needed loans to the business community, and the keeping of markets open.

PROTECTION TO CREDIT BY A SOUND CREDIT CURRENCY.

The simple expedient necessary to prevent this liability to apprehension is to enact laws to protect reserves, not only the reserves of the banks, but the reserves of the business community represented by bank deposits, and to give banks the power to grant accommodations as needed.

The power to issue a credit currency will do it, provided it is, as Professor Sumner expresses it, " of a credit which can not fail in the wildest panic."

A credit currency issued by 3,000 local banks on assets in their own hands, as proposed in bill H. R. 9725 would not answer. In a wild panic that would fail. It must have a credit second only to the Government, which will enable it to circulate freely from one end of the country to the other, because it is to do the service of maintaining the reserves of all the 1,070,000 individuals, firms, and corporations who are bearing the business burdens of the entire country and are paying the salaries and wages of the 15,000,000 to 17,000,000 workers, men and women, engaged in honest labor. It must be a currency which will go at par from Maine to Texas and up to the farthest point of Alaska. It must be able to support the credit of a solvent firm or corporation in Massachusetts by paying a debt due in Iowa, or vice versa. The transactions under the credit system are so interlaced and interwoven all over the country that that system can not be supported except by a currency of universal credit. The clause in the charter of the Bank of France states it plainly thus: "The essential interests of the country imperiously demand that every bank bill declared to be lawful money shall be able to circulate equally in all parts of the land."

EFFECTS OF APPREHENSION.

Whenever a spasm of apprehension comes, which of late years has been almost a chronic condition, the banks stop lending or discounting