upon the national banks issuing asset circulation to reimburse it, but these assessments shall not in any one year exceed 1 per cent of the asset circulation.

MISCELLANEOUS PROVISIONS.

Existing national banks may continue to do business under their present charters upon acceptance of the new law, but must comply with the requirement for taking out 25 per cent of their capital in reserve notes.

Branch banks may be established in the discretion of the Secretary of the Treasury.

Stringent regulations are provided for the examination and conduct of national banks.

The reserve requirements in relation to banks are the same as under the present law, except that 50 per cent of the reserves required to be kept actually in the bank must be in gold.

Banks are required to pay a tax of one-quarter of one per cent per year upon their capital, surplus, and undivided profits. The existing tax of 1 per cent per year upon circulation is repealed.

NECESSITY FOR PROTECTING THE TREASURY.

The necessity of so protecting the Treasury as to strengthen the public credit ought not to be a subject of dispute among those familiar with the events of the last five years. The essential purpose of the bill in this respect is to relieve the Treasury from the burden of the constant redemption of Government paper money and to obviate the necessity of selling interest-bearing bonds running for a long term in order to obtain gold for the continued and repeated redemption of the notes. By reference to Tables 2 and 3 in the appendix to this report, it will be seen that the redemption of United States notes during the years 1892 to 1897, inclusive, amounted to $455,025,847, or more than $91,000,000 a year. This annual average redemption amounted to almost the total of the gold redemption fund, thus requiring practically a complete replacement of the fund each year. This necessity resulted in the issue of long-term interest-bearing bonds, amounting to more than $262,000,000.

It does not matter what view is taken of the responsibility for the condition in which the Treasury has been found during the last five years. If any political organization or any error of administration at the Treasury Department is responsible for these events, it only emphasizes the necessity of placing our currency system beyond the reach of political accidents. Our financial system should be such that no Administration, without radical change of law, should have the power to involve the commercial business of the country in disaster because the fiscal and banking operations of the Treasury might not be wisely conducted. This is one of the essential purposes of the bill reported by your committee-to separate the operations of the fiscal service of the Government from the operations of commercial banking.

There can be no question of the benefits to the Treasury and to the public credit in relieving the Treasury of the constant necessity of redeeming demand obligations. Such objections as have been made to methods heretofore proposed for terminating these conditions are, we believe, obviated by the plan herewith reported.

Your committee propose to relieve the Treasury absolutely of the obligation of finding gold for the redemption of a very large proportion of the

legal-tender notes, and we believe that the small amount of such notes left outstanding will be given such enhanced credit by the operation of this bill that they will never again become a menace to the public credit and never bring in question the ability of the United States to fulfill the mandate of the act of November 1, 1893-"the_maintenance of the parity in value of the coins of the two metals, and the equal power of every dollar at all times in the markets and in the payment of debts."

EFFECTS OF DOUBT ABOUT THE PARITY.

The importance of maintaining unquestioned and unimpaired the parity of all our forms of money is such that it involves almost every transaction of life, and peculiarly the volume of business, the safety of investments, the value of pensions and insurance policies, and the legitimate profits of agricultural, industrial, and mercantile enterprises. From 1893 to 1896 the United States, by heroic efforts, succeeded in preventing any depreciation of their paper currency, but the mere suspicion of the possibility that such a depreciation might occur was among the potent causes of the shrinkage of values and the paralysis of industry.

Some conception of the effects of this uncertainty may be formed from the fact that the transactions of the New York clearing house shrunk from $36,279,905,236 for the year ending October 1, 1892, to $24,230,145,368 for the year ending October 1, 1894. The clearings throughout the leading cities of the country showed a shrinkage in the same period from $61,017,839,067 to $45,028,496,746. Figures like these measure, in some slight degree, the reduction in the volume of business, in the earnings of the people, and in the employment for labor. There can be no doubt, also, that the withdrawal of foreign capital as the result of like uncertainty regarding the maintenance of the parity of all our forms of money added to the tendency to panic by the persistent withdrawal of gold, and diminished the productive resources of the country.

