Mr. WALKER. I wish you to look carefully at this table, and answer this question: Whether it is not fair to say that a currency that shrinks as bonds appreciate and that increases as bonds depreciate is a freak currency?

Mr. FAIRCHILD. Well, I should think that it is a very bad currency, but exactly what the financial and scientific application of "freak" is I am not prepared to say.

OUR CURRENCY SYSTEM THE WORST IN THE WORLD.

Mr. WALKER. In testifying before the committee last year, after considerable discussion and answering questions upon the point, the Comptroller of the Currency, Mr. Eckels, put his appreciation of the financial system in these words: "Yes; the United States has the worst financial and currency system of any leading nation." What do you think about our financial and currency system, as compared with those of other leading nations of the world?

Mr. FAIRCHILD. I think it is the worst.

Mr. WALKER. You understood the question to be comparatively and not specially or personally denouncing our currency, but that, as compared with other nations, it is the worst of any you know of among leading nations?

Mr. FAIRCHILD. Yes.

Mr. BROSIUS. I understand that.

PROTECTION OF STOCKHOLDERS.

Mr. FAIRCHILD. Now, there is no way that I know of to protect the stockholders and depositors except by greater vigilance in your examinations and that sort of thing.

Mr. VAN VOORHIS. Do you not think we could retire a portion of the obligations of the Government, and by retiring the small notes and refunding the bonds that are now outstanding, on a 24 per cent basis, perhaps, do you not think we could have a secured currency?

Mr. FAIRCHILD. That would not be sufficient. We could have secured currency, but I do not think that a secured bank-note currency at all answers the purpose of a community in its true sense of a bank

currency.

The CHAIRMAN. What do you mean by "secured?”

Mr. VAN VOORHIS. Secured by bonds.

Mr. FAIRCHILD. Of course, it is all secured, but it is the method of securing it.

Mr. VAN VOORHIS. I have questioned all the way through the propriety of issuing this credit currency unless we could have a secured currency based on the bonds of the Government. I believe that would be better.

Mr. FAIRCHILD. You can not have a currency based on the deposited bonds of the Government that is any more secure than the currency we offer here. It is not a bit more secure and not nearly so useful.

Mr. WALKER. Are not the currency notes issued by banks every way sound, and quickly available, with the guaranty for the payment in case of insolvency of the bank written in the statute authorizing the issue of them, and appropriating the money necessary to pay for and create a safety fund, to pay them-in every way as safe as a currency created by bonds?

Mr. FAIRCHILD. I should say so. It is an obligation of the Govern. ment in one case as it is in the other, I think.

The CHAIRMAN. The principle of the present law is to take out of the bank the day it begins business all of its capital and lock it up so it can not loan it.

Mr. TAYLOR. I agree with you.

Mr. Cox. * * * Now, you being an experienced man in finance, is not the community itself the best judge of what currency it needs and what currency the community can handle?

Mr. FAIRCHILD. Undoubtedly.

Mr. Cox. Then would you not be in favor of a law that would repeal this tax and prohibit the local currency?

*

Mr. FAIRCHILD. My individual opinion on that subject is now and always has been that the United States should provide as perfect a banking system as it can. The laws and constitutions of many of our States are such that you can not get any local circulation under them. Texas, I believe, absolutely prohibits a thing of that kind. Therefore, in order to make anything that is complete in the attitude of our States toward it now, it is evident that it is not only better to have a national system, but it is absolutely necessary. To supply Texas, for instance, Arkansas, and quite a number of those States, it is absolutely necessary to have a national system, or else they would have to reverse their whole action, and that would be a long process.

The CHAIRMAN. Under the Walker bill, the currency of which is issued on the true currency principle, the profit is identical on each $1 in circulation.

Secretary GAGE. I have no doubt, Mr. Chairman, that your bill offers better inducements and more profit to the bankers than our bill.

The CHAIRMAN. Have you any doubt that it works out just as safe to the Government, to the banks, and to the holders of currency? Secretary GAGE. No, I have not; with proper restrictions and limitations.

BANKS PROTECT BORROWERS IN PANIC.

The CHAIRMAN. Is it not a fact that the minute a bank is threatened all the business community rushes to increase their discounts and loans and deposits, and that that is what intensifies the panics so much, plus the drawing out of deposits?

