Treasury by the issue of a noninterest-bearing for an interest-bearing security. Even under the latter head the maintenance of a mass of Government paper at parity with gold by direct gold redemptions at the Treasury Department required, prior to the resumption of specie payments in 1879, the issue of United States bonds to the amount of $95,500,000 and the issue in 1894, 1895, and 1896 of additional bonds to the amount of $262,315,400. These several issues of interest-bearing bonds, amounting to more than $11,000,000 in excess of the whole volume of United States notes now outstanding, indicates in some measure the lack of economy, even from the narrow standpoint of the operations of the Treasury, in the maintenance of Government paper money unprotected by any of the usual resources of a bank of issue, discount, and deposit. The Treasury, moreover, loses constantly the interest on the entire gold reserve held for the redemption of United States notes. This reserve was officially stated on March 17, 1898, at $170,432,007, so that of the entire amount of United States notes outstanding, amounting to $346,681,016, not much more than half possessed in any true sense the character of a noninterest-bearing debt.

THE DISADVANTAGES OF GOVERNMENT BANKING.

The issue of paper money, redeemable directly by the Treasury, is a system which is not approved by the experience of any civilized State. It is not necessary for your committee to refer to the notorious incidents of the French assignats, nor the discredited issues of our own country during the war of the Revolution. Cases less conspicuous are those of the Austro-Hungarian monarchy, which resorted to this method of finance in 1847 and gave forced legal-tender character to its treasury issues. The result was the perpetuation of a premium upon gold, which has not yet been terminated. Energetic steps were taken in 1892 to bring this condition to a close and to leave to the AustroHungarian bank the management of the paper currency. One of the first of these measures, recommended by all the leading financiers and political economists of the Empire, was the reduction and cancellation of the Government legal-tender notes, and this process has been carried on until the premium upon gold has been reduced to a minimum, the Austro-Hungarian Bank has accumulated a large reserve, and the resumption of specie payments is upon the eve of accomplishment. A like course was taken by the German Empire when the currency system was unified in 1875, and bonds were issued to take up and cancel the outstanding notes of the various German States. The Government of Russia, which has just resumed gold payments through the Imperial Bank, always issued its notes through the bank, and was thereby able, in spite of some abuses of this power, to exercise banking methods in controlling discount and exchange. The foreign exchanges were thus kept at a fixed point for several years, and the Bank of Russia has been enabled to resume gold payments with an available gold fund of $600,000,000. The experience of the South American countries, if it should be presented by your committee in detail, would afford even more striking proof of the failure of governments to maintain their legal-tender paper currency at parity with the metallic standard.

The history of the world hardly affords an instance of the successful maintenance of Government paper at parity with gold. The United States, from 1879 to 1893, afforded the most successful illustration of this experiment, but this period was one of prosperity seldom impaired

and of a rigid limitation of the note issues. When this limitation was removed by the act of July 14, 1890, providing for the issue of additional legal-tender Government notes for the purchase of silver bullion, the usual effects of a government paper currency soon reappeared, gold was largely expelled from circulation, doubt and distrust seized the markets, and the great loss inflicted upon the exchanges and upon the earnings of capital and labor foreshadowed in some slight degree the disaster which would have ensued by the actual suspension of the redemption of Government notes in gold.

THE BENEFITS OF A BANKING CURRENCY.

The essential objection to a paper currency issued by the Government brings us to the fundamental reasons which justify those portions of the bill reported relating to the banking currency of the country. A currency issued by commercial banks has the advantage that it is responsive in quantity to the demands of business. No such condition can exist with a Government paper currency. Such contraction and expansion as have occurred during recent years have been directly counter to the current of business necessity, as the result of the locking up of an excessive surplus when active business increased the revenues of the Government, and the pumping into the circulation of an excess of money when dull business created small revenues and a persistent Treasury deficit. The operation of a Government paper currency could never be automatic, like that of a bank currency. It must be subject either to the arbitrary will of an individual in the Treasury Department or to the accidents of the public revenue, often resulting in a redundant and excessive circulation in times of business depression, causing the expulsion of gold from the country and intensify ing the conditions of panic arising from other causes. are well understood by economists and have condemned government paper currency in nearly every enlightened country of the world. They have, moreover, justified the issue of currency through the banks, because such issues are governed by commercial conditions. By the law of self-preservation and by the enlightened self-interest which governs commercial operations, banks authorized to issue notes upon commercial assets diminish their issues when redundancy in the circulation is indicated by frequent demands for gold redemption and expand their issues to meet the needs of business when large gold imports indicate that the means of circulation are deficient.

