Full text of Hearings Before the Committee on Banking and Currency, Fifty-Third Congress, First and Second Session (1893-1894)

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HEARINGS

BEFOHE T H E

F IF T Y -T H IR D CONGRESS, FIRST AND SECOND SESSIONS.

- ’ 9

4 .

W A S H IN G T O N :
GOVERNMENT P R IN TIN G OFFICE.
1894.
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COM M ITTEE ON BANKING AND CURRENCY, HOUSE OF REPRE
SENTATIVES UNITED STATES.
FIFTY-THIRD CONGRESS.
W i l l i a m M. S p r i n g e r , Illinois, Chairman.
L e w i s S p e r r y , Connecticut.
J a m es C. C. B la c k , Georgia.
N i c h o l a s N . C o x , Tennessee.
U r i e l S. H a l l , M issouri.
S e t h W . C o b b , Missouri.
J o s e p h H . W a l k e r , Massachusetts.
D a v i d B . C u l b e r s o n , Texas.
M a r r i o t t B r o s id s , Pennsylvania.
W i l l i a m T . E l l i s , Kentucky.
T h o m a s J. H e n d e r s o n , Illinois.
J a m e s E. C o b b , Alabama.
C h . ^ l e s 'A ; -R u s s e ll, Connecticut.
J o h n D b W it t W a r n e r , N e w Y o rk .
N i l s P: H a u g e n , W isco n sin .
T o m L . J o h n s o n , Ohio.
H e n r y U. 'J o h n s o n , Indiana.
R c t e r W. S p r i n g e r , Clerk, to June 19,1894.
F r e d L. F is h b a c k , Clerk, from June 19,1894.

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HEARINGS
BIFORX THI

COMMITTEE ON BANKING AND CURRENCY.*
Co

m m it t e e

a n k in g

and

rrency

Washington, D. 0., Friday, September 29,1893.
The committee met at 10 a. m. Present, Messrs. Springer, Sperry,
Cox, Cobb o f Missouri, Cobb o f Alabama, Warner, Black o f Georgia,
Hall o f Missouri, Haugen, and Johnson o f Indiana.
The C h a i r m a n . The meeting this morning is for the purpose o f
hearing statements o f members o f the House who have introduced
bills which have been referred to this committee; besides other inem
bers. Meetings will be held hereafter for the purpose o f hearings upon
other matters pending before this committee. A t the last meeting ot
the committee, the following resolution, introduced by Mr. Warner, was
passed:
Retolred, That the chairman o f the committee arrange for appearance, before the
committee, o f members who have introduced bills which have been referred to this
committee, and also o f members who desire to be heard upon pending bills. The
statements submitted shall be taken down by the committee stenographers and filed
w ith the clerk.

The chairman was also instructed at the last meeting o f the com
mittee to communicate with the proper authorities in the several States
and Territories for the purpose o f procuring any information that
might be o f importance relating to the systems o f banking which pre
vail in the States and Territories.
The chair has, in pursuance o f this authority, requested Mr. Oates,
o f Alabama, to appear before the committee this morning, and also
Mr. McLaurin, o f South Carolina, to explain the bills which they have
introduced. The chair has also invited Gen. Wheeler to be present.
I f we should not be able to conclude the heariugs to-day, the chair will
request the continuance o f the meeting fcr that purpose from day to
day until we have concluded the work which we have undertaken.
Col. Oates is present, and he will submit statements in reference to
House bill No. 136, to suspend section 3412 of the Statutes relating to
State bank associations.
The bill is as follows:
A BILL to anapend section thirty-four handled and twelve of the Rertaed Statotea of the United
States aa to the clrcnlattnc notea or certain State banking associations.

Be it enacted by tke Senate and Boute o f Repretentativetof the United State* o f America
t* Congrete attembled, That section thirty-four hundred and twelve o f the Revised
Statutes o f the United States, which reads as follows, to w it: "E v e ry national bank
in g association, State bank, or State banking association shall pay a tax o f ten per

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centum on the amount o f notes o f any person, or o f any State bank or State banking
association used for circulation and paid out by them,” be, and the 'same is hereby,
suspended as to all notes issued to circulate as money uy any corporation or banking
association under the laws o f the State where the same is located: Provided, That
there shall first be deposited by such corporation or association, with the State
treasurer or other safe depository designated for that purpose by the law o f such
State, an amount o f the lawful money o f the United States or the solvent bonds o f
par value o f such State, its counties, or municipalities, equal to one hundred per
centum o f the aggregate amount o f notes proposed to be issued by such corporation
or association, which deposits are by the laws o f such State made and held for the
security o f the holders o f such bills or notes and for the redemption o f such notes or
b ills: Provided further. That the aggregate amount o f such State bank issues shall in
no case exceed five dollars per capita o f the population o f such State as ascertained
by the last preceding census o f the United States.

STATEMENT OF HOff. WILLIAM C. OATES. REPRESEHTATIVE Iff
COffGRESS FROM THE STATE OF A T.AR AM A.
Mr. Chairman and gentlemen o f the committee: I wish to make a
statement, as indicated by the chairman, with reference to this bill,
and I trust that you will pardon me for saying something outside o f
this bill on matters connected with our currency system. I have a
good deal to say against the system of national banking as it now pre
vails, particularly in some localities, and I hope I will be able to specify
which and wherein. I want to say that I have no feeling o f opposition
to atiy system, or institutions which are calculated to do equal and
evenhanded good to our people, I do not care who originates jthem, or
where they are located. I f they are calculated to do go o d ,^ am in
favor o f them.
N A T IO N A L B A N K CIRCULATIO N.

There is a bill which has been brought before yon, and there is one
in the Senate, to allow national banks to increase the amount o f their
circulation up to the face value o f their bonds, with the view to giving
the country more currency. That is a good proposition, so far as it
goes; but it does not go far enough. The law now allows national
banks to issue notes up to within 10 per cent o f the face value o f their
bonds, and a large number o f them only issue 25 per cent, because the
law allows them to do so; so that it does not insure an additional
amount of currency at all. Since the passage o f the act of July 12,
1882, known as the extension o f national bank charters, the practice o f
many banks has been to take out but 25 per cent of circulation; so,
unless the bill to allow them to issue up to the face value of the bonds
repeals this and requires them to issue a greater amount, the bill, if
passed, would not increase the currency.
Mr. H a u g e n . A re you aware that some banks deposit bonds without
taking out any currency f
Mr. O a t e s . Oh, yes, sir. I will give you a history o f the matter, as
I have studied it from the statutes and well-known facts to the country
at the time the law was passed to establish the system o f national
banks. I am in favor also o f another amendment to the law in reference
to national banks. I make no war upon the national banks so long as
they are useM to the people. In fact, in the discussion with some of
our Farmers’ Alliance Mends in the last campaign I took occasion to
deny some propositions which they advanced about the banks. I have
defended the national-banking system when it was right, and assailed
it when it was wrong. Many o f the Alliance lecturers and Populist
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speakers and many o f their newspapers asserted that the United States
loaned money to the banks at 1 per cent, while, instead o f that, the
Government imposes a tax o f I per cent upon the circulation o f the
banks.
Good business men are generally at the head o f these banks, but they
are there for profit, and while honest, many o f them are shrewd specu
lators and money-makers.
N A T IO N A L BANKS, LO AN IN G ON R E A L ESTATK.

There is a provision in the law, which was probably wise enough
when it was adopted, which does not allow them to loan money on real
estate. That was intended as a matter o f security to the banks—that
they should advance money only on gilt-edged paper. The national
banks are composed o f private individuals; and it is their money, and
you have to trust to their good sense for proper management. I have
a bill here before you to allow them to loan money on toal estate to the
extent o f 50 per cent o f its cash value. I think they ought to have that
permission. The following is a copy o f that bill, v i z :
A B ILL to authorise national banking aeaociations to loan money on real estate security.

Be it enacted by the Senate and House o f Representatives o f the United States o f
America in Congress assembled, That from and after the approval o f this act it shall
be lawful for any national banking association to loan or advance money to any
person or persons upon real estate, secured by mortgage, not to exceed in any case
fifty per centum o f the cash value thereof, at a rate o f interest not to exceed that
allowed by law to be taken by snch associations: and the taking o f any greater
rate o f interest for the loan or use o f money as aforesaid shall make the mortgage
or other obligation for the repayment o f such loan null and void.

Tou have to rely on their good sense and judgment for proper man
agement, and wonld it not be a relief to the people in many localities f
In my section the farming class are dependent for money on the secu
rity o f the farm lands and the products o f the farms. This bill, if a
law, would be beneficial to the people, and enlarge the privileges o f
the banks.
N A TIO N A L B A N K CIRCULATION.

Mr. H a l l , o f Missouri. Did I understand you to say that the law
makes it compulsory on national banks to take out 25 per cent o f their
circulation t I t allows them to take out 90 per cent.
Mr. O a t e s . O r only 25 per cent, as they see proper.
Mr. H a l l , o f Missouri. I have a letter from the largest national bank
in Illinois in which it is stated that they have never taken out a dollar
o f circulation.
Mr. H a u g e n . There is no penalty attached to that.
Mr. O a t e s . I have not investigated that.

Mr. Cox. The law provides that they shall deposit bonds to the extent
o f 25 per cent o f the capital stock. There is no obligation to do more.
Mr. O a t e s . They should be required to do more. The Comptroller
of the Currency allows them to take out circulation as little as 25 per
cent o f the bonds.
Mr. Cox. They deposit the bonds. They are bound to deposit 25 per
cent o f the capital stock, but there is no obligation on their part to take
out a dollar o f circulation, unless they want to.
Mr. O a t e s . I am not discussing that feature. I f you allow them to
take out the fall foce value o f their bonds in circulating notes, that law
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ought to require them to take out 50 per cent o f the face value o f the
bonds; allowing them to take out the face value instead o f 90 per cent
is simply a privilege to them, and is o f no absolute benefit to the coun
try, for we do not in that case increase the circulation, which they
should be required to do.
NATIONAL, BANKS, LO AN IN G ON R E A L E STATE, USURY.

W hy give them all the benefits and the people nonef I think that
they ought to have the privilege o f loaning money on real-estate secur
ity. In that bill o f mine, you will see that, i f they attempt to take more
than the legal rate o f interest allowed by law, the debt is forfeited.
A great abuse that has been practiced by the national bauks in some
localities has been that while they are confined by law to taking only
the rate o f interest allowed by law, many take more than that. Under
the present law, when they take more than the legal rate o f interest,
the man who pays it can go into court and recover only twice the
amount o f the interest thus illegally taken.
Mr. H a l l . H a v e you ever heard of such a suit?

Mr. O a t e s . Not one. I f you have a law, provide for its enforce
ment. I f the law be passed, it should be efficacious. It ought to be
in a shape where it wonld count for something.
Mr. Cox. I want to ask you a question upon that, because I am
interested in what you say. Suppose I step into a bank with my note
indorsed by proper security. I offer that note to the bank for money.
They do not treat that as a loan, but as a discount.
. Mr. O a t e s . Oh, yes.
Mr. Cox. Let me call your attention to this point: How are you
going to regulate a bank as to the amount o f its discount or shaving
on a note?
Mr. O a t e s . Under the law o f my State, where they take illegal
interest, even in discounting, it is usury. W hat I want to call attention
to is that when you come to report a bill, there is oue thing that ought
not to escape your attention, and that is to make a provision against
usurious interest that will be effective. I f we have any law against
usury it ought to amount to something.
Mr. H a u g e n . W h y should not the United States make a penalty to
be subject to the laws o f the States?
Mr. O a t e s . That would be equitable and satisfactory.
Mr. J o h n s o n , o f Indiana. It was the purpose in denying national
banks the right to take real-estate security to compel them to have
uch paper as could be realized upon rapidly.
Mr. O a t e s . I remarked awhile ago, that that was it—to require them
to take gilt-edged paper. I t was done for the protection o f the banks.
A t that time, the banks were comparatively few and the Government
relied upon them to sustain its credit; but I do not think the limitation
is at all necessary now, because there are so many banks, and we can
trust to the good sense o f the managers. They ought to be allowed
that privilege, to risk their own money, with the limitation that they
shall not exceed in loans 50 per cent o f the cash value o f the real estate.
Let me illustrate that: Take a man who owns two lots in a town, and
who has no money with which to improve them. Here is a bank, the
officers o f which know the value o f the lots. I f that man can mortgage
those lots for 50 per cent o f their value, he will erect houses which he
can rent out. That would give an investment for the funds o f the
bank, give employment to labor, and it is an improvement by which
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nobody is burt, bat many benefited. I think you can trust the managers
o f the banks; and, i f yon can not, they had better go out o f business.
The C h a i r m a n . How do you reconcile the inconsistency o f doing
bank business and loaning your deposits ou long time 011 real estate,
say five years, while your deposits are subject to immediate payment
on the demand o f the depositor?
M r. O a t e s . That is an unjustifiable piece o f business in banking.
The C h a i r m a n . They have nothing else to loan as a rule.
Mr. O a t e s . They ought not to be allowed to do it, unless they loan the
depositors’ money on short time and ample security. That is one o f
the reasons why so many banks became embarrassed in the late strin
gency. The bulk o f their money belongs to the depositors, and they
have been using it, and were not in a condition to give it to depositors
when called for. There ought to be a law for the protection o f depos
itors against that kind o f reckless business.
The C h a i r m a n . The currency of a national bank is usually almost
all invested in Government bonds which are on deposit in Washington,
and upon which they-get interest, and they can only loan the funds o f
the depositors. I f they are allowed to loan the depositors’ money out
ou long time, they could not be able to meet the demand o f depositors
on application.
Mr. O a t e s . Y ou can make a penalty for misdeeds, but you can not
control the management o f the affairs o f the bank in the loaning o f the
assets. Let them have the right to take out the face value o f their
bonds and lend or nse that. It is their money, and let the bankers
lend their own money on real-estate security, if they see proper.
Mr. Cox. Whence does the authority come to pass a law which declares
that one thing may be secured for a debt, and another thing, equally
as valuable, shall not be?
Mr. O a t e s . I t comes only because these national banks are creatures
o f the Government, and Congress has the right to regulate them; and it
is right to regulate them. Other corporations, created under State laws,
independent o f Congress, we have no right to control by legislation
further than to tax them.
Mr. H a u g e n . Congress recognized only certain things as bankable
paper, and real-estate security is not recognized as such in the banking
law.
Mr. O a t e s . That is true, but I will show that the condition o f the
country absolutely requires it. Congress passed the law to encourage
national banks. The exigencies required such a law at that time, but
now they should be made to conform to the commercial interests of
the country; they are no longer necessary merely to give value to the
bonds.
I will now take a little while to speak about this bill, No. 136.
know that i f the amount o f circulation, according to the reports o f
the Treasury, were all properly distributed, we would get along very
well under it. 1 am one who believes that no country ever has too
much good money. Owing to the operation o f the laws in the course
o f business in this country, the volume o f money becomes centralized
too much in banking, commercial, and manufacturing centers, and
particularly so in certain seasons. Our banking system is a wise one
for the purpose which originated it, but it is a piecemeal affair in its
arrangement and not well adapted to present wants. I t needs more
systematization. It takes a great deal o f thought, much effort, aud a
long time to g;et Congress into a channel so that that can be done.
Therefore we will have to improve the law the best way we can, by degrees
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or stages. I want to see more good money in the country, especially
in the agricultural sections, for certainly the Treasury reports show,
and other facts show, that money gets so exceedingly scarce in those
States that it is absolutely oppressive. The practice o f the farmers
has been to get money advanced to them in the spring to enable them
to make their crops. They have no money until the crop is ready for
market and consequently can not repay the loan until then. When they
wish to borrow the money, they go to the banks and the banks make
them get the indorsement o f a friend o f high commercial standing and
compel them to pay 1£ or 2 per cent per month and sometimes more.
I t amounts to IS or 20 per cent per annum, sometimes higher, and
sometimes a little lower. That is ruinous to the farmers of the country.
Nobody on a farm can afford to pay any such rate o f interest. I t is
destruction. I f we had more good money, although it were notes
o f national banks, and were to change onr system, without making
war upon our national banks but by improving the system the best
way we can by adding to it and amending it as I have indicated, it
would enlarge some o f their privileges and benefit the people. But
let us have State banks o f issue which in time o f need will give legal
expansion to good local money and when the necessities pass away,
there will be suitable contraction.
STATE BAN K CIRCULATIO N.

Now, gentlemen, our predecessors in the South used to invoke States
rights for slavery. That has passed away. No Southern man who is
in his senses now invokes the doctrines o f States rights for any such
purpose. The doctrine now is useful to strengthen and perpetuate the
Federal Government and to satisfy the people, for you have to do that
in order to perpetuate any system. The United States Government is
so large in territory, population, and business that the Congress of the
United States has become utterly incapable, legislatively, to attend to
the business o f the people which is claimed to be within its jurisdiction.
Look at the 15,000 bills introduced here every Congress, and it has
not the capacity to attend to one-third o f that uumber. It may be that
one-half o f them are entitled to no particular action, but then yon have
2,500 more than you can attend to. W hat are you going to do about
i t ! It grows upon us annually. W e should return to the Constitution,
which restricts the jurisdiction o f the Central Government and leaves
to the States all the powers not delegated to the United States. It
leaves to the State governments the right to legislate for the local wants
o f the people. Our present system brings contentment, if properly
carried out, but not otherwise. I t is consistent with other benefits,
and it will perpetuate this Federal Government and make it, as it has
been, to a great extent, a government for imitation by other nations in
bestowing blessings upon their people. But grasp power and centralize
it in the Federal Government and you take it away from the States and
you strike down the possibility o f their extending benefits to localities,
which they ought to have and which Congress can not localize its legis
lation so as to give to them, and dissatisfaction results.
I say a judicious system o f State banks will give these benefits,
* financially, to the people. For instance, you have a bank in a little
town. The old responsible farmers are recognized by the banker. In
the spring his money is gone and he wants to get some advanced to
enable him to pay off his hands and complete his crop. The banker
knows him and cau advance him money. H e can do it at the legal rate
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of interest, and the State will certainly regulate that and keep it within
reasonable bounds. The farmer gathers his crop, pays back the money
he has borrowed, and also pays a fair return to the banker. In that
way there is no unnecessary flooding o f the country with money. Here
is the national money in circulation; we will not disturb that. Tou know
something more, perhaps, o f the history o f banking than I do, but I will
explain something to you fully in a moment. You know that a State
has a right to charter banks of issue, and this tax has been piled upon
the banking system o f the States for its destruction, and it has thus
been destroyed. I would prefer, as a States rights man, that the State
should have all the right it ever had before. I would vote to wipe out
this tax in toto. But we have a good many members o f Congress who
say, with a good deal o f confidence, “ I do not want any wildcat
money.” They say the States would substitute for our present money
the wildcat money, and when you left one State and traveled into
auother the bills would not pass, but would be at a discount and pro
duce great inconvenience.
A ll legislation proceeds upon the principle o f compromise and con
cession, and scarcely any man can have his own way about anything.
I am willing to defer to that objection, if I have to support a bill which I
think looks somewhat to Federal supervision, as you may call it. In the
minds o f a good many, various claims have been brought up that the
power o f the Federal Government should be exercised over any State
system o f banking. Some propose one method and some another.
Some waut the natioual-bank system extended to the States, but I
think that is unnecessary. I have introduced this bill to meet the objec
tions o f those who fear “ wildcatism ” and want o f uniformity. A s to the
proviso contained in the bill, I am not particular about that, and it
may be struck out; I thought it might suit some people. I mean the
limitation to $5 per capita.
Mr. C o b b , o f Alabama. Where do you get authority in the General
Government to exercise any control over institutions managed by State
authorities?
Mr. O a t e s . The Supreme Court o f the United States has passed
upon that. I do not agree with the court in its decision, and I will
give yon the reason. The court held that the Government o f the
United States has a right to impose taxes, and the United States may
have that right: but the decision in the case o f Veazie* is wrong, for this
reason: W hile the United States may have the right to impose a tax
on everything, when it imposes that tax to such an extent as to destroy
lawful State institutions it exceeds its constitutional authority.
Mr. C o b b , o f Alabama. I f you remember the decision in that case,
it was to the extent that it did have the right to destroy in that way.
Mr. O a t e s . The decision was that it was the exercise o f the taxing
power, which the court could not undertake to regulate; that that must
be done by Congress.
Mr. C o b b , o f Alabama. The court never decided anywhere that the
institutions under control o f the State authority can be controlled by
the Government.
Mr. O a t e s . I said the decision was wrong when it destroyed the
institution; but Congress has the power to tax bank notes, they say.
Mr. C o b b , o f Alabama. You propose to destroy the rules by which
State institutions shall be governed?
Mr. O a t e s . N o, sir.
• Y e a i ie B& nkrs. Fenno, 8 W a ll. 633.

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Mr. C o b b , o f Alabama. I have understood this law limited loans to
50 per cent o f the property that they loan money ou ?
Mr. O a t e s . That is another bill. That bill haa reference to national
banks o f the United States.
Mr. C o b b , Alabama. Is not that in this bill T
Mr. O a t e s . No, sir; that is not here. This bill leaves the Federal
supervision iu, but does not appoint a Federal tribunal. W h y should
the United States destroy State banks? This bill proposes to suspend
the law against the bills o f State banking institutions which have depos
ited securities with some officer designated by State law for redemp
tion o f their circulating notes. W ho is to judge of their sufficiency?
Why, the Treasurer o f the United States. I f the deposits for the
redemption o f the circulating notes were good they would not be taxa
ble ; otherwise the notes o f the bank would be subject to the tax.
M r. C o b b , o f Alabam a. Is not that governmental, now?
Mr. O a t e s . The tax would be suspended by the Federal authority in

certain cases, wherever the bank had made the deposit according to
law. The Secretary of the Treasury can look to see whether the deposit
is such as the law o f Congress provides.
Mr. C o b b , o f Alabama. Would not that be a question o f govern
mental control?
Mr. O a t e s . It is a limitation. I propose to suspend that tax in a
certain class of cases. Personally, I am in favor o f wiping the whole
thing out; but suppose it can not be done because o f opposition to it
among the members o f Congress? Am I going to stand in the way o f
getting anything and get nothing when I can’t get all I want and I
can get half?
Mr. H a l l . This is the reason why you use the word “ suspend n in
stead o f “ repeal?”
Mr. O a t e s . Yes, sir; while I would rather have “ repeal,” I think i f
you pass it in this form, though the bill is not perfect, it would be a
source of great benefit.
The C h a i r m a n . I want to ask whether you object to having these
bonds deposited with the Treasurer o f the United States?
Mr. O a t e s . N o ; but I do not see any necessity for it.

The C h a i r m a n . Let him pass upon their sufficiency?
Mr. O a t e s . I have no objection to that, except that it is not neces
sary; and, in the case o f a failure o f the bank, the bonds ought to be
within the State.
The C h a i r m a n . Y ou concede him that right?
Mr. O a t e s . Yes; but that would be more centralizing.
Mr. W a r n e r . I s it not your intention to compel the approval o f those

bonds to be in the hands o f United States authorities?
Mr. O a t e s . Necessarily the Secretary o f the Treasury must see i f
the notes o f the bank are taxable or nontaxable, and to do that he must
pass on the solvency and sufficiency o f the deposits; if they are
deposited with the State treasurer, your bank examiner, or anybody
authorized by the Secretary, can go and look at them and pass upon
them.
Mr. W a r n e r . Being an exception, it would require, unless there
was some provision to the contrary, that the United States officer should
pass upon them ?
Mr. O a t e s . I t would not be necessary for United States officers to
look at them before the bank begins business. Under this bill they
could be deposited with the State treasurer while the bank issues the

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bills. The United States Government officer could examine the securi
ties afterwards.
Mr. W a r n e r . A s this bill is now drawn, not a s a. consequence of
the bill, bat as a consequence o f the present legislation, it only sus
pends the law in part, and the result would necessarily be that the
existence o f the tax would have to be passed upon by the State and Fed
eral Governments.
Mr. O a t e s . A s a matter o f course, but that would be easy and it
would be safe to the bill holder.
Mr. Cox. Now, you say yoar idea incorporated in that bill, so far as
taxation is concerned, is that when a State institution does certain
things this taxation o f 10 per cent levied by the Government shall be
suspended T
Mr. O a t e s . Yes, sir.
Mr. Cox. I f you leave it to the State officer to say when that taxa
tion shall be suspended are you not putting it in the power o f the
State officer to suspend taxation o f the United States Government!
Mr. O a t e s . The bill does not do that.
Mr. Cox. The Government would necessarily inquire as to the suffi
ciency o f the security deposited!
Mr. O a t e s . It would, as long as the taxation remained under the
Federal authority.
Mr. Cox. Would it not have to be passed upon by, or be under
the supervision of, the Government!
^
Mr. O a t e s . Yes. Let me illustrate the working o f this. Take iny
State, because its affairs are more familiar to me. Alabama owes
$10,000,000 bonds in classes A , B, and C, the largest being class A
bonds. They are all at par, and sometimes above par, and bearing 4
per cent interest. I happen to know that one-half o f those bonds are
owned in the city o f Mobile. About five million o f them are owned
there, and about two and a half million are owned elsewhere within the
State. I f you pass a law like that, is there not inducement to anybody
who owns bonds to engage in banking! There is, most certainly. The
legal rate o f interest is 8 per cent. I f you gentlemen were citizens o f
my State and owned a lot o f these or other good bonds and desired to
organize a bank you would obtain your charter from the State, deposit
your bonds with the State treasurer under State law, say $100,000 worth
o f those class A bonds to secure $100,000 o f circulation under State law.
The bonds could be sold to redeem the bills and thus make them always
good to the holder. That is similar to what is now done under the
national banking system. The national-bank examiner would go to
the State treasury and examine those bonds; he woidd know the
market value o f them, and would report that the bank had $100,000 of
class A bonds, which are above par, and was all right, and that the
bills or notes o f the bank were not subject to the 10 per cent tax.
Mr. Cox. The Secretary o f the Treasury mast say they are all right,
and could instruct that the tax be suspended.
Mr. O a t e s . It is not necessary to say that. This bill, if a law, says
that, and the people who hold the bills would be safe. I f he finds
that any o f the banks are issuing money without proper security,
according to the law o f Congress, the Secretary can proceed to collect
the tax through the collector o f internal revenue or any other officer
or agent o f the Treasury.
Mr. H a l l , o f Missouri. Does not that create a necessity for a nationalbank examination system for State banks, to see that they keep proper
security!
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Mr. O a t e s . W e have that already for national banks, and the num
ber o f examiners could be increased i f necessary.
Mr. H a l l , of Missouri. Ton would extend that to the State banks?
M r. O a t e s . Yes.

I t would work like a charm.

Mr. H a lt,, o f Missouri. W ill you explain where you would place the
limit o f circulation for such banks f
Mr. O a t e s . 1 would not make one line o f legislation on that sub
ject. The United States Treasurer or Secretary knows if is his duty to
have that tax collected, i f it is subjected to taxation, and we need no
legislation on that subject. M y bill is very simple, but it goes as far
as legislation on this subject should go.
Mr. H a l l , o f Missouri. Your bill regulates the circulation o f State
banks?
1
Mr. O a t e s . Yes; but you can strike that out. I t only regulates the
aggregate amount o f bank circulation in a State limiting to $5 per
capita merely to satisfy some objectors. You might put in a clause
requesting the State to make a report as to the number o f State banks
o f issue, etc., within its jurisdiction. In that way the Secretary o f the
Treasury could easily get that information. A s this suspends a rev
enue measure yon might require a report to be made by each bank
to the Secretary o f the Treasury.
The C h a i r m a n . How will the Government o f the United States
know that?
Mr. O a t e s . Y ou might require them to report. You could get it
in that way just as well as the Secretary gets other information.
Mr. Cox. There is another bill involving that question.
The C h a i r m a n . The idea in the other bill is that these bonds that
you have provided for here may be deposited with the Secretary of
the Treasury, and the circulation may be issued on them by the Sec
retary o f the Treasury just as he issues upon United States bonds now
to the national banks, but it goes to the extent o f 100 cents to the
dollar. I f the Federal Government has to have any supervision over
these banks why not let the bonds o f these banks be deposited with
the Treasurer o f the United States, subject to the same provisions as
national banks are?
Mr. O a t e s . There is only one difficulty about that. When the dif
ferent States come to make laws that deal with the question o f State
banks they could not wind up affairs o f a bank in case o f failure i f the
deposit was with the Treasurer o f the United States or with the Secre
tary. I do not know what power a State would have over the bonds
in that case. The State might desire to sell the bonds to redeem the
bills o f the bank. The more complicated a bill is the more difficulty
we will have in passing it, and a greater number will make objection to
it. I f yon can reach an objector o f legislation with the simplest kind
o f a measure, that is best, because it is easily explained and understood.
W hile I would like to have the tax wiped out entirely and have the
States free, yet i*would like to see uniformity in our currency and per
fect soundness. Therefore that is the reason I have gotten up this bill,
to meet the objections which might be raised to the revival o f the State
system, and to try to popularize it. I f a man has both hands in the lion’s
mouth he would like to have one free in order to help him to get the
other out. H e has a chance to do that by this bill.
I f you will bear with me I w ill give you a history o f the nationalbanking system.
Mr. Cox. Before you proceed with that, will you explain what secu
rity the bill holder and the Government would have against the sub
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BANKING AND CURRENCY.

stitution, after the first bonds had been filed, o f other bonds which
might be o f less value and perhaps be below par, which would destroy
the security ?
Mr. O a t e s . I t could not well be changed, because, i f the law o f the
State tolerated the withdrawal o f its bonds and the substitution of
others which were not good, the United States could and would resort
to taxation. There would be as much protection as the holder o f the
national-bank bill now has.
Mr. C o b b . In the meantime, these bills are in the hands o f the peo
ple.
Mr. O a t e s . They would all be secured. There would be the ma
chinery for redemption and disposal o f the bonds for that purpose. I
do not think it would be necessary or wise for Congress to do that.
Every State would have a deep interest in providing a law for having
solvent banks. It would give a State a bad reputation to have shyster
banks playing tricks upon the people; and, i f a bank did not sustain a
good reputation, it certainly wonld not survive.
Mr. C o b b , o f Missouri. Has Congress a right to pass laws to govern
State institutions?
Mr. O a t e s . The Federal Government can not legislate for a State.
Mr. C o b b , o f Missouri. How can it legislate in this case?
Mr. O a t e s . By suspending Federal taxation which has been imposed
upon the State banks. I t is withdrawing its own heavy hand so as to
give the State banks a chance.
Mr. C o b b , o f Missouri. Then the Government would have no control
over them whatever?
Mr. O a t e s . I stated that freedom o f the State banks from all tax
would be my preference; but, i f you can not get the whole o f that, why
not take part o f it.
Mr. W a r n e r . D o I understand you to say that there is nothing in
this bill which would permit a bank to issue a single dollar, Q^cept in
accordance with such laws as the State can enact? Is it not a fact that
this is simply a definition o f the extent to which the Federal Government
shall withdraw the pressure which it is now exercising, and does it in
any way modify the restriction, regulation, or limitation which the State
may put upon them?
Mr. O a t e s . It dictates nothing in the world to a State. I t simply
extends to the State an opportunity for having State banks, freed from
Federal taxation.
Mr. C o b b , o f Missouri. I t would repeal the State-bank tax, which
is all Congress has a right to do?
Mr. O a t e s . Yes, sir. I suppose Congress has a right to put a tax

on anything. The bill makes Government say to the State banks, “ I
yon will do certain things, I will take this tax off o f you in conse
quence.” That is it. W e have a tax which the Supreme Court has
sustained. I think it is wrong in at least one respect.
Mr. C o b b , of Missouri. This repeals certain restrictions?
Mr. O a t e s . I t simply suspends that tax, wherever a State author
izes a bank of issue and provides for redemption o f its notes as indi
cated in this bill.
The C h a ir m a n . This regulation that you make, or exemption which
you provide, is in the interest o f the bill-holders, so that when the
notes are in circulation they can be redeemed and the bill-holder loses
nothing?
Mr. O a t e s . Yes, sir.
The C h a i r m a n . W hat is your objection to going a little farther and
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requiring these bonds or lawful money o f the United States to be
deposited with tlie Secretary ot the Treasury, and to be held by him
always as security tor the bill-holder, so that i f the bank should fail the
Government could redeem the bills and under no circumstances could
the bill-holder lose his money!
Mr. O a t e s . It would be complicated and would require the Govern
ment to hold the bonds for the redemption o f the bills o f a great many
State banks, which would be State’s business and too centralizing in
its tendencies.
The C h a i r m a n . That makes them perfectly safe!
Mr. O a t e s . W ith the tax hanging over the banks all the time, the
redemption would be safe, and the Government should not take the
responsibility o f attending to redemption in case o f failures. I think
there is sufficient protection under my bill to all parties, and the bills of
the banks o f the different States would be good throughout the Union.
The C h a i r m a n . You concede that Congress may make the other pro
vision, i f it sees proper to do so!
Mr. O a t e s . I suppose it might. It has the taxing power.
The C h a i r m a n . T o the extent o f relieving the banks, which would
deposit securities with the United States! Would not that be an
improvement!
Mr. O a t e s . I t would be a complication. You would find, when you
undertook to pass a bill with such a provision, that men would get up
in the House and say: “ You have no right to do that in my State.”
The C h a i r m a n . I f the General Government wanted to regulate a
State institution, all it would have to do would be first to tax it and
then relieve the taxation by a suspension!
Mr. O a t e s . That power has been in existence ever since the Consti
tution was adopted. That is the law by which they tax whiskey and
brandy; and can not the Government say to the State: “ W e will
relieve you o f this under certain conditions” !
The C h a i r m a n . The inconsistency seems to be that you admit at
the outset that the Government o f the United States has 110 right to
interfere with State institutions by way o f regulating them.
Mr. O a t e s . Not in the way o f regulating. She has the right to tax,
under the revenue power.
The C h a i r m a n . In order to regulate it, would not the logic o f your
reasoning be that the General Government would have nothing to do,
except in the first place to impose this revenue tax, which you say is
constitutional and legal, and then propose to the States to relieve them
o f the taxation upon compliance with certain conditions, which would
amount to regulation !
Mr. O a t e s . That power exists. I t is to be trusted that Congress
would not exercise it in any improper cases. I think it was the exigency
o f the times which caused a tax to be imposed upon the State banks.
I think it was an abuse—a shameful abuse— of the taxing power to Save
laid it so heavy as to destroy the State banks. But the power to tax
them for revenue is undoubted.
Mr. J o h n s o n , o f Indiana. I wish you would go into the subject of
what would be the principal inducement to go into business under this
law, and indicate the manner o f it.
' Mr. O a t e s . I thank you for that suggestion. I had given- part