Mr. FAIRCHILD. You mean it tends to borrowing of more money? The CHAIRMAN. Yes. They want to increase their loans and discounts. Mr. FAIRCHILD. Yes; they do that.

The CHAIRMAN. Banks then say:

"We can not increase your loans, but we will take care of you;" and saying that all over the country checks the panic. That is true, is it not?

Mr. FAIRCHILD. Yes.

CURRENCY NOT ISSUED AGAINST DEPOSITS.

Your bill provides for
Of course, you under-

Mr. BROSIUS. Do you think it desirable, and if so, on what principle, to issue currency against deposits? issuing currency against the assets of the banks. stand that the deposits are a part of the assets. Mr. FAIRCHILD. Oh.

Mr. FOWLER. The deposits are not assets.
Mr. BROSIUS. Yes, they are.

Mr. FOWLER. They are liabilities.

Mr. BROSIUS. Take all your deposits. Your currency is the first lien upon all the assets of the banks.

Mr. FAIRCHILD. You mean the reverse. The deposits are a liability. The deposits are a lien upon the assets.

Mr. BROSIUSs. I do not care about the use of technical words. The point is that when you issue the currency against the assets of a bank and make those notes the first lien upon the assets, that act covers the deposits and the depositor loses his money just in proportion as his money is taken to make good the notes. Do you think it desirable, on general principles, to issue currency against assets and make that currency the first lien upon the depositor's money in the vaults of that bank?

Mr. FAIRCHILD. I do.

Mr. BROSIUS. Upon what principle can you justify it?

Mr. FAIRCHILD. A depositor need not put his money there unless he wants to. He knows what the arrangement of the bank is. That is true to-day.

Mr. BROSIUS. You say that is exactly what you do to-day!
Mr. FAIRCHILD. Yes.

Mr. BROSIUS. So in any event the loss falls upon the depositors? Mr. FAIRCHILD. It always does.

Mr. BROSIUS. Is it not fair to assume that in cases of fraud such as you suggest, where the capital of a bank is simply gobbled up, if they had not deposited a certain amount of capital in place of the bonds, they would have stolen that also? And is it not a clear question of saving whatever amount of bonds they deposit?

RASCALS STEAL THE WHOLE BUSINESS.

Mr. FAIRCHILD. They would have stolen that also.
Mr. BROSIUS. They can not steal bonds, you know.

Mr. FAIRCHILD. They have stolen the whole business in the same way. The net result in dollars and cents to the stockholders of that bank is the same. Of course when they have invested in common bonds they have their notes banked, because they have run away, and have done the same thing with the deposits. The notes stand there to get the United States bonds, but the capital and the stock and everything is gone.

Mr. BROSIUS. No; but the bonds are not gone, Mr. Fairchild, and therefore the note-holder is made whole.

Mr. FAIRCHILD. That I admit that the note-holder is made whole; but every dollar that was put into that bank is gone.

Mr. BROSIUS. I do not see it in that way, because the bonds were paid for by a part of the capital, and that portion could not be gotten away.

Mr. FAIRCHILD. The only thing that remains at present is the difference between the premium on bonds and the amount of notes that they got.

Mr. BROSIUS. Whatever remains goes to the note-holders to pay the notes?

Mr. FAIRCHILD. Yes.

Mr. BROSIUS. The point that I make is that if a portion of that capital had not been invested in the bonds the whole thing would have been stolen, and neither note-holder nor depositor would have gotten anything.

NOTE-HOLDER SECURE.

Mr. FAIRCHILD. As far as the note-holder is concerned, we have provided for taking care of him as securely as he is taken care of now.

CANCELING SILVER CERTIFICATES-POPULAR USE OF COIN MONEY.

Mr. FOWLER. If the certificates-the ones, twos, and fives-were all canceled, and the silver was out at the end of a year, do you not think the people would be as well satisfied as they are now with the certificates? With California before you as an illustration, with Mr. Garnett, who lives there, refusing to sign the report recommending this bill, because he uses silver, and with the practices of Germany and France and other countries before you, do you not think that at the end of a year the people would be just as well satisfied with the silver as they would be now with the small certificates?