These facts

A banking currency is not only sound in theory, but it is safe in practice. Whatever disasters have attended excessive issues of bank notes, they are not comparable in their effects to the disasters attending the issues of Government paper money, because bank-note issues can not change the standard of value nor the obligation of contracts. The issues of banks are not usually legal tender in payment of debt, and when they are made by law a legal tender it is almost universally upon the condition that they shall be redeemed upon demand in the metallic standard. The removal of the currency from the accidents of politics, by taking it out of the direct management of the Treasury Department, insures the maintenance of the parity of paper and metallic money so long as the maintenance of such parity is possible under any conditions. Conditions sometimes arise which compel specie suspension, but the fact that the banks are responsive to law and are the creatures of law insures the requirement that they shall resume specie payments at the earliest practicable moment. A government, on the other hand, is sovereign and acts within its own dis

cretion in the payment of its debts. The people of the United States can be trusted not to be lenient with banks of issue in permitting them to suspend the redemption of their notes in specie beyond the time when such suspension may be absolutely required by political or economic conditions. No argument is conceivable which would appeal to the masses of the voters in favor of permitting the banks of the country to continue to float their noninterest-bearing notes at a discount in coin for any such period of seventeen years as the Government, in the exercise of its sovereignty, saw fit to take between 1862 and 1879.

THE ADVANTAGES OF EXTENDING CREDIT.

More important in some respects to a country like the United States is the power for the extension of credit by means of bank-note issues. A bank note is essentially the same in character as the note of an individual or the check of a bank. It comes even closer in character to a certified check. It is substantially the certified check of the bank, printed and issued in such a form as to be conveniently transferable from one holder to another without indorsement. It is a well-reasoned theory of economic students that there is no more justification for imposing an arbitrary limit upon bank-note issues than upon the issue of personal obligations, like promissory notes and checks. The reason which justifies regulation of bank-note issues is that of the convenience of the holder, who should not be compelled to make personal research as to the responsibility of the issuer of each note and distinguish between the notes which he receives. But such regulation should not be of a character to hamper industry or deprive commerce of its legitimate tools of exchange. It would be immaterial in a community closely populated, with banks of deposit within easy reach, and where every member was accustomed to deposit books and checks, whether any currency were in circulation beyond the smallest amount for change. The necessity for a banking currency is derived from the conditions of a thinly settled community where the substitutes for bank notes, checks, and deposit books are not within easy reach and in general use.

It is the belief of your committee, sustained by a great volume of expert evidence, that the present national banking system, with the issues of Government paper from the Treasury at Washington, does not meet the requirements of the country in respect to an elastic and sufficient circulating medium. The issue of a banking currency based upon commercial assets would, in our opinion, permit the extension of banking into communities where such facilities are now lacking, and would tend at once to afford a convenient medium of exchange, to extend credit where it can not now be readily obtained, and, by competition among the banks and the increased opportunities for making loans, reduce the rate of interest in a degree which would be obvious and advantageous to the community. Such an extension of the means of credit is within the legitimate province of banking, and can not be considered as involving undue inflation, when the banks are held to the maintenance of the parity of their notes with the metallic standard, any more than issues of promissory notes and checks can be considered dangerous or subjected to any other legal regulation than the requirement of payment in the standard at maturity.

THE NECESSITY OF CAUTION IN MAKING CHANGES.

While the principles thus set forth are the fundamental principles which should govern the issue of currency, your committee have been

conscious of the fact that the United States have been long accustomed to a different system of currency and that radical and rapid changes might induce anxiety and disturbance. We have therefore proceeded with an abundant measure of conservatism in proposing to apply these principles of currency to existing conditions in the United States. We have provided in the bill herewith reported a system which departs only by degrees from the existing system and which at nearly every step leaves the field open for the competitive trial of the new system along with the old. Such a trial, it is reasonable to believe, would result in adherence to that which proves safest and most advantageous to the community. Wide discretion is given to the Comptroller of the Currency and the Secretary of the Treasury to arrest any undue expansion of bank-note circulation, and to refuse to admit to the new system banks which do not prove their solvency and conservatism. The new system, moreover, is to be substituted only over a series of years for the old, and if at any step the substitution appears to involve danger, either to the national credit or to safe rules of banking, it will be in the power of Congress to arrest the change before it has attained a dangerous momentum. Your committee, reenforced by the study of the banking history of all nations, so firmly believe that the new system will vindicate its soundness and benefits to the country that they have so adjusted the provisions of the proposed bill that the relations of the new to the old during the transition period will be essentially a question of the survival of the fittest.