o f that reason when I was interrupted. I said that a few men, for
instance, would come together, put up $100,000 o f Class A Alabama
bonds, and deposit them with the State treasurer, those bonds being
above par. O f course the bank examiner or officer o f the Government
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would enter the bank and see that the bonds were all right. I f so, he
vould report a suspension o f the tax; therefore it would not be imposed.
As to the inducement that there would be to go into the State banking
business, I say these bonds would bear 4 per cent interest, and would
not be taxable. They are held now in the States because they are good
investments. Banks lend money on them over the counter at 8 per cent.
With the additional 4 per cent, that would bring the rate np to 12 per
cent on every dollar issued and loaned or paid out by the bank, and
that would be very profitable.
Mr. J o h n s o n , o f Indiana. Your idea is that national banks would
cost more and would be less profitable!
Mr. O a t e s . The national-bank system i,s not sufficiently extensive
and liberalized to meet the wants o f the people and the large class of
farmers at particular seasons o f the year. The national banks are
hampered and can not loan on real-estate securities and the growing
crops o f different kinds and the State banks could. I t would be a
great deal better to have them in this form, so that we could have State
banks o f issue, and i f that were the case we would hear no more o f these
clamors for money and o f its scarcity. I want money both plentiful
and good.
Mr. W a r n e r . I want to ask also i f it would not be an advantage in
thisway: I t wonld create an additional market for State and local
bonds, and it would also retain them in the State primarily, at least, for
use in their development, and the annual interest charge paid up*n
these bonds would be paid to the people of the State, instead o f being
sent to congested money centers!
Mr. O a t e s . Yes. That is quite true—a good suggestion. Most o f
the national banks in the South are not able to furnish sufficient cap
ital. Their usual capital is $50,000 or $100,000. They sometimes bor
row money from New York to loan to their customers. A State system
is sufficiently profitable so that men would go into it to meet this
demand for money. W e would theu have State and national banks,
and we can not have too much good money.
Mr. W a r n e r . Is there not another benefit? I think it is this: You
have referred to the extraordinary demand for currency in parts o f the
country o f which you have spoken at certain times o f the year, and the
extraordinary small demand in those same sections at other times of
thevear.
Mr. O a t b s . The demand for money in the fall and winter down in the
South is mainly on the part o f merchants to pay for the crops.
Mr. W a r n e r . Following the same line, is it or not a great advantage
of the system which you propose that it allows that currency promptly
to be supplied and used on securities which are in the State and as
investments are now at a disadvantage; and they would be used in the
State instead o f being compelled to seek new places o f investment;
and also in extending the currency?
Mr. O a t e s . There is no doubt about that. It is quite true. I could
talk two hours on these things. What do we want with gold and silver !
There is a big field for this. W e have no use for gold and silver except
to pay trade balances, to maintain our foreign system o f ambassadors,
ministers, and consuls, and to furnish the basis for home circulation
and redemption, for I do not believe in fiat money. I know o f no use
we have for gold and silver, except these and for use in the arts. By
passing this bill we practically convert the solvent bonds into gold and
silver, because they are the basis o f our circulation. It broadens and
940----- 2
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extends the basis o f paper circulation and is worth more to the country
than free coinage.
Mr. H a u g e n . You admit there is some difficulty with silver as a
basis for circulation !
Mr. O a t e s . Yes; but I have stated that gold and silver were nec
essary for us to use in our foreign system. That is the money o f the
Bible. A money with neither gold nor silver behind it is not worth a
copper, and will prove so in the end. The bonds my billrequiresdeposited
to secure the circulation o f the bank would be as good as gold, because
if sold would bring it.
Mr. H a l l , o f Missouri. In other words, it is its convertibility and not
its security that makes money good.
Mr. O a t e s . There must be some security back o f it. I have here a
short history o f national bank legislation, which I will read.
Mr. Oox. Before you do that permit me to ask you a few questions.
You take a bond o f the State of Alabama, or the State o f Tennessee,
and deposit it. It is drawing 4 per cent interest. That interest is paid
twice a year. Now, you come to the bank and get 100 cents on the dol
lar by depositing these bonds and you go into business. You take that
money and loan it out at the legal rate o f interest to make more money
—the rate in Alabama being 8 per cent and that in Tennessee being 6
per cent—and then you turn, through the tax system, and pay to the
bondholder 4 per ceut more.* Do you think that is righ t!
Mr. O a t e s . My dear sir, do we not have to pay that 4 per cent now !
Mr. Cox. I concede th a t; but I am talking about the justice o f it.
Mr. O a t e s . I f the farmer can get his money aka legal rate o f inter
est instead o f paying double the legal rate is it not beneficial to him?
Would he not like to have all the bonds which he can get and upon
which he can go and borrow money at the legal rate o f interest! The
State pays so much interest on this money. I f you have a bond you
are going to collect the interest on it, and the bond lies there. The
bank deposits it as security and gets bills which it loans to the farmer
at the legal rate of interest.
Mr. W a r n e r . Would you not leave it to the gentleman from Ten
nessee to suggest that the Government impose a tax on the banks to
make them pay for this!
Mr. O a t e s . Whatever the Government has the power to do it can do.
Yes, I would leave it to the gentleman from Tennessee.
The C h a i r m a n . W hat objection have you to putting in this bill a
requirement that banks shall take no more than the legal rate of inter
est in the locality?
Mr. O a t e s . I do not think it is necessary, and that would be the
State’s business. W e are sometimes influenced by what States may
do. I f you have no confidence in the capacity o f the people of. States
to govern themselves this Federal Government is a signal failure, and
you had better have it changed and get a king or an emperor.
The C h a i r m a n . A s I understand you, the farmers are compelled to
pay 3 per cent a month!
Mr. O a t e s . Yes, from 1 to 3 per cent. That is because they can not
get money any cheaper. The law does not regulate that.
The C h a i r m a n . Y ou are furnishing them additional means o f get
ting money, and why not accompany it with this restriction?
Mr. O a t e s . Because the State legislature would not let them take
any more than a reasonable rate. They would not allow banks to
charge or receive for the use o f money more than the legal rate fixed,
by the State law. I have confidence in the States and in the American
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BANKING AND CURRENCY.

people for self-government. A s long
the State governments are to
be relied upon this Federal Union will go on and continue to be the
best nation on the face o f the earth.
Mr. S p e r r y . Your bill does not contemplate any State control
whatever!
Mr. O a t e s . N o, except by State law.
Mr. S p e r r y . This is the only question to be passed upon.
Mr. O a t e s . The tax would be the only one for the Government. I
do not want it to do much. I want Gongressto do as little as possible.

Leave all else to the States.
Mr. S p e r r y . W ould you provide in this bill any w ay in which a per
son, taking a State-bank bill, could tell whether it was a nationalbank bill or a State-bank b ill!
Mr. O a t e s . A s a matter o f course a person could tell. There could

be no object in confounding them.
Mr. S p e r r y . This bill says nothing about that.
Mr. O a t e s . It would be just like the national-bank bill. There are
no two national-bank bills alike.
Mr. S p e r r y . W e know they are all national-bank bills because the
word appears upon them.
Mr. O a t e s . The State would not perpetrate a fraud. There would
be no trouble 011 that score.
Mr. S p e r r y . There is nothing in this bill to prevent it.
Mr. O a t e s . N o State is capable o f doing that.
Mr. S p e r r y . I do not know whether they are or not.
Mr. O A T E S . I have more faith in the States than that.
The C h a i r m a n . Y ou say they charge your people 18 per cent a year
interest, and they might do other objectionable things f
Mr. O a t e s . That is not done under the law. National banks do>
that sometimes. You can not prevent violations o f law except by
punishment. Now, gentlemen, let me give you a short history of the
origin o f State and. national banks as well as o f this 10 per cent tax
on State-bank circulation.
H IS T O R Y OF STATE AND N A T IO N A L

B A N K SYSTEMS.

A financial plank in our platform is the declaration in favor o f the
repeal o f the 10 per cent tax 011 State bank circulation.
There were four State banks in existence when our Constitution was
formed. The framers o f that instrument were therefore familiar with
the existence o f these banks and the circulation o f their paper money.
They were also familiar with the practice o f the States at that time to
issue bills o f credit, which were intended to circulate as money, and
seeing that evil might flow from this practice they embraced in the
tenth section o f the first article the prohibition that “ no State shall
emit bills o f credit,” so as to put a stop to that practice, but they did
not employ any language to prohibit State-banks o f issue; but to
guard against any abuse o f State money issued by the banks they
provided that no State shall “ make anything but gold and silver coin
a tender in payment o f debts.” Thus bills o f credit were abolished
and the paper money o f State banks allowed to continue as the only
paper circulation and the only currency at that time except gold and
silver. It took away from bank notes any cohesive circulation and let
them stand alone upon the credit o f the banks.
The question o f their constitutionality and their right to issue bills
to circulate as money was never raised until the case o f Briscoe
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The Commonwealth o f Kentucky ( I I Peters, p. 257), where the Supreme
Court o f the United States held them to be perfectly lawful. Thus it
will be seen that State banks are one o f our ancient institutions, older
than the Constitution itself, and fully recognized and intended to be
protected by that instrument.
No tax was ever imposed by the United States upon &tate banks or
their issue until after the beginning o f the war. A ll the money in the
country at that time was gold and silver and State-bank notes, but the
Congress on the 17th o f July, 1861, finding these an insufficient amount
for the conduct o f the war then impending, passed an act for the issu
ance o f $50,00**,000 o f the Treasury notes o f the United States payable
on demand in coiu, which, February 12, 1862, they increased to $60^000,000. The notes o f the State banks being redeemable in coin, the
demands for which were so great, aud they having issued their bills
for the most part in the proportion o f $3 outstanding to $1 o f coiu in
their vaults, they suspended specie payment. February 12, 1862, Con
gress changed somewhat the character o f its notes, giving them the name
o f United States notes, and made them payable to bearer, increasing
the amount to $150,000,000, which was by subsequent acts increased to
$450,000,000. These were, until after the close o f the war, convertible
into and received at par for Government bonds payable in coin and
bearing coiu interest at 5 per cent, and the law also declared the notes
to be lawful money and a legal tender in payment o f debts.
But the war was progressing and the thunders o f the artillery were
heard in the Valley o f Virginia, at Fair Oaks, Seven Pines, Meadow
Bridge, Frazier’s Farm, Malvern Hill, Cedar Run, Second Manassas,
Ox Hill, Autietam or Sharpsburg, Fredericksburg, at Shiloh, and mauy
other places in the West, where men who wore the blue and the gray
met in sanguinary conflict and caused to flow torrents of the best and
bravest blood that ever coursed in the veins o f men; while victory trem
bled in the balance and was frequently upon the side o f the Confeder
ates, the Government o f the United States found its credit sinking and
its bonds selling away below par.
I t was a crisis in the monetary affairs o f the Government which called
for the best brain to be found in its citizenship.
It was at this time that Orlando B. Potter, o f New York, wrote a let
ter to Salmon F. Chase, who was at the head o f the Treasury Depart
ment, suggesting the scheme o f establishing a national banking system.
Chase called Potter to his assistance, and from their great brains was
evolved the substance o f the national banking law which Cougress passed
on the 25th o f February, 1863. That law allowed any four citizens o f
good character to invest their money in Government bouds, deposit
them with the United States Treasurer, reccive a bank charter and have
issued to them at their expense 90 per cent o f the face value thereof in
bills o f their bank for circulation. Many privileges were granted to
them by the terms o f the law to induce capitalists to engage in the
business.
It had the desired effect. It created a market for the bonds; it sent
them up to par, and above; it restored the credit o f the Government;
it infused into its financial system the strength o f the irrepressible giant.
But for this restoration o f credit the Government would, ere long, have
been forced to have acknowledged the independence o f the Confederacy.
A s one o f the means to encourage the system and strengthen the Gov
ernment in the act establishing the banks, Congress for the first time
imposed a tax upon currency, and placed 2 per cent upon that of its
own bauks, and, by the subsequent act o f March 3,1863, a tax o f 1 per
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cent annually was imposed- upon the circulation o f State banks, meas
ured by their capital. The tax on the national-bank circulation was
then reduced to the same rate, where it still remains, and produces
more revenue than the national banking business costs the Govern
ment.
The State banks continued to issue money and do business until fhe
act of March 3,1865, placed a tax of 10 per cent upon any national bank
or State bank which should pay out, after the 1st day o f July, 1866,
any o f the notes o f State banking associations, and this was amended
and enlarged in July, 1866, so that the payment o f the tax o f 10 per
cent on State-bank notes was unavoidable and wrought the complete
destruction o f those institutions in the interest o f the national banking
associations. An additional tax o f 5 per cent per annum was imposed
by the same law upon the dividends o f stockholders, and an additional
tax o f 1 per cent npon deposits, which has since been repealed. This
act was inspired and induced by them in their own interest, that they
might furnish the main volume o f paper circulation for the entire
country.
ih e act was passed by Congress under its taxing power and under
the pretext o f raising revenue, when it was simply for the destruction
of the rivals o f the national banks. Not a single dollar o f revenue is
ever collected on State money. It was destroyed by the act. Y e t a
majority o f the Supreme Court o f the United States in 1869 held, in the
case o f the Veazie Bank r*. Fenno, in 8 Wallace, that although the tax
was so great as to destroy these lawful State corporations, that it was
not within the jurisdiction o f the court to protect them, and that they
must look alone to Congress.
In the language o f Justices Nelson and Davis, in their dissenting
opinion, the purpose o f the law is said to be “ scarcely concealed in the
opinion o f the court, namely, to encourage the national banks. I t is
sufficient to add that the burden o f the tax, while it has encouraged
these banks, has proven fatal to those o# the States; and if we are at
liberty to judge o f the purpose o f an act from the consequences that
have followed, it is not perhaps going too far to say that these conse
quences were intended. ”
Is there any fair-minded lawyer present who will risk his reputa
tion by asserting that the decision o f the majority o f the court is
good, sound law, and should be sustained? It amounts to asserting
that Congress may, under the pretext o f its taxing power, destroy State
corporations, and destroy an ancient institution and legitimate State
business.
The national banks, having thus slaughtered their rivals, grew in
importance until they had in circulation in 1880 and 1882 more than
$380,000,000. When the Forty-sixth Congress passed a law requiring
them to surrender their bonds bearing a high rate o f interest and accept
new bonds bearing 3£ per cent, at a time when the people o f the United
States were paying in the aggregate o f interest on national bonds
more than $60,000,000 per annum, the banks, before the lapse o f the
ten days which the President had for the approval o f the bill, by a
combination surrendered $18,000,000 o f their circulation and threatened
to surrender much more, which was likely to produce a panic, and in
this way they compelled President Hayes to veto the bill.
In the Forty-seventh Congress, when the banks asked for an exten
sion of their charters without reorganizing, it was granted; but these
Samsons were shorn of many o f their locks by way o f amendment to
that bill. They were required to exchange their bonds for new ones
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•

bearing but 3 per ceut interest, which saved to the peopleanauy millions
o f dollars in taxes; they were also subjected to suits in State courts
like State corporations; they were required to give the Government
the benefit o f the losses and destruction o f their old notes to pay for
the printing o f their new notes, and to accept silver certificates in pay
ment o f clearing-house balances, and that by no combination should
they thereafter surrender in any one mouth more than $3,000,000 o f
their circulation. Thus their extraordinary privileges were in part cur
tailed, but still they retained the powers o f contraction and expansion,
which they can use to the frightful detriment o f other interests by
making circulation scarce at their will.
A few years subsequent to this legislation, in consequence o f a large
surplus accumulating in the Treasury, the policy was adopted and pur
sued for a good while o f purchasing Government bonds, and in that
way sending the surplus in the Treasury back into circulation among
the people. It had the effect o f increasing the premium on the bonds
up to 30 per cent. The banks obtained an enactment by Congress that
they should not be required to take out & circulation o f more than 25
per ceut o f the face value o f their bonds. Many of them then took
advantage o f the high premium on the bonfls and sold a large portion
o f them, and by these methods reduced their circulation clear down to
$160,000,000, which sent throughout the country a tremendous outcry
o f the scarcity o f money. They so contracted and centralized that cir
culation that it aided in reducing prices o f farm products and caused
the Farmers’ Alliance to demand an increase to $50 per capita. There
is a bill now before Congress to allow these banks to have bills issued
up to the face value o f their bonds, which I favor, provided it is so
amended as to require them to issue currency equal to 50 per cent o f
their bonds, and thus benefit the people as well as themselves.
The national banks o f our country are in the main conducted by gen
tlemen o f high character and ability, though selfish in interest like all
other men in business. They.see and know full well that if the United
States pays its bonded debt when due, as it has done hitherto, that they
have at the most but fourteen years o f existence. In the Southern
States and partially so in the Western States, these institutions are so
few and their capital so limited that their power for evil is compara
tively small; but in the great money centers o f the North and East
they exercise a most potential influence over all other financial affairs,
and exercise no small degree o f influence over the legislation o f Con
gress.
Last April these banks in the city o f New York applied to the Sec
retary o f the Treasury for the sale o f at least $300,000,000 of Govern
ment gold bonds. He was finally induced to offer a portion o f this
amount upon short time, which they utterly declined. They desired
the bonds to run a long time and to bear a good rate o f interest, so
that they might use them as a means o f enlarging their power and
perpetuating their existence. I commend the Secretary for declining
to comply with their wishes. When the Secretary thus refused the
demands o f the New York bankers they at once declined to exchange
gold with the Government for paper currency, and so continued until
several banks in Chicago and the W est exhibited that liberality. Then
the banks o f New York adopted a liberal policy of exchanging gold
for notes, not only with the Government, but with other banks, until
they accumulated a monopoly o f currency, none o f which would they
pay out even to their depositors or lend upon any security whatever,
but sold it at the high premium to which it arose, until the estimate
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o f their aggregate amount o f profits made thereon during the panic,
which they materially aided in producing, amounted to $1,000,000.
A n alleged representative o f one bank reported that its profits from
this source alone amounted to $600,000. This was done while the
whole country was suffering for the want o f this money and sustained
the losses which made these banks a million o f dollars richer.
I am glad to know that a large number o f presidents, cashiers, and
stockholders o f national banks desire the restoration o f a system o f
State banking; but the presidents, cashiers, and stockholders in the
great national banks o f New York and some other large cities are
opposed to the establishment o f auy rivals and want to use their power
to control the financial system o f the country and to make millionaires
o f themselves.
I agree with Jefferson, Jackson, and Calhoun, that for the United
States to place in the hands o f corporations the power to enlarge or
diminish the volume o f money in circulation amohg the people is a
dangerous power, and 1 assert that that power is now practically in
the hands o f the national badks.
STATE BAN K C IR C U LATIO N W ANTED.

Remand to the States the right o f which they have been robbed for
the benefit o f these banks, and then the farmers and laboring people
can get money at tlje legal rate o f interest whenever they need it. W e
w ill then have an elastic currency which will expand and contract
according to circumstances. Prices o f products will not then be
reduced on account o f the scarcity o f money, and better times will be
seen through the country among the agricultural and laboring people.
B y independent State action, or even with Federal supervision, sol
vent State and municipal bonds as well as national and cash resources
can be utilized as security for the redemption o f State bank bills; and,
in this way, the basis can be safely broadened for an increased amount
o f paper money and the degree o f unusual scarcity produced by combi
nations and contractions originating in W all street and elsewhere will
be heard no more, but be hnshed and stilled forever.
But, sir, this proposed legislation invokes the hostility o f the great
national banking institutions, because they regard it as inimical to their
interests.
Mr. Simmons and several other presidents o f great national banks
of New York, hearing that there was a prospect that Congress would
repeal the tax on State bank bills, with all the arrogance o f ancient
nabobs to their underlings, have published in the newspapers here,
right under our noses, that it would not do to repeal that ta x; that
they were opposed to its being done, and hence Congress should not
do it.
Whoever wants to worship at the shrine o f the money power will
obey their behests; but as a friend o f the people, believing that they
will have more freedom and more money than national banks or even
free coinage o f silver would ever give them, I will work and vote for
the repeal o f that 10 per cent tax until it is done or I cease to be a
member o f Congress.
Gentlemen o f the committee T do not wish to too far tax your
patience and consume your time, but I wish to read to you a few
extracts from the very able article on our national currency system,
by Francis A . Brooks. His views are so much in accord with my own
that I will refer briefly to some things which he has said and perhaps
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publish with my remarks much more extensive extracts.
says:

Mr. Brooks

V IE W S OF FRAN C IS A. BROOKS.
The national banking act was passed thirty years ago. The chief, i f not sole,
object o f its framers was to secure the assistance o f the banks in creating a demand
for and affecting a sale o f the bonds and legal-tender notes o f the Government, and
thereby o f raising the money necessary for carrying on the war. For this purpose it
was admirably well contrived and adapted, and proved very efficient and successful.
The previously existing bunks created by the States had been established for the
purpose o f furnishing a circulating medium o f bank notes to take the place o f real
money and serve as its representative, and in order to do this it was considered nec
essary and indispensable that the bank notes should be convertible into or redeem
able in coin or specie. It was conceded by all, in time o f peace, that no system o f
bank-note circulation was sound and reliable unless the notes were made redeemable
in coin or specie o f the same nominal value. It was not possible in 1863 to observe
this rale o f sound banking in 'the United States. The tnen existing State banks,
with one or two exceptions, had either suspended specie payments or withdrawn
their circulating notetf, and gold was no longer ill use as money, but was sold aa a
commodity at a high premium above its coinage value. The national banks, there
fore, were to be furnished by the Government with circulating notes secured by a
deposit o f Government bonds, and these notes were made redeemable in the legaltender notes o f the Government, and not in coin or specie.
This was in reality going back to the bills o f credit or continental money o f
revolutionary times and making that description o f money a basis for banking.
The authors o f the scheme regarded it as temporary, and justified at the time only as a
war measure.
Mr. Chase so expressed himself in his report as Seoretary o f the Treasury, Decem
ber. 1862. He there says:
•
The Secretary recommends * ’ * no mere paper-money scheme, but on the con
trary a series o f measures lookingtoa safe and gradual return to gold and silver as the
only permanent basis, standard, and measure o f value recognized by the Constitu
tion.”
No banking system which is based on “ fiat, money” can be considered sound or
safe, and Mr. Chase concedes this. Banks o f issue are inteuded to perform two kinds
o f service for the public. One is to combine the capital o f indi viduals and to loan it to
the public on interest; the other is to furnish the public with notes for circulation
as money, and thus facilitate exchanges for which coin might be found insufficient
or less convenient. In order to satisfactorily perform these two functions it is nec
essary that the banks should be possessed o f capital, and that the capital owned by
them should be kept well in hand and capable o f being converted into such money
as the purposes o f trade and commerce require. The uational-bank system pays
little or no Tegard to these considerations. As banks o f issue they are required to
invest their capital in United States bonds and to get circulating notes o f less amount
than the par value o f the bonds purchased. I f this method were pursued as to the
whole capital o f the banks and it were invested, wholly in circulating notes, the
banks would, after getting their circulating notes from the Government, have less
money to loan than they hail before purchasing the bonds, and no gain would result
to the banks, but the public wonld have the benefit or use o f the circulating notes,
aud the banks would also have to pay a tax o f 1 per cent upon the amount o f the
notes.
For this reason or some other the national banks have not seen fit to place much
o f their capital in the form o f circulating notes.
It appears from the last report ofth e Comptroller o f the Currency (October, 1892)
that the aggregate capital o f all the national banks then was $686,573,015, while
their circulating notes then outstanding were only $143,423,298, so that only 21 per
cent o f their capital is used to furnish the public with circulating notes, or only onefifth as much as might be soused. Ittlius appears that tlienntionalbanksas now con
ducted furnish the public with only one-fifth o f the amount o f circulating notes which
might be furnished by them i f they desired to issue such notes to the extent author
ized by law. and that the same capital, i f invested in specie, as was formerly required
by the banking laws o f some o f the States, wonld have yielded a circulation fourteen
times as large, with a specie reserve o f 33£ per cent behind it.
It can not be true that our present scarcity o f currency is owing to a deficiency in
the volume o fth e circulating medium. That volume, i f the deposits o f the national
hanks are included, is much larger than ever before. It amounts, as nearly as we
can learn, to as much as $3,945,000,000, consisting o f bank notes and deposits,
$1,908,846,282; o f United States notes and silver certificates, $817,750,000; gold ana
silver coin, as estimated by Acting Director o f the Mint Preston, $1,219,000,000.

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This is supposed to hare been the currency condition o f the country before the
present monetary panic. As a consequence o f this panic or distrust the bank
deposits have been greatly reduced and other money extensively hoarded. This
probably was not occasioned so much by distrust o f the banks as b v an apprehension
that the Government might not be able to prevent the currency from coming upon
a silver basis, so far at least as the bunks were concerned; in which event it would
be desirable to hold one’s funds in hand rather than leave them in bank; a mode o f
reasoning not far from correct. W e are now experiencing, not a deficiency o f cur
rency, bnt merely a disappearance or hoarding o f it from fright. It w ill reappear
aa soon as the alarm is dispelled, and not till then.
When the Government had been committed by the Sherman act to a declaration
o f its policy o f maintaining at its own cost the position that 16 parts by weight
o f silver were and shonld continue to lie equal in value to 1 part or gold, it
was put in great financial'peril, a peril in all probability greatly beyond the antici
pation o f the members o f tlie Fifty-first Congress who passed that act.
The Government liabilities now outstanding and to be met in gold (as it admits)
exoeed $800,000,000; and five-eighths o f these, consisting o f greenbacks and Treasury
notes issued in purchasing silver, are to be kept afloat permanently. By reason o f
this fact the Government may have to redeem them in gold, not once only, but often;
ju st as often as the merchants having occasion to pay their foreign creditors shall go
to the United States Treasury with these notes and ask for the gold on them.
Assuming that Congress w ill not retire the greenback notes, it might take away
tLeir legal-tender power, and repeal so much o f the banking law as permits the
banks to use greenbacks as a Teserve and require the banks to nold a specie reserve.
I f the banks were required to keep a reserve in coin or specie instead o f legaltender notes, the merchants could obtain through them the gold required for ship
ment abroad and the United States Treasury wonld not be subjected, as now, to a
loss o f gold to be sent abroad. It is chiefly through a demand' for gold for payment*
to foreign creditors that the gold reserve o f the Government is now in danger. This
trade demand should be supplied wholly by the banks, and would be so supplied at
this time by State banks, as formerly, i f those banks had been allowed to continue
their business as authorized by their respective charters.
These State banks have been practically, though not in terms, deprived by the
Federal Government o f the right to issue circulating notes, which was their chief
end and aim and source o f gam. This has been done under the false pretense that
the currency or circulation furnished by tlie State banks was not sound and reliable,
and that it was both the right and duty o f the Federal Government to see to it that
the people should have a sound circulating medium and to make provision in its
own way for this.
In a speech o f President Harrison, at Albany, August, 18, 1891, he said:
“ The General Government is charged with certain functions in which the people
have a general interest. Among these is the duty o f providing for onr people the
money with which its business transactions are conducted.” * * *
This doctrine, and-the practice o f the United States since 1861 based thereon, is,
as we believe, not only contrary to the fundamental theory o f our Federal Govern
ment, but is inconsistent with the theories and practices o f governments generally,
and seemsto rest upon the impression that governments have the faculty o f bringing
money into existence at their w ill and pleasure without other cost than that o f
printing and issuing notes. We find no warrant in our Constitution for providing
the Government with money for any purpose except l>y the process o f taxatiou, ana
i f the Government may tax the people for the jmrpoee o f providing itself with
means o f supplying the currency requirements ot that same people, why may it
not tax them for a supply o f food! And how much better off should we be i f fed by
Government through taxation than i f we paid for our food directly in the first in
stance?

In his remarkably fine essay upon tlie subject, Mr. Brooks remarks,
upon the removal of the discriminating tax on State-bank notes, as
follows:
I t is not to be expected or desired, uuder present financial conditions, that theie
should be any legislation calculated to interfere with or embarrass theexisting national
banks. They are rendering excellent service in many respects, though they fail
utterly to meet the paper-money currency requirements o f the country, and must
always fail in this respect, because they were not intended to meet tftat want to any
considerable extent.

I agree that the national banks should not now be abolished, but I
-am in favor o f amending the laws o f their existence, as I have already
indicated.
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Mr. Brooks continues:
W e have already pointed out how the national banks are no longer banks o f issue
as to more than 21 per cent o f their capital, and have become banks o f discount and
deposit as to four-fifths o f their capital. No change o f the national system in this
respect or any other is probable or desirable just now. Congress is powerless to
furnish relief unless by further resort to the old feat o f manufacturing fiat money
on the printing press. Fortunately there is no dauger o f this kind threatening as
at this moment.
W e can see but one way o f escape from our present currency famine, and that is
through the agency o f the State banks. They were practically suppressed as issuers
o f circulating notes by the act o f Maroh 3, 1865, by which a tax o f 10 per cent w m
imposed by the United States upon the amount o f thejr. circulating notes. The
national-bank note circulation is taxed only 1 per cent.
Here is a practical monopoly o f the business o f issuing notes for circulation in
this country conferred upon the national banks; they have enjoyed this monopoly
for twenty-eight and one-half years and have failed utterly to meet the require
ments o f the public in that respect. The public, iu the meautime, has been deprived
o f the accommodation which the State banks would have afforded, and the national
banks have not availed o f the opportunity afforded them for serviug the public to
any considerable extent.
I t Is the duty o f Congress to put an end to the legal and moral wrong o f this un
just tax at the first possible moment. As soon as this is done, and State banking
corporations and individual banking companies shall be allowed to enjoy the rights
and privileges conferred on them oy their respective States, and not within the
legitimate authority o f the Federal Government either to give or take away, there
w ul be as many bank notes in circulation as are called for by the public. The idea
that the States are less capable than the United States o f framing safe and sound
banking laws is an absurdity, and not less absurd than that other idea often
expressed that State banks would not now have suitable capital and be honestly
ana skillfully managed, beoanse forty years ago such banks in sparsely settled
parts o f the country were deficient in both these respects.
Our Chicago o f to-day was forty years ago one o f the frontier towns and the scene
o f so-called “ wild-eat” banking o f that period. Times have changed since then, and
we must not allow prejudices or remembrances o f this character to control our ju dg
ment respecting present conditions. The State banks were “ scotched, not killed,” by
the legislation o f the war period for war purposes. O f these institutions, however,
3,191 still survived in 1891-’92 as banks o f discount and deposit, with a capital o f
$233,751,171, and circulating notes o f only $137,232.
I f the restriction imposed by the United States in regard to circulating notes is
removed, these banks aloue w ill furnish many times as large a circulating medium
as is now furnished by the national banks, with three times as much capital, and
other State banks w ill come into existence speedily, so as to leave no doubt o f a
sufficient supply o f paper money, for which the United States Treasury w ill have no
responsibility whatever, as in case o f the national-bank notes.
BANKS CONTROLING VOLUME OF OURRENOY.

Mr. W a r n e r . Y ou speak o f a bank in N e w Y ork charging a high
percentage on money and currency. A re you aware that that party
represented a private concern, and not a bank 1
M r. O a t e s . I got it out o f the W ashington Post.

Mr. W a r n e r . Without wishing to correct the gentleman, I will
simply call attention to the fact—for I think I know the circumstances,
unless I am misinformed—that the matter does not refer to a bank at
all, but to a private banker, who, so far from being a representative o f
a bank, was compelled to change his bank accouut three times, because
the banks refused to connive with him.
Mr. O a t e s . I f it is a mistake, I am glad to know it. A s to how
much truth there is in it, I do not know. I am in doubt whether this
is correct or not. In view o f the statement o f my friend Warner, I want
to get at only the facts. I state that there was much speculation but
I hope, if any statement I make is incorrect, that it will be corrected. .

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Mr. Cox. I»i yonr investigation o f this matter, have you taken any
pains to ascertain how much gold was locked up when this panic was
onf
Mr. O a t e s . I have not; and I do not believe anybody could tell how
mach gold was locked up. From the report o f the Treasury Depart
ment we know the amount in circulation.
Mr. Cox. Showing how much is in the Treasury and how nuu-h is
outside.
Mr. O a te s . It is from the report o f last July that I get this state
ment, ‘ ‘ held on deposit all the money in circulation except $54,000,000,”
which seems at first an anomaly. Another curious thing is that the prior
report on the same subject, after showing the amount o f money in cir
culation among the people, shows that the private deposits were more
than was the whole amount of money in circulation. The amount in
circulation aggregated $1,600,000,000. and the deposits were $1,700,

000 ,000.
Mr. W a r n e r . That is accounted for by the way in which they keep
accounts, and an answer from the Treasury will make it plain.
The C h a i r m a n . I think the confusion arises from the fact that you
confuse deposits o f currency and specie. According to the report o f
September 30, 1892, the national banks had deposits o f $2,002,000,000.
Mr. O a t e s . O f course that was not money; but proceeding on, in the
same table, you will find the specie was only $209,000,000, and the legaltender notes and the United States notes were $118,000,000, making
$327,000,000 o f money, coin and currency, in the banks, while the
deposits amounted to over $2,000,000,000. That is counted double, and
it occurs in this w ay: The banks’ books show the amount o f deposits,
when in fact the banks have taken a large part o f the deposits and
loaned them out, and thus doubles, whereas the Treasury Department
finds the amount in circulation by finding the whole amount, and
deducting the amount retained in the Treasury, counting the balance
as circulation.
Mr. H a u g e n . It is not necessary that these deposits should be money.
Mr. O a t e s . They are legal deposits calling for money.
Mr. H a u g e n . They appear as money.
Mr. O a t e s . They are drafts or money.
Mr. J o h n s o n , o f Indiana. I f I go to a bank and deposit a draft,
the clerk enters jt as money when it is not.
Mr. O a t e s . I f ’ you deposit a draft, the bank gets the money ou it,
and it is money, so far as the bank is concerited; but when you under
take to ascertain the amount o f money in circulation*, it may be that it
is counted double, because yon have put the money with the bank, and
it gets money on your draft.
Mr. H a u g e n . In the difficulties o f last summer, did not State banks
combine, and would they not combine under this regulation!
Mr. O a t e s . They could combine for speculation, but they have not
the same power as national banks. The latter were organized under a
law o f Congress, and, being the fiscal agents or depositories o f the Gov
ernment, have a more intimate connection with the Government. You
will find, as a general thing, on account o f the security o f the bills, the
public, who do no not understand these matters, are more disposed to
deposit with national banks than with State banks. State banks might
form a combination, but can not now issue money. A ll corporations
can always combine with each other, and national banks can so contract

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the circulation as to produce a panic at almost any time. But the
interest o f State banks would be more local and would ruu in the
opposite direction from the national banks.
The C h a ir m a n . I find from the statement furnished by the Comp
troller for the year 1892 that the amount o f money in circulation in the
United States on June 30, 1892, was $1,600,000,000. I f you count the
sums in the Treasury, which are represented by silver and gold certifi
cates, the whole amount would be $2,300,000,000; but, when you take
the money o f which this is made up, the amount will be $1,600,000,000;
and yet tbe deposits at the national banks at that time amounted to
$2,000,000,000. That does not represent more thau one half o f all the
banks, which would probably have $4,000,000,000 or $5,000,000,000
deposited, when you eount all the banks in the country.
Mr. O a t e s . Y ou mean the amount that is deposited in private banks,
State banks and savings ban ks. That made the excess above the amount
reported to be in circulation, and hence I state I was not sure o f the
accuracy o f that.
The C h a ir m a n . I t is accurate, so far as the deposits are concerned;
but the amount o f deposits in the banks does not tally with the amount
in circulation.
Mr. O a t e s . This will show the tremendous power the banks have
over the volume o f money in the country. I have stated that I am not
disposed to be an enemy o f the national banks. They are a good insti
tution when they do right.
M r. W a r n e r . I s not your indictment against the national banks on
account o f the utter inadequacy o f the system to furnish currency to
the country; and is it not true that, so far as your criticisms and others
are concerned,’so far as those could happen to be precedents for capi
talists who, as capitalists and not national banks, want bonds issued,
i f the national-banking system were wiped out to-morrow, would there
not be the same desire upon their part for the issuance o f bonds as
there has beeu in the time shortly prior to this!