HOW THE PARITY OF COINS IS MAINTAINED.

It is the permanent policy of this nation that the making of coins shall be vested exclusively in the Government. The Government makes the coins out of several metals, each designed to serve the people in the special way for which it is best fitted. The Government has declared itself in duty bound to preserve the parity of its coins.

How is the parity maintained? The value of the silver in a silver dollar is much less than the value of the gold in a gold dollar, yet a silver dollar will buy as much as a gold dollar will buy. Why?

There is a certain amount of money of small denomination absolutely needed by the people of the country for their ordinary retail transactions. Silver serves this purpose admirably. It has been found that so long as the limit is not exceeded there is comparatively little trouble in maintaining at a parity with gold the amount of silver legitimately demanded by business. In order that the business demands for silver may be fully met and satisfied, and yet that no more shall be forced into the channels of trade than is needed, our Government has adopted the following plan:

1. The coinage of silver is on Government account; that is, the Government controls the volume of the silver coinage.

2. In making payments for materials or services, and in the payment of obligations, it pays out as much silver as is desired. It also holds

itself ready to pay out silver in exchange for other forms of money. In these ways it gets silver into circulation, meeting in some measure the legitimate demands for such money.

3. The Government stands ready to receive silver at any time as the • equivalent of gold in payments due to it. In this way, by indirect redemption in gold, the silver is kept in the minds of the people as the equivalent of gold, and at the same time a reservoir is provided for any surplus which the channels of trade may desire to rid themselves of. And, as has more than once been announced by the Treasury Department, and as provided in the bill herewith reported, the Government will, if necessary, give gold coin in exchange for silver coin.

The method by which the Government redeems its pledge to maintain the parity of the metals is, then, first, by so regulating the volume of silver coin in circulation as to meet as nearly as possible the demands of business, which are quite constant; and, second, by making silver coin indirectly or directly interchangeable with gold at the Treasury. Recognizing it as part of the permanent policy of this country that the Government shall maintain the parity of its coins, the bill reported by your committee has sought to render the performance of this duty as safe and easy as possible. The bill provides that hereafter no United States note or Treasury note of 1890 or national-bank note shall be issued in denominations of less than $10, and that silver certificates shall be of the denominations of $1, $2, and $5. This arrangement will give to silver, in the form of coin and certificates, practically the whole field for use as the money of retail trade, thus making the demand for silver large and steady. By reference to Table 8 in the appendix the present actual demand for $1, $2, and $5 bills can be seen. Careful computations show that by this arrangement nearly 95 per cent of all the silver coin now in the country may be given employment in the regular channels of trade. It is expected, therefore, that comparatively little silver will find its way to the Treasury, either on payment of dues or to be exchanged for gold, and that public dues will be paid almost entirely in gold. Thus the burden of the Government in maintaining the parity will be reduced to the minimum, while its ability to do so will be raised to the maximum.

THE DIVISION OF ISSUE AND REDEMPTION.

The gold reserve, held for the purpose of maintaining the parity of our various forms of Government coin and paper, has always been held in the general cash of the Treasury. This arrangement has long been deplored by thoughtful people, because it leaves this fund, a depletion of which would entail such direful consequences on the country, to the varying fortunes of revenue receipts. This fund was provided for a specific purpose, and should be held apart from the general funds of the Treasury. Then if there should be any trouble we shall know how to locate and correct it. Moreover, it is expected that under the operations of this bill the Treasury will be relieved from the burden of the current redemption of its demand notes, so that the reserve fund will, before long, be materially reduced. With the view, therefore, of separating the financial operations of the Government from its fiscal operations, the bill provides for a new division in the Treasury Department, to be known as the division of issue and redemption. To this division is assigned the duty of acting as custodian of the funds for maintaining coin parity and of the redemption and guaranty funds of the national banks, and by it all exchanges called for to accommodate the people in securing such form of money as will best serve their legitimate purposes, so far as this duty continues with the Government, shall be

made. In order that the exceedingly important work of this division, including the supervision of all the national banks, may be done most efficiently, the bill provides for a board of three comptrollers, with long terms and with the appointments so arranged as to secure skilled and experienced supervision and control.