A LOAN BY THE BANKS TO THE GOVERNMENT.

Taking up the details of the first portion of the bill, dealing with the existing legal-tender notes of the Government, your committee have endeavored to adopt a system which would be subject to none of the criticism made against the issue of interest-bearing bonds or the taxation of the people for the payment of this demand debt. While the arguments are strong for the adoption of one of these methods of paying back to the creditors of the United States the money thus borrowed for the preservation of the Union, the system adopted is such as to continue to the Government all the benefits of the loan without any of the disadvantages of its character as a demand obligation. The proposed bill places upon the banks the burden of carrying and sustaining this debt. The form of the proposition submitted by your committee makes that portion of the demand debt which is not now covered by gold in the Treasury a loan by the banks to the Government. This loan is made without interest and without any compensation to the banks except what is afforded them by the power to issue a banking currency which is granted in other sections of the bill. There is no profit or return to the banks in thus carrying the nation's debt, and they are required by the bill to assume this obligation as compensation for the franchise and privileges granted them as national banking corporations. This policy is not without precedent in that of European governments, but the privileges granted by those governments are enormously greater, because they are granted to a single bank having a monopoly of all the note issues of the country. The Bank of France, for instance, makes to the Government a loan without interest, which has just been increased to 180,000,000 francs, or about $35,000,000; but this loan is substantially offset by the deposits of the treasury with the bank, which amounted on January 7, 1898, to 212,268,560 francs, or

32,000,000 francs in excess of the entire sum advanced to the Government. The Government of Austria-Hungary has an advance from the Austro-Hungarian Bank amounting to about 75,000,000 florins, or $30,000,000, but this is in process of annual reduction by the amount of the profits of the bank charged as a Government tax, but actually employed for the reduction of the loan. These are illustrations of several similar cases, but they serve to show that no country imposes so heavy a burden upon its banks as this bill provides, unless under the pressure of dire necessity, as in the cases of the Governments of Spain, Portugal, and Italy.

This heavy burden assumed by the banks must be given its due weight in measuring any additional privileges which are given them by this bill. The banks are required to redeem this debt of the Government now assumed by them, upon precisely the same terms as the redemption of their own notes while they are conducting a solvent banking business. It is only when, by the refusal to pay such notes, they become insolvent that the Government recognizes again its demand debt and assumes it for the complete protection of the holder of the note and for the benefit of the creditors of the bank by leaving the remaining assets unimpaired for the settlement of their just claims. The form of note thus assumed by the bank with the final redemption guaranteed by the Government combines the strongest of all resources for its ultimate payment. Current opinion sometimes runs into error regarding the whole wealth and resources of the nation as an adequate basis for paper currency. The difficulty with the present redemption system is that this great wealth and these great resources are available only through the power of taxation. The conduct of a proper banking business and the issue of circulating notes, redeemable in coin on demand, requires a mass of assets which can be quickly converted into cash without loss. This security the Government note lacks and the bank note possesses. The note which it is proposed to issue under this bill in lieu of the Government notes is called the national reserve note-a designation which may be taken to imply at once that it has behind it not only the banking resources of the issuing bank, but the reserve strength of the National Government, and also that it is peculiarly available for money reserves of all kinds. It is, moreover, a legal-tender note whose parity with gold is assured so long as the banks maintain the parity of their own notes and for whose parity the Government also is responsible, if it is conceivable that the Government should maintain specie payments while the banks were unable to do so.

AN ADEQUATE SUPPLY OF LEGAL-TENDER MONEY.

The country is thus provided with an ample legal-tender currency, consisting of all the notes substituted for the present legal-tender notes, and of all the gold and silver coin in circulation, to the maintenance of whose parity the faith of the Government is sacredly pledged. This mass of legaltender money, according to the computations of the Treasury for March 1, 1898, consisted of $705,494,037 in gold coin, $458,100,347 in standard silver dollars, $346,681,016 in United States notes, and $104,669,280 in Treasury notes issued under the act of July 14, 1890. This entire amount of legal-tender money, exceeding $1,600,000,000, will not be replaced by money which is not legal tender under the bill reported by your committee except by the amount of legal-tender notes redeemed in gold now held in the Treasury. This amount can not exceed in any case about