Mr. O a t e s . That may be possible, but they were recently in a posi
tion for their motives to be suspected, and 1 have suspected them.
Their interests have led them astray in some localities.
Mr. H a l l , o f Missouri. Then the question comes up, when the devil
gets the capitalist where would the national bank be?
Mr. O a t e s . This system was established to seepre Government
credit and also to aid in obtaining circulation. It answered a good
purpose and was the best ever employed at the time. In that connec
tion I am reminded o f a statement* which Col. Ingersoll made in a
speech advocating the claim o f Ben. Holliday before the House Com
mittee on Claims, o f which I was a member. Holliday had a contract
to bring gold from California, with the object o f sustaining the credit
of the Government, during the war. He said that Holliday never lost
a trip; that he had read in Holy W rit that it took forty years to lead
the Israelites out o f Egypt, and i f Ben. Holliday had undertaken the
job he would have carrieid them through in less than forty days.
I do not consider national banks are any better than the individuals
of which they are composed. The law has been lax in this respect,
and it has been allowed to run for their benefit.
The C h a ir m a n . W ill you explain why you put a limitation o f $5
per capita T
Mr. O a t e s . Merely to meet the objection that some might have
against it; I don’t care for the limitation.

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The C h a i r m a n . H ow much would the circulation be i f tbe notes
were issued according to the population f
Mr. O a t e s . I have no idea there would be an excessive amount
issued i f there is no limitation.

The C h a i r m a n . Therfe would only be about $350,000,000.
Mr. O a t e s . I have not made the calculation.
The C h a ir m a n . Seventy millions o f people would be the limit o f
the population iu all the States o f the Union!
M r. O a t k b . 1 thought a limitation o f that kind might make the bill
more popular with the members and aid its passage.

The C h a ir m a n . The national banks now have about $200,000,000 iu
circulation, and this per capita would only furnish $350,000,000 more.
I f every State took its full per capita, we would still lack a large
amount o f currency to do business.
Mr. O a t e s . Last year the amount w as $182,000,000.

The C h a i r m a n . I f the two systems would only furnish the amount
o f money .indicated, what would you do for the rest o f tlie money?
Mr. O a t e s . The greenbacks will not be retired for a good while. I
have no doubt, with our national-bank system, if we made provision
for State banks also, that whether we have free coinage o f silver or not,
we will have plenty o f money.
Mr. H a u g e n . You are in favor o f the free coinage o f silver!
Mr. O a t e s . I want it on a parity with gold. That is the plan upon
which we have acted since 1792 when Hamilton devised this part o f
our financial system. Whether we have free coinage o f silver or not,
pass my bank bill and it will get us out o f trouble, and all the clamors
o f the people about money would soon cease.
Thereupon the committee rose, to meet to-morrow (Saturday), Septem
ber 30,1893, at 10 a. in.

S a t u r d a y , September 30,1893.
ISSUE OF ONE HUMORED AND TWENTY-FIVE MILLION DOLLARS OF TREASURY NOTES.

8TATEMEHT OF HOF. J. L. MCLAUB1H, OF SOUTH CABOLDTA.
Mr. Chairman and gentlemen o f the committee: It is with a good
deal o f diffidence that I appear before the Banking and Currency Com
mittee to submit any resolution upon the financial question, as I appre
ciate my own inexperience and ignorance upon any questions which go
to make up our financial system. A ll the more so, Mr. Chairman and
gentlemen, because I feel that this committee is not likely to look with
favor upon the proposition which I have submitted. A t the same time,
I appreciate the spirit' o f fairness and courtesy which prompted you to
set aside a portion o f your valuable time in which to give me a hear
ing, and I shall not impose upon your good nature. I feel that no gen
tleman upon this committee expects or needs enlighteument from me
upon what is the purpose, effect, and scope o f this resolution.
J O I N T R E S O L U T I O N authorizing the tu n in g o f one hundred and twenty-five million dollars o f
T reasury notes under the acta o f eighteen hundred and sixty-tw o and eighteen hundred and sixtytlnee.

Whereas failures, bankruptcy, and business distress are witnessed throughout
every section of tbe United States in consequence of an inadequate volume of cur
rency to maintain equitable prices and make necessary exchanges; and
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Whereas under present .statute laws the Secretary o f the Treasury has ample
authority to issue United States notes .in sufficient quantity to relieve the present
financial stringency: Therefore,
Resolved by the Senate and Home o f Kepretentatires o f the United Stales o f America
in Congress assembled, That twenty-tive million dollars o f United States notes issued
under the several acts o f eighteen hundred and sixty-tVo and eighteen hundred and
sixty-three be, and the saute are hereby, declared lost or destroyed, and the Secre
tary o f the Treasury is directed to credit the redemption account with said amount.
That the Secretary o f the Trensury at once cause to be prepared, signed, and
delivered to the Treasurer o f the United States one hundred and twent.v-tive million
dollars o f United States notes as authorized by the acts o f eighteen hundred and
sixty-two and eighteen hundred and sixty-three, the same to be credited to the gen
eral fund and to pay current expenses;. Provided, That the amount so issued shall
not exceed four hundred and fifty million dollars, the amount authorized to be issued
under the several acts o f eighteen hundred and sixty-two and eighteen hundred and
sixty-three.

I listened with a great deal o f interest to the able argument o f Mr.
Oates yesterday, and I am convinced that, i f some scheme o f the kind
which was proposed by him could be put into operation as a perman
ent thing, it would be greatly to the advantage o f our Southern people;
but,in proposing this resolution, I had an eye to somethingwhich would be
immediate. The need, however, for legislative action o f this character
is not so great now, as it was a few weeks ago, when the resolution was
introduced, because there has been a revival in business conditions in
the'Sonth and elsewhere.
W e were called together by the President in an extra session to
devise a speedy means o f relief for the great stringency which ex
isted in the money market, and we were told that the cause o f the
panic was the operation o f the Sherman act, but contrary to what was
expected and predicted the business conditions have improved each
day as it becomes more and more apparent that the Senate will not
consent to the unconditional repeal o f the Sherman act. In some way
the lost confidence o f the business world, about which we heard so
much, seems to have been in a measure restored by the nonaction o f
the Senate.
M A R K E TIN G CROPS.

My purpose at the time in the introduction o f this resolution was to
try and suggest some meaus to enable our people to market their
crops. There was witnessed every day in nearly all the towns o f the
cotton belt the sight of wagons, loaded with cotton, being brought into
the market and then driven back home, not because there was no de
mand for that cotton, but because there was no money with which to
buy. In many sections o f the country, owing to the money famine, the
banks associated themselves together and issued clearing-house certi
ficates. These began to circulate as money, and our people soon began
to feel the good effects o f even a crude currency, o f that kind. Busi
ness interests o f
kinds began to brighten, and there was a feeling
o f hopefulness everywhere.
C LE AR IN G HOUSE C ERTIFICATES.

A fter I received your invitation the other day to appear before your
committee and speak upon this resolution, I wired Governor Tillman
to send me one o f the clearing-house certificates, which some o f your
committee have already seen. It is not necessary for me to take the

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trouble to read it, b a t I w ill introduce it in evidence, so that any one
can see it. I t is as follow s:
No. 1197.
COLUMBIA CLEARING HOUSE ASSOCIATION.
C E R T IF IC A T E .

C o lu m b ia , S.
August 19, 1893.
This certifies that the bonks composing the "Columbia Clearing House
Association ” have deposited with the undersigned trustees o f said Clearing
House Association, securities) o f the approved value o f seven
dollars to
secure to the bearer hereof the sum o f

.
i
'
1
i

F IV E D OLLARS
lawful money o f the United States, payable on or before the first day o f Jan
uary,' 1894.
This certificate is issued in accordance with the proceedings o f the “ Co
lumbia Clearing House Association,” at a meeting thereof hud on the 19th
day o f August, 1893; and is receivable for any and all dues to the banks
] which are members o f said association, and is also receivable on deposit in
any o f said banks, and also in settlement o f all balances due from one o f said
I banks to another.
1
!

R . S. D b s p o r tk s ,
J o h n A. C r a w f o r d , > Tnuteet.
\V. J. M u r r a y ,

Countersigned:
C. M. T e w ,

Secretary.
(Indorsed on back:) Payment o f the within certificate is guaranteed by the follow
ing banks composing the “ Columbia Clearing House Association,” v iz : Carolina
National Bank, Central National Bank, Loan and Exchange Bank o f South Carolina,
Bank o f Columbia, Canal Dime Savings Bank, Farmers’ and Mechanics’ Bank.

The C h a i r m a n . That circulates as money?
M r. M c L a u r i n . That circulates as money. Let me ju st in that con
nection say that here is a private letter which I received inclosing the
certificate, and I do not think that there w ill be any objection to my
reading it:
St a t e o f So u t h C a r o l i n a , E x e c u t i v e C h a m b e r ,

Columbia, September tfi, 1893.
D e a r S i r : In response to your telegram Governor Tillman sends you the inclosed

certificate. He says you talk about them like they were nothing, but they are worth
100 cents on the dollar, and it takes thnOmueh gold, silver, or greenbacks to get
them, as they are abont all the money we have here.
Very respectfully,
D. H. T o m p k in s,
Private Secretary.
Hon. J o h n L . M c L a u r in ,
Washington, D. C.

The grain-elevator men in the West, I see by the papers, associated
themselves together in a similar way.
The C h a i r m a n . H ow many dollar’s worth o f those notes have been
put in circulation t
M r. M c L a u r i n . Seven and a h a lf dollars-----The C h a i r m a n . N o , you misunderstand me. How much is the

aggregate volume o f that currency 1
Mr. M o L a u r i n . I could not answer that question; but I could get you
the information. These are secured by formers’ notes. For instance,
they go to each other and get indorsements, and----M r. B a l l , o f Missouri (examining note). You mean there is 97.50
security deposited for every $5 o f this money1
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Mr. M c L a u r i n . I mean that for every $5 o f that issue there is $7.50
o f securities deposited, which have to be approved by these trustees,
who are men in whom we have every confidence. For instance, here
is a man who wants to borrow money, and there are a number o f men
who own plantations worth $8,000, $1.0,000, or $15,000, and he gets
them to go on his note. W e know these men are good for the money,
unless everything should disappear and all values go. That paper is
used as collateral upon which to isBue these clearing-house certificates.
The C h a i r m a n . And these notes o f private individuals are placed
with these trustees as security for the final payment o f these clearing
house certificates !
Mr. M c L a u r i n . Yes, sir; I suggested the indorsed notes as one form
o f security; they have other forms— bonds, or anything which is good
security.’

Now, the grain-elevator men in the W est associated themselves
together and issued elevator certificates, and these have gone into cir
culation as money, and these certificates in the W est and the South
were enabled to perform every function o f money, they did perform
every function o f money, and they will continue to do so just so long
as people have confidence in the organization by which they were
issued.
Mr. W a r n e r . Let me interrupt you just a moment. A s I under
stand it, these certificates are issued upon securities to the extent o f
50 per cent above the face o f the certificate!
Mr. M c L a u r i n . Yes, sir.

Mr. W a r n e r . Generally speaking, upon commercial paper! Those
who deposit their notes properly indorsed receive iroiu the bank these
certificates!
Mr. M c L a u r i n . Yes, sir; they use that, and they also use mort
gages, bonds, and anything o f the kind that is good security.
Mr. W a r n e r . But in the main it is commercial paper which is
approved!
Mr. M c L a u r i n . Yes, sir.
Mr. J o h n s o n , o f Indiana. For how many years back has this been

done!
M r. M c L a u r i n . N o t until this panic; not until we were absolutely
“ stumped ” by a want o f currency, we saw loads o f cotton and other
produce come to market and fail to find purchasers.
Mr. J o h n s o n , of Indiana. I t is a recent invention down there!
Mr. M o L a u r i n . Yes, sir. I t got so bad, during September, in South

Carolina that it was impossible to get meat in some localities, and I
have a letter from my own town, a wealthy town for the South, a very
prosperous town, where it is stated there has not been a pound o f meat
in the town for a week; we had to do something. It was a question o f
necessity.
The C h a i r m a n . W ill you obtain from the trustees whose names are
upon that certificate a statement o f the aggregate volume o f those notes
which have been issued, and furnish it to the committee to publish with
your remarks!
Mr. M o L a u r i n . Yes, sir; I will do that with pleasure. I will ask
the stenographer to make a note o f it.
Mr. S p e r r y . And the time and limit within which they calculate!
Mr. M c L a u r i n . I f you w ill have the clerk submit any question you
would like to have answered I w ill have it done promptly.
Mr. H a l l , o f Missouri. These trustees might regard that as a busi

ness secret!
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Mr. M c L a u r i n . No, sir; I do not think so. I think they will be
glad to furnish the committee with any information they possibly can.
These certificates have furnished the people with a means of exchang
ing their products and paying their debts and have served to relieve us
from the stagnation in business* affairs which existed. I f left to them
selves, Mr. Chairman, and had Congress never been called together,
the good businesssense and tact o f our people, I believe, would long
ago have ended the panic.
In that connection I will read here an item from the Washington
Post o f the date o f September 25, which is as follows:
Issued in lieu o f money— Elevator script held lo be liable to a tax o f 10 per cent.
S t. P a u i., M in n ., September tS.
Tbe elevator owners o f Minnesota and South Dakota are agitated over the prob
ability that they w ill in the next few weeks have to pay 10 per cent ou certified
checks, drafts, and dne bills, furnished as a circulating medium in payment for grain.
It is learned that Special Agent Collins, o f Chicago, has been here for several days.
He has interviewed the officials o f two Government depositories and other banks in
St. Paul, and learned that they had accepted this class o f paper for collection, re
ceiving them in due course o f business from country correspondents.
In Minneapolis, representatives o f Charles A. Pillshiir.v and o f the St. Aitthony and
Dakota Elevator Company, Brooks, Griffith & Co., and F. H. Peavey & Co. admitted
they had issued these memoranda on account o f their inability to obtain currency.
These, they acknowledged, had been used instead o f United States notes or legal ten
ders. They claimed, however, they had been legally advised that they would not
be conflicting with the United States laws. Their action, however, is a clear viola
tion o f section 3413, intemal-revenne laws.
Collector Johnson has located about $25,000 worth o f these checks, on which the
tax would be $2,500. But few returns have been received from country points, and
until they are received it can not be determined what amount has actually been
placed in circulation. Collector Johnson and A. G. Collins are both o f the opinion
that the companies are amenable to the law and w ill have to pay an assessment o f
10 per cent, but before this is levied a full report o f the amount o f the checks issued
and all the facts in the case w ill be sent to Washington.

Now, the Treasury' Department came forward after our people had
adopted an expedient o f this character, which affects nobody but our
selves; i f these certificates are not good there will be nobody hurt but
the South Carolina people and the Western people, and nobody is
obliged to take them; it is nobody’s business; it is a private business
transaction, yet the Treasury Department rules that all of our certified
checks, even due bills and certificates o f clearing-house associations
are liable to the 10 per cent tax.
Mr. J o h n s o n , o f Indiana. Do you mean the Treasury Department
did thatf
Mr. H a l l , o f Missouri. You refer to the First Comptroller?
Mr. M c L a u r i n . I do not know who did it; but even the threat tends
to unsettle business transactions based upon these certificates.
Mr. .1o h n s o n , o f Indiana. W as it Mr. Miller, o f the Internal Revenue 1
Mr. H a l l , o f Missouri. I did not understand that the ruling applied
to this more than to tlie N ew York clearing-house.
Mr. M c L a u r i n . That article in the Post so states it.
Mr. W a r n e r . I f they will attack both New York and South Caro

lina the 10 per cent tax will not be in existence three months from now.
Mr. M c L a u r in . Now, Mr. Chairman and gentlemen, without any
special knowledge on the financial question, but looking at it simply
as a lawyer and a man who claims to have a little common sense, it
seems to me that this is the very strongest argument which could be
adduced in favor o f a resolution like the one that I have proposed. It
is the practical operation o f the vis medicatrix natura, being an effort
940----- 3
*

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o f the financial body to throw off diseased conditions by the natural
laws of trade and finance.
When the Government refuses to allow us to adopt an expedient o f
this character—in other words, refuses to allow us,to help ourselves—
she should come in, and give to the sick man the kind o f medicine
that his symptoms demonstrate is necessary. W h e * she prohibits to
everybody else, individuals and States, the power to issue due bills o r
any bills o f credit, and arrogate,1* to herself the full power to do that,
it becomes her sacred duty to exercise that power wisely and to exer
cise it as fully as the business needs of the country indicate is necessary.
Mr. H a l l , o f Missouri. And promptly.
M r. M c L a u b i n . A n d by all means, promptly.
PRESENT A U T H O R IT Y TO INCREASE TH E CURRENCY.

Now, Mr. Chairman and gentlemen, in the introduction o f this resolu
tion I take the position that the Government, without the enactment
o f another statute, under the laws already existing, has ample authority
to give immediate and permanent relief. She can do just what the
banks and grain elevators have attempted to do, except that she can
do it much more thoroughly and effectually than they can, because she
can issue the full legal-tender currency, which wiil be good for all
debts, both private and public, at merely the cost o f printing, and
thus give to the country relief from the troubles which are now existing.
The authority for this—and I have not been able to find any law which
modifies or changes it—is epitomized in this book: “ National Loans o f
the United States,” page 156, which reads as follows:
The act o f February 25,1862 (12 Stat., 345), authorized tlie issue o f $150,000,000
United States notes, not bearing interest, payable to bearer at the Treasury o f the
United States, and o f such denominations, not less than $.">, as the Secretary o f the
Treasury might deem expedient, $50,000,000 to be applied to the redemption o f
demand notes authorized liy the act o f July 17, 1861: these notes to be a legal tender
in payment o f all debts public and private, within the United States, except duties
on imports and interest on the public debt, and to be exchangeable for 6 per cent
United States bonds. The act o f July 11, 1862 (12 Stat., 532), authorized an addi
tional issue o f $150,000,000 o f such denominations as the Secretary o f the Treasury
might deem expedient, but no such notes should be for a fractional part o f a dollar,
and not more than $35,OCO.OCOo f a lower denomination than $5; these notes to be
a legal tender as before authorized.
The act o f March 3, 1863 (12 Stat., 710), anthorizeif un additional issue o f
$150,000,000 o f such denominations not less than $1 as the Secretary o f the Treasury
might prescribe, which notes were made a legal tender, as before authorized.
The same act limited the time iu which Treasury notes might be exchanged for
United States bonds to July 1, 1863. The amount o f notes authorized by this
act was to be in lieu o f $100,000,000 authorized by the resolution o f January 17.
1863. (12 Stat., 822.)
The length o f loan indefinite; the amount authorized, $450,000,000; amount issued,
including reissues, $1,040,559,917; the highest amount outstanding June 30, 1864,
$449,338,1102, sold at par. Interest none; outstanding June 30, 1880, $346,681,016.

Now, this statement reveals the fact that the Secretary o f the
Treasury could at any time issue greenbacks to the full amount o f
$450,000,000. It requires no act o f Congress and even this resolution
is unnecessary so far as the enabling power is concerned. He has the
right to issue these notes at any time; and, iu fact, I believe other
Secretaries o f the Treasury have exercised the right.
Mr. H a l l , o f Missouri. Let me ask you right there. You say you have
not found since 1863 an act which limits the amount of greenbacks in
circulation I
Mr. M c L a u r i n . N o, sir; 1 do not think the Voorheesact does it, and
I have not been able to find anything which does.
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Mr. H a u g e n . Did not the resumption act provide that greenbacks
should be redeemed, and later was it not by a further act declared that
they should be redeemed only down to a certain point— *346,000,000 !
Mr. M c L a u r i n . In regard to fractional currency, I found, under theact o f July 21,187.1----Mr. H a l l , of Missouri. But is there not a provision in an additional
act that the circulation o f greenbacks shall not be redeemed to a less,
amount than $346,000,000?
M r. M c L a u r i n . I say that
the $450,000,000, which is the
not go. I have not been able
$450,000,000 maximum limit
notes provided for in the acts
Mr. H a l l , o f Missouri, The

there is, but it does not interfere with
maximum limit, beyond which they can
to find any act that interferes with the
to which they* can issue the Treasury
o f 1862 and 1803.

resumption act provided that the green
backs should be redeemed in coin, and later when they had redeemed
down to a point where there was $.‘340,000,000 in 1878, it was. declared
that they should not be withdrawu from circulation below that point,,
but as they returned to the Treasury new notes should be given.
Mr. M c L a u r i n . The way I understand it is that they could not go>
below $346,000,000, and not over $ 150,000,000, and when brought in
they shall be immediately paid out; they can not under the law be
hoarded in the Treasury.
A s I said, other Secretaries o f the Treasury have taken authority to'
increase the amount in circulation, and my authority for this allegation,
is found in the Statistical Abstract, where, on the twenty-ninth page,,
you will find in 1873 that there was $356,000,000 iu circulation, and that
in 1874 there was $382,000,000 in circulation. Now, this shows an in
crease o f $26,000,000. I f they could increase it $26,000,000 in the emer
gency o f the panic of 1873, why, in the emergency o f the panic in 1893,.
could they not increase it $125,000,000, provided they do not exceed the*
$450,000,000 limit?
Mr. "W a r n e r . I think the gentleman will find that the resumption!
act— I haven’t it by my side—but by inference from its permission,,
and the construction, I think, has been concurred in ever since— author
izing as it did the issue o f bonds for certain purposes practically limited,
the power thereafter o f the Secretary to that covered by the permission;;
and that the resumption act is o f a later date than the circumstances to.
which you allude.
M r. M c L a u r i n . I understand that.
Mr. W a r n e r . And the act o f 1878 modified in no particular what

ever, and did not purport to modify in any particular whatever, the
resumption act, but simply provided, as to United States notes which
might hereafter be redeemed, that they should not be canceled, but
should be paid out and kept iu circulation, thus leaving the greenback
currency at the amount o f $346,000,000, thus upon the uniform ruling of
the Secretary o f the Treasury, which 1 think is justified by the plain
terms o f the act o f 1875, leaving no permission to issue further bonds
after 1875 except under that act, as to which there has always been a
doubt raised whether the act o f 1878 did not cancel that as well.
Mr. M c L a u r i n . It is a question o f construction; I understand that,
but I was adverting to the act of 1873 and 1874 more in the nature. of an argumeut than to cite it as a precedent.
Mr. H a u g e n . Y ou have not made any inquiry o f the present Secre
tary o f the Treasuryas to whether he regards himself in possession o f
this power to issue further currency?

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Mr. M c L a u r i n . N o, sir; I did not, because I thought if this resolu
tion went through it would be a legislative coustruction act, and he
would be spared the necessity o f construing it himself.
Mr. H a l l , o f Missouri. The report o f September 1,1803, o f the Sec

retary o f the Treasury shows that he is above the issue by $081,000.
H o w does he explain thatf
Mr. D a v i s . I want to make this point. When it was limited to
$346,000,000, was there not an implied obligation it should be kept as
much as that! I have here an argument made iu 1888 by Senator
.Plumb showing at least----Mr. W a r n e r . This is covered by the forepart o f Mr. McLaurin’s
jo in t resolution.
Mr. M c L a u r i n . Yes, sir; I think it is.

Mr. H a u g e n . Mr. H a ll states that the present Secretary o f the
'Treasury has made a report, and it shows $346,366,000^---Mr. H a l l , of Missouri. I have no confidence iu that report; I made
that statemeut a good many times.
Mr. D a v i s . 1 will state this, further: I have here a second reply. I
replied to his report in April, 1892, and he replied to me, aud I replied
again in October, 1892, aud I show that he counts various moneys that
are not in existence here at all. There is absolutely $50,000,000 more
than there was in existence; aud Senator Plumb showed how it was in
regard to the gold.
The C h a i r m a n . The reduction to which you refer is accounted for,
probably, by the act o f Congress approved May 31,1878. A t that time
Congress passed an act to prohibit the further retirement o f United
•States legal-tender notes; and, i f you will pardon me, I will have the text
•o f that act put in the record, so we w ill have it before us:
That on and after the passage of this act it shall not be lawful for the Secretary o f
’ the Treasury or other officer under him to cancel or retire any more o f the United
States legal-tender notes, and when any o f said notes may be redeemed or be re■ceived into the Treasury under any law from any source whatever and shall belong
to the United States, they shall not be retired, canceled, or destroyed, but they
shall be reissued and paid out again and kept in circulation: Provided, That nothing
herein shall prohibit tbe cancellation mid destruction o f mutilated notes and the'
issue o f other notes o f like denominations in their stead as now provided by law.

After the law passed, the Secretary fixed the amount to be kept in
existence at $346,000,000; and between the passage o f the resumption
act and the passage o f this act there were retired greenbacks under
the resumption law to the amount which has been stated. A fter that
there has been no retirement, except possibly by destruction; and
while new ones were issued instead----Mr. H a u g e n . Y ou have before you the banking laws, and I would
like to have you refer to the resumption act and see what it states in re
gard to the maximum. What is said in the earlier laws iu regard to
the maximum to be issued!
The C h a i r m a n . It is as follows:
And on and after the first day o f .January, A. D. 1879, the Secretary o f the Treas
ury shall redeem, in coin, the United States legal-tender notes then outstanding,
-on their presentation for redemption at the oflice o f the assistant treasurer o f the
United States in the city o f New York, in sums o f not less than $50.

That was the authority to redeem them and there was no authority,
to reissue. When they were presented for redemption, they were can
celed.
Mr. H a u g e n . I wanted to find out w hat the maximum was.

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The C h a i r m a n . I presume' Mr. Haugen’s question refers to this*
part o f the la w :
And whenever and so often as circulating notes shall be issued to atiy such bank
ing association, so increasing its capital or circulating notes, or so newly organized
as aforesaid, it shall be the duty o f the Secretary o f the Treasury to redeem the
legal-tender United States notes in excess only o f $300,000,000.

This is the resumption act o f January 14, 1875.
Mr. H a u g e n . Then the maximum o f this act was changed after
wards from $300,000,000 to $346,000,000, that being the amount out
standing at the date of the later act.
CURRENCY LOST OR DESTROYED.

Mr. M c L a u r i n . I will take tip the discussion o f that section ini
which I provide that $25,000,000 be declared lost or destroyed. The
reason I introduced a section o f that kind was because 1 feared some
trouble along the line indicated by Mr. Hall. 1 find a precedent for
declaring $25,000,000 lost and destroyed and authorizing the Secretary
o f the Treasury to credit the redemption fund with that amount, in the
act o f June 21, 1879. In that act, you will see, between $8,000,000,.
and $9,000,000 have been declared lost or destroyed; and again the
Secretary o f the Treasury, in his report o f 1884, admits that $1,000,000'
o f Treasury notes were burned up iu the Chicago flre. There are no
means, however, o f determining the exact amouut, but some idea o f
the amount lost or destroyed may be tormed by a comparison with
the fractional currency.
The largest amount o f fractional currency outstanding at any one
time was $40,012,00.'$, which was in 1874. In January, 1875, Congresspassed an act providing for the retirement o f fractional currency; and
I suppose by this time it has all been retired and redeemed under the
provisions o f that act. On June 30, 1880, the amount outstanding was$15,589,888. On June 21, 1879, Congress declared that $8,375,954 had
been lost or destroyed. Since then, only $299,210.40 has been redeemed,
and the probability is that the other $6,000,000 has been lost or
destroyed. A t least, I can cite as high an authority .as Mr. Sherman iu
support o f tbe statement.
Now, here is proof that, out o f the $46,981,000 o f fractional currency
in circulation for a period o f sixteen years, more than $15,000,000 has
been lost or destroyed. Now, o f these Treasury notes there is, say, au
average o f $400,000,000 in circulation for thirty years. Therefore thequestion would be, i f $15,000,000 o f fractional currency was lost in
sixteen years out o f $46,000,000, what amount would be lost out o f
$400,000,000 o f Treasury notes in circulation for a period o f thirty
years?*
The C h a i r m a n . I think you should take into consideration the dif
ference between the fractional notes and the large notes. These frac
tional notes were very easily destroyed, being small, and they were lost
very readily.and were stuffed into pockets----Mr. M o L a u r i n . O f course, they were not as valuable, being small
amounts.
Mr. H a u g e n . Would it be fair to follow that out on the rule of three!
In that case, it would only be a question o f time when they would a ll
be destroyed.
Mr. M o L a u r i n . No, sir; but we can take into consideration, by w ay

o f comparison, the amount of fractional currency lost or destroyed^
•O ver $244,000,000.

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and ill makiug my estimate I have not taken oat anything like as large
a per cent as that, as you will see. I have taken into consideration
the difference in value, size, etc. This is the only guide, as far as any
thing like figures were concerned, on which you coaid possibly base
any conclusion. Senators Plumb, Stewart, and some others have placed
the amount at 350,000,000. Senator Plumb, in 1888, said:
No man can tell the volume o f greenbacks outstanding. Nominally it is $346,000,000
-and a fraction, but that volume has been subject to all the accidents which have
•occurred during the past twenty-tivo years whereby money has been consumed,
. worn out. and lost, and it is doubtful if the amount is really over $300,000,000 to-day.

The C h a irm a n . Have you compared, in this connection, the amount
o f the old demand notes which were issued by the Government and.
the amount of them which were subsequently returned for cancellation f
Mr. M c L a u r i n . N o, sir; I have not made that comparison.

The C h a i r m a n . I think you will find nearly all o f those got back
;safely. The rule you want to apply is the destruction o f the national
■bank notes, and that will bring you to a comparison with the greenbacks.
Mr. M c L a v r i n . I did not make that comparison. I adopted this'
•other mode of argument and relied on Senators Plumb and Stewart as
men who had given a great deal o f attention to the subject and who
ought to be authority.
The C h a i r m a n . You will find, if you compare the amount o f the
national bank notes retired, that it is very small.
Mr. M c L a u k i n . Senator George, o f Mississippi, also, in a speech o f
March 14, 1802, incidentally referred to this subjec t. He states:
W e have $100,000,000 in gold as a fund, as Senator Beck says, to guard the green
backs. We have $346,000,(XK) o f these greenbacks or legal-tender Treasury notea.
Mr. Beck says, and lie has never been successfully contradicted, that $50,000,000 is
ample to guard the $346,000,000. I f that be so, and he proves it, as I have read in
the hearitig o f the Senate, it is clear that we may increase the volume o f green
back currency double the $316,000,000, and it w ill remain a sale, sound, redeemable
•currency, equal to coin.

THE PRESENT SITUATION.

*
1
In this connection 1 will say, Mr. Chairman and gentlemen, I frankly
confess my inexperience and ignorance upon many, perhaps too many,
o f the propositions which go to make up the great questions o f finance.
Called together by the President in an extra session to devise means
'Of relief, I began, as best I could, an honest study o f the situation. The
press and the people were clamoring for more money, and business
failures were seen on every hand because o f a declared want o f money.
My own people were driven to the necessity o f issuing due bills and
clearing-house papers, as I iiave shown; and, considering their welfare
and finding laws upon the statute books which seemed to me ample to
afford relief, I introduced this resolution.
Doubtless one objection that will be made to the resolution is that it
increases the volume o f paper currency, and this will be followed by
the statement that the present panic was caused by a return and sale
o f securities which were held by foreigners, who feared that the volume
o f paper money would become so great that gold payment would not
be maintained, and that the principal and interest or dividends o f their
holdings would be paid in silver or paper. I have heard that objection
raised upon the floor of the House, and I have no doubt that, in the
minds o f many of the committee, this is one o f the chief objections to a
resolution of this character.