Mr. TAYLOR. I do not think so. They would take it if they had to. Mr. MCCLEARY. Would not that fact-the presence of the gold and silver in the hands of the people from day to day-be the best kind of an education in the other direction that you spoke of a while ago? Would it not be the best kind of an education as to what money really is?

Mr. TAYLOR. Well, it would be a good object lesson, but I do not think I am prepared to say it would be the best one.

The CHAIRMAN. Would not that be the only way to find out what the people want and to get their opinion of any currency system? Mr. TAYLOR. Yes, sir.

The CHAIRMAN. Do you know of any other Government in the world that coins money and then itself issues paper representatives of it direct?

Mr. TAYLOR. I do not know that I ever heard of one.

The CHAIRMAN. Does not that contradict the whole theory of coinage?

Mr. TAYLOR. I think it does. I think it is an inconsistency in our system.

The CHAIRMAN. Is it not a fact that a very large body of our people, children especially, who handle a large part of the money in taking it to stores, and the very large laboring population of the South, and the ordinary laboring men, can carry coin in their pockets with greater safety and less liability of loss than they can carry paper, and is it not also true that the paper often gets wet and crumples up and the germs of disease get in it, and everything of that kind? So, would it not be of great sanitary benefit and economic benefit in every way in protecting the people from loss to have all money, say under $5, in coin?

Mr. TAYLOR. There is great force in that, Mr. Chairman, and I think our people would be better off if that could be brought about. I think they would be better off if they used more coin money. I may be tell. ing tales out of school, but I will say that when this was under discussion in the commission I made a motion that the smallest paper bill should be $3 as a compromise. I think the people would stand that, without much complaint. I believe if you would go to $5 there would

be a great deal of complaint, but that if you say $3 the people would not seriously complain, and perhaps in that way you could accustom them to the use of coin, and eventually they would allow $5 to be the lowest denomination of paper money.

Mr. NEWLANDS. Do you not think that in this country there are a great many people who do not know that the silver is still in circulation through the silver certificates?

Mr. TAYLOR. I can not say that I have found any such people among my acquaintances.

Mr. NEWLANDS. I have met with a great many myself, and abroad I found that that was quite a general impression, that we had a great stock of silver here and that it was not utilized.

Mr. TAYLOR. That might be so. I can not say.

The CHAIRMAN. Whether that is so or not, not one man in a thousand, when he receives a bill, stops to see whether it is a bank note or a silver certificate, or what it is. Unless his attention is especially called to it, he does not notice it. There is no distinction; he thinks that it is all national-bank money.

Mr. TAYLOR. Very few people notice the difference, or think of the difference.

The CHAIRMAN. And they do not know that this coin is collateral for these silver certificates?

Mr. TAYLOR. Very few people think of that. That is one of the consequences of the greenback circulation. It has accustomed the people to take pieces of paper with pictures on them. That is all they notice. The CHAIRMAN. Is it, then, your opinion that the general feeling of affection which the people seem to have for the greenbacks is because they want the paper money?

Mr. TAYLOR. No; not that merely; not because they want paper money merely. I think the affection of the people for the greenbacks is a peculiar patriotic instinct. The greenback is associated in their minds with the preservation of the Union.

The CHAIRMAN. And you think the majority of the people in the ordinary way of life draw the distinction between the greenback and the bank note, and so on?

Mr. TAYLOR. Not at all.

The CHAIRMAN. That is what I meant.

Mr. TAYLOR. No; not at all. In actual transactions I think men very rarely take notice of what kind of money they are handling.

BANKING IN AGRICULTURAL COMMUNITIES.

Mr. HILL. What is the purpose of section 12, providing for small banks?

Secretary GAGE. More particularly for agricultural communities. There is always a small business center somewhere in every sort of community.

Mr. HILL. Generally speaking, you now refer to agricultural communities, in which there would largely be agricultural loans?

Secretary GAGE. Very largely.

Mr. HILL. Do you believe it is possible for a national bank or any bank to be made a bank of issue with the facilities for prompt redemption which you have provided here, making agricultural loans against notes issued on demand?

Secretary GAGE. I think agricultural loans, properly made, are among the best loans in the world.