THE DISADVANTAGES OF GOVERNMENT BANKING.

The issue of government paper to circulate as money 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. 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 were not long in showing themselves. 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 with the actual suspension of the redemption of Government notes in gold.

Among the reasons that may be given against the issuance of Government demand notes to circulate as money are the following:

1. The original issue of such notes is always due to an empty or embarrassed national treasury. As a necessary consequence, the notes always depreciate in value, driving coin out of use and becoming themselves the everyday standard of value. This results in a seriously fluctuating standard,* demoralizing to all legitimate business and serving only the speculative and gambling elements, who find their profits in rapid fluctuations in prices.

2. The falling away from the coin standard may be only temporary. In that case the period of depreciation works a hardship on creditors, while the period of return to the coin standard works a hardship on those who have gone into debt during the existence of the paper standard.

3. The gathering of a redemption fund in coin for the purpose of bringing the paper up to the coin standard must be through increased taxation or through the issuance of interest bearing time obligations. This fact, together with the fact above referred to that the process of return to the specie basis works a hardship on debtors, always makes such return slow and difficult. In the nature of the case the condition of demoralization tends to perpetuate itself.

4. It is exceedingly difficult to hold Government currency up to the coin standard for any length of time, even after it has been brought

For the variations in the value of the greenback before 1879, see Table 7 in the Appendix. B & C 7

back to that standard. The maintenance of the necessary coin reserve is expensive. Its maintenance, too, depends in this country largely upon the views of the Executive and is always subject to the fortunes of revenue receipts. And in the case of our Government demand notes "redemption does not redeem." The notes are continually reissued. Moreover, the Government reserve commands few of the gains and is subject to all the losses of the ebb and flow of coin and bullion in international trade. So long as the Government has out notes receivable for customs and other public dues no one is bound to pay gold to the Treasury; so the flow of gold into the country to settle trade balances does not necessarily help the Treasury reserve. But whenever an adverse balance of trade requires the exportation of gold, the Government note becomes the efficicnt instrument for depleting the reserve.

5. The issuance of Government demand notes is continually liable to abuse. The first issue is always deprecated, even by its advocates, their only justification for it being its apparent necessity. Promise is always made, too, that the first issue will be the only one. Our first issue of $150,000,000 of "legal tenders" in 1862 was thus justified, and the promise was made that this limit would not be exceeded; but a second issue to the same amount soon followed, and this was ere long followed by a third; and now there are those who advocate a new issue of $150,000,000. Disaster in such a case seems to necessitate further issues, while, on the other hand, temporary success is used to justify them.

The burden of maintaining the parity of all our paper currency with gold coin should rest upon the banks of the country, whose facilities are natural, whose resources comprise in liquid form practically all the products of American labor, and whose relation to the public will compel them to maintain the parity of any notes they may issue with the standard of the country or go into bankruptcy.

The result would be that commerce and business of every kind would not be subjected to constant and serious shocks, as they are to-day, whenever there is either a fear that the Government may be unable to maintain the parity or a suspicion that the party in power, for political reasons, will not do so.

But even if Government paper currency were not open to the above objections, even if it could be made absolutely safe, the issuance of Government demand notes would not be the wise way of securing the necessary paper currency of the country. Among the reasons for this conclusion, two readily present themselves.

In the first place, the Government can not regulate the volume of its notes to meet properly the requirements of the country's business. The officers of the Government, chosen for political and not for business reasons, having functions that are civil and not commercial, can not know how much currency is needed. Moreover, the currency needs of the country vary greatly with the seasons and the localities, with the volume of business and the habits of people. A fixed amount is necessarily a wrong amount.

In the second place, the Government lacks the facilities for distributing its notes where they are needed for business purposes. It pays out money only for materials or for services. In other words, the needs of the Government and not the needs of business determine the time, place, and amount of its outlay.

As has been well said

The Government bank has no depositors, and can not get its notes into circulation through depositors as business needs them. It has no automatic method of getting