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Bat, Mr. Chairman and gentlemen, if it be true that it was the return
aud sale o f the property o f the foreign security-holders in this country
that caused the panic, then it is true that Congress has been called
together to enact laws which will be satisfactory to foreign investors.
Speaking for myself, I would say that I am too much o f an American
to be willing to see any such laws and thereby to have my own people
suffer. I t is best, perhaps, to meet that objection fairly and squarely
a t the beginning of my remarks. It is doubtless true that the return
o f these foreign securities from abroad is largely responsible for the
panic.
I t is well for us, then, to consider what kind o f securities were held
abroad and returned here aud sold in such large quantities as to pro
duce a panic. The bonded debt o f the nation amounts to $5&>,000,000,
o f which $200,000,000 are held by national banks. A large portion o f
the balance is held in trust funds by estates and for investments o f a
similar character; ouly a small portion, as la m informed, of our national
debt is held abroad by foreigners This being true, it follows that the
securities which were held abroad and returned here in these large
quantities were either private or corporate l^ouds and stocks. This fact
changes the entire face o f the proposition; and because o f that I make
the broad statement, as my opinion, that at this period o f our national
existence we do not want to bid for foreign investments, and I will
briefly undertake to give my reasons tor making a statement o f that
character.
Foreign investments iu this country are conclusive evidence o f the
fact that the necessities o f the people here for the use of money are
greater, their financial standing being considered, than elsewhere, and
hence they are willing to pay a larger tribute for the use o f the money.
The only logical remedy for such a condition is to supply the people
with a sufficient volume o f domestic money, aud thereby relieve them
o f the necessity o f going abroad for their currency, and this, my reso
lution, seeks in part to accomplish. Foreign investments are dangerous
to the best iuterests o f our country, as is disclosed by the statement
that the return and sale o f those securities produced the present pauic.
In other words, we are at the mercy o f foreign security holders who,
from an unreasonable fear, or from malice, or any other cause, can at
any moment produce a pauic aud cause our people to suffer. Cue o f
the chief objections urged against Chinese immigration is, that they
never become naturalized. They come here and secure a competency,
either great or small, and when it is secured they go back home. Just
so it is with the foreign investor. He comes in here and reaps as much
tribute as possible----Mr. B l a c k , o f Georgia. And he does not even come here.
Mr. M c L a u r i n . N o, sir; he sends his money and he reaps all the
tribute possible, and then at the very first token o f alarm he takes his
flight homeward and leaves us to work out our own destiny.
Mr. H a u g e n . H ave you any'statistics in regard to the amount o f
securities returned !
Mr. M c L a u r i n . N o, sir; I have not. I am ju st making the state
ment on the general tenor o f remarks, and-----Mr. H a u g e n . I think you are perfectly correct in tuat theory, while

I doubt the efficacy o f the remedy you propose.
Mr. M c L a u r i n . I thought that in the minds possibly o f a part o f
the committee that was an objection I had to meet; and 1 wanted to
show I w as not unreasonable iu making a proposition of this character,

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and that I had at least reasons which were to me of a satisfactory
nature.
While the primary cause of the panic was a lack of domestic money
which made possible this invasion o f foreign capital, it is no less true
than the immediate cause was the want o f currency to maintain prices,
and thus enable the people to continue the payment of tribute to
foreign investors, as 1 will attempt now to explain. The stocks and
bonds held abroad were principally those o f railroads and other cor
porations. Those stocks were usually watered to the fullest extent
they would stand. This watered stock is usually more or less divided
iu its ownership between the resident and the foreigner.
For years the people have been enabled to pay this unfair and exor
bitant tribute. During this time the foreign investor received his
dividend, and as long as he got his dividend he was content. In the
meanwhile the stocks of the resident owner were pledged with a trust
company and funds raised to start new enterprises. The stocks and
bonds o f these new ventures were often placed in the same way and
other enterprises built upon that.
In this manner a perleat network o f such deals were made, all de
pending upon the stability o f the first. Statistics show that the railloads o f the United States cost, on an average, 120,000 per mile, while
they are bonded at $(!.'{,000; the patrons o f the roads must pay the in
terest on this 843,000 o f watered stock. As these corporations became
more numerous and the watered stock greater, the demand for tribute
upon the people also became greater, until it arrived at a point where
they could no longer stand it. A fall iu the price o f products made a
rigid economy on the part of the people who have to pay these divi
dends and interest a necessity. Hence there was less travel, less
freight, less exchange o f manufactured and other products. This
economy and lessening o f business brought about as an inevitable re
sult less dividends, and the foreign investor became alarmed.
This alarm continued and increased until these investors threw their
holdings upon the market. So long as the foreigner was content, the
resident holders o f these secutities could manipulate his stocks with
comparative safety, but when the foreigner began to realize upon his
portion and the prices declined as a result, the resident holder and all
o f his interests began to suffer. It became necessary for him to keep
his margins good; and, in sncli a rapid decline as followed, this became
impossible, and he went down, and all the enterprises with which he
•was connected. In my judgment, it was a fear o f the loss of permanent
dividends, by reason o f the poverty o f the people, and not the fear o f
auy particular kind o f money used in the final liquidation, that caused
the panic.
W e are asked to enact laws which will protect the foreign investors
in gald payments, forgetting that such laws would bring ruin and
disaster upon our people. While we legislate to make the investment
o f the foreigner satisfactory to him, we are legislating lower prices for
the productions of our own people and robbing the farmers and pro
ducers o f this country o f a just and equitable remuneration in return
for the products of their labor. To this, so far as I am concerned, I
will never consent, but I will oppose with all the limited ability which
I possess.
The fear o f an increasing volume o f paper money is either a cunning
pretext or an absolute absurdity. The paper money outstanding is as
follows: Gold certificates 880,4 i4,049; silver certificates $326,206,336;
Treasury notes (greenbacks) $346,681,016 (nominal!); Treasury notes
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of 1890, $149,881,958; national-bank bills (about) $175,000,000. The
gold certificates are payable in gold deposited for their issue. The sil
ver certificates are payable iu the silver dollars deposited tor their issue.
The Treasury notes o f 1890, issued in payment o f the purchase o f silver,
are payable in silver dollars as is shown in section 3 o f the Sherman
act, which is as follows:
That the Secretary o f the Treasury shall each mouth coin 2,000,000 ounces o f
the silver bullion purchased under the provisions o f this act into standard silver
dollars, until the first day o f July, 1891, and after that time he shall coin o f the
silver purchased under the provisions o f this'act as much as way be necessary to
provide for the redemption o f the Treasury notes herein provided for, and any
gain or seigniorage arising from such coinage shall be accounted for and paid into
the Treasury.

This leaves the Treasury notes amounting to $346,081,010 and
national-bank notes amounting to about $175,000,000, or a total o f
$521,681,016 o f paper money, whose filial redemption can become a
matter o f dispute. Upon this point 1 would like to submit the follow
ing, although there are volumes o f such statements. This is from Mr.
Pierrepont, Attorney-General o f the United States, and afterwards
minister to England, in a letter in the New York Times o f April 18,
1884, iu which he says:
There is not an outstanding bond coupon, or greenback issued by the United
States which may not lawfully be paid in silver. Not one o f them on its face or
back, or in the statute authorizing the issue, or in declaration, or in resolution o f
Congress, has any proviso that they shall be paid in gold. And the act o f Feb
ruary 20, 1878, directing the coinage o f silver dollars, declared that such dollars
shall be a legal tender at a nominal value for all debts and dues, public and private,
except where otherwise expressly stipulated in the contract.

In the discussion o f the silver question in the House, which i f refer
red to escaped me at the time, as 'I have not heard it mentioned in the
debate, there was a resolution which passed the United States Senate,
January 25, 1878, and the House o f Representatives on Jatiuary 28,
1878, by a vote of 42 to 20 in the Senate and 189 to 79 in the House.
I t was to this effect:
That all the bonds o f the United States issued or authorized to be issued under
the said acts o f Congress hereinbefore recited, are payable, principal and interest, •
at the option o f the Government o f the United States, in silver dollars o f the coinage
o f the United States, containing 412J grains each o f standard silver; and that to
restore to its coinage such silver coius as are a legal tender in payment o f said
bonds, principal and interest, is not in violation o f the public faith nor iu deroga
tion o f the rights o f the public cre.iitor.

The C h a ir m a j j . W h a t is the date of that act!
Mr. M c L a c r i n . This was a joint resolution which passed the Senate

January 25, 1878, and the House January 28, 1878.
The C h a i r m a n . That was not an act, that was a concurrent resolu
tion.
Mr. M c L a u r i n . I so stated. The national-bank currency can only be
made a charge upon the Treasury through the Treasury notes, and the
law expressly declares that suqIi notes shall not be retired, but shall be
put immediately into circulation. But counting the entire volume o f
$521,681,016 with the amount of paper money which is provided for in
my resolution, $125,000,000, we would have $046,681,016 in all.
I f we deduct from this amount the amount lost or destroyed, $25,000,
000, we would have, in round numbers, $575,000,000. This would give
as a reserve 17£ per cent, which, under the circumstances, is plainly
abundant, us can be briefly shown by the national bank statistics. I
have a report here from the Comptroller o f the Currency, which I will

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not read, but from which I can summarize the facts which I want in this
way. The deposits in these uational banks amounts to 81,556,7(51,230.
I will not read all these items, but they amount to $1,754,222,429.
Mr. H a u g e n . W hat is the date o f that ?
Mr. M c L a u r i n . August 17. After deducting the clearing-house
certificates aud other items counted as currency that are unavailable
for immediate use in payment, there remains only $271,183,295 as
actual reserve, or 15£ per cent. The situation then is as follows:
The Government would be doing business with the full amount o f
$450,000,(100 legal tender issued and the present amount o f national
bank issues upon a reserve o f 17A per cent, while the banks would be
conducting their business upon a margin o f only 15£ per cent reserve.
1 submit that it is unfair to demand o f the Government more aud a
better reserve security than they are willing to put into practice among
themselves. W ith this statement, based upon the facts and backed up
by the business intelligence and experience of the bauking interests, I
submit that the fear o f an increase of paper money is without any
logical foundation.
PRESENT A U T H O R IT Y TO INCREASE TH E CURRENCY.
JVIx . 'H a l l , o f Missouri. What authority is there in law for the Sec
retary of the Treasury to issue any legal-tender greenback notes for
money lost or destroyed f I want to read the only authority you have
thus far cited. I read from the act o f May 31, 1878, omitting the first
part.
That from and. after the passage o f this act it shall not be lawful for the Secretary
o f the Treasury or other officer under him to cancel or retire any more o f the United
•States legal-tender notes, and when any -of said notes may' be redeemed or be
received into the Treasury under any law, from any source whatever, and shall
belong to the United States, they shall not be retired, canceled, or destroyed, bnt
they shall be reissued and paid out again and kept in circulation: Provided. That
nothing herein shall prohibit the cancellation and destruetion o f mutilated notes
and the issue o f other notes o f like denomination in tlieir stead as now^provided by
law.

Now, I wish to know if you have any authority outside of this stat
ute for basing your resolution, which is that the Secretary o f the
Treasury shall keep the amount up to $346,000,000 for lost and
destroyed currency? There is nothing said in this section about lost or
destroyed.
Mr. M c L a u r i n . I f it is lost or destroyed it doos not need the Sec
retary o f the Treasury to retire it, because it has retired itself.
Mr. H a i ,l , ot Missouri. You think, then, that the word “ retired,” as

herein used, means to include money lost!
Mr. M c L a u r i n . I think so. I think that the money has already
been retired by tire and loss o f various kinds aud 1 have placed the
amount far below what might be reasonably expected, so as to pre
vent any question o f that kind; because, as a rtiatter o f common sense,
i f the money is gone it will never have to be redeemed, and as a busi
ness man, if you had debts charged against you which you knew that
you would never be called upon to pay, you would credit your bills
payable and not have it stand as a debit when it should be a credit.
Mr. W a r n e r . I presume the gentleman from South Carolina, in

his argument, does not intend to make a point upon the peculiar word
ing of his resolution. What he intends is, by the first section of the
resolution proposed by him, to indicate whatever legislation the corn-

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mittee may find necessary, to declare a certain amount of greenbacks to
have been lost and destroyed and to authorize reissue; so that although
the point is perfectly proper, I do not understand the gentleman from
South Carolina means to confine his argument to the very wording of
his resolution.
Mr. H a l l , of Missouri. I will say in explanation o f this, I heard this
objection made, and I wish to say I am favorably iucliued to the gen
tleman’s first section; but I want to hear him on that point, knowing
that he has given it some examination aud T have not.
M r. M c L a u r i n . I thought of that, but did not think it necessary,
for this reason: I do not pretend to be an expert financier, but in look
in g around got this idea, aud thought 1 would present my views b y
embodying them in a resolution; then as to technicalities, that is
the business o f this committee. I have plainly stated, our troubles in
South Carolina and elsewhere; and, if you can give us help o f any kind,
we would be very glad to get it, without regard to the particular form
in which the blessing is to come.
T H E BKST REMEDY.

Mr. W a r n e r . I f the gentleman from South Carolina will permit me,
in view o f a somewhat extended aud very forcible presentation made
by him in the early part o f his remarks, o f tlie actual situation in South
Carolina, aud tlie very effective way in which it was made, and espe
cially in view o f his own reference to the argument made by Col. Oates
yesterday, I would like to know if I understand him correctly in this
statement, that the means adopted by the bankers in Columbia, S. C.,
provided there was no question about its legality, were such as practi
cally to solve the problem as to the shortness o f currency, and that if
they are permitted to do that in a legitimate way for themselves or if
some plan like that proposed by Col. Oates—i f some such plan could be
adopted as a permanent matter, would that in yonr view be a satisfac
tory solution? But so long as the Government does not permit Col.
Oates's plan or the plan o f the bankers o f South Carolina to be. carried
into effect, I understand that you insist that the Government provide
the greenback or currency which it does not permit you to provide for
yourself!
Mr. M c L a u r i n . Yes, sir; that is one o f the branches o f my argu
ment, but I go further and say that what the banks adopted as an expe
dient, the Government can do more thoroughly and effectually, aud
she ought tocom3 in and do what the symptoms o f this financial disease
show is necessary to be done. The trouble with the certificates is they
might be subject to the manipulations o f speculators. Give us a good
legal-tender currency instead.
Mr. W a r n e r . The resolution presented by the gentleman, as I
understand, provides for two things: First, a rehabilitation, if you
may so call it, of currency that for one reason or another has become
useless for the purposes o f circulation. In that, I may say I regard the
suggestion as a very valuable one. The second oue is, tlie increase
o f the amount o f currency by an estimated amount o f £ 100,000,000.
Mr. M c L a u r i n , Yes, sir.
Mr. W a r n e r . A s I understand, that increase is to take the form of
notes issued by the Government and paid out by the Government for
its expenses, debts, etc.
Mr. M c L a u r i n . Yes, sir.

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EMI8SION OP CU R R E N C Y: LO AN TO BANKS.

Mr. W a r n e r . N ow , in view o f the suggestion o f the gentleman that
this was proposed in the midst o f a pressing emergency, may I ask
him to dwell a little longer upon the precise means tor the placing o f
these notes to be issued and in the possession o f the Government, by
which the present or any other similar emergency would be met. Say
they have got them in the Treasury here or iu the Printing Office.
Mr. M c L a u r i n . That is the milk in the cocoanut. There is no doubt
about it. It is aquestiou of emission, LIow are you going to get rid
of them ? I have thought o f two plans, and one was suggested by the
speech o f Mr. George, from which L read a few moments ago. There
are a large number o f contracts under the Government which have
been suspended tor want o f funds. It might be used in this way, to
pay current expenses o f the Government, etc. This idea is from the
speech o f Senator George, bul my original intention at the time of the
introduction o f the resolution was this: W e were in a tight place and
we needed help, and that quickly, and I realized the fact that the ouly
relief from this panicky condition was to come from the cotton crop o f
the South and the wheat crop o f the W est; that as soon as we could
get these big money crops vipon the market, gold would begin to come
in, and everything would lighten up.
Now, I believe during Mr. Cleveland’s administration—and if I am
incorrect I know the gentleman from New York will correct me— at
one time, when there was about to be a panic in New York, $60,000,000
was deposited by the administration in the W all street banks without
interest.
Mr. W a r n e r . I think that is a slight mistake, but at the same time
I do not find any fault, because deposits have been made to relieve
stringency.
M r. M o L a u r i n . This is the argument that I make: Before this time
when there was a money famine or likely to be tightness in the money
market, the administration would go to the relief o f the New York
bankers, and when the Government gets in a tight place it expects'
the New York bankers to return the favor. Sometimes it is hard to
differentiate between the Government and the New York bankers, to
tell where one stops and the other begins.
Now, then, realizing the importance o f marketing the cotton and
wheat crops, I did not see why this currency could not be taken and
deposited in the country banks. W hy not put some o f it in the Colum
bia banks; and, if the Treasury wanted to have a proper understanding
with those bankers, it could be placed in there coupled with the con
dition that thfty would charge farmers ouly 6 per cent. There is no
better security in the world tliau a bale o f cotton, for if there is any
money at all iu the country, it will sell for something, and this was
the idea I had at the time the resolution was introduced.
Mr. W a r n e r A s I understand, the resolution provides only that
a sum should be credited to the general fund to pay current expenses.
This proviso was simply to define the amount of money, and not to
indicate the use to which it was to be putt
Mr. M c L a u r i n . Yes, sir.
Mr. WAfcNER. And the use contemplated by this was the deposit
o f the money so issued in different parts o f the country that might
need it in the emergency f
Mr. M c l a u r i n . That was entirely with the Secretary o f the Treas
ury; a matter within his discretion.
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The C h a i r h a n . Allow me to suggest that the indications are now
that there will be a deficit o f probably $50,000,000, and $25,000,000 of
bonds which have been extended, to be paid by the Treasury o f the
Government, and those two items must absorb $75,000,000, and it is
conceded by all persons that our finances are rather lower than they
should be for the successful administration o f the Treasury Depart
ment. Mr. Foster testified before the Ways and Means Committee
that the Treasury ought to have $50,000,000 more than it had iu order
to meet its obligations.
Mr. W a r n e r . I do not think the gentleman misunderstood me.
My*question was not as to the possibility o f this Government using
$125,000,000. My question was, how was it to be made immediately
available! Because by the wording o f his resolution “ the same is to
be credited by the general fund and to pay current expenses,” and I
wanted to know how that was to be paid out immediately.
M r. M c L a u r i n . Yes, sir; that is the idea; aud, iu addition to what the
gentleman has stated, it seems to me, as a matter o f business, in plaee
o f the issuing o f gold bonds and selling them abroad to bring money
here, it would be far better for the benefit o f the people if Congress
should issue these notes, which would bear no interest at all, and
which our people would very readily accept, than it would be to issue
gold* bonds, sell them abroad and pay interest upon them.
Mr. W a r n e r . A prompt use o f this permission is practically a
further issue o f greenbacks to be loaned to local banks in parts o f
the country where currency is most needed ?
M r. M c L a u r i n . That is exactly it; better than I could have said it.
The C h a i r m a n . I desire to direct the attention o f the committee

to the constitutional authority to issue any more legal tender notes than
$360,000,000. The Supreme Court held in the legal-tender acts that
issue was a war issue and grew out o f the necessities o f the war, and
1 think there was some doubt whether they could increase the legaltender issue under these acts mentioned iu this bill and make them
legal-tender. I do not want you to answer that, but I merely direct
the attention of the committee to this.
THE PRESENT SITUATION.

Mr. J o h n s o n , of Indiana. You spoke in the early part o f your argu
ment about the planter having brought his cotton to town and having
been obliged to take it home because there was no money. Is this the
first instance that has occurred in your history down there?
M r. M c L a u r i n . This is the first time I have ever known o f such a
thing.
Mr. J o h n s o n , of Indiana. During this late money stringency, has

there been any run upon your banks down there*
M r. M c L a u r i n . N o, sir.

Mr. J o h n s o n , o f Indiana. W as money hoarded down there—such
money as the people had!
Mr. M c L a u r i n . N o, sir; we did not have it to hoard. W e have been
making cotton at a steady loss for several years, and I could tell you
something about the banks there, to show you our people have confi
dence in our banking institutions. There is a bank in the little town
in which I Uve, and at one time it did not have over $2,000 or $3,000
in it, but our people were not uneasy. They knew it was safe, and that
it was honestly administered, and therefore we had no runs in South
Carolina. I do not recollect but one single bank failure in the whole
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BANKING AND CURRENCY.

State, in spite o f all the stringency in money matters, and tliat was a
bank which resumed very speedily— only suspended by reason o f the
failure o f a bank outside o f the State.
Mr. B l a c k , o f Georgia. Was it a national bank or a State bank?
Mr. M c L a u r i n . It was a State bank at Florence, but it very speed
ily resumed, aud is now perfectly solvent.
'M r. J o h n s o n , o f Indiana. I understood you to say you did not suffer
from a scarcity of nioney for marketing your crops?
Mr. M c L a u r i n . W e generally have plenty o f money to market the
crops. Our terrible time in the South is in the summer and spring,
when everything runs on a credit, and that was why I was so much
impressed with (Jol. Oates’ argument. He evidently understands the
situation in the South.
Mr. J o h n s o n , o f Indiana. W hat I am driving at is this: Whether
there has occurred at various times recently in the history o f your
people a scarcity o f money other than what yon cite as having occurred
in the last four or five or six months, or is that simply an unusual con
dition?
Mr. M c L a u r i n . It is an unusual condition. They will send from
New York all the money we want to market the crop in the fall; there
has never been any trouble about that. There is no scarcity o f money
at some price, but sometimes there is little scarcity o f change, ■and
always a low price.
Mr. W a r n e r . You are dependent upon the actual currency being
forwarded from New York about three months every year?
Mr. M c L a u r i n . Yes, sir.
Mr. J o h n s o n , o f Indiana. You have never had any trouble about it

before ?
Mr. M c L a u r i n . Not until now, except with low prices.
Mr. J o h n s o n , o f Indiana. Your remedy is designed to meet this

specific trouble which existed?
Mr. M c L a u r i n . Yes sir.

Mr. J o h n s t o n , o f Indiana. Then it is not necessary for the general
condition which has prevailed there?
Mr. M c L a u r i n . No, sir.

Mr. C o b b , o f Alabama. I would state that the farmers had to pay
too much interest for this money which comes from New York.
Mr. H a u g e n . H ow do yon expect to get this money out o f the
Treasury!
Mr. M c L a u r i n . I just answered Mr. Warner; by the way o f the
deposits o f which I spoke.
Mr. S p e r r y . You would have it sent down by express?
Mr. M c L a u r i n . No, sir; the question of the gentleman from Indiana
was about the scarcity o f nioney in general, and that opens up a big
question; and, whenever you come to study that and reason it out, you
will see what caused the organization of the Farmers’ Alliance and
gave birth to the subtreasury bill and every measure o f that kind. It
is just like the working of the laws o f evolution, and it is going on now
and getting worse and worse, and will continue to do so unless there
are some means devised to remedy it, by giving elasticity to the circu
lating medium.
v o l u m e o f m o n e y in

c ir c u l a t io n

r e g u l a t e s p r ic e s .

Mr. S p e r r y . You attribute the low price o f cotton to the.want o f
money, to the want o f circulating medium?
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BANKING AND CURRENCY.

Mr. M c L a u r i n . I certainly do.
Mr. S p e r e y . Mr. Catchings in his speech attributed it to two extra

ordinarily large crops, and said that the agricultural associations
throughout the South were trying to get together iu some way and
curtail the output of cotton.
Mr. M c L a u r i n . I listened to Gen. Catchings’s speech and I thought
it was one o f the best speeches from his standpoint that was made on
the floor o f the House: but he did not state the condition o f the South,
and the causes o f our poverty correctly, and I believe that if I had the
time I could answer the argument, because it tvas the special pleading
o f a trained lawyer, from the Wall street standpoint.
Mr. S p e r r y . The Statistical Abstract shows that the two crj>ps o f
1889 and 1891 were two o f tin* largest crops you had. and that the
surplus in sight was so great that it caused the low price in the market.
Mr. M c L a u r i n . The price is dependent upon the volume of money.
Mr. S p e r r y . Bather than the volume o f the product in sight!
M r. M c L a u r i n . Yes, sir; that is my idea.
M r. S p e r r y . That is absolutely different from anything I know.
M r. M c L a u r i n . Just let me ask you a question, i f you will pardon

me. From the Statistical Abstract o f 1892— I do not know I can give
the exact figures, but I can give you the idea. In South Carolina in
1873 there was 973,158 acres in coru and there was raised thereon
9,245,000 bushels, the value thereof being £8,690,300. Iu 1892 South
Carolina had in corn 1,691,677 acres and raised thereon 16,713,000
bushels, the value thereof being $9,526,000. Thus we have in 1873 and
1893 an increase o f over (53 per cent in the number o f acres, o f 80 per
cent in bushels, and less than 10 per cent in value. You can not account
for this if the volume o f money be not taken into consideration.
M r. S p e r r y . I do not understand you; perhaps the rest o f the com
mittee do.

Mr. M o L a u k i n . I f I could get the Abstract I could explain it to
you.
Mr. Cox. He means that the increased price received from the crop
in 1890 was n( t equivalent to the smaller crop o f cotton made in 1880,
when money was more plentiful.
M r. M c L a u r i n . I do not want to undertake to go into all that; but
I got the idea— I may be incorrect— that if you take the amount o f
money iu circulation and the amount o f crop made, and take the
decrease in the amount o f money in circulation and the increase in the
crop, and run them down each year together, a man can not avoid the
conclusion that the volume o f money has an effect upon the price o f
products.
Mr. C o b b , o f Alabama Anything which influences its price at L iv

erpool has an effect upon the Southern prices. Does it control it !
Mr. M c L a u r i n . I think so. That is the place where the price for
cotton is fixed tbrthe world.
Mr. S p e r r y . I f it is true that the Secretary reported that there w as
more money in circulation in 1890 than in 1880, then, on your theory,
it ought to be higher!
Mr. M c L a u r i n . I know the Secretary o f the Treasury can get up

some verypretty reports, but, I agree with Mr. Hall thatwehave learned
not to have a great deal o f confidence in them. I do not believe that,
on the average, there is over $1.50 per capita iu circulation in South
Carolina the year round.
Mr. W a r n e r . Y ou mean outside o f the bank reserves!
Mr. M c L a u r i n . Yes, sir. Now, you take it in New York, where it
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BANKING AND CURRENCY.

is stated there is $272 per capita in circulation, and in South Caroliua,
according to the same statement, there is $12 40. W ell, 1 have uo
doubt that $272 in New York is about right, but there is not even the
$12.40 in circulation in South Carolina.
Mr. S p e r r y . Just wait one moment right there. I do not care how
much per capita is in circulation. That is a greenback idea. My sug
gestion was that there was more circulation in 1890 thau in 1880, and
the Treasury statistics as given in 1880 aud 1890 are on the same basis
exactly and the bank reserves remained the same,- and the detailed
statements of the different classes o f money remained the same, and
■relatively it is precisely the same in 1890 as in 1880, and with this dif
ference there is more volume in 1890 thau in 1880 ?
M r.‘M c L a u r i n . A n d more people in 1890, too.

Mr. S p e r r y . So, if the Treasury statement is noV correct iu 1890 it
was uot correct* in 1880, but it was made up in the same way by the
Department, and the point I am trying to make, and which I wish to
bring to your attention, is that in 1890 there is more money in circula
tion according to the Treasury statement than in 1880 accoi’ding to the
Treasury statement. Now, on your theory that it is the volume o f
money which makes prices, will you explain to the committee why, in
1890, with a larger volume of money, prices are lower than 1880 when
we had a smaller volume o f money ?
Mr. M c L a u r i n . 1 do not admit as a matter o f fact there is as much
money in circulation now; as a practical fact I can not admit that.

Mr. S p e r r y . Then you dispute the detailed figures o f the Treasury
o f the United States in relation to the amount o f money in circulation ?
Mr. M c L a u r i n . In circulation among the people; I know it is not
in South Carolina.

Mr. S p e r r y . H ow do you account for the fact that the New York
banks are surrendering their circulation now?
M r. M c L a u r i n . I do not know, unless it is for speculative purposes
or to produce another panic.

Mr. S p e r r y . You would not conclude that they were surrendering
that circulation because they could not properly use itf
Mr. M c L a it r in . W e ll, I would not think they would keep it out
standing if they could more properly draw it in. I am certain they
would do what they thought best for their own interest.
Mr. C o b b , o f Alabam a. I do not know whether I understood you.
D o you mean that the volume in circulation in this country controls
the price of cotton in the South ?
Mr. M c L a u r i n . N o, I mean the amouut in circulation for the pur
pose o f buyiug that cotton; I do not care where it is.
Mr. C o b b , o f Alabama. You agreed to my statement just now that

the price o f cotton in South Carolina was basM on tlie price at Liver
pool?
Mr. M c L a u r i n . Yes, sir.
Mr. C o b b , of Alabama. I f that be true, how can your other state

ment be true, that the amount of volume in circulation in South Caro
lina fixes prices?
Mr. M c L a u r i n . I was answering Mr. Sperry’s question then in
regard to the correctness o f the figures o f the Treasury Department o f
the amouut of money in circulation.
Mr. S p e r r y . Y ou said that when the crop was harvested you had
an abundance of money, which came in there from New York?
Mr. M c L a u r i n . W e had an abundance o f money, but they fixed the

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BANKING AND CURRENCY.

price o f ovir cotton by combination between Liverpool and New York,
and sent just enough money to buy it at that price.
Mr. S p e r r y . Then it is your opiuiou that Liverpool and the New
York Cotton Exchange are in a combination ?
Mr. M c L a u r i n . Tou know very well, and everybody knows, there is
a combination o f those exchanges to hummer the price o f cotton down
o r up for speculative purposes, without regard to the amount o f cotton
produced.
Mr. S p e r r y . You have the opinion that a great body o f flat money

issued by this Government would break up all possible combinations
to control prices ?
Mr. M c L a u r i n . I am only in favor o f flat money to a certain extent.
Mr. S p e r r y . Not unlimited ?
M r. M c L a u r i n . No, sir.
M r. W a r n e r . I understand the gentleman that his proposition is to
only meet an emergency?
Mr. M c L a u r i n . Yes, sir. I agree with what Mr. George says in that

speech, and it seems to me very sensible.

H e says:

W e have $100,000,000 in gold as a fund, as Mr. Heck says, to guard the greenbacks.
W e have $346,000,000 o f these greenbacks or legal tender Treasury notes. Mr. Beck
says, and he has never been successfully contradicted, that $50,000,000 is Ample to
guard the $346,000,000. I f that lie so, ana he proves it, as I have read in the hearing
o f the Senate, it is clear that we may increase the volume o f greenback currency
double the $346,000,000, and it w ill remain a safe, sound, redeemable currency equal
to coin.

I do not make any such statement, but I say it would be safe oh a
reserve fund o f 17£ per cent.
Mr. S p e r r y . I s it your idea that the price o f cotton is fixed in
Liverpool!
M r. M c L a u r i n . I have always heard that and always read it was
true, and have no doubt it is so. They fix it low enough, God knows.
I t is fixed very much without any consultation with the man who makes
the cotton, and at such a price that everybody makes a profit from it
except the man who raises the cotton and who has the best right,
therefore, to expect a profit.
Mr. S p e r r y . Now, i f the cotton price is fixed in Liverpool, that is a
gold price?
M r. M c L a u r i n . Yes, sir.

Mr. S p e r r y . Liverpool draws London exchange to pay for cotton,
and that is gold. I f you state that the price o f cotton is fixed in Liver
pool iu 'gold, how can any quantity o f paper in South Carolina help
you out?
M r. M c L a u r i n . I do not want to go into a discussion o f the whole
financial system. .
M r. S p e r r y . Only a little piece o f it.
M r. M c L a u r i n . Yes, sir. But my idea is this, that with a proper

system o f finance, with something that was fair and just, that we would
break up the fixing o f the price o f our cotton iu Liverpool, and that
America can fix the price o f her products here. M y whole argument
was directed against your allowing these men in Liverpool, foreigners,
to come in here and fix the price o f our cotton, wheat, or anything else,
which they can only do by our adopting the single gold standard.
Mr. H a u g e n . Y ou believe in manufacturing the cotton in this eountry?
Mr. M c L a u r i n . Y es, sir.
Mr. S p e r r y . I f you intend to break up Liverpool prices and London

940----- 4
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BANKING AND CURRENCY.

exchange, do not you think you ought to have more than $125,000,000 T
Mr. M o L a u r i n . Yes, sir; but we will take that if we can get itt
Mr. J o h n s o n , o f Indiana. But you think they could increase th at
quantity f
Mr. M c L a u r i n . Yes, sir.
Mr. J o h n s o n , o f Indiana. Gould you upset the Liverpool and L on
don exchange with $125,000,000.
Mr. M c L a u r i n . No; I do not propose to do that.
VALUE AND PRICE.

Mr. H a l l , o f Missouri. I object very much to the gentleman from
Connecticut mingling and obscuring the distinction between price and
value as utterly as he does. Nobody maintains for a moment that th e
price o f cotton is fixed in Liverpool.
Mr. S p e r r y . Do you understand there is any difference between
price and value f
Mr. H a l l , o f Missouri. Yes, sir; and everyone who has studied th e
works o f political economists understands that thoroughly, and would
agree with what I say.
Mr. S p e r r y . Following the suggestion o f the distinguished political
economist from Missouri, will you describe to this committee the pre
cise difference between the price and value o f a commodity when it is
put on au auction market T
Mr. M oL a u r i n . I have no doubt that the gentleman from Missouri
can describe that with a great deal more accuracy and ability than m y
self, and I will yield the floor to him. I might say, however, that value
is utility, price is debt-paying power, and while the price is artificially
fixed iu Liverpool, the value o f cotton is determined by the number o f
naked bucks it will clothe, and is the same whether they get our cotton
at 5 cents or 10 cents per pound.
Mr. H a l l , of Missouri. I am very glad to take the position. I main
tain, with Prof. Taussig, o f Harvard, that the man who does not draw a
distinction, and keep it fairly in his mind, between price and value is
a mere tyro. Gentlemen, I claim that the political economists— and I
do not pride myself on that—and the gentleman, I suppose, sprays
down his blood by speaking of me as a distinguished political econo
mist from Missouri----Mr. S p e r r y . Y ou spoke o f other political economists agreeing w ith
you on the subject.
Mr. H a l l , o f Missouri. I think there is not a single writer that I
have examined, and I think I cited some fourteen in the argument I

made on the floor o f the House on this question----Mr. S p e r r y . And a very good argument it was.
Mr. H a l l , o f Missouri. Thank you. I know in that argument I
cited the leading political economists o f the different universities o f
this country and abroad. I quoted Adam Smith, the professor o f
Amherst, the professors o f Williams and Yale, John Stuart Mill, Prof.
Taussig o f Harvard, Prof. Sumner and others, in which they lay down
the doctrine and principle that any increase whatever in the volume
o f the circulating medium increases prices, and any decrease in the
volume decreases prices. Now, I am going to quote John Stnart Mills’s
exact language, and refer the gentleman to volume 3, chapter 5, sec
tion 4, where he states:
That an increase of the quantity of money raises prices, and a diminution lowers
them, is the most elementary proposition in the theory of currency, and without i t
-we should have no key to any of the others.
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BANKING AND CURRENCY.

Now, I take this illustration. There is a building, say here in thi#
city, and i f the circulating volume in the United States was $25 per
capita, which it is not, and the price o f that building m the market
will sell for $10,000, increase the volume o f that currency to $50 per
capita iu circulation, and the price o f that building will be double that
amount. I f this volume per capita should be lessened, the price o f
that buildiug will follow the lessening o f the per capita. I can explain;
why that is. In increasing the volume o f the circulating medium, that '
increases the value o f the crops not a dollar; it does not affect the value
o f the crops at all, but it does increase the price the farmers receive,
and price is what they pay their debts with.
Mr. H a u g e n . I s it not true, in fixing the value o f this house, that, it
must be fixed where the house is located, and it can not be fixed in
Liverpool or elsewhere, and for that reason it differs from the value o f
a commodity that finds its way to a genejal market!
Mr. H a l l , of Missouri. I say that the value o f the house is not
changed by the increase o f the volume o f money; the value remains
the same, but the price is increased, and if that man has any debts to
pay, he pays his debts with price and not value.
Mr. C o b b , o f Alabama. I would like to put this question, and liaveyou draw a distinction: W hat is the distinction between the effect
which the Liverpool market has upon our cotton crop and the increase
or decrease o f volume in our own States?
Mr. H a l l , o f Missouri. The effect o f increase or decrease o f volume
in our own States is the increase or decrease o f the price o f products.
Mr. C o b b , o f Alabama. Without reference to Liverpool!
Mr. H a l l , of Missouri. I can not say without reference to Liverpool!j
but a correct statement o f the matter would be this, that, by limita
tions and surroundings, the supply and demand being the cause in one
instance the same as it is in other instances, then the price would be
affected by the volume o f circulation; it is a thing like real estate, that,
is affected by the volume o f the circulating medium.
Mr. C o b b , o f Alabama. Then, i f the cotton producer gets more for
the cotton, he pays more for anything he consumes.
Mr. H a l l , o f Missouri. There is no question about that. But what
I want to say is, a report has been handed in fromjthe United States
Treasury, and read in the United States Senate not over thirty days
ago, in which it was stated that the volume o f the debt o f the United
States to day is $31,000,000,000, and that debt has to be paid by price
and not by value; and this gentleman comes forward here and arguesthe proposition that we increase the volume o f the currency----Mr. C o b b , o f Alabama. Would you advocate an inflation o f the cur
rency simply in view o f the debtor and creditor relations!
Mr. H a l l , of Missouri. Understand me in this w a y: When I was
asked by a National Alliance, the State Alliance, and by the suballi
ance known as my Congressional District Alliance, i f I would agree to
a per capita volume o f $50,1 said:
No, sir; I w ill onlv pledge myself to vote one w ay: that yon shall have the right
to pay your debts in the same value o f money as when the debt was contracted;
but i f 4S0 or $20 enables yon to repudiate I cent o f your honest debt I shall never
vote in Congress in favor o f that proposition, but I shall demand, as far as my
ability is, that you have the right to pay your debts in the same volume o f money
m when the debt was contracted; and that is a doctrine that is sustained by a ll
writers, and. is a doctrine that is sustained by the plainest tenets and principles o f
Christianity.

Mr. Sp x r r y . Mr. McLaurin and I were not talking about this hou*e>
on the other side o f the street, but we were talking o f cotton in LiverD ig itiz e d by G

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BANKING AND, CURRENCY.

pool. W ill you describe to this committee the difference between the
price and value o f cotton sold in the exchange o f Liverpool!
Mr. H a l l , o f Missouri. I will say, with all due deference, that I
thought I made that question clear to everybody and I thought even
to yourself, but I see I see have failed.
Mr. S p e r r y . You have drawn an illustration o f some house on the
other side o f the street aud------

Mr. H a l l , o f Missouri. I said an increase o f the volume o f money
in the United States does not affect the value o f the cotton in Liver
pool as between value and price; supply and demand control it; but
the price o f cotton is determined by the volume o f the circulating
medium in this country.
Mr. C o bb , of Alabama. Did you ever know cotton to sell iu America
at a price higher than the value in Liverpool!
Mr. H a l l , of Missouri. I will answer that, gentlemen, in this w a y:
I f you mean that the value of the cotton in the United States has never
exceeded the value o f the cotton in Liverpool, I answer you no; but
i f you mean that the value o f the cotton in Liverpool has not been d if
ferent from the price o f thecotton in the Uiyted States, I answer you yes.
Mr. C o b b , of Alabama. £ am talking about what the farmer gets in
his pocket which jingles as money. Does he get for liis cotton one cent
o r part o f a cent per pound more than the quotations from Liverpool
•every day! I do not care whether you call it price or value. I am
.talking about the money which he gets. Is it not a principle of polit
ical ecouoiny that, where a considerable portion o f a product o f a
country is exported, that that part o f it which remains at home is
always governed by the export price!
Mr. H a l l , o f Missouri. There is no difference whatever on that ques
tion. That is an old settled doctrine that the price o f the surplus
exported fixes the price of the home product. O f course they are using
■the word price here in relation to the word value and in relation to the
question here------

Mr. C o bb , o f Alabama. I say that this distinction has nothing to do
with the amount of money the farmer puts in his pocket.
Mr. M c L a u r i n . Gentlemen, I will state that I am indebted for your
patient hearing and the courtesy with which I have been heard. I
desire to add to my remarks the following:
A P P E N D IX .

Mr. Harter, o f Ohio, has introduced a bill providing for an increase o f currency
by enlarging the amount which national banka may issue upon their deposits o f
bonds. w e both have the same objective point, to-wit, an increase o f the volume o f
-currency, with this difference:
Mr. ilarter proposes to give the beneiit accruing from such increase to the
national banks, iu order to beneiit a privileged class.
Mr. McLaurin proposes the Government to make the increase for the benefit o f
a ll the people. Iu this connection I submit a table showing two things:
First. The enormous prottts which have already accrued to this privileged class,
called national bankers.
Second. A table showing, in connection with the questions o f Mr. Sperry, o f Con
necticut, the effect o f contraction upon the price o f products.

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B A N K P R O F IT S .

The following table, showing the bank profits for a series o f years, is given be
low. I t is taken from the World Almanac, and is presumably correct:
Y e a r.

Capital.

1 N e t eamingH. ,

T e a r.

Capital.-

I N e t earnings.

1872......................... »165, #76 023
$58,075,430.05
1*83....................... $494.640.140 i
»5 4 .007.148. (K>
1873
488,100,95185, 048.578. 00 | 18*4 ...................................518,605,72."i
52, 362, 783.00
1874
5811,938,284
50,680,931.01)
1885 .......................... 534, 699,605 !
43,625.497.00
1875
497,864,83358,946,224.00 | 1886.................................. 532.556,921 1
55.165,385.00
1876
500,472,27143,618,152.00
1*87 ...................................578,462,865
64,5116,869.66
1877
486,324,852
34,857,990. 00 | 1888....................... ... 583,538,144
65,362,286.73
187 8
1 470,331,890
30.600.589.00 ] 1889 ........................
596.322.518
59.618.265.07
187 9
...455,132,056
31.551.860.00
1890 ........................
625,089.645 i
72.055,163.52:
188 0
1 456,315,002 1 51,187,034.00
1891 ........................
760,108,201 !
75,763,514.00188 1
! 458.934,485
53,632,563.00
-----------------------188 2
: 476,947,715
53.321,234.00
T o t a le a r n iu g x ........................... 1,081,988,586.98

The following figures, taken from the United States Statistical Abstract, issued by
the United States Treasury Department, shows the effect o f a contraction o f th&
currency, and falling prices on farm prodncts:
Y e a r.

Product*.

...................................................................• }

W h e a t ......... b n s h e ls -.J

Hom e value.

? *? •«!• 40° - W ? !-796,4 W

Thereupon, the committee rose, to meet ou Tuesday, October 3,1893.

C o m m it t e e

B a n k in g

and

Currency,

Washington D. C., Tuesday October 3, 1893..
AN INCREASED VOLUME OF CURRENCY.

STATEMENT OF HOST. JOHN DAVIS, REPRESENTATIVE Iff CONGRESS;
FB0M THE STATE OF KANSAS.
Mr. Chairmau and gentlemen o f the committee: I appeared originally
on an invitation from Mr. McLaurin to speak on behalf o f the bill which
he has before this committee. I have also a bill here, and probably
these bills all look to the same thing, increasing the currency of the
United States. There comes in a very important question, the ques
tion asked by the gentleman from Connecticut, Mr. Sperry, which, to
my mind, was not fully answered. The question is, will the increase in
the currency in the United States increase the gold price o f cotton,
wheat, or any other article sent to London, and iu any way affect the
gold prices in London?

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BANKING AND CURRENCY.,

HOW VOLUM E OF M ONEY IN C IR C U LA TIO N M A Y R E G U LA TE P R IC E S .

I take the grouud tliat, to increase the currency o f the United States
•will iucrease the gold prices o f cotton, wheat, and other articles in
London. A ll mast admit that gold prices are fixed by supply and
demand. I f we can increase the demaud in the world, for cotton, then
we can increase the gold price o f cotton in London. I propose to show
that we can do that-. There is a statement made 011 good authority,
the authority o f the report o f the Labor Commissioner, as well as promi
nent speakers in both the House aud Senate, that 1,000,000 people are
usually out of work in this country, and, being out o f work, are not
buyers of goods. It is also admitted that many more than that have
been thrown out o f employment by the present panic. Some writers
have stated that the laborers out o f employment are now 2,500,000.
Assuming, then, that half o f these laborers are married men, and
assuming that (5,000,000 o f persons who should be cousumers are
qot now buyers aud consumers, because they are out of work, we
will start with that proposition. I f we cau devise some way which
will put them to work, and enable them to buy goods, we have increased
the sale o f goods. This increased demand for cotton, wheat, or any
other product marketed abroad will increase the demand of the world
for that commodity. Aud we may safely assume still.ftirtlier, that i f
6,000,000 o f people are so reduced that they cease to be buyers, at least
•30,000,000 more are buying less than they should. They having ceased
to buy, iu whole or in part; the merchants and farmers, having failed
to sell, also cease to buy; so that at least 00,000,000 o f people iu
the United States are buying smaller amounts than usual. So that
<60,000,000 of people would double their present purchases if they had the
means, through constant employment and good markets for their pro
ducts. Now, will the iucrease o f the currency iu this country set these
people to work and furnish better markets for productst A ll history
answers in the affirmative.
I have here the reports o f the New York clearing house, from 1854
to 1892. I take that clearing house because it does two-thirds o f the
■clearing-house business o f this country, aud therefore is a good index
to the prosperity and business o f the country. W e all agree to that.
If, now, by contracting the currency we check business, and throw
labor out of employment, we have reduced the purchasing power o f
the people. If, by contraction, we have changed the amount o f cur
rency employed, we have stopped the purchasing power and the con
suming power o f that much money. That being so, will not au iucrease
o f currency raise prices, employ labor, and increase the purchasing
power o f the people? Plainly it will. Let us take the condition o f
the country at the close o f the war, when the Secretary o f the Treasury
reported that the people were out o f debt and prosperous. In 1866 we
passed a law cutting off the currency; and in 1873 we cut off silver.
The effect on the clearings were at once seen. The clearing-house
reports show that clearances stopped rising until 1868. In 1808 there
was a law passed to stop the decrease of the currency, then the'clear
ing-house receipts went up to $37,000,000; more than it had ever been
before in the history o f the country. But the suppression o f money in
the United States Treasury checked the clearing after 1869, and the
demonetization o f silver in 1873 added to the depression uutil 1878.
Then the law of 1878 to prevent the further retirement o f greenbacks,
.and the Bland law for the purchase and coining o f silver gave instant

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BANKING AND CURRENCY.

relief. The clearings indicated that relief by increasing figures .until
1881, when they went above forty-eight billions. Then came further
hoardings iu the Treasury followed by the retirement o f bank currency,
which have perpetuated falling prices and hard times to the present
moment. W ith a large increase o f population the clearings o f 1892
are twelve billions less than in 1881.
The following is a comparative statement o f transactions o f the New
Y ork clearing house for thirty-nine years and shows for each year the
number o f banks, aggregate capital, clearings and balances, average
o f the daily clearings and balances, and the percentage o f balances to
clearings:

T e a r.

No. of
banks.

C ap ita l/

Balances paid
in niouey.

Clearings.

_
1854.........
1855.........
1856.........
1857.........
1858.........
1850.........
1880.........
1861.........
1862 .......
1863.........
1864 .........
1865*........
1866.........
1867 . . . . ^ .
1868.........
1868.........
1870.........
1871.........
1872.........
1873.........
1874.........
1875.........
1876.........
1877.........
1878.........
1879........
1880.........
1881.........

1882..........
1888..........
1884..........
1885..........
18*6..........
1887..........
1888..........
1888..........
1880..........
1881..........
1892..........
T o t a l...

50
48
50
50
46
47
50
50
50
50
49
55
58
58
59
59
61
62
61
59
59
59
59
58
57
59
57
60
61
63
61
*4
63
64
63
63
64
63
64

#47.044,900
48,881,180
52,88:*, 700
04, 420. 200
67.140,018
67.921.714
69.907,435
68,900,605
68,375,820
68, 972. 508
68,5*6. 763
80,36:*, 013
82. 370.200
81,770.200
82,270.2^0
82,720,20U
83.620,200
84,420,200
84.420, 200
83,370.200
81, 635,200
80. 435.20(1
81.731.200
71,085,200
63,611.500
60,800.200
60,475.20U
61.162,700
60, 962. 700
61,162,700
00,412,700
58.612.700
59,312, 700
00.862. 700
60,76*/, 700
60, 762. 700
60.812,700
60,772,700
C8,233,500
t68,515,265

A verage
daily
rlt'aringa.

A verage
B a l
daily bal ances to
ances paid clear
in money.
ings.

$297,411.494
289,694,137
334.914.489
365.313,902
314,238,911
363.984,683
380,693,438
35H.383.944
415, 530.3:il
677.626,483
885,719,205
1,035.765.108
1,066,1-15.106
1.144,963.451
1,125.455,237
1.120.318,308
1,036,484,822
1,029, 721,029
1,428,582,707
1,474,508,025
1,286,753,176
1,408,608.777
1,295,042.029
1. 373.996,302
1.307.843.857
1.400. I l l , 063
1.516. 538,631
(. 776,018.162
1. 595,000,245
1,568,983.196
1,524.930.994
1.295,355,252
1,519,565,385
1 569,626,325
1,570,198.528
1,757,637,4M
1,753.040.145
1,584.635,500
1,861,500,575

$19,104,505
17,412.052
22,278,108
26,968,371
15,393,736
20.867, 333
23,401,757
19.269, 520
22.237,682
48,428,657
77.984,455
84, 796,040
93.541,195
93,101,167
92.182,164
121,451,393
90,274.479
95,133,074
109,884,317
115.885,794
74,692.574
81.899.470
70,349. 428
76,358.176
73,555,988
82.015,540
121.510,224
159,232 191
151.637.935
132,54H, 307
111,048,982
82,789.480
109.067.589
114 337.209
101,192,415
114.839,820
123,074.139
111,651,471
118,561,782

$988.078
940,565
1,079,724
1,182,246
1,016.954
1,777,944
1.232,018
1.151.088
1.344,758
2,207.252
2,866.405
3.373.828
3.472.753
3.717,414
3,642,250
3,637,397
3.365,210
3,927,666
4.636.632
4,818,654
4.205,076
4,603.297
4. 218.378
4,504,906
4, 274,000
4,560,622
4.956,009
5,823.010
5,195.440
5.161,129
4.969,202
4.247,069
4,065.90J
5.146.310
5,148.192
5.800.784
5,728,889
5,195,526
6,083,335

;98<S, 597,212,585 ;244.285,630,425

182.470,719

13, 701,883

£5,750.455,937
5,362,912.098
6,906,213 328
8.333. 226.718
4.756,664.386
6. 448. 005,956
7.231,143.057
5.915.742,758
6,871.443.591
14.867,597.849
24,097.196,656
26,032,384,342
28,717.146,914
28.675,159,472
28.484,288, 637
37,407,028,987
27,804,539.406
29,300,986,082
33,844,369,568
35,461,052,826
22.855,927, 6M
25,061.237,902
21,597,274,247
23,289.243,701
22, 508. 438.442
25,1T8.770.691
37,182,128.621
48.565.818.212
46,552,846,161
40,293,165.258
34.092.037,338
25,250.791.440
33,374.682,216
34,872.818.786
30,863,686,609
34.796.465,529
37,660,686. 572
34,053,698, 770
36,279,905,236

P e r cl.
5.2
* 5.4
4.8
6. J
5.6
5.3
6.0
6.0
4.6
3.7
4.0
3.7
4.0
4.0
3.0
3.7
4.1
4.2
4.1
5.7
5.6
5.9
5.9
5.8
5.6
4.1
8.5
3.4
3.9

4.5
5.1
4.5
4.5

5.1
5.0
4.7
4.6
5.1
4.4

* T h e capital i* for various date*, the amounts at a uniform date in e:irh year not being obtainable,
t Y e a rly average for 39 y e a rs ..
X T otal for 39 yearn.

I have mentioned the law of 1878, which stopped the further burning
o f greenbacks, and added $2,000,000 per month to the supply o f $ilver.
Business increased everywhere, and the clearings in 1H81 were over
$48,000,000,000. They were more than ever before in the history o f
the United States. A fter that the hoardings in the Treasury increased
up to $400,000,000, and, went up to $500,000,000 at one time. That
was followed, as already stated, by the retirement o f bank currency as
described by Senator Plumb in 1888 and in 1890.

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BANKING AND CURRENCY.

In April, 1888, Senator Plumb, o f Kansas, discussed this contraction
subject as follows:
' Bat this contraction o f the currency, by means o f retirement o f national-bank
circulation, has been going on for more than ten years, and all the committee has
tosay now is that it has considered some bill, but it is not completed. I f the com
mittee w ill not complete some measure the Senate must. I f the Senate w ill not, and
the other House w ill not, then the country is going upon the breakers o f financial
disturbance. As a Senator says in my hearing, “ it is there now.” I think it is there
now. W e are dealing with a question which has more to do with the welfare o f the
people o f the United States, which is o f more concern to them than any other th in g
that is pending in either House o f Congress, or which can be pending—the volume
o f the circulating medium o f the country, the value o f its property, the difference
between debt and bankruptcy on the one hand and freedom from debt with pros
perity on the other.
I t is estimated that there are in circulation, iucluding that which is locked up in
the Treasury and held in the banks as a reserve- fund, about $1,600,000,000 o f a ll
kinds o f onrrency o f the United States, gold and silver, the overplus o f gold and
silver certificates, greenback notes and national-bank notes, all told, and there a re
more than $60,000,000,000 o f property which must finally be measured by this volume
o f currency. It has been contracted during the last year more than 5 per cent in
addition to all that has occurred by reason o f abrasion and loss. No man can tell th e
- volume o f greenbacks outstanding. Nominally it is $346,000,000 and a fraction, but
( that volume has been subject- to all the accidents which have occurred during th e
past twenty-five years, whereby money haB been consumed, worn out, lost, and it i s
doubtful i f the amount is really over $300,000,000 to-day.
But saying nothing about that, the retirement o f the national banking circulation
during the past twelve months has been 5 per cent o f the total amount o f the cur
rency outstanding. There has been during that: period a phenomenal depreciation
o f the prices o f property. There has been the greatest depreciation o f the prioe o f
agricultural products the country has ever known.

•

« •

The contraction o f the currency by 5 per cent o f its volume means the depreciation
o f the property o f the country $3,000,000,000. Debts have not only increased, bu t
the means to pay them have diminished in proportion as the currency has been con
tracted. Events based upon non-legislation have proved o f advantage to lenders
but disastrous to borrowers.

•

The Senator from Delaware [Mr. Sanlsbury] the other day spoke with great feel
ing about the mortgaging o f farms in this country. So far as that complaint relates
to a general condition, to the lack and to the shortcomings o f legislation, it is more
nearly related to the diminished volume o f currency tliau to any other one thing.

In June, 1890, Senator Pluinb continued tbe discussion o f tliis sub
ject, as follows:
Let us see, therefore, how much mouey iN available for actual use among the peo
ple. From the total o f $1,560,000,000, arrived as above, must be deducted an average
o f $260,000,000, which the Treasury always keeps on band, and about which some
thing has heretofore been said in the debate on this bill, and that leaves as the maxi
mum which can by any possibility be used $1,300,000,000. There ought, in fairness,
to be deducted from this $150,000,000, error in estimate o f gold iu the country, which
would reduce the money outside the Treasury to $1,150,000,000. From this" is to be
subtracted the $600,000,000 kept as reserve, as before computed, leaving a balance
o f $550,000,000, which is available for delivery or use in the transaction o f the busi
ness o f all the people, or a (rifle over $8 per capita. But the force o f my argument
is not materially weakened by conceding the gold coin to be us estimated by the
Treasury Department, which would leave iu actual circulation $700,000,000. In order
to make up this amount all doubt must be resolved in favor o f the Treasury and
against the people, both the doubt as to the amount o f lost and destroyed notes and
that as to the gold supply.
I f I were deciding this case upon what I consider the best evidence, 1 would be
"bound to say that 1 believed the money in actual circulation did not much, i f at all, '
exceed $500,000,000. 1'pon this narrow foundation has been built the enormous
structure o f credit o f which I have spoken. It is the greatest o f the kind that was
ever built, because it was bnilt by the best people that ever built anything. Over
twenty thousand millions o f debts, the enormous and widely extended business o f
sixty-five millions o f people, all rest upon aud must be served by a volume o f cur
rency which must seem to the most veteran financier as absolutely aud dangerously
small.
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BANKING AND CURRENCY.

By increasing the currency we start the spindles o f industry and
business, and start the people to work. By increasing the currency
we give the country rising prices, .making the employment o f labor
profitable. Labor is hence employed, prosperity becomes general, and
the aggregate purchasing power o f the people is greatly increased, i f
not doubled.
In discussing this question we must not confine ourselves to South
Carolina or to Kansas. W e must take in the whole country and the
whole world. W e must not forget these localities, however, because
they are important. W hat we are experiencing now is merely a repe
tition o f what has transpired before in other countries, what transpired
in England after the wars o f Napoleon.
It is stated by various writers that when the people o f England had
passed through the terrible struggle ending with the battleof Waterloo,
they stood before the world victorious and jubilant. It is said that
had it not been for the issue e f paper, the British Isles would have
become a province o f France. In 1816 there was a law passed to cut
off silver; in 1819 there was a law passed to cut off paper. By the
year 1826, according to Peter Cooper, four-fifths o f the land-holders o f
England had lost their lands through the contraction o f the currency
and the foreclosure o f mortgages. And they had troops on foot day
and night to keep the people quiet while they starved. Lord Castlereagh became alarmed, and he brought into the Ilouse o f Commons
measures which, under the suspension o f the rules, were passed, making
money plentier. They passed five money bills, reassuring the people.
They "authorized the circulation of one-pound notes for ten years. That
law increased the money facilities. Factories were soon busy, mines
and shops soon began to go, the people were employed aud contented,
and tlie troops were dismissed.
Mr. Chairman, the experiences o f the English people should teach
us a lesson.
A t the close o f the wars o f Napoleon, in 1815, England stood at the
front among the victors, in a blaze o f glory unequaled in modern times.
She was mistress of the ocean, had acquired an empire which encircled
the earth, and dictated the policies* o f Europe. Her people were
prosperous, happy, and jubilant. Ignoring or defying the lessons o f
history and the “ inexorable laws o f finance and trade,” the British
Parliament enacted a law restricting the use o f silver, in order to
establish the famous single gold basis for money. This checked the
prosperity o f the country by decreeing falling prices for agricultural
products and the commodities of commerce.
Then were heard the first murmurs o f distress among a people that for
twenty years had uncomplainingly paid the troops which met Napoleon
on so many bloody fields; a people that had carried victory on their
bayonets throughout the Peninsula, on the Rhine, and on the field of
Waterloo; a people whose cannons had won the victories o f Trafalgar
and the Nile and maintained the glory o f British arms and British
power as only Anglo-Saxons could. These people were now to be
sacrificed by the millions to the false god known as gold-basis money.
In 1819, in pursuance o f this murderous policy, the British Parliament
enacted a lawforthe retirementof the paper money which had conquered
Napoleon— that money which Mr. Alison, the great English historian,
said had saved England from becoming “ a province of France.” The
process o f contraction, bringing falling prices, began iu 1816; it was
accelerated in 1819. By the year 1820, we are told, four-flfths o f the
landholders o f England had lost their lands and the laboring people o f
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BANKING AND CURRENCY.

the country were in such a condition o f suffering that troops were
necessary to compel men, women, aud childreu to starve in peace.
Landlordism was greatly extended, the relative number o f the serfs
and tenants o f tlierealm was greatly multipled, aud the public distresses
among the innocent people were such as no tongue can adequately
describe.
A s far as possible, I think we should iu these money discussions
relieve our minds o f all prejudice and all preconceived opinions. B ut
there are two things which I refuse to relieve my mind of. I will not
conseut to try any new experiment in finance. I think men and nations
have tried experiments enough, and we can choose from the well-tried,
systems what we prefer to have. It is too late to invent any new
system. And I think it criminal to adopt an old system which, when
fairly tried, has failed. W e should adopt a system which has been tried and
which has succeeded even under the most difficult circumstances; such
as have succeeded at all times, when they have had a fair trial. Out
o f these we can choose our money system.
Now, then, as to the gold prices in London: I f the people o f the
United States—through increase o f money and rising prices should
find employment, as they did in England iu the case I have cited,
and as they did in this country after the law o f 186S, and after the
law o f 1878—should all find regular employment, at good prices, b y
earning something, they would be greater buyers of cotton, wool and
wheat. This would increase the gold prices iu London o f those staples.
Having settled that point, I think there is no doubt but the addition
to the curreucy of the United States, I mean the money of final pay
ment, would add to the purchasing power o f this country at least twice
over. I t would add to the demand for cotton goods, and for those
things which we consume, aud which meet us in the foreign markets.
I will now pursue that point no further. I think these examples in
the history o f this country and Great Britain, should teach us some
thing. I am offering you nothing new and untried, and I shall not
do so.
P A R IT Y B ETW EEN GOLD AND SILV E R .

There is one more point not mentioned here, but which has been
mentioned by prominent members both in the Senate aud in the House.
It is a thing which has great iufiuence on foreign markets for beef,
cotton, wool and hides, etc. Iu 1873 silver bullion had uniformly,
with some exceptions, been higher than gold bullion. A t that time it
was 3 per cent higher. The .law o f 1873 cut off the demand for silver
and increased the demand for gold, until there was a separation. Gut
ting off the demand for silver lowered its price, and, adding to the
demand for gold, raised its price. That is the case uniformly every
where. Supply and demand are the agencies which fix prices. A s
we cease to use and treat silver as a money metal, the price will fall.
There are three demands on the money metals, and if they are allowed
to work out their own ends without coercion by law, they will perform
their functions naturally, and will preserve the parity between the
metals. The first demand is a demand for export. That uniformly
falls on the dearer metal. Before 1873, the demand fell on silver
usually. That is why we coined so little silver. Although we coined
so little silver at that time, we used silver for export, which permitted
gold to remain at home. I f we had not used silver tor export we mast
have used gold. And, in either case, with two mopey metals one is
D ig itiz e d by v ^

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BANKING AND CURRENCY

retained at home as a domestic money metal; but as it was, silver was
generally used to pay our balances o f trade, and hence was but little
coined for home use.
Suppose a man has two horses; either oue answers his purposes for
home use. But he is compelled to sell one, which one will he sell! He
will sell the one which will bring the most in the money market. For
that very reason we formerly sent silver abroad to pay trade balances,
because it was the dearer metal. The demand for export always falls
on the dearer metal. There are two home demands which always fall
on the cheaper metal, i f permitted by law and practice to do so. I
mean the demand for loaning and the demand for payments. I f I bor
row money from a man, he loans me the cheapest money he has at
hand. That is his option. The debtor must have the same option, to
pay in the cheapest money he can get. When I come to pay my debt
I should not ask which money I must use. 1 should be permitted to
pay in the money which is easiest for me to get. I should pay in the
lawful money o f the contract. I should exercise my option the same as
my debtor did. That works naturally and satisfactorily, and it will
always preserve the parity o f the moneys in use.
A s an example, I will say I stand here on my two feet. I have a
double standard. I am harder to push over when I am on a double
standard. How do 1 preserve the parity o f my two feet—my double
standard—when walking f Simply by calling on my hindmost foot for
action. I lay my hands on the cheaper money for payments. The
Secretary o f the Treasury is not doing that. He holds the dearer
metal to be the proper one, and that keeps it high. Suppose I attempt
to walk by calling on my front foot for action. 1 call on my gold foot
and move it forward, and I continue to do so in every effort to walk;
very soon I get into trouble and a condition arises which calls for the
ccfhveuing o f Congress to redress the situation.
W e ought to allow the people their option in payments, as we allow
an option in loans. Before 1873 we had a parity o f metals, and during
that period o f 80 years there was a time when silver was produced
about four times as fast as gold; and then there was a time when gold
was produced about four times as fast as silver, yet there was no
trouble as to the parity o f the metals.
Mr. W a r n e r . I understand you to say that you favor (or from
your remark I suppose it would be proper to infer that you favor)
absolute laws that would interfere between citizens as to the parity o f
gold or silver or the metal in which payment is made.
Mr. D a v i s . I would have a law which would make payments in
legal tender.
M r. W ' a r n e r . Y ou would have a law to compel a man to accept one
metal as being worth a certain proportion o f another metal?
Mr. D a v i s . I would start off with this arbitrary rule, that gold

weight for weight is more valuable than silver. I would fix the ratio
o f the weight o f gold and silver, and stick to that all the time. I claim
there is nothing to prevent the parity o f 16 to 1 as the ratio. There is
no trouble as to making payments. Usually contracts are made in the
cheaper metal. The metallic value o f silver is differeut in bullion and
in coin. Our silver bullion is worth less than when it is used as coin,
but that is not important, as the value o f the money is monetary value,
and riot metal value. But, silver bullion would rise in price, if* the
legal discriminations against silver and in favor o f gold were removed.
Treat the two metals fairly and equally and the parity o f metal values
will take care of itself.
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Mr. H a l l . I understood you to criticise the Secretary o f the Treas
ury because you claim he discriminates against silver.
Mr. D a v i s . The law gives the option to the Secretary aud he pays
out the higher monetary metal.
Mr. H a l l . Suppose the Secretary o f the Treasury had done as you
suggest, would not that in effect be a recognition by the United States
that there is not a perfect parity between the two metals, and would i t
not have the effect of depressing business more than anything th at
could be done!
Mr. D a v i s . No man has the right to demand gold coin o f the United
States Treasury on merely coin contracts. A man has the right t o
dethand lawful nioney, but he has no right to demand any particular
money. He has a right to demand any legal money. The law says
greenbacks shall be money and that gold and silver coin shall b e
money. When a man brings a monetary obligation o f any sort to tlie
Secretary o f the Treasury calling for money in general he can be p aid
in any lawful money. I f the obligation calls for coin, then it is within
the option o f the Secretary to pay either coin he pleases. I f the Sec
retary should pay out silver it would have a tendency to increase th e
demand for silver, and it would increase the price o f silver bullion.
Demand and supply controls prices.
Mr. H a l l . That would be an admission that Congress was unable
'to maintain a parity between the two metals, and thereby it would
ruin silver.
Mr. D a v i s . Tlie Secretary should have settled that matter. H e
should say: “ You demand gold when the obligation calls for coin,
and I will pay you coin. I am not representing the bondholders. I
will pay yon in the cheapest money mentioned in your bond.”
Mr. W a r n e r . Am I correct iu assuming that it is your suggestion
that we should have an arbitrary law allowing a debtor to exercrae
the right always to pay in the metal or money which commercially o r
financially speaking is depreciated, and do you claim that that would
keep the two metals together!
Mr. D a v i s . I take the ground that the value o f both gold and silver
is fixed by law. They are together by law. When we borrow money
the contract fixes the mouey.of payment. I would pay according to
contract. Even Shy lock should ask no more.
Mr. W a r n e r . Is it the basis o f your argument that it is arbitrary
law which depreciates silver!
Mr. D a v i s . Very largely. I will take the case o f gold and silver
when not used as money. I f you will look in Prescott’s History o f
Peru you will find a statement there which says that it took $110 iu
weight o f gold1bullion to buy a quire o f paper, and a proportionally
large amount to buy a battle o f wine, a sword, a cloak or a saddle,
and that it took $.‘$0,000 iu weight o f gold bullion to buy a horse.
Mr. W a r n e r . It is possible that that may have been by reason o f
the scarcity o f those articles.
VALUE AND PRICE.

Mr. D a v i s . The law of supply and demand operated in that country
at that time. There was no other law to interfere in the matter.
There has been some discussion here in regard to values. In discuss
ing values we should separate them. Monetary value and price are
the same. There is a value which is not price. A ir and sunlight have
great value, but no price. They taxed windows at one time in England,
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and in that way it might be said that there was a monetary value
attached to the air indoors, but it did not increase the intrinsic value
o f the air out o f doors. Suppose 1 am cast away 011 an island. On that
island I can crack nuts with- a stone, aud therefore that stone has an
intrinsic value to me. The next day I get on a; ship and go to a city
and 1 find that my stone is pure silver and it has commercial value.
W ith it I can buy a hammer, which is a better implement with which
to crack nuts. I remember a conversation I had with a gentlemen now
in the Senate, and he said to me, “ Mr. Davis, do you propose to say
that i f there was no money, horses would have no value?” 1 said, “ No,
i f there is plenty o f money, horses will have high monetary value; if
there is little money, horses will have little monetary value; and if
there is no money, horses will have no monetary value.” But the
horse's will have a value expressed iu the units o f the article o f pay
ment, as so many pigs, or whatever else they are exchanged for.
I f you decrease the supply o f pigs, you decrease the price o f horses.
I f I have enough money to buy one hundred horses, and my supply o f
money is cut off one-half I can then only buy fifty horses, unless I
reduce the price.
M A IN T A IN IN G E Q U A L PRICES.

Tins money question may be made very plain by a simple statement
o f an arithmetical example. Thus:
luottent,

Prices.
The people and their commodities are the divisor in the problem
which we are solving iu this country. The volume o f money afloat is
the dividend. The quotient is the general average o f the prices of
property. The divisor is continually increasing, through the increase
o f population and the energy and enterprise o f our people. The divi
dend decreases through the various devices o f the gamblers in corner
in g and suppressing mouey. Is it any wonder that the quotient is less
and less from day to day, in the form o f declining prices ? There is but
one practicable remedy, namely, add money to the circulation as the
people and their transactions increase. Increase the dividend as the
divisor increases, that the quotient may remain the same. This can
only be done by supplementing the coins with legal-tender Treasury
notes.
In the school o f finance to which I belong this is our doctrine. That
is where I would stop in the expansion o f the currency. I would
maintain level average prices. Money is valuable in proportion to its
limitation.
REDEM PTION OF CURRENCY.

Mr. S p e r r y . W hat is the name o f your school o f finance? Is it the
fiat school?
Mr. D a v i s . Tes, sir; I never saw any other kind o f money except
fiat money. W e believe in lawful money only.
Mr. J o h n s o n , o f Indiana. Is that money redeemable entirely in
. silver?
Mr. D a v i s . I am in favor o f the broadest and most liberal redemp
tion. Money that is irredeemable is worthless. I t must all be
redeemed. Both coin and paper must be redeemed with commodities.
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•
Mr. H a u g e n . Y ou waiit to keep below the danger line in issuingfiat money I
Mr. D a v i s . Yes, sir; we would not approach the danger line.
The C h a i r m a n . Would you redeem in gold!
Mr. D a v i s . Primarily, the redemption o f money is receivability in

the revenues by the issuing government. Paper and metal have been
so redeemable again and again by governments. W e had about
twenty issues o f paper prior to 1862. Every paper dollar ever issued,
by the Government in this country prior to that time was made receiv
able by the Government o f the United States in the revenues, and i t
was always as good as gold. That was set forth very fully by M r.
Calhoun. He says that such issues iu a reasonable proportion to th e
revenues are always as good as coin.
Mr. J o h n s o n , o f Indiana. From what book are you reading?
Mr. D a v i s . It is a book entitled “ Money o f Nations,” by the la t e
Judge Martin.
In the years 1837-’38 John C. Calhoun, o f South Carolina, discussed
this matter o f government paper very fully in the United States Senate.
Mr. Calhoun said:
I now undertake to affirm positively, and without the least fear that I can b e
answered, wliat heretofore I have but suggested—that a paper issued by govern
ment, with a simple promise to receive in all dues, leaving its creditors to take it o r
gold and silver, at their option, would, to the extent to which it would circulate,
form a perfect paper circulation, which eonld not be abused by the government, th a t
would be as steady and uniform in value as the metals themselves. I shall not g o
into the discussion now, bnt on a suitable occasion I shall be able to make g o o d
every word I have uttered.
*
*
*
*
*
*
*
We are told there is no instance o f a government paper that did not depreciate.
In reply I affirm that there i.i none, assuming the form that I propose, that ever d id
depreciate. Whenever a paper receivable in the dues o f a government had anything
like a fair trial it has succeeded.

« ,

I t may throw Home light on this subject to state that North Carolina, just after th e
Revolution, issued a large amount o f paper, which was made receivable in dues t o
her; it was also made a legal tender, bat which, o f course was not made obligatory a fter
the adoption o f the Federal Constitution. A large amount —say, between $400,000
and $500,000—remained in circulation after that period, and continued to circulate
for more than twenty years at par with gold and silver during the whole time, w ith
no other advantage than being received in the revenues o f the State, which was much
less than $100,000 per anuum. (Money o f Nations, pp. 64, 65.)

Mr. Chairman, I offer no new experiment. This subject is too impor
tant for the permission o f empiricism. New experiments are hazardous'They may tail. Old experiments which have uniformly failed are
criminal. Gold-basis paper is an old experiment which always fails
when the strain comes. Government paper, legal tender and receivable
in the revenues, is an old and well-tested system. I t is preferred to
coin, and never fails while the issuing government stands.
Mr. B. G. Spaulding, a banker in Buffalo, N. Y., in time o f the war;
chairman o f the Subcommittee on Ways and Means in 1861, 1862, and
1863, and known in financial history as “ The Father o f the Greenback,”
has discussed commodity redemption o f money as follows:
•

Every time a hundred-dollar bill passes from one person to another, it is a practi
cal redemption o f it by the person who takes it. Every time a merchant at Chicago
pays to a farmer $500 in national currency for a carload o f wheat, the farmer by the
.operation redeems such national currency, not in greenbacks, nor in gold, bnt in a
commodity better than either, namely, wheat, a staple article useful to all. Soevery merchant in New York that sells a bale o f cotton goods and receives his pay fo r
it in currency, redeems such currenoy, not in the way that banks redeem it, bnt in.
cotton goods, which is far better, because it performs the true functions o f money b y

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facilitating the legitimate sale o f commodities. So every time that a merchant or
manufacturer pays his internal-reveuue tax to the United states collector in national
currency, the Government redeems such currency by receiving and discharging such
tax. So every mechanic or laborer that receives national currency for his services,
redeems such currency by the labor performed. So it w ill be seen that just so long
as the national currency is practically redeemed every day in its passage from hand
to hand in the payment o f commodities and services, and in the ramified operations
o f trade and bnsiness, both with tbe Government and the people whose operations
it greatly facilitates, there is not the slightest necessity for resorting to the expen
sive and risky operation o f assorting ana sending it home for redemption. (Spauld
ing’s History, Appendix, p. 10.)

North Carolina had a legal money before the Revolutionary war.
I t was a legal tender and it passed current. When the Constitution
was adopted that money lost its legal-tender quality. North Carolina,
however, received it for revenues. That paper money remained as good
as coin as long as it existed.
M r. W a r n e r . D o I understand the gentleman to say that so long as
a currency is receivable for revenues, it could probably be floated ?
M r. D a v i s . Yes, sir; that currency worked well.

Mr. W a r n e r . H o w do you reach that conclusion, that if such a
money were so adopted by the United States, it could be floated!
Mr. D a v i s . W e have reached that conclusion by experience. A s to
the quality o f legal-tender money I have known men to advertise their
eagerness to redeem it. The newspapers are filled with advertisements
asking the people to come and bring their money and have it redeemed.
Mr. Spanldiug in his “ History o f the Greenback,” page 10, says, that
money passing from the hands o f a merchant in Chicago to buy a car
load o f wheat, say $500, is redeemed every time it passes. A fter going
on in the discussion, Mr Spaulding, who is the father o f the greenback,
says that it needs no other redemption; that the fact o f a bill passing
from hand to hand gives it redemption. I have stood before audiences
and made that argument and I have never heard it controverted. A
money issued by a responsible government, receivable in the revenues,
and made a legal tender for debts generally, is just as good as the govern
ment and it never goes below par while the government stands. A
money can be no better than the issuing government. This accounts
for the fact o f paper money.dying with the government; coin will seek
another market and will usually go away when it is most needed. Coin
always fails first, and it does not usually meet the demand o f the times
o f greatest trial.
M r. H a t jg e n . Coin fails by going out o f the country?
Mr. D a v i s . It fails by getting out of’ the way.
Mr. H a u g e n . The general supposition is that the disappearance o f

coin is due to the depreciation o f paper?
Mr. D a v i s . Values are measured by the money o f account. A dol
lar may be so many grains of gold or so many grains o f silver. W e
call it a dollar. Money is based on the money o f account. A dollar is
so many dimes, and a dime is so many cents, a cent is so many mills;
but have you ever seen a mill fr
Mr. H a l l . D o I understand your proposition to be that, i f paper
money is received in payment o f dues by tbe Government, that makes
the money good?
Mr. D a v i s . That is primary redemption. I f you add the quality o f
legal tender then you have a complete money.
Mr. H a l l . I heard Senator Vest say that the Confederate money
was received in payment for dues; but he said that he paid $300 for a
chicken and paid a man $500 to catch the chicken.
Mr. D a v i s . A n d yet this money lived as long as the issuing govern
ment.

I will state this in that connection: In 1776, when we got into
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trouble with Great Britain, coin failed utterly. They issued a paper
currency, but it could not be received in the revenues or dues o f the G ov
ernment because tlie old confederacy collected no revenues. W e then
had no government capable of collecting revenues or o f conferring the
quality o f legal tender on money. The very best thing that could be
done was to issue paper money aud to ask men to take it or to threaten
them if they did not take it. W e issued the very best possible paper
money under the circumstances. That money was founded on patriot
ism. I t was -neither receivable for revenues by the Government nor
legal tender. Y et Albert Gallatin, who was the Secretary o f the Treas
ury in 1820, says it can not be denied that the paper currency carried u s
through five o f the most perilous years of the war and “ saved the
country.”
The C h a i r m a n . What currency was that f
Mr. D a v i s . That was the continental currency.
The C h a i r m a n . That was a forced loan.
Mr. W a r n e r . Y ou said that, while reserving for the present th e
question o f proper proportion, there was a proportion which should b e
sought out iu adjusting the currency issued by the Government to th e
amount o f revenues. Do I understand you to say that there is a pro
portion between any revenue factor and the amount o f currency whicli
can be floated f
DEBTOR AND CREDITOR RELATIONS.

Mr. D a v i s . I will give you a better rule to which I attribute it. I
enter into a contract by which I am compelled to pay a certain amouut
o f money on a certain monetary obligation. There is a certain volume
o f money afloat which preserves certain prices. Ff the Government
issues more money it will raise prices, and the creditor is cheated
because I pay him in^ess valuable money than I agreed to pay him.
I f the Government contracts the currency, then I have got to sell more
property to get money to pay the debt, and I am cheated. We should
make the volume o f currency such as will preserve as nearly as possible
an absolute level o f prices on the average.
Mr. W a r n e r . I did not mean to ask you to go into the matter, but
simply meant to ask you whether there is such a proportion.
Mr. D a v i s . A ll I ask is a sufficiency o f currency to preserve level
prices on the general average.
Mr. J o h n s o n , o f Ohio. I waut to ask you whether there would be
any other objection to it than the ett'ect it would have between debtor
and creditor.
Mr. D a v i s . I suppose there would be other objections.
Mr. J o h n s o n , of Ohio. Do you think the mere change o f prices
affects any other classes?
Mr. D a v i s . It unsettles values, and i f prices are falling no man w ill
undertake a new enterprise or make a time contract. He will not
build a house or a factory at all, because* he thinks he can do it cheaper
next year thau he can now. I f one can lock his money up, and by so
doing it is gaining 10 or 15 per cent per annum in value, he will do that,
because it is gaining while it is lying still. There is nothing in the
world that gains in value, as a rule, under falling prices except money.
VOLUME OF MONEY IN CIRCULATION REGULATES PRICES.

The C h a i r m a n . A re we to understand that, for instance in Kansas,
if your people were permitted under any law o f Congress or any
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la v o f the State to doable the amount o f paper money in circulation,
it would be immediately convertible into coin and would maintain the
parity and inflate prices 100 per cent in the State of Kansas!
Mr. D a v i s . I.am notin favor o f any such money. I do not think it
could be done.
1
The C h a i r m a n . Assuming that the amount o f circulating notes
were doubled and were made convertible into coin iu the State o f Kansas,
would that double the price o f products for sale in that State?
Mr. D a v i s . N o ; it would add something to the price. Say iu tbe
State o f Kansas there are one hundred horses being ottered for sale,
doubling the money would raise prices. Tbe rise o f prices would cause
the ottering o f other horses. That would check the rise and prices
wonld not be doubled. The price o f horses will rise by tbe addition o f
money, but doubling tbe currency would not double the price o f horses
or other commodities.
Mr. J o h n s o n , o f Indiana. Wonld not the price o f everything else
rise?
M r D a v i s . Certainly.
Mr. C h a i r m a n . Would not the price o f horses depend upon the cost
o f transportation plus the price in the cities to which they are sent?
Mr. D a v i s . But the Kansas people having money, and thereby being
able to employ more horses on their farms, would take quite a supply
from the general market. But taking a single State in that respect is
not a fair proposition; take the United States and it has a tremendous
influence. More money and rising prices will enable the people to buy
more manufactured products, and thus create better times among all
classes except the money changers.
The C h a i r m a n . Then you say that in the State o f Kansas it would
not be true?
Mr. D a v i s . I t would be true to such a small extent that you would
hardly appreciate it. I f you make it extend to the whole country, and
instead o f having a thousand millions o f money, i f we have two thou
sand millions o f money, it would increase values a great deal.
Th e C h a i r m a n . H o w much? 100 p e rc e n t!
M r. D a v i s . N o ; 10 or 15 per cent^ because it at once brings into the
m arket a large amount o f commodities which are not now offered for
sale.
Tbe C h a i r m a n . Then you do not agree with John Stuart Mill, that

a depreciation o f the currency increases prices?
Mr. D a v i s . I am notin favor o f a depreciated currency. A contrac
tion o f the currency lowers prices as measured in that currency.
W hen John Stuart Mill’s proposition is fully and fairly stated he and
I agree.
When we have to sell more products at low prices, that means hard
times. Senator Plumb said that when we reduced the currency to the
amount o f 5 per cent in volume we reduced the prices of property in
this country to the amount o f $3,000,0000,000. He said the banks, by
the contraction o f the currency, in twelve months had done this. That
loss was as much as the war debt was at the close o f the war and more.
The C h a i r m a n . I s it not a fact that that contraction was approached
from a depreciation basis, and it went up to a gold basis, and as far as
that is true the amount o f value w as not changed ?
Mr. D a v i s . I f contraction lowered the prices to that extent, what

would be the effect i f we had a proportionate increase o f currency?
W ould not the effect be just the opposite? Suppose I am a laboring
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man and own a lot, and I build myself a house for, say, $1,000, and I pay
$600 down. My wages are, say, $6 a week, and it costs me $3 a week
to live. L have $3 left each week to apply on ray debt. Then, if the
money is increased and my wages go up to $10 a week, and the cost o f
my living rises to $o, this allows me to lay aside $5 each week to apply
on my debt. Then, i f the currency is further increased and with it
prices rise, I get better wages and can pay my debt faster notwith
standing the increased cost o f living. On the other hand, with con
traction o f money and falling prices all debts, all taxes, and all mone
tary obligations become constantly more and more burdensome.
Mr. J o h n s o n , o f Indiana. A s you go on increasing prices you are
paying more for your groceries and other things. It resolves itself into
a questiou of easy debt-paying.
Mr. D a v i s . No; as it is now we can not pay our debts.
Mr. J o h n s o n , o f Indiana. Do you think that a rise and fall in prices
would hurt nobody but debtors and creditors?
Mr. D a v i s . That is hardly a fair way to put it. Say I am about to
assume certain contracts, and i f I see that prices are tailing I will not
assume those contracts. Falling prices kill all future contracts, and
the employment of labor ceases. Men iu great numbers are idle, and
great distress and loss ensues.
'
FARM MORTGAGES.

The C h a i r m a n . What do you refer to when you say “ we can not
pay our debts ?” Whom do you mean by ‘*we” in that case?
Mr. D a v i s . I mean that the people o f the United States, with present
gold prices for products; can not pay their debts.
Mr. H a l l . Y ou do not mean the people o f Missouri.

Mr. D a v i s . Then the people o f Missouri are an exception.
Mr. S p e r r y . Nor do you mean the people o f Connecticut.
Mr. J o h n s o n , o f Indiana. I t is not true o f the people o f Indiana.
The C h a i r m a n . I would like also to take the people o f Illinois out
o f the list.
Mr. D a v i s . Mr. Joseph H. Walker, o f Massachusetts, in May, 1892,
was speaking with reference to the prosperity o f New England fanners.
He was speaking o f their great prosperity, and went on to discuss the
question, and, Anally said that the farms in New England were on the
average, selling to-day at “ about one-half the first cost o f improve
ments.” This means that the lands are worth nothing, and half the
improvements thrown in.
/
The C h a i r m a n * Please state why you think the people can not pay
their private indebtedness.
Mr. D a v i s . Because their products will not sell for enough money to
do it. The aunual products will not pay the annual interest on their
monetary obligations, and we are getting deeper and deeper in debt.
The property of the people at present prices will scarcely pay the debts
o f the country at forced sale.
The C h a i r m a n . Please state whether it is true that the State o f
, Kansas is largely reducing the mortgage debts o f her farms year byyear.
Mr. D a v i s . Yes, and I will tell you how she is doing it. There were
thirty-five cases o f foreclosure at one time in one county. The debts
on the farms were $64,000. The farms passed to the creditors. The
mortgages were canceled, and so published widely in the papers. Y e t
there remained $28,000 unpaid, resting on the former owners, in the
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form o f judgments. This modeof payment simply means the anhousing
and eviction o f the people.
Mr. H a u g e n . D o you mean that the mortgages are being foreclosed f
Mr. D a y i s . Yes, sir. The editor o f the leading Republican paper in
1890 wrote to all the clerks in the county courts in the State of Kan
sas, amounting to more than one hundred, and received replies from
about sixty counties. Those replies indicate that in the State o f Kansas
there is about one mortgage foreclosed per week in each county. There
are fifty-two weeks and one hundred couuties, which shows that there
were 5,200 foreclosures in the State o f Kansas in one year. Y e t he
said that the farmers need not trouble themselves, as other people were
bankrupting also, lie congratulated the farmers on their outlook.
1 think the farmer ought to be congratulated on something, and an
“ outlook” is about the only thing a farmer has to be congratulated on.
The C h a i r m a n . State to the committee how long each individual
existing mortgage contract has been in existence in Kansas.
Mr. D a v i s . Some contracts have been in existence perhaps, by fre
quent renewals, since 1880, but mostly they are later than that,
because it is not an old State. The thing has come to a point where a
man can not sell his land at any fair price. There is no price on real
estate except in select spots.
T h e C h a i r m a n . Real estate mortgages did not run more than five
y e a rs on an average.
Mr. D a v i s . Usually about three to five years.
The C h a i r m a n . I s it not true that the existing mortgages in Kan

sas i f renewed within seven years are on a gold basis?
Mr. D a v i s . And there being no gold to buy with, there is no price
on the farms. I have in mind a case which will illustrate the situa
tion. A man had a home that six years ago was worth $4,000. H e
Deeded money, but did not want to sell his home. H e borrowed $1,800
on it, and that shows that it was worth at least twice $1,800. 'Jhe
mortgage fell due and he could not pay it. The place is taken by the
debt, and the man who got it is cheated, because it is not now worth
$1,800. The former proprietor o f that laud is now on the property and
is paying rent, $8 a month, and the owner keeps up the insurance
and taxes. This leaves only $4 a month for a home which, six years
ago, was worth $4,000.
Mr. W a r n e d . H ow large a place is thatf
Mr. D a v i s . Three acres laid out in town lots.
Mr. W a r n e r . D o I understand you to say that for the purposes o f
a farm that was worth $4,000?
Mr. D a v i s . Yes; he borrowed $1,800 on it, and the improvements
cost over $2,000, perhaps $3,000.
Mr. W a r n e r . I t was not a farm, although he was using it as such,
and it was probably in the suburbs o f the town. W e, in New York,
have had real estate booms which for laridity are superior to anything
produced in the West.
Mr. D a v i s . There has been no such boom in my part o f the State o f
Kansas. W e are no worse off than other States; and the county I live
in has the smallest delinquent tax list o f any in the State.
Mr. W a r n e r . H ow can the effect o f the rise or fall in value o f a farm
come up with reference to a 3-acre lot which somebody thought was
worth $4,000 five or six years ago? A re there any farm lands there
worth that money?
M r. D a v i s . There is another point.
has risen may still rise gradually.

I suppose that property which

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M r. W a r n e r . A s a darkey said to me “ the boom cooled.”
Mr. D a v i s . The difficulty was not with the boom. M y part o f Kan

sas has had no extraordinary boom.
Mr. J o h n s o n , of Indiana. You would not advise immigration to
Kansas under those circumstances f
Mr. D a v i s . I do not know where I would advise a man to go. It
seems that Pennsylvania is not a good place to immigrate to. That
State has $613,000,000 o f mortgage indebtedness, and many thousands
o f idle and starving laborers. I f a man goes to Kansas with some
money, he can buy si home very cheap. I think a man with money
could buy lands in Kansas as well as iu most o f the States, as cheap
as even Shylock himself could desire.
LEGAL-TENDER TREASURY NOTES REDEEMABLE IN PAYMENT OF
TAXES.

The C h a i r m a n . W ill you explain to the committee what your plan
is as to the means o f supplying the people with sufficient money?
Mr. D a v i s . W hy, sir, I would authorize the Treasurer o f the United
States to issue legal tender Treasury notes, in addition to the free
coinage o f gold and silver. I would require enough to be issued to re
store to the country normal prices; such as existed a dozen years ago.
So that our people could pay their debts with money about as valua
ble as that we borrowed. I think creditors should not be cheated by
undue inflation, nor debtors by undue contraction. I ask only for jus
tice between man and man.
W e hear much o f checks and drafts in business, and that with them
very little money is needed. That is true, but what money is needed
is badly needed, and it can not be dispensed with.
In practice it is found that checks do not balance and cancel each
other iu full, as men do not owe each other the same amounts, but that
there must be used in every clearing house some money o f final payment ;
that is, money, or general checks on society at large, issued by the
sovereign government or society in the concrete, which all are willing
to accept as money of final payment. By the records o f clearing-house
business for long periods it is found that, on the average, the amount
o f money o f final payment necessary to settle balances is about 5 per
cent o f the business done.
This is not much, but it is absolutely necessary to prevent bank
ruptcies. Ninety five per cent o f the business is done with individual
checks and drafts, 5 per cent with money o f final payment. In view o f
these well-settled facts some flippant writers and speakers have taken
the ground that all business may be done with individual checks and
drafts, and that tbe volume o f actual money cuts no figure. This is
not correct. The 5 per cent o f actual money is small, but it is abso
lutely necessary to prevent bankruptcies. The entire business is based
on this 5 per cent; and for every dollar o f this money which may be
withdrawn from circulation $20 o f business must stop. This shows the
importance of watching closely the volume o f money o f final payment.
Even a small contraction deranges business, causes bankruptcies, and
reduces the volume o f the business o f the country.
That final payment must be good money. Some men contend, as I
have said, that because we do so much business with checks and
drafts we do not need any money. It requires, as I have said, abso
lutely 5 per cent o f money o f final payment to meet this 95 per cent o f
drafts. O f every dollar o f business done we must have 5 per cent,
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or $5 out o f every $100, o f good money with which to do business. It
does not matter whether it is United States notes or other good
money. 1 am in favor o f actual payment o f balances with money
which is as good as gold iu law. 1 am in favor o f a currency issued
by the General Government, and received by the Government for all
dues, and which shall be a general legal tender, and 1 am not in favor
o f any other sort o f money.
RISING PRICES PREFERABLE.
M r. S p e r r y . Before you pass from that subject o f prices I would
like to ask you a question. Does your school o f finance claim that the
Ainericau people in general are benefited by downward or upward
prices f
Mr. D a v i s . W e claim that the people are benefited by rising prices.
Mr. S p e r r y . Your suggestion, then, is that i f the people pay more
for bread or more for clothes they will be better off than if they pay less?
Mr. D a v i s . No; i f we have something with which to buy we are
better off than i f we have nothing. Falling prices compel idle labor.
W hen prices are rising the industries are going, and the people are
prosperous. A man who has nothing can buy nothing at any price. I f
yon double wages you double the ability o f the people to buy.
Mr. S p e r r y . You do not expect to level prices iu that w ayf
Mr. D a v i s . Yes, sir; first raise prices to the former average level and
maintain them there.
Mr. J o h n s o n ,-of Ohio. You are not iu favor o f scaling prices!
Mr. D a v is .' I have quoted Thomas Doubleday on that.
Mr. S p e r r y . D o you think it is injurious to the people o f Pennsyl
vania that they have constructed railroads and can get bread cheaper
from the Northwest than they formerly could from Buffalo without
railroads?
Mr. D a v i s . The building o f railroads has been a benefit to the East
and the W est both.
Mr. S p e r r y . Then it is not true that rising prices are a benefit to
humanity in general?
Mr. D a v i s . Tt is true. Railroads are beneficial.
Mr. S p e r r y . Then you think the building o f railroads has benefited
everybody by raising the prices?
Mr. D a v i s . In building railroads prices are both lowered and raised.
Lowered to the buyers o f the East and raised to the producers o f the
W est. Both sellers and buyers are benefited.
The C h a i r m a n . D o you not think that improvements in machinery
tend to the reduction in prices?
Mr. D a v i s . I f you have increased the money as the surplus com
modities are produced you have maintained the general level o f prices.
Particular commodities may rise or fall as the billows o f the ocean,
but the geueral sea level o f prices should be maintained by the addi
tion o f money as commodities increase. A s already mentioned, we must
add money to the dividend as commodities are added to the divisor,
in order to maintain the quotient, or general prices, at the same
average level.
Mr. S p e r r y . I t has lowered prices without regard to money at all.
Mr. D a v i s . You can not make prices or do justice to humanity without
regard to the volume .of the money.
Mr. S p e r r y . Without regard to the money iu circulation improve

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ments in machinery hstve cheapened production so that the consumer
can get lower prices. Has not that been a benefit to the people t
Mr. D a v i s . Money is valuable in proportion to limitation. I f there
is a general increase in commodities through the increase o f machinery,
then certainly there should be more money.
Mr. S p e r r y . Keep your eye on the question. Machinery has pro
duced articles and made them cheaper than they would be without
machinery.
Mr. D a v i s . Y es, sir.
Mr. S p e r r y . H a s it not been a benefit to mankind in general that
both machines and commodities are cheaper than before t
Mr. D a v i s . That is true, i f in the process o f cheapening thousands

o f men have not become idle, and hence unable to purchase even the
cheap articles. The men who make our laws to contract our currency
know quite well what they do. Mr. Doubleday speaks o f the matter
in England as follows:
I t is not easy to believe that the bill o f 1819 was brought iu and passed in u tter
ignorance o f its real consequences. The Portugese Government haB never been
deemed a very enlightened one, and vet a measure o f the same kind was, about thia
time, adopted by it. and carried through, on equitable principles, and w ithout
material difficulty. The minister found it prudent, by withdrawing a portion o f
the paper money, to enhance the value o f the currency o f Portugal twenty per cent.
He aid so, but at the same time he made a commensurate reduction on all debts,
public and private, so as to adjust the payments to a higher standard, and the fa ir
ness o f this was so manifest and prices so rapidly adjusted themselves under th e
enhanced currency, that few murmured under the measure, and no one waa apprecia
bly injured by it. (Doubleday’s L ife o f Sir Robert Peel, Vol. 11, p. 167:)

That is the only case I have been able to find where contraction has
not damaged the people. It is usually a ruinous process. Senator
Sherman once called it “ an act o f folly without example for evil in
modern times.” Senator Wade said it would be “ about as bad as a
fire.”
Mr. S p e r r y . You mean paper money f
Mr. D a v i s . I see no difference in lawful money.

The quality o r
value o f the monetary material cuts no figure.
Mr. S p e r r y . In increasing currency to the extent that it will m ake
prices higher, do you not expect prices o f commodities would also b e
higher f
Mr. D a v i s . Yes, sir.
I would not have.

A n d a paper money which is not equal to coin

f ia t

m oney.

Mr. S p e r r y . Does your fiat school o f finance contemplate p a p e r
money which is immediately redeemable in coin t
Mr. D a v i s . They can be made exchangeable if you like, but there is

no necessity for it. I t requires about two years o f time, they say, fo r
a man to get over the difficulty under which you are now laboring.
W e must have a money which rests upon something, not only on gold,
but upon all values. In former times people differed much as to th e
foundations o f this earth. They said that the earth must have rocks
to rest upon. I f a man asked what the rocks rested on it waa found
easier to silence him with an edict than to answer his question.
Finally, men investigated and found that the whole thing, this great
earth, was a round globe sweeping through space, and that it rested
on nothing but the f i a t o f the Maker— o f the issuing power.
Mr. S p e r r y . It was not a fiat of Congress t
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Mr. D a v i s . Congress does not make globes, bnt it can make money,
and that money should, like the earth, rest on the flat o f the maker—
of the issuing power.
*
Mr. S p e r r y . Without regard to the redemption o f paper in coin?
M r. D a v i s . Paper rests on the same basis that coin rests on—-ithe

quality o f legal tender. The trade dollnr o f 1873 was made a legal
tender for five dollars. It was then good money. W e removed that
legal-tender quality and it immediately went down to ninety cents.
Congress can make a dollar by attaching to it the monetary function,
which is the material thing.
Mr. S p e r r y . The flat school o f government teaches that a piece of
paper is just as good as coin.
Mr. D a v i s . When paper and coin are treated just alike. Whenever
that has been the case, from 1812 until now, paper has beeu uniformly
preferred to coin.
Mr. J o h n s o n , o f Indiana. Do you think we could pass an arbitrary
law and compel the people to respect it f
Mr. D a v i s . I f the Government respected its own enactment b y
receiving its own money in the Government revenues, yes.
Let us for a moment compare coiu and paper under the most trying
circumstances. A t the beginning o f the American Revolution coin, or
intrinsic money, failed to materialize. It was not to be had. It was
an utter failure. Our fathers had no resources bnt paper. They had
no government capable o f issuing a proper money o f any sort, but they
did the best they could. They could print paper and call it money,
but they oould not receive it in the revenues o f the Government, because
the old confederacy did not collect revenues. They could not endow it
with the quality o f legal tender, because the old confederacy was not a
sovereign government. They could not even make it redeemable in
coin, as there was no coin to be had. Coin is always absent when
most needed. But the patriot fathers had wit as well as patriotism,
and they issued the best money they could. I t was rudely executed
and easily counterfeited, hence in practice must be unlimited in amount.
People were expected to take it as a matter o f patriotism. This was
the only foundation o f that continental money; yet for five years it
met the requirements o f the country, and Mr. Albert Gallatin after
wards spoke o f it as follows:
The paper money carried the United States throngh the mo8t arduous and peril
ous stages o f the war, and, though operating as a most unequal tax, it can not be
denied that it saved the country.

I f the American colonies had depended on coin money as a war power
they would have remained subject to the tyranny o f King George.
American liberty would never have been born.
M r . W a r n e r . Would it not have been equally as efficacious in sav
ing the country i f the Government had simply gone and taken it by
force from the people?
M r. D a v i s . Mr. Gallatin said the currency saved the country. That
currency was largely overissued, and also counterfeited by the ship
load by the British Government; yet it was five years fighting the
battles o f liberty as it gradually reached the point o f worthliness. Let
us take another case..
In the year o f 1797, money o f intrinsic value failed in England. The
bank paid out its last silver sixpence, and the nation was on the verge
of ruin. A paper money not redeemable in coin was adopted, which
met every monetary requirement for twenty-five years, through all the
terrible trials o f the wars o f Napoleon. I t carried the country
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triumphantly through every crisis, conferring on the Empire a pros
perity aud glory unequaled iu ancient or modern times. On this
subject Sir Archibald Alison says:
I t it) in these moments o f public aud private suffering that the paprr circulation
steps in to sustain public and private credit during the interval when national
industry has been paralyzed by the disappearance o f the precious metals from circu
lation. * * * But for its aid the Empire would certainly have been destroyed.
* * * Had bank notes been rendered scarce when gold disappeared, the nation
and all its trading classes would have been bankrupted, and we should long since
have been a province o f France.

And there are other cases.
In the year 1813, during the wars o f Napoleon, gold utterly failed
to meet the needs o f the allied armies 011 the continent o f Europe.
England, Russia, and Prussia issued a joint paper money, which sup*
ported the armies, broke the power of Napoleon, and saved the conti
nent. The late Judge Martin, in his work on The Money o f Nations,
says:
It met the emergency as coin could not.

Mr. Alison says:
It passed as cash from Kamchatka to the Rhine, aud brought the war to a successful
issue. * * * Without this paper money, the vast armaments o f the allies would
have been dissolved for want o f fuuds for their support.

During the war o f the rebellion, when gold left the field, there were
three kinds o f nonmet&llic war money which stood the shock o f arms
to the end. The revolutionary government o f the South issued the
best paper possible for such a government. It was precisely as good
as the issuing power—no better, no worse. It was a brave money—
far better than cowardly metal. It staid with the armies, and fought
with them to the end.
Mr. W a b n e r . W as that money at par with goldl
Mr. D a y is . Most of the time it was, though it was never made a full
legal tender. I t was receivable by-the Government for certain purses. In 1813,Napoleonwascarryingeverythingbeforehim. England
med an alliance to fight Napoleon. England, Russia, and Prussia
made a joint paper in 1813, which beat Napoleon and saved the conti
nent, as just stated.
A t one time, the coins o f England were worn and clipped and they
had decreased in weight very much. Macaulay says, to restore that
currency cost the country more than all the bad laws aud all the wars
o f the bad kings that the country had ever had.
Mr. W a r n e r .' That was the cost o f recoining it?
Mr. D a v i s . The recoining cost a mere trifle; it was the contraction
o f the number o f pieces that did the damage.
Mr. H a u g e n . Macaulay attributes that to the clipping o f the coin.
The Government bore the expense of recoining it, and it cost the Gov
ernment twelve million pounds sterling.
Mr. D a v i s . Certainly, the Government paid for the recoinage, but
the bill was footed by the people. The reduction o f the number o f
pieces was the main damage. It was a. contraction o f the money.
Mr. H a l l . Was that at the time that Newton was director o f the
mint?
Mr. D a v i s . Yes, sir. The clipping and coinage altogether made the
damage complained of.
Mr. H a l l . He attributed that solely to the consequences t>f the clip'ping of the coin?

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Mr. D a v i s . Yes, sir. O f coarse, 'the cost o f recoinage and the con
traction o f the money were all consequent 011 the clipping; but .it was
the contraction which did the great damage.
Mr. Alison attributes the dark ages to the contraction o f the Boman
money. A t the Christian era there were $1,800,000,000 o f metallic
money afloat in the Boman Empire. By the thirteenth or fourteenth
century there was only two hundred millions o f money. Society was
disintegrated and people liviug in clans upon each other. When
the American mines were discovered money increased, society became
rehabilitated, and human rights gained ascendency.
Mr. H a l l . W hat kind o f money was discovered thenl W as it fiat
or gold f
Mr. D a v i s . I t was fiat. Before it left America it took $116 in gold
bullion to buy a quire o f paper. When the gold was carried to Europe,
where it became fiat money, it rose in value.
In ancient Peru, gold was plentiful; but it was not used as money.
There was no artificial monetary demand created by law. It passed
from man to man on its commercial value only. When thus left to
itself, on its own merits, it had very little commercial value. Mr. Pres
cott, in his Conquest of Peru, tells us that 011 one occasion, in the open
market o f Cuzco, the capital o f Pern, it required gold bullion of the
weight o f $116 to buy a quire o f paper. A bottle o f wine sold for the
weight o f $690 in gold bullion. A sword was worth $500; a cloak
♦1 ,160; a pair o f shoes $400 or more; and a horse about $30,000 weight
o f gold bullion. Between that low price o f gold and the high charges
for it by the gold gamblers o f our time, there is room for ten thousand
stages and degrees o f fluctuation.
Mr. W a r n e r . Was not silver ordinarily flat as a matter o f fact?
M r. D a v i s . It was both coin and fiat.
.
Mr. W a r n e r . W as it not so in England and France?
Mr. D a v i s . A portion o f the time it was.
a r n e r . Was not gold doing its work as money?

Mr. W

“ c o in in g ” p a p e r .

Mr. D a v i s . Usually it was. Men could pay gold on their obliga
tions. Gold was not good money at one time. I claim it is the con
stitutional duty of the American Congress to coin gold and silver and
paper until we have enough money to maintain prices on a just and
reasonable level. They tell me that coining paper is a far-fetched and
inappropriate phrase; that coining only applies to metal. Some great
writers have said that coining refers to paper as well as to metal. I f
you will notice, the first meaning o f the word iu Webster is “ to stamp.”
Mr. J o h n s o n , o f Indiana. To what book do you refert
Mr. D a v i s . This is “ Alison’s History o f Europe,’’ Volume v i i , p. 92.
Speaking o f French paper in 1805, Mr. Alison says:
In the midst o f the apparent prosperity produced by that excessive increased (o f
paper money), the sagacious mind o f Napoleon perceived the seeds o f future evil;
ana amidst all the turmoil o f his military preparations at Boulogne he immediately
wrote to the minister o f finance on the subject and warned him o f the danger o f the
Bank o f France trusting too far the delusive credit o f individuals engaged in exces
sive transactions or pushing to an undue length in the form o f paper circulation the
royal privilege o f coining money.

September 24,1805f Napoleon wrote from Boulogne as follows:
The evil originates in the bank having transgressed the law. What has the law
donef It has given the privilege o f coining money in the form o f paper to a particular
company; but what did it intend by so doing f Assuredly, that the circulation thus
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created should be based on solid credit. % * * In one word, in discounting after
this manner the bank is coining false nioney. So clearly do I see the dangers o f such
a course that, i f necessary, 1 would stop the pay o f my soldiers rather thau perse
vere in it. 1 am distressed beyond measure at the necessities o f my situation, which,
by compelling me to live in camps and engaging me in distant expeditions, w ith
draw my attention from what would otherwise be tbe chief object o f my anxietv, the
first wish o f my heart—a good and solid organization o f all that concerns the inter
est o f banks, manufactures, and commerce. (Alison’s History o f Europe, Vol. v n ,
p. 92.)

That statement was written only sixteen years after the adoption
of the American Constitution, which authorized Congress to “ coin
money aud regnlate the value thereof.” It was not uncommon in those
days among good writers to speak o f “ coining” paper currency. The
word “ coining” applies to paper as well as to metal. It is the business
ofthe United States Government to furnish the people with good money.
Mr. W a r n e r . Is that yonr opinion or is it something you are quotin gt
Mr. D a v is . I t is the opinion o f Napoleon.
Mr. W a r n e r . I would as lief haveyouropinion a.s that o f Napoleou.
Is it an expression or a quotation f
M r. D a v i s . I give this as my own opinion as well as that o f Alison,
Napoleon, aud others.
Mr. W a r n e r . That is satisfactory.

Mr. D a v i s . I say that it is the duty o f the Government to furnish
this money. There is now no question but what the Government can
issue paper money aud make it a legal tender. In that case it will be
uniform in all sections as long as the Government exists.
Mr. J o h n s o n , of Indiana. Do you not think there wonld be danger
o f an excess being issued by the Government?
VALUE AND VOLUME.

Mr. D a v i s . I said, “ Sufficient money to keep prices on a level.” Is
there any other method by which paper money can be issued T I think
there is not. I know that we have a decision o f the Supreme Court
that national banks are constitutional. But there has never been a
question before the court as to the validity o f the question o f banks
issuing lawful money. I have not been able to find it. I f they are
necessary fiscal agents o f the Government, then the court held themconstitutional, but they are not authorized to issue money. That ques
tion has never been a b d ica te d . I t is the prerogative o f the Govern
ment to make money, and when Congress so authorizes, it is the duty
o f the Government to coin money and regnlate its value. Money is
valuable according to its limitation. The Government can coin money
and control its value, or fix its volume or value. The terms “ volume”
and “ value” iu connection with mouey are interchangeable.
Mr. W a r n e r . Could the word “ volume” be inserted iu the phrase,
“ to regulate the volume thereof and o f foreign coins!” How could the
Government regulate the volume o f foreign coins T
Mr. D a v i s . Before we coined silver to any great extent we admitted
the Spanish dollars which were a legal tender for debts. W e repealed
that law. Now we regulate the amount o f legal money which comes
from Spain. That is to say we do not admit it as lawful money.
Mr. W a r n e r . I s that what the law means— to regulate not the value
bu t the volume o f foreign coins f
Mr. D a v i s . I take the ground that it means to regulate the value o f

dollars by regulating the volume.
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Mr. W a r n e b . Does it not mean that they shall regulate the value
at which they shall be received!
Mr. D a v i s . The Government regulates the volume o f foreign coins
which come into this country, by regulating the value at which they
shall be received, or by refusing to do so.
Mr. W a r n e r . Then the United States Mint may be wrong in sup
posing that the settlement o f the value as distinguished from the vol
ume o f foreign coins is authorized by the Constitution f
Mr. D a v i s . Thn Mint has a perfect right to do that.
Mr. W a r n e r . My question is whether there is any distinction
between “ value’’ and “ volume ” in the way you put it.
Mr. D a v i s . There is none as it relates to money. Thevalueof money
is in proportion to its volume. Yon canuot regulate its value, unless
you control its volume. Another point 1 propose to make now is this:
First, we have a deficiency o f money in the Treasury. It seems that
w e have reached -the sky in onr tariff income, and have not enough
money to meet the demands o f the Government. There is a great want
o f money among the people. Can we increase the volume o f currency
a t present by act o f Congress! I t is stated on good authority, and it
con not be controverted, that there has been a great wasting away o f
greenbacks. Mention has been made as to how much the greenbacks
la v e wasted away. In 1888, Senator Plumb stated that there had been
at least 946,000,000 o f greenbacks wasted and destroyed. The banka
h ave retired about $150,000,000 o f their currency, besides the bank
currency which has been watted and destroyed, during the twenty
years o f its use. I think at least $200,000,000 o f greenbacks should
now be issued to fill the place o f the wasted, destroyed, and retired
currency. There would be no inflation in that. When William H.
English, some years ago, retired from the presidency o f the Indianapolis
National Bank, he issued a statement to the stockholders in which he
said that the capital o f the bank was about half a million dollars, and
thecurrency o f the bank had decreased $30,000 in bills lost or destroyed.
T h at occurred iu fourteen years in a bank having a capital o f one-half
a million dollars. Then it appears that Senator Plumb was not far
wrong when in 1888, he said that $46,000,000 o f currency had been lost
o r destroyed. In looking over the tables o f the national banks, I find
that they have not issued as much currency as they have retired by
$150,000,000. I f we are to keep the currency on a level, in view o f the
increase o f population, We would require more and more money, and
now we should issue at least $200,000,000 or $300,000,000. The green
back currency should not be reduced below $346,000,000.
Mr. H a l l . W hile you are on that point, I want to know where you
And any authority in law for the United States Treasury to issue money
to take the place o f that lost or destroyed.
Mr. D a v i s . There may be none; but we as a Congress have a right
to make a law.
Mr. H a l l . Y ou do not claim that there is any authority n ow !
Mr. D a v i s . N o, I do not blame the Secretary o f the Treasury for this.

I do blame him, however,for not showing all the facts; that the people
may at all times be fully and truthfully informed in the matter. The
Treasury Department has made an admission that there were some
eight or ten millions o f fractional currency destroyed. The greenbacks,
then, must have been destroyed too to some extent. There was not
less than one million destroyed in the flood at Johnstown. W e know
that by fire and flood there has been a vast amount destroyed. There
is a great waste each year in mutilated bills. W e certainly have a
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right to issue additional bills for those destroyed. W e can authorize
the Secretary to issue them. A ll I would criticise the Secretary o f the
Treasury for is this: that if he, iu his reports, makes a deduction for
the lost and destroyed fractional currency, he ought to give us some
idea as to what he thinks is the amouut o f other currencies destroyed.
I think he should be allowed to issue at least $200,000,000 liecause o f
the retiring of bank currency and the vacancy by this loss and destruc
tion o f bills.
Mr. H a l l . You can not criticise the Secretary o f the Treasury for
not issuing this money !
M r . D a v i s . No. I f I were the Secretary o f the Treasury myself, I
would not isssue the currency. But I would say to Congress that in
all probability a vast amount has been lost or destroyed. I do not
blame the Secretary o f the Treasury for not issuing more currency
uuder the present laws. But he should inform Congress that more
currency is needed.
Mr. W a r n e r : You have referred to the propriety o f making good
the contraction o f the currency. A s a matter o f fact, has not that lost
money been more than made good tyv additional issues f
Mr. D a v i s . Certificates have been issued.
Mr. W a r n e r . D o not understand me as criticising you in that
regard. W hat I want to get at is this: i f we'issue more currency,have
we got to issue it upon the same basis!
Mr. D a v i s . I have a speech made by Senator George (and he is no
fiatist), in which he claims that according to present conditions we are.
justified in issuing more currency and that it can be done without
increasing the gold reserve. He quotes Senator Beck, showing that it
could be increased to double the present volume. It does not require
a large reserve to float legal tender greenbacks. President Hayes in
his message to Congress o f December 1,1879, said:
The demand on the Treasury for gold and silver in exchange for Uuited States
notes has been comparatively small, and the voluntary deposit o f coin and bnllion in
exchange for notes has been very large. The excess o f the precious metals deposited
or exchanged tor United States notes over the amount o f United States notes
redeemed is about $40,000,000.

When the Constitution authorized Congress to coin money, that word
“ coin ” meant the coining and issuing o f both metal and paper. It was
common in those diiys to speak o f the issuing o f paper as coining
money, and an over issue o f paper was mentioned as “ coining false
money.” I have already proven this point by quotations from Alison
and Napoleon. Good paper money needs no gold basis, more than we
now have.
The banks should not be permitted to issue currency. I think banks
have no right to perform the functions o f Government. It is much
more costly to have natioual-bank currency. The greenback is manu
factured in the Treasury o f the 0 nited States, and is paid out only for
Government expenses. I t is paid to Congressmen aud others who per
form services for the Government. Every greenback thus far has left
the Treasury in payment o f Government obligations. The Govern
ment has just two ways o f getting money to pay obligations: one is to
make the money, and the other is to tax somebody. I would make
greenbacks the only paper money, and I would maintain the level o f
prices by regulating the volume o f money. This is the only way that
Congress can “ regulate the value thereof.”
Mr. S p e r r y . Would you make aud pay out enough so that yoa
would not have to levy taxes !
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M r. D a v i s . I would uot. That was the trouble with the continental
money. I t was overissued by the Congress because they could not
levy and collect taxes. And it was largely overissued by the English
Government in the. form o f counterfeits. The same was true as to the
French assignats. During the French revolution, they largely overis
sued the assignats, but not so largely as did the British Government.
The British Government had 17 establishments working 400 men in the
city o f London, manufacturing French assignats.
Mr. W a r n e r . But when the assignats were deprived o f legal-tender
qualities, did uot gold reappear in circulation and remain so through
out tbe Napoleonic wars!
Mr. D a v is . No sir; the assignats were all dead in 1796, before the
Napoleonic wars had fairly begun. Napoleon was a hard-money man,
and got his coin and other supplies by robbing the conquered nations.
Mr. W a r n e r . D o I understand you to say Napoleon sent back to
France such enormous quantities o f money that the whole amount o f
actual existing coin in France, whether it was sent thiere.or came
there, was equal to the amount lost iu blood and brawn withdrawn
from production to follow Napoleon!
M r. D a v i s . That coin had to come from some place.
M r. W a r n e r . It came from the ontsidef
M r. D a v i s . It certiainly did.

Mr. W a r n e r . The French people are notoriously conservative about
accepting foreign coins. History is absolutely clear in teaching that
that gold promptly appeared in France and staid there.
Mr. D a v i s . It appeared, and it had to come from some place, and
after going to the French mints it was French coin. And here is the
w ay some o f it came, as related by Mr. Alison:
The victories o f Ulm and Austerlitz provided the means o f solving the (financial)
difficulty. From the moment the grand army crossed the Rhine it was fed, clothed,
lodged, and paid at the expense o f Germany. On the 18th o f November, an edict o f
the Emperor directed the transmission o f all funds to the army o f the north to cease,,
and on the 18th o f December a similar order was given in regard to the army o f
Ita ly. Thus the three principal armies o f the Empire ceased to be any longer a
charge npon its finances, and the tributary or conquered' states bore the burden o f
the greater part o f that enormous military force by which they were overawed or
retained in subjection. This system continued without intermission during the
whole remainder o f the reign o f Napoleon. From the castle o f Wurtemburg Napo
leon wrote, October 4,1805, to the minister o f finances at Paris:
“ The army maintains the most exact discipline; the country hardly feels the
presence o f the troops. W e live here on bans; I have no need o f money from you.”
These tons were treasury bills, which were discharged by the French Government
ont o f the contributions levied on the inhabitants, or tbe sums extracted from the
conquered countries. (Alison’s History o f Europe, Vol. v i i , p. 100.)
T

C h a ir m

W ill you appear before us at the meeting to-mor

row morning 1
Mr. D a v i s . Yes, sir. There are several points o f which 1 wish to
speak. I wish to mention the comparative cost o f bank aud greenback
money.

I am much obliged to the committee for its kindness in hearing me
'at such length.
Thereupon, the committee rose, to meet to-morrow, Wednesday, Octo
ber 4, 1893, at 10 a. m.

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C o m m it t e e o n B a n k i n g a n d C u b b e n c y ,

Wednesday, October 4,1893.
The Committee on Banking and Currency this day met, Hon. W illiam
M. Springer in the chair.
STATEMENT OFHOH. JOHV DAVIS, A &EP&ESEHTATIVE FROM THE
STATE OF XAHSAS—Continued.
Mr. Chairman and gentlemen o f the committee: I am very much
obliged to have this second opportunity to say something which I was
diverted from by the great number o f questions yesterday; questions,
however, that were very proper and useful and I enjoyed them very much.
The points I want to make this morning I can pass over very rapidly
and I will not occupy more than thirty minutes unless I am interrupted.
One point I tried to make yesterday was this: That the addition o f
money in this country would give our people rising prices, and, hence,
call into action all the activities o f our people, sill idlers and tramps
and all such men; and, employers would be limiting employes instead
o f employes hunting employers. A change to that policy can be
easily done, according to the history o f this country and other countries,
by the addition o f money and rising prices. It would make all the
people prosperous; and having done that, having called into existence
all these activities o f our people, we have increased consumption by
this nation o f the products ot the world; thus raising the gold prices
o f cot ton and wheat in London. By increasing the demand, by doubling
the demand, from this country, it would be adding the demand o f thirty
million people iu their consuming power above what we have now.
Having decided that, the point comes: How are we to increase money,
and what kind o f currency are we to float t I think we should float the
United States Treasury note. The Government o f the United States is
authorized to coin money for the people. “ Coin,” I proved yester
day, applied to paper as well as metal, and I proved it by quotations
from Alison, Hume, Napoleon, and other writers o f the times when the
Constitution was made. Napoleon Bonaparte was certainly considered
a hard-money man, aud he declared over and often that he never would
issue Treasury notes, and you all know the reasou for that, yet Napo
leon applied the word “ coin ” to paper. Hume speaks o f 1‘ coining land ”
into money. .We should adopt the gold and silver coin of the Consti
tution, making them full legal tender at the present ratio; we should
then add legal-tender Uuited States Treasury notes, as much as needed
to maintain reasonable and level prices for property. W e should adopt
the idea of Treasury notes as the proper money; first, because it is
constitutional; second, because it has been the practice of this country
ever since 1312, about eighty-one years; third, because 1 do not think
the Government o f the Uuited States can delegate an act o f sovereignty
to a corporation or to an individual. I do not think the Congress o f
the United States—the Government o f the United States— should del
egate the power o f declaring war or making peace or issuing money to
a corporation or to an individual. No corporation or individual should
be authorized to issue money or to do any other sovereign act.
I am met with the claim that the banks issue currency, and that
banks have been declared constitutional. A s issuers o f currency they
have not been declared constitutional; they have been declared consti
tutional on the ground that they are necessary fiscal agents o f the
Government. The question o f banks issuing currency has never come
before the oourt In that particular form; hence, let me add, bank cur
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rency o f this country has not been made a legal tender because that
would at onee bring the question o f issuing “ lawful money” before
the courts, and the baukB are afraid to do it. But suppose the Supreme
Court has decided that bank currency is constitutional, which I deny,
then this question may go to the very highest court; and then comes
the question, W hat is the highest court! I remember in 1858, when
Senator Douglas and Mr. Lincoln were discussing the Dred Scott decis
ion of the Supreme Court, and Mr. Douglas asked Mr. Lincoln how he
would get around the decision o f the Supreme Court o f the United
States. Would he appeal to a town meeting I Mr. Lincoln replied in
effect:
Yes, sir; 1 w ill appeal*to a town meeting, and to another town meeting, and
another town meeting, and nil the town meetings; and 1 w ill reverse that decision.

So there is then a higher court. The people are a higher court than
the Supreme Court o f the United States, and on five occasions they
have decided that “ a national bank is unconstitutional and dangerous
to lib erty;” at five different elections, commencing with the second
election o f President Jackson, and then the election of Mr. Van Buren,
on up through the forties and fifties. Jackson was elected the second
time on the absolute issue of the banks. He was opposed to the banks,
and he took that ground absolutely and positively, as message after
message show; and in documents to his own cabinet, and in various
ways he affirmed that the banks were “ unconstitutional and dangerous
to liberty.” Mr. Van Buren was elected on the same ground. There
was no platform reported, but he said in regard to the bank question
that he would “ walk in the footsteps o f his illustrious predecessor.”
That was his position and he was elected. There were seven times,
including two verbal statements, five written and two oral, where it
was stated that “ a national bank is unconstitutional and dangerous to
liberty,” and that the funds o f the United States should be kept sep
arate from all banking funds. In 1840 the Democrats weakened on the
bank question, and Mr. Harrison occupied an equivocal position. The
bank was not strictly the issue. But five times in seven the Democrats
gained the day, showing that the people were o f the opinion that a
national bank is unconstitutional and dangerous to liberty.
Thomas Jefferson, the first great Democrat in this country, expressed
himself on various occasions substantially as follows:
Bank paper mast be suppressed and the circulation restored to the nation to
whom it belongs.
The power to issue money should be taken from the banks and restored to Con
gress and the people.
I sincerely believe that banking establishments are more dangerous than stand
ing armies.
I am not among those who fear the people. They, and not the rich, are our depen
dence for (Continued freedom. And to preserve their independence we must not lot
our rulers load us with per(>etual debt.
Put down the banks and i f this oountry could not be carried throngh the longest
war against her most powerful enemy without ever knowing the want o f a dollar,
without dependence on the traitorous class o f her citizens^ without bearing hard on
the resources o f the people or loading the public with an indefinite burden o f debt,
I know nothing o f my countrymen.

The first, real contest with the bank power occurred under the admin
istration o f President Jackson,*who in one o f his messages described
the case as follows:
I t being thus established by unquestionable proof that tbe Bank o f the United
States was converted into a permanent electioneering engine, it appeared to me
that the path o f duty which the executive department o f the Government ought to
pursue was not doubtful. As by the terms o f the bank charter no officer but the

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Secretary o f tlie Treasury could remove the deposits, it seemed to me that th is
authority ought to be at once exerted to deprive that great corporation o f the sup
port and continuance o f the Government in such a nse o f its funds and such exertion
o f its power. Iu this point o f the case the question is distinctly presented, whether
the people o f the United States are to govern through Representatives chosen b y
their unbiased suffrages, or whether the power and nioney o f a great corporation
are to lie secretly exerted to influence their judgment and control their decisions.
I t must uow be determined whether the bank in to have its candidates for all offices
in the country, from the highest to the lowest, or whether candidates on both sides
shall be brought forward, as heretofore, and supported by the usual means.

Thomas H. Benton, in the United States Senate, declared himself as
follows:
The Government itself ceases tb be independent, it cgases to be safe when the
national currency is at the will o f a company. The Government can undertake no
great enterprise, neither war nor peace, without the consent and cooperation o f that
company; it can not count its revenues six mouths ahead without referring to the
action o f that company—its friendship or its enmity, its concurrence or opposition—
to see how far that company permit monoy to be scarce or to be plentiful; how far
it w ill let the money system go on regularly or throw it into disorder; how far i t
w ill suit the interest or policy o f that company to create a tempest or suffer a calm
in the money ocean. The people are not safe when such a company has such a
ower. The temptation is too great, the opportunity too easy, to put up and put
own prices to liialje and break fortunes; to bring the whole community upon i t »
knees to the Neptunes who preside over the flux and redux'of paper. A ll property
is at their mercy. The price o f real estate, o f every growing crop, o f every staple
article in the market, is at their command. Stocks are their playthings—their
gambling theater, on which they gamble daily with as little secrecy and as little
morality and far more mischief to fortunes than common gamblers carry on their
operations.

The sad experiences o f the country in its struggle with the bank
power in the earlier days o f the Republic, and the bold and patriotic
teachings o f the great Democrats o f those times, iustilled into our peo
ple a just and prudent jealously toward the banks which usually insured
the success o f the Democratic party at the national elections. Presi
dent Jackson began his memorable contest with the bank power during
his first term. His second election was on the bank issue. His signal
and glorious victory showed that the people were with him. H e
declared in his fight that a national bank is unconstitutional and danger
ous to liberty. Aud at the polls the people declared that Jackson was
right.
Martin Van Bureu was elected in 1836, because it was understood
that, ou this bank question, he would “ walk in the footsteps o f his
illustrious predecessor.” Seven times the people voted on this bank
question, with the expressed or implied understanding that the Demo
cratic party was in deadly hostility to the existence of a national bank
and was opposed to the mixing o f the Government money with the
funds o f banking institutions. Five times at those seven elections the
people elected the Democratic ticket on the antibank platform. In
1860 and since that time the Democratic platforms have expressed no
hostility to national banks. Since 1860 the Democrats have been
beaten seven times in nine. And a new antibank party is organizing
and coming to the front to renew the fight o f the old Democrats on the
money question.
To show the form and nature o f the contests in the national elections
referred to, I quote from the Democratic platforms o f 1852 and 1866
the following resolutions:
Betohed, That Congress has no power to charter a national bank; that we believe
such an institution one o f deadly hostility to the best interests o f the country,
dangerous to our Republican institutions and the liberties o f the people, and calcu
lated to place the business o f the country within the control o f a concentrated

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money power, and that above the laws and w ill o f the people; aud that the result
of Democratic legislation in this and all other financial measured* upon which issues,
hare been made between the two political parties o f the country have demontitrated
to candid and practical men o f all parties their soundness, safety, and utility in a ll
business pursuits.
Bmlved, That the separation o f the moneys o f the Government from banking insti
tutions is indispensable for the safety o f the funds o f the Government and the rights,
of the people.

Mr. Chairman, that was the emblazonry on the proud and victorious
banuer o f the ancient Democracy hoisted by the immortal Jackson at
the close o f the most memorable political contest, in our history. Through
seven Presidential campaigns it was carried aloft to almost certain
victory, winning the day by the approval o f the people five times in
seven. A ll this, the ancient leaders o f your party and their followers
did, with that hydra, chattel slavery, guawiug at their vitals, and on
there shoulders that pile o f tigers— the moneyedinstitutionsoftlieeast.
Speaking o f Jackson’s victory over the national bank and its
branches, Senator Benton said:
She is not dead, but holding her capital and stockholders together undvr a State
charter she has taken a position to watch events and profit by them. The royal
tiger has £one into the jungle, and, crouched on his belly, he awaits the favorable
moment ot emerging from his covert and springing on the body o f the unsuspicious
traveler.

During the late war, when this country was in a death struggle to
avert dismemberment, and while the minds o f the people were intensely
occupied with that contest, the “ favorable moment’’ came; and for
thirty years the progeny o f that “ royal tiger,” in the form o f 3,000
whelps, have had this great nation by the throat fattening on its life
blood.
Mr. Chairman, let us compare the national bank note with the Treas
ury note its to the matter o f economy. The greenback is manufactured
by the Government in the Bureau o f Engraving and Printing, and when
a bill is completed it leaves the Treasury o f the United States; it passes,
out and the people get it. When the greenback leaves the treasury it
pays a monetary obligation o f the Government and the taxes o f the
people. The Government lias two ways to raise money to pay expenses;
one is to make it as currency or greenbacks, and the other is to tax
somebody and get it to pay out. These are the only ways in which the
Government can get money. Even by borrowing they have finally to
pay the money with which to meet the loans. The bank bill, manu
factured by the same Government, leaves the Treasury o f the United
8tates without value received. It goes out but does not pay any debt
when it leaves the treasury; it. does not pay any monetary obligation
of the Government. A t one time there was over $350,000,000 o f bank
currency afloat. When that currency went out it paid no monetary
obligation whatever. W e had just as many debts to pay and just as
much interest to pay as formerly. That currency went into the hands
of men who make money by loaning it to the people. It went out with
out value received by the Government. I f that $350,000,000 had gone
out in the form o f greenbacks, it would have saved $350,000,000 o f
taxes. Now, i f the matter stopped there we might make it a loss and
let it go. But when the bank bill went out from the treasury a bond
went in; that bond draws, say 4 per cent interest. It costs us 4 per
cent per annum to pnt these bills into the banks. But that is not all;
they go into the hands o f the banks. The banks loan them, say, at 6per cent. The banker receives 6 per cent from the people and 4 from
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the Government, on the bonds, so there is 10 per cent which is paid on
the bank notes V liich are out. W e have to pay 10 per cent on the
whole of the bank circulation as long a£ it circulates at this rate o f
interest. What does the bank pay?
They pay a tax o f 1 per cent per annum to the Government for
the printing of the notes and renewing them when mutilated. That is
the total cost to the banks. But the people pay to the bankers 10
per cent per annum as the cost o f keeping these bauk bills afloat.
This important matter can not be viewed too carefully from every
standpoint. Suppose that, under the laws as they now exist, five men
shall become organized into a corporation for business purposes. They
unite their iimds and purchase $50,000 o f United States bonds with
the intention o f borrowing money from the United States Governmeut
at 1 per cent per annum, on twenty years’ time. Their agent pro
ceeds to Washington, and having found the office of the Secretary o f the
Treasury, the following dialogue might naturally occur:
Agent: “ You have money to loan, I believe, Mr. Secretary,on United
States bonds at I per cent per annum?”
Secretary: “ Plenty o f it. How much do you w an t!”
Agent: “ I have $50,000 in Government bonds which I desire to
deposit as security for a loan o f $45,000 iu currency to be used by our
•corporation in opening and operating its farming lands.”
Secretary: “ Stop! Stop! You need say no more. This Government
lias no money to loan for farming purposes. That would be ‘ pater
nalism,’ such as President Cleveland condemns in his inaugural
address.”
Agent: “ I am surprised, Mr. Secretary, th a tl can not borrow money
for agricultural purposes; but, since the lands our corporation own
are underlaid with valuable mineral deposits, if I may be allowed to
use the money for the purpose of opening and working our mines it
will answer our purpose quite as well.”
Secretary: “ You can not, sir. The Government has no money to
loan for mining purposes.”
Agent: “ Can we have this 1 percent money, then, for the pur
pose o f operating the plant in which our ores will be refined by the use
o f coal from our mines! I f not, by your leave, we will take the loan
for the purpose of building a steamer iu which to transfer the products
o f our mines and farms to distant markets.”
Secretary: “ You can not have the money for any such purposes. A
law authorizing such loans as you mention would be one of those class
laws, ‘ the unwholesome progeny o f “ paternalism,” ’ which is ‘ the bane
o f Republican institutions.’ The doctrines o f paternalism which you
seem to have imbibed ‘ ought to be unlearned, and the better lesson
taught, that while the people should patriotically and cheerfully sup
port their Government, its functions do not include the support o f the
people.’ ”
Agent: “ Thank you, Mr. Secretary, for your kind advice. I know
that I and my people are not very wise, but by keeping ourselves in a
receptive frame o f mind we may learn something. Perhaps I may ven
ture to assert that just now 1 am learning very fast. The information
you have just imparted gives me a wonderful insight into the philoso
phy o f government. The members o f our corporation knew o f an
instance wherein a certain banking corporation was granted a loan o f
$45,000 in currency for twenty years, at 1 per cent per annum, on
deposit o f $50,000 in United States bonds as security, and we inno
cently supposed that our corporation, for the same security, would be
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granted an equal sum to be used in iudustrial pursuits which will give
employment to labor and develop the resources o f the country.”
Secretary: “ That is entirely a different matter, sir. For banking
purposes you can have all the nioney you desire (up to 90 per cent o f
the bonds you deposit) at 1 per cent per annum, on twenty years’
time. I will pay you gold interest on the face value o f your bonds,
while they are on deposit, one year in advance, exempt your currency
from all State or local taxation, and renew your currency when old
bills become mutilated, without extra charge. Your bonds are already
exempt from all taxation. Your currency, which costs you 1 per
cent here, can be loaned in most o f the Western States at 10 per cent,
compounded from four to twelve times per annum. Your taxes will
be light, and the profits on the cost o f your currency will be approxi
mately $10 to $1; or, a protection o f about 1,000 per cent. No busi
ness in this country is guaranteed by the Government such profits as
banking.”
Agent: “ Again, Mr. Secretary, I thank you. But is there no pater
nalism about th is!”
Secretary: “ You will get all needed information regarding details
of the loan from the Comptroller o f the Currency, who will, in due
time, forward you the money. I will be much pleased to see you at
any time you are in Washington. Good day, sir.”
I claim, first, that theuational-bank note is unconstitutional, sodeeided
by the people: second, it is costly; and third, it goes into the hands o f
men who are dangerous to the country. The great case iu which the
right o f Congress to charter a bank was passed upon by the Supreme
Court is that o f McCulloch rs. Maryland, decided in the year 1819 and
reported in 4 Wheaton, p. 316.
The main point decided in this case is that a State has no right to
tax the constitutional means employed by Congress iu carrying into
effect its constitutional powers; and it was incidentally decided that
the United States Bank was constitutional.The case was argued by the ablest constitutional lawyers, among
whom may be noted Daniel Webster, and the decision was delivered
by that great jurist, Chief Justice Marshall, iu one o f his ablest opin
ions. The decision has been confirmed a number o f times by the
Supreme Court and stands as unquestioned authority in all that it
passed upon. It is because of the incidental finding o f the court in
this case that the old United States Bank was constitutional, that the
impression lias become general that “ national banks, as banks for the
issue of money, have been held constitutional.”
In McCullocli vs. Maryland, the question o f the right o f Congress
to charter a bank for the issue o f nioney was not before the court at
all. The question was simply whether Congress had the right to char
ter a corporation to carry on a general banking business. Mr. W eb
ster, in his argument for the bank, contended for its constitutionality
on the ground that it was a suitable and proper instrument to assist
the Government in tlie collection and disbursement o f revenue. The
grounds o f contention on which the constitutionality o f the bank were
based is indicated in few words in the following from the argument o f
the Attorney-General (p. 353 o f the report):
We contend that it was necessary and proper to carry into execution several o f
tbe enumerated powers, such as the power o f levying and collecting taxes through
out this widely extended em pire; and o f paying the public debts, both in the
United 8tates and in foreign countries; o f borrowing money, both at home and
abroad; of regulating commerce with foreign nations, and among the several States;
and o f raising and supporting armies and a navy, and o f carrying tin war.

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Counsel who opposed the bank did so principally 011 the ground that
Congress had not power to charter a corporation o f any kind, and that
it was not a ‘‘necessary aud proper” means for carrying into execution,
any o f the granted powers to Congress. They were careful not to con
tend for the right of Congress alone to issue mouey; for they wished
to substitute State banks for the national bank as banks o f issue.
They contended that the functions o f the “ national bank had been
and could be all performed by the' State banks as well as could have
been done by a bank incorporated by Congress.”
Nowhere was the question o f the right o f the bank to issue money
presented to the court; nor did it consider it in deciding the case, as
may be seen by the following extract from the opinion o f Chief Justice
Marshall (p. 403 o f the report):
Although among the enumerated powers o f the Government, we do not find the
word “ bank” or “ incorporation,” we find the great powers to lay and collect taxes;
to borrow money; to regulate commerce; to declare and conduct a war; aud to raise
and support armies and navies. The sword and the pnrse, all the external relations,
and no inconsiderable portion o f the industry o f the nation are intrusted to its g o v
ernment. * * * It may, with great reason, be contended that a government
entrusted with B u ch ample powers * * * must also be entrusted with ample
means for their execution. * * * It is not denied that the powers given to the
Government imply the ordinary means o f execution. That, for example, o f raising
revenue, and applying it to national purposes, is admitted to imply the power o f
conveying money from place to place, as the exigencies o f the nation may require,
and o f employing the usual means o f conveyance.

The question whether the bank was a necessary means for executing
the power “ to collect revenue,” the court would not decide, saying that
Congress was the sole judge o f Jhat. Thus the court decided that the
United States Bank was constitutional as a bank to aid in the collec
tion and disbursement of revenue, etc., provided Congress thought it a
necessary and appropriate means for that purpose. The question o f
the power o f Congress to delegate the right to issue money or currency
has never been submitted to the Supreme Court.
The late Senator Plumb, who was then president o f a national bank,
and for fifteen years a Senator of the United States, and who doubtless
spoke from observation and experience, said at the time o f making his
speech “ that the banks during the last twelve months have contracted
the currency 5 per cent o f its volume, which has reduced the price o f
property in this country $3,000,000,000.” His statement proves that
one single financial stroke by the banks hurt the finances in this
conutry as much in one year as the late war did in four.
Mr. S p e r r y . D o you believe that!
Mr. D a v i s . I believe that it is half true. .
Mr. S p e r r y . D o you believe a contraction o f the currency is a s
dangerous to this country as a war?
Mr. D a v i s . I did not say th a t; I said it was as damaging to our

finances. I said it cut our finances. Yesterday I said it was as much
as the national debt was at the close o f the war. Now, I will tell you
something more while we are on that subject : Senator Plumb said this
contraction had been going on for ten years, and that it had driven the
country on to the breakers. Have I answered the question! Here is
Senator Plumb’s statement:
In April, 1888, Senator Plumb, o f Kansas, discussed thiB contraction
subject as follows:
But this contraction o f the currency, by means o f the retirement o f national-bank
circulation, has been going on for more than ten years, and all the committee has to
say now is that it has considered soqie bill, but it is not completed. I f the com
mittee w ill not complete some measure the Senate must. I f the Senate w ill not, and
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the other House will not, then the country in going upon the breakers o f financial
diatnrbunce. Ag a Senator sa.vs in my hearing, “ it is there now.” 1 think it is
there now. We are dealing with a question which has more to do with the welfare
of the people o f the United States, which is o f more concern to them than any other
thing that iB pending in either House o f Congress, or which can be pending—the
volnme of the circulating medium o f the country, the value o f its property, the
difference between debt and bankruptcy on the one hand, and freedom from debt
with prosperity on the other.
It is estimated that there are in circulation, including that-which is locked up in
the Treasury and held in the banks as a reserve fund, about $1,600,000,000,000 of all
kinds of currency o f the United States, gold and silver, the overplus o f gold and
silver certificates, greenback notes and national-bank notes, all told, and tjiere are
more than $60,000,000,000 o f property which must finally be measured by this
volume of currency. It has been contracted during the last year more that 5 per
cent in addition to all that has occurred by reason o f abrasion and loss. No man
can tell the volume o f greenbacks outstanding. Nominally it is $346,000,000 and a
fraction, but that volume has been subject to all the accidents which have occurred
daring the past twenty-five years, whereby money has been consumed, worn out,
lost, and it is doubtful i f the amount is really over $300,000,000 to-day.
Bat saying nothing about that, the retirement o f the national banking circulation
during the past twelve months has been 5 per cont. o f the total amount o f the cur
rency outstanding. There has been during that period » phenomenal depreciation
of the prices o f property. There has been the greatest depreciation o f the price o f
agricultural products the country has ever known.
The contraction o f the currency by 5 per cent o f its volume means the depreciation
of the property o f tlie country $3,000,(XX),000. Debts have not*only increased, but
the means to pay them have diminished: in proportion as the currency has been con
tracted. Events baaed upou non-legislation have proved o f advantage to lenders
bnt disastrous to borrowers.
' *

•

The Senator from Delaware [Mr. Saulsbury] the other day spoke with great feel
ing abont the mortgaging o f farms in this country. Mo far as that complaint relates
to a general condition, to the lack and to the shortcomings o f legislation, it is more'
nearly related to the diminished volume o f currency than to any other one thing.

In Jnne, 1890, Senator Plumb continued tlie discussion o f this sub
ject, as follows:
Let us Bee, therefore, how much money is available for actual use among the
people. From the total o f $1,360,000,000, arrived at as above, must be deducted an
average o f $260,000,000, which the Treasury always keeps on hand, and about which
sometuing has heretofore been said in the debate on this bill, and that leaves as the
maximum which can by any possibility be used $1,300,000,000. There ought, in
fairness, to be deducted from this $130,000,000, error in estimate o f gold in the
country, which would reduce the money outside the Treasury to $1,150,000,000.
From this is to be subtracted the $600,000,000 kept as a reserve, as before computed,
leaving a balance o f $530,000,000, which is available for delivery or use in the trans
action of the business o f all the people, or a trifle over $H per capita. But the force
of my argument is not materially weakened by conceding the gold coin to be as
estimated by the Treasury Department, which would leave in actual circulation
♦700.000,000. In order to make up this amount all doubt must be resolved in favor
of the Treasury and against the people, both the doubt as to the amount o f lost and
destroyed notes and that as to the gold supply.
I f I were deciding this case upon what I consider the best evidence, I would be
bonnd to say that I believed the money in actual circulation did not much, i f at all,
exceed $500,000,000. Upon this narrow foundation has been built the enormous
structure o f credit o f which I have spoken. It is the greatest o f the kind that was
ever built, because it was built by the best people that ever built anything. Over
twenty thousand millions o f debts, the enormous and widely-extended business o f
65.000,000 o f people, all rest upon and must be served by a volume o f currency
which must seem to the most veteran financier as absolutely and dangerously small.

Mr. W a r n e r . Let me understand. You have made a distinction
between harming the country and hurting the finances. Now, as I
understand it, so far as the matters to which you have referred are
concerned, the country at the end o f the particular contraction to
which you have referred had the same number o f bushels o f wheat, the
same number o f houses, the same amount o f real estate, and, in other
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respects, the same conditions as though there had been a greater
amount o f money in the country—-just as much paper, just as much
bullion, just as much everything we could drink, wear, or use; N ow ,
I understand that you utterly disavow the idea that that condition
was comparable to that o f a country desolated by a destructive w ar
which had blotted out o f existence a great part o f its material wealth:
but 1 do understand you to still maintain that it had an equally bad
effect on our finances. Now, what is the particular bad effect upon th e
finances to which you have referred ? «
Mr. D a v is . 1 will give a historical example. I went over this yester
day, and 1 find I have got to do a great deal of work the second time,
for it seems that some of the men o f the East do not understand this
matter much better than a schoolboy of Kansas, aud.I will leave a
pamphlet here for the edification o f inquiring gentlemen who desire t o
learn. Now, then, the point is this. I will illustrate it by another
case in history. A t the close o f the British war with Napoleon the
people o f Great Britain were iu excellent circumstances. They had,
during that war, created more wealth than they had during the same
time in a state of peace, in any former period or since. The whole
activities o f the nation had been brought into play. During that w ar
they placed themselves ou the highest pinnacle of glory and prosperity,
and when they came through, just after the battle o f Waterloo, they
were in the very best industrial and financial condition. Then came
the contraction o f the currency in 1816, by the demonetization o f
silver. Then followed the contraction o f paper in 1819. That at once
closed the mills and stopped the factories, and the people were reduced
to the greatest distress, through the contraction o f the currency, fall
ing prices, and enforced idleness.
I repeat again what I said yesterday:

In 1819, when Mr. Peele’s bill for specie resumption was passed, M r.
Gobbet predicted that it would never be fully enforced.
. Mr. Cobbett said:
Before this bill ran l>e carried into complete execution a million o f persons at least
must die o f hunger; that it never would be completely carried out; and that, i f i t
were so, lie would suffer Castlereagh to broil him alive, while Sidmouth stirred th e
coals aud Canning stood by to make a jest o f liis groans.

Even as late as 183d the time for broiliug Cobbett had not yet arrived.
Expedients were still being devised to enable the bank to resume. I t
was arranged ultimately that a portion o f the currency should rest on
its legal-tender quality, amounting to about £16,000,000, and the rest
should be redeemed in coin. So the broiling time o f Cobbett never
came, but the “ million people” and more were duly starved in tile
attempt to reach specie payment.
Mr. Herbert Spencer quotes Prof. Jevons as saying that two-thirds o f
the British paper is issued without $1 of gold behind it. Now I
claim----Mr. W a r n e r . D o 1 understand you to say that two-thirds o f o u t
standing British paper is not represented by gold behind itf

Mr. D a v i s . Thirty and oue-half millions; fifteen millions by th e
banks o f England and the rest by the Scotch and Irish banks.
Mr. W a r n e r . D o you mean that this is uncovered! That they h a v e
not this gold reserve?
Mr. D a v i s . I did not say about what gold they have, but I say th ey

are authorized to issue that much without any gold basis.
Mr. W a r n e r . Do you mean to say for a moment that they h ave
issued that without it being covered by gold in their vaults t
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Mr. D a v i s . I say they are authorized by this statement from Jevous
which I have quoted from Herbert Spencer, which says in 1874 they
had thirty and one-half millions without gold or silver behind it, the
English banks having 15,000,000, and the rest divided among the
Scotch and Irish banks.
M r. W a r n e r . D o not the reports show steadily that from late years,
d atin g clear back to the time you mention, the amount o f uncovered
currency is not far from $50,000,000 or ten milliou pounds sterling!

Mr. D a v i s . I am giving this statement according to the quotations
I have here. I will give you the authority and I will stand precisely
on that.
Mr. H a l l . Quote the page in Jevons in which that is stated.
Mr. D a v i s . I am giving it here iis Herbert Spencer quotes it. The
statement is this, that the law authorizes the Bank o f England to issue
14,000,000 to 16,000,000 without the gold being behind it, and the other
banks make up the thirty and one-half millions. That was the con
dition in 1874.
Mr. J o h n s o n o f Indiana. You do not claim that it is issued to that
exten t!
Mr. D a v i s . Yes, sir; it was issued to that extent in 1874.
Mr. W a r n e r . But was it issued and uncovered to that extent!
Mr. D a v i s . Here is the statement. Prof. Jevons, in Herbert Spen
cer’s work, Tampering with the Currency, is quoted as saying:
The acts o f 1844 and 1845 placed a fixed limit on the amount o f notes which can in
this country be issued without an equal deposit o f gold. A t present (April 1875)
the Bank o f England can issue without gold, lifteen millions; the private and join t
stock banks o f England are individually restrirted to fixed amounts, which added
together make abont £6,460,000, while the Scotch banks can in a siniilarinaunerissne
notes to the amount/tf £2,750,000, and the Irish banks to the afaount o f £6,350,000,
making in all about thirty and one-half millions. In addition to this, the Bank o f
England and the Scotch and Irish banks can iqpue ns niany more notes as they have
deposits o f bullion or coin, and in the year 1874 the extra amount thus issued w a »
about fourteen and one-half millious.

MR. W
deposit!

arner

Does not the word “ deposit” there mean a special

M r. D a v i s . N o, sir; it means currency issued.

Mr. W a r n e r . The “ deposit o f gold” means a special deposit as
distinguished from a general deposit ?
Mr. D a v i s . It.means precisely that the gold is not in the banks ou
which the banks* issued the currency, thirty and one-lialf millions.
M r. W a r n e r . Not as a special deposit!

Mr. D a v i s . I do not say so; I can not infer it from that. Now what
I want to get at is this. I have given you one condition, and I do not
want to be diverted from my point. I f I say or quote anything in which
the authorities do not bear me out, I wish to be corrected. 1 can only
learn from what I read, see, and hear. The other point I want to make
is this: A t the close o f our war we found more railroads, more manu
factured goods, we found more things .in existence in the form of
products created during the war than we had before the war, notwith
standing the destruction o f the war. When we call into activity all
the labor in this country by an increase of money and raising prices
you have no idea what we can create. W e are losing at this moment
by an absolute close calculation, daily, by the idleness o f unemployed
labor, more than we lost during the most disastrous period o f the
war, daily. There is not a particle o f doubt o f that. Take the case
o f France and Germany. A t the close of the German war with France,

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France paid to Germany a thousand million dollars in gold; that put
•Germany in a good fix and France in a bad fix, financially----Mr. S p e r r y . W hat authority have you for stating that France paid
that money to Germany iu gold ?
Mr. D a v i s . Please go and study something before you ask questions
as to matters o f current history. It is understood by all that France
paid it in gold; that is, nioney on a gold basis. Bnt it hurt the Bank
o f England more than it did France because they were able to d r a w
on the Bank o f England in making payments. I will now add, that
France paid an indemnity o f one billion oue hundred million dollars,
including interest, fines on cities, and incidentals; will you take that as
the true statement!
Mr. S p e r r y . W ait a minute; I am taking your statement. Y o u
make the statement that France paid an indemnity o f a thousand m ill
ion dollars in gold?
Mr. D a v i s . It practically amounted to gold.
Mr. S p e r r y . What is your authority? I say it is not true. W h at is
your authority?
Mr. D a v i s . I have it here, and I can refer you to a great many
books when it is necessary. There is not auy doubt but what she paid
an indemnity, is there?
Mr. S p e r r y . 1 have not disputed that point; she paid an indemnity,
Jtrat she did not pay it in gold.
Mr. D a v i .s . I say it was paid on a gold standard. Practically in gold.
Mr. S p e r r y . She did not pay it all in gold or silver.
Mr. D a v i s . She paid it in gold, silver, and first-class exchange, a n d
that is why I say it hurt the Bank o f London more than it did France.
Mr. S p e r r y . Then it comes down to this, she paid an indemnity?
Mr. D a v i s . She paid an indemnity o f one million otoe hundred thou

sand dollars. W ill that do ? .
Mr. S p e r r y -. A s a matter o f fact there is a discount from that.
Mr. D a v i s . Well, here is tlie statement from reliable histories o f th e
Franco German war. McCabe’s history o f the war between Germany
and France, page 674, says:
Heavy fines were imposed on several o f the cities occupied by them (the Germans),
and the contribution o f 200,000,000 francs ($40,000,000) levied on the city o f Paris
was exacted and’ collected by the letter o f tlie armistice.

On page 701 the same history says:

The third part o f France had been overrun, ravaged, and laid waste; enormous
fines had been levied on the cities o f Tunis, held by tlie conquerors. Apart from
the five milliards ($100,000,000) to be paid to Germany, the nation had incurred a
•war debt, etc.

A s to tlie payment o f the indemnity, Knstow’s History, Vol. ill, p.
283, says:
Payments can only be made in the chief commercial towns o f Germany, and must
l>e paid in metal (gold or silver), bank notes on the banks o f England, Prussia, H ol
land, and Belgium, in demands payable to order, or in first-class bills o f exchange.

When it is remembered that silver at that time was worth more than
gold, it will be seen that the indemnity was paid in funds as good as
gold, or gold basis funds. And that the indemnity and fines, interest,
etc., would be at least $1,100,000,000. So you see France paid Ger
many iu “ fiat money”—that is, lawful money— or exchange payable iu
lawful money on a gold standard.
Mr. S p e r r y . N o, it was not paid in fiat nioney.

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Mr. D a v i s . W ell, in gold-standard money, legal tender which is fiat.
Law is fiat.
Mr. S p e r r y . But you would pay it in fiat money I
Mr. D a v i s . W e never pay with anything but fiat money, that is,
lawful money. France paid it in fiat money, as there is no other money
but fiat money, and alleged money that is not flat money is not money,
as it lacks the fiat or legal tender quality.
But to take up that point: France was evidently in bad condition,
financially, after giving the indemnity of gold, silver and first-class
exchange on Londou, Amsterdam, etc. Germany was in good fix finan
cially. Germany then started on a gold basis, having a thousand mil
lions to start with. W hat was the effect upon the country f Germany
resolved to stick to a gold basis. She started with high prices, which
encouraged the enterprise and industry of her people. She contracted
her currency and demonetized silver. Then came falling prices, and
next the idleness of her people. Our consul, in 1889 or 1890, residing
in Germany, said that 80 per cent o f the German real estate was
mortgaged beyond redemption. France, on tlie other hand, considered
herself in bad fix, and hence kept afloat plenty o f silver and paper.
Our consul in France reported in 1890 that about 13 per cent o f the
French real estate was encumbered with mortgages, and they were
paying them oft’. These are the two extremes. France with a full flow
of currency and Germany with a small volume of currency— one pros
perous and the other sinking deeper and deeper into debt, going down
to the bottom loaded with mortgages. One started at the bottom o f
the ladder and tlie other was at the top. They have now changed
places through opposite financial systems.
Now, the question arises, does the contraction o f the currency hurt
anybody? 1 will revert to the case o f England again. Although the
English people were prosperous at the close o f the war, they could
stand but little contraction. In 1819, when the last law o f contraction
was passed and they were to go to the resumption of specie payments
in 1823, they were prosperous, but in 1820 four fifths o f the landhold
ers of England had lost their lands, and tlie people were in such a
condition o f suffering that they had to have troops on foot day and
night to keep the people silent while they were starving. Mr. Castlereagh became frightened. He went into Parliament one night and told
them that something must be done. So they suspended the rules and
passed five money bills to make money easier. In a short time the
mines, shops, and factories were going, the people were employed, and
the troops were dismissed.
Mr. W a r n e r . May I ask the gentleman where he gets his author
ity for saying that four-fifths, or one-half, or one-third, or one-fourth, o f
the landholders o f England then, or at any time in'the last hundred
years, lost their property!
Mr. D a v i s . That statement has often been made. You will find in
Mr. Doubleday’s history o f Sir Robert Peel that all the smaller land
holders were reduced to the sorest distress; and Mr. Peter Cooper tells us
that iu 1816 the landholders numbered 160,000, and, when they got
through, say by 1826, there were only 30,000 landholders in England.
Mr. H a l l . Does that mean that these men might not have become
prosperous and bought out their neighbors?
Mr. D a v i s . It meant that there was a fall o f prices, and consequently
their estates were mortgaged and they got into debt, and the same
causes which compelled the debts prevented the payment o f tliem, so

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that thesa farms, these lands, these homes were transferred under
foreclosure of mortgate for debt.
Mr. W a r n e r . Does the gentleman mean that there has been a tim e
when there has not been but 30,000 landholders— in historical times,
in England!
Mr. D a v i s . I do. Landholders are now less numerous than formerly.
There is another point I want to get at. Yesterday we discussed the
French assignats. They were not a good money, but their agency was
not wholly bad. There were some good results. A s the assignats
depreciated they were invested iu lands by the poor people. These
lands could be paid for with assignats and the people buying them c a t
them into small homes, and Mr. Alison states that there are millions
o f people who have subdivided France into small homes, and 3Ir. Alisou
ascribed the whole----Mr. W a r n e r *. Was it the assignats or the confiscation that author
ized the sale o f the lands in small tracts! I agree with the gentleman
thoroughly on one point, and I hate to differ with him on the other. I
understand these estates were in the main confiscated and sold by the
State, and that these prices----Mr. D a v i s . I will read from Mr. Alison. After describing the e v il
consequences of the failing o f the assignats, Mr. Alison says (H istory
of Europe, Vol. IV., p. 371, A . D. 1797):
On the other hand the debtors throughout the whole country found themselvea
liberated from their'engagements; the national domains were purchased almost fo r
nothing by the holderB o f government paperj and .the land, infinitely subdivided,
required little o f the expenditure o f capital, and became daily more productive from
the number and energy o f its new cultivators. These vast alterations in the c ir
culation induced social changes more durable in their influence, and far more
important in their final results, than all the political catastrophes o f the Revolu
tion, for they entirely altered, and, too, in a lasting manner, the distribution o f
property, and made a permanent alteration in the form o f government unavoidable
from a total change in the class possessed o f substantial power.

Now, then, i f it is better for a country to have a great many small
estates, which Mr. Jefferson said were “ the most precious part o f the
community,'’ than the larger estates, then the assignats did that .thing.
Mr. W a r n e r . Does my friend say the assignats could possibly
have made a subdivision o f the property o f the landed proprietors,
except by a pryor confiscation o f those lands by the Government^
Does the gentleman believe for a moment, but for -their being con
fiscated by the General Government, they could have been subdivided t
Mr. D a Vis . I claim that the assignats did the subdividing!
Mr. W a r n e r . Did not the French Government confiscate them!
Mr. D a v i s . N o , sir. “ The various revolutionary governments” did
the confiscating. There was no French Government at the time.
■
Mr. W a r n e r . There was no French Government!
31*. D a v i s . I am going according to history, and Mr. Alison says:
“ The various revolutionary governments.”
Mr. W a r n e r . W ell, any government. They confiscated the lands
o f the great proprietors, and sold them out to small proprietors ju st
exactly as they did in the State o f New York after the Revolution.
In Putnam county and other counties in New York, after the Rovolution, that very thing happened.
Mr. D a v i s . I gave you the statement of Mr. Alison. The confisca
tions converted the land into “ public domain.” The assignats sub
divided them into small homes. I am not discussing the subject o f
the various confiscations.
I will proceed to another point, Mr. Chairman. 1 stated, in regard
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to the Treasury note, as being a beuefit which goes forth to the country
to bless the people, because it pays debts and taxes, passes from hand
to band among the meu who earn it. The bank note does not do this.
It goes into the hands of corporations, and it goes forth without value
received by the Government and the people. It costs 4 per cent on
the bonds, and, as we will say 6 per ceut on the note o f the man
who borrows it from the banks. This makes 10 per cent per annum
to keep this bank money floating. It goes into the hands o f cor
porations which have the power o f contraction and inflation, and o f
damaging ns largely. Senator Plumb stated that the damage was
$3,000,000,000 in twelve months. Then Senator Benton says that
when you put this currency into the hands o f a corporation the
Government ceases to be independent, it can neither declare war nor
make peace, nor do any other important thing, without consulting the
neptunes who preside over the ebb and flow o f the currency. Mr.
Garfield, I remember here, thirteen years ago in the House, said that
whoever had control o f the volume o f the currency was the absolute
master of all industry and commerce. That being so, it is very
dangerous to place the money in the hands o f corporations, who can
raise or depress prices without consulting the people. In 1881, there
was what is called “ a bankers’ strike,” like we have now, to compel
President Hayes to veto a bill which they did not like—a refunding
bill. Senator Voorhees made a speech on this subject at the time, just
as during the present bank panic, and even the President of the United
States now says he hopes the Senate will not compel the country to
endare a greater panic than we have already had, and advises that we
must let silver go.
Mr. H a u g e n . Yon advocate the discontinuance o f national-bank
notes. Do you want, arbitrarily, to take up the bonds before they are
duet The bonds that are now outstanding; how would you get rid o f
them f
Mr. D a v i s . The people aud the banks have made a contract. E v
ery contract has two sides. W e have agreed with the banks that they
shall have a charter for twenty years, and, if they have understood
that we will not interfere with those charters prior to that time, then
are not they bound, also, not to stop the issue o f currency during that
tim ef They claim the right to cut loose from the banking system, to
retire their currency, and even their charters, when they choose to do
bo.
Should not the people aud their Government have similar rights!
Mr. H a u g e n . Does any o f your bills provide for this!
Mr. D a v i s . One provides that, i f they voluntarily withdraw their
currency----Mr. W a r n e r . The gentleman knows, o f course, that the withdrawal
is limited by law to $3*000,000 a month T
M r. D a v i s . N o , sir; it is not lim ited at all.

Mr. W a r n e r . May I ask the gentleman a question t I want to get
at this 10 per cent business.
Mr. D a v i s . Ten per cent is very low. In many cases the banks get
12 and 15, and even more by evading the law.
M r. W a r n e r . I understand about the 4 per cent, which is lost as
you claim, and I admit that you are correct upon the facts as claimed
b y you.
Mr. D a v i s . 1 am glad you admit that.
Mr. W a r n e r . N o w you add 6 per cent as the rate at which money

was loaned, and what I wish to get at as this: Ilow would it be
possible, no matter how great the issue o f greenbacks, for gentlemen in
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Kansas or elsewhere to borrow money, even with these greenbacks,
without paying interest for them!
Mr. D a v i s . I will state that this money is not loaned by the Gov
ernment, that is, the greenback money, but is paid out for running
expenses o f the Government and for monetary obligations. I t goes
forth, and if issued as fast as needed in order to keep prices level, our
people do not want to borrow money. The borrowing o f money proves
an abnormal condition o f things. I f we had not been compelled to get
money mostly through the banks, if we had not been compelled to ac
cept falling prices, through currency contraction, we would not have
been in debt.
Mr. J o h n s o n , o f Indiana. Can you conceive o f any condition o f so
ciety iu which there would be no borrowers!
Mr. D a v i s . There were no bonds at tlie time I was born; we had a
very small debt of the old Revolutionary war, and I remember when I
was ten years old it was all paid and the General Government had a
surplus to distribute among the States.
Mr. H a l l . I s it not a fact that the best business men we have in
the States and in the country, as far as that is concerned, are the
largest borrowers ?
Mr. D a v i s . That is.true under an abnormal condition o f things;
under falling prices men must borrow; and, even under level prices,
they borrow temporarily, bnt there are no dangerous mortgages or
long debts. With level or rising prices a man borrows if he sees he
can make something by it, but under falling prices and iu bad times he
has got to borrow or lose liis home.
Mr. W a r n e r . Then I understand the 6 per cent which would be
gained by the people o f this country is simply that they w ill be kept
from debauching in loans to . the extent which now causes them to
obtain loans at the rate o f 6 per cent interest?
Mr. D a v i s . I f you will change the word “ debauch” to the word

“ compel,” I will agree with you.
I want to mention another subject. There is proposed by some an
issue o f State currency. There are several things necessary to keep
any currency good; one is that it must be legal tender; second, it must
be received in the revenues o f the issuing power. Now a State can not
make legal tender paper money, and that is one big cog knocked out
o f the machine. The State government which owes debts payable in
coin can not receive currency in its revenues, because it must receive a
money in which it can pay its debts. So you see it is impossible to
keep this nonlegal currency good.
I am very much pleased, gentlemen, to have had this opportunity o f
stating my views, and I will not now take up your time any longer, only
to say to those gentlemen who have asked me so many interesting ques
tions, that there are also several other members o f Congress who are
seeking information. These important financial questions are worthy
o f the most serious consideration and study.
I am very much obliged to you for this present hearing.

A t the meeting of the committee on Monday, October 9, 1893, the
following occurred:
Mr. W a r n e r : W ith permission o f the committee I will put upon
the record a letter from the editor o f the Engineering and Mining
Journal, Mr. R. P. Rothwell, a well-known authority upon financial
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matters, which bears upon the point alluded to the other day by Mr.
Davis, o f Kansas; that is, the question-as to the extent o f the uncov
ered currency o f the United Kingdom:
,
(T h e Engineering and M in in g Journal, 27 P ark Place, P O. box 1833.]
N k w Y o r k , October 7, 1893.
De W i t t W a r n e r , Esq,,
House o f Representatives, Washinyton, D. C.:
D e a r Si r : In reply to yours o f the 28th ultimo, I beg to say that the figures o f
m y little book were made up by Director ofth e Mint Leech from the Bankers' Mag
azine o f London for September, 1893. On page 473 o f that magazine it appears
that the total note circulation in the United Kingdom in August averaged £41,252,516.
Against this the issue department o f the ISank o f England (see same magazine,
p. 466) held on August 16 £16,630,115, and the Irish and Scotch banks (p. 473)
£7,755,197, making the total amount o f rash held for the redemption o f outstand
in g notes £31,385,312. Deducting this sum from tlie notes outstanding we have for
uncovered notes £9,867,204; in round numbers £10,000,000, or $50,000,000.
Very truly,
R. P. R o t h w k ia .

Jo h n

NATIONAL BANKS— SECURITY OF DEPOSITORS.— ISSUES TO FULL SECURITY VALUE—
ISSUES ON OTHER SECURITY.

STATEMENT OF HON. MICHAEL D. HARTER, A REPRESENTATIVE
FROM THE STATE OF OHIO.
Mr. Chairman aud Gentlemen o f the Committee: I am much obliged
for the courtesy which enables me to occupy a part of your time, and I
shall try to show my appreciation o f it by not being prodigal in its use.
In regard to this general matter o f tlie currency I entertain no peculiar,
and certainly 110 opinion, which ordinarily would be considered among
the general business public as cranky. In fact, I can not say that I
have any ideas on which 1 have any patent right. I think that the
views that I have to express are those which have been crystallized by
the experience o f the world, broadly by the experience of the world.
M y ideas o f money are those o f the commonly received authorities. I
regret that there has ever been such a thing as legal-tender money, and
I think the occasion for it never existed. The best money is that
which by its real merit finds acceptance everywhere. I think the matter
o f contract would be all-sufficient in lieu of all legal tender. Legal
tender, or the forced quality o f legal tender, is a nest o f fraud always.
I have no desire to present a system which will enable the Government
to regulate prices; neither to keep prices high, or to keep them level, or
to keep them low. I consider that is beyond the rights o f any govern
ment. I have taken the liberty o f presenting three bills before the
committee.
The first bill to which I wish to call your attention is number 64, and
that simply goes to the end o f proposing and authorizing the national
banks to put in circulation money up to the par value of their bonds.
I t seems to me the justice and wisdom o f doing this has scarcely
been questioned and I will not occupy your time upon it. There is cer
tainly nothing like original thought in the bill, but I claim for it utility,
safety, and common sense.
Mr. J o h n s o n , o f Indiana. It has been a question that they would
not take the full extent o f the circulation. How would it be in regard
to that!
Mr. H a r t e r . The best answer to that, Mr. Johnson, is that the
plan proposed would add to the profits o f the bank, and if you add any
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thing to their profits they will take it, for they are generally intelligent
men. Y ou know there are some men who are opposed to these national
bankers, who not only say they are intelligent but go further than that
and impute to them a certain rascality, but with this view 1 have no
sympathy whatever.

Mr. J o h n s o n , of Indiana. It is claimed that the profit would not be
such that they would issue the mpney.
Mr. H a r t e r . Let us see. Take a national bank to which this b ill
would give an additional $18,000 circulation at no expense except the
1 per cent per annum tax. I know o f no banker who would not con
sider this an extremely desirable addition to his profit. I do not believe
that there is a bank in the United States that has bonds on deposit
but what would avail itself at once o f the privilege, and the immediate
effect would be to disburse this additional circulation just where i t
was nei*de£.
Mr. J o h n s o n , o f Indiana. W hy are the banks surrendering their
circulation now?
Mr. H a r t e r . Banks are’ surrendering their circulation very natu
rally because it is not profitable. This would make it more profitable.
National banks have a circulation within 10 per cent o f the par value
o f the bonds, and it is not as profitable as it would be at 100 per cent
o f the par value o f the bonds, and by this step I make circulation more
profitable to the banks.
Mr. Cox. Now, it is a well-known fact that there are bankers in the
United States who take their bouds and comply with the law by the
deposit o f bonds and they take out no circulation at all. Does not your
bill leave the whole question to the discretion o f the bankers whether
they will take it out or not f
Mr. H a r t e r . Yes, and o f course that is just where it ought to rest,
too.
Mr. Cox. Not to make an argument, as I do not want to make an
argument with a man on the floor, that being true, the national banks
under your statement with an increased circulation that might perhaps
also increase tlie advantages which national banks now have for the
contraction o f a currency or expanding it at their will *
Mr. B a r t e r . 1 think that the idea that they exercise such a p riv
ilege as that is purely chimerical. I have never been a believer in this
doctrine that the banks were the engineers o f any o f our panics o r
stringencies. I know o f no interest during the last seven months which
suffered so severely as the banks, as the figures showing the liabilities
o f defunct institutions in every line of business indicat#. In other
words, among the failures of the United, States, not speaking by the
book, I should say nearly (iu per cent of them have been confined to
banks. A hundredfold more destruction has therefore resulted to the
banks than their fair proportion, and it seems preposterous to admit or
imagine lor a moment that intelligent men would be the architects o f
the destruction o f their own wealth. I know o f no set of men who eat
so little or sleep so poorly during periods of pauic as the bankers, and
the idea that they conspire to bring about such conditions is more than I
can imagine and more tfoan I am willing to ask others to believe. There
could have been no sane motive for it. The very first effect o f a strin
gency reaches the banks; it renders their means unavailable. You w ill
not find at such times the discounts o f banks as large as under ordinary
circumstances, notwithstanding, the pressure of their dealers and cus
tomers. So anything like panic or stringency in the country acts with
doubled distilled potency upon the banks and bankers, and the theory
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that they combine, or connive to bring about tlieir own wretchedness,
misery, loss, and suffering is certainly chimerical.
Mr. C ox. I have not made that point.
Mr. H a r t e r . I would not have spoken, Mr. Cox, if you had ex
pressed it.
Mr. Cox. 1 want to call the gentleman’s attention to one point. 1
am not discussing the motives o f the banks or bankers. W e know as
a fact that since 1882 tlie banks have retired a large portion o f their
circulation. Now, there was some motive for their doing that.
Mr. H a r t e r . And you would like to have my views as to what that
motive is !
Mr. C ox. I do not care anything about the motives; I am trying to
get the result. They did retire the circulation, and do not you think
that was a serious disaster to this country !
Mr. H a r t e r . I do,
Mr. Cox. I f you increase the circulation and increase the power,
whatever may be the motives for what they have done since 1882,
would not it bring about the same result?
Mr. H a r t e r . In other words, would it be a proper incentive to any
body? I would put a proper incentive before them. I do not regard
banks as different frOm other institutions.
Mr. Cox. Nor do I.
Mr. H a r t e r . I consider the same human feeling o f selfishness and
desire for profit pervades the bank circles as it pervades all others. I
have had dealings with all classes, and 1 find the same kind o f human
nature in each o f them.
Mr. H a l l . I object to the gentleman from Ohio speaking o f people
liviug on farms as Populists.
Mr. H a r t e r . I may be as properly considered a farmer myself as
much as 99 out o f 100 Populists. I f every farmer is a Populist, then I
would have to sail under that banner myself, because I am to an extent
a farmer. But I find this disposition for gain and to take advan
tage o f every proper means for a profit exists in all kinds o f natures,
under all kinds o f names; that it fills every man’s shoes, 110 matter what
bis occupation may be.
Mr. Cox. Now, referring back to the proposition I submitted to you,
if yon increase the power o f the banks to increase the amount iu circu
lation, o f course the object they would have in taking it out is to make
money. That is the only incentive 'that there would be. Now, know
ing what has been the case since 1882, do you propose to increase the
circulation up to the par value o f the bonds and then not put any
restriction or any compulsion on the banks in any shape to compel them
to keep up any amount in circulation ?
Mr. H a r t e r . I certainly do. I am not one o f those people who pro
pose to put everybody into a straight jacket by law. In fact I take an
opposite view o f the case. I would take away every law which we
could do without and control people as little as possible, and I would
put a legitimate motive before citizens or corporations which would
lead and direct their course rather than compulsion by law. I am
not a believer in much law; I am a believer iu little law. I would
let the Populists do without law as much as possible, and 1 would let
everybody do without law as much as possible. I would not put a
sentence o f law in the statute books, except where it was absolutely
necessary, and government, I believe, would be more efficient and
purer i f that was the rule.
Mr. W a r n e r . Before you get off that point.

I understand the

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gentleman has explained that in his view there would probably be an
increase o f currency to the extent o f one-ninth f
Mr. H a r t e r . A positive increase.
M r. W a r n e r . D o I u n d ersta n d th e g e n tle m a n to u rg e h is b ill m o s t ly
upon th a t gro u n d , o r ra th e r upou a n y e x p e c ta tio n th a t th e m easu re h e
p rop oses w ill b e p ro d u c tiv e o f a g r e a te r in crea se th an t h a t !
Mr. H a r t e r . I am coming to that, and I thank you for tlie sugges

tion. In speaking as I did, I only spoke o f the positive increase. Now,
I come to a point largely suggested by my friend Mr. Warner, and that
is the negative increase. The profit on circulation equal to the par
value o f bonds is much greater than it is now. You will have not only
the increased circulation upon the bonds already deposited, but upon
all that may hereafter be deposited; therefore you see you have made
the deposit of more bonds profitable. Banks will buy further securities
upon which to take out circulation. The advantage to the banks is so
obvious that there can be no reasonable doubt bat. they would take out,
practically without exception, at least the additional circulation on the
bonds whicli are already deposited, amounting to say $20,000,000, and
it would be distributed just where it is wanted in all parts o f the country.
Twenty million dollars distributed, all the banks would be far more
effective for the purposes o f business than 820,000,000 dumped into* any
central market, whether it be San Francisco, Chicago, New York, or
elsewhere, because from that central market it would take weeks and
months to get it into channels where it would do the most good.
Whereas under this law the new money will go where it is needed
and where it is most useful. The negative advantage is also very
great. Every bank with a large deposit 011 which it pays no interest;
nearly every bank in the country indeed would be inclined to buy addi
tional Government bonds and get out circulation, because it would then
become profitable.
Now as to the point that the banks since 1882 have reduced their
circulation. That is a pure matter o f business, and not o f conspiracy.
I t has been the individual work o f each banking institution, not by
connivance with others. A bank finding Government bonds bearing 4
per cent interest sold as high as 130 and, knowing that when bought at
130 and held until 1907 it would lose the 30 per cent and that mean
while the bonds pay but 4 per cent, and that upon the par value
only and not upon the market value, aud as the bank can get but 90
per cent circulation it knows that it can employ its money more
profitably in direct loans, and therefore banks have had an inclination
to withdraw bonds they had on deposit, aud in many cases they
brought down the quantity of bonds so deposited to the lowest amouut
that they were allowed.
M r. H a l l . I am , up to th e p re s e n t a g a in s t y o u r p ro p o s itio n , a n d I
w a n t to g e t a r ig h t id e a o f it, an d I w a n t you to m a k e i t c le a r t o m e
w h y i t is th a t, i f y o u a llo w th e a d d itio n a l 10 p e r c e n t to b e issued,,
t h a t w ill b e an in d u cem en t t o th e b a n k s to ta k e o u t th a t a d d itio n a l
c u rren cy.
Mr. H a r t e r . Suppose we get at this thing in a practical manner.

I now suppose a case where he and I own a national bank,, having a
capital o f $100,000 and some surplus, and say we had on deposit with
the United States Government $100,000, at par, o f Government bonds
drawing 4 per cent interest. Now, upon that we would receive
$90,000 circulation. The fact we had those bonds on deposit and the
fact that we had taken out that circulation is presumptive evidence
that you and I as owners o f that bank, up to this time, were doing
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wisely. Now, under this law, without the expenditure of another
dollar, without the investment o f another penny o f our assets, we would
be able to take out $10,000 additional circulation. You would come to
me and say, “ Mr. Harter, whatare we getting for money!” Now, while
we may not be getting the rates my friend from Kansas mentions----Mr. D a v i s . Sometimes they gee as high as 30 per cent.
Mr. H a r t e r . I suppose those are Populists who lend money at 36
per cent f
M r. D a v i s . T h e r e a re n o n e o f th em in th e banks.
M r. H a r t e r . I did not suppose a national bank would be apt to get
36 per cent, even in Kansas.
Mr. D a v i s . They tell me so; I never paid it.

Mr. H a r t e r . I f that is so, I think the watchfulness o f the leaders
of the Populist party ought to be confined more closely at home, and
after they have corrected the evils at home (and 36 per cent interest isa crying evil) they could better correct those abroad, on the principle
that after havihg disposed o f the beam in their own eye they could
more easily remove the motes in the eyes o f others.
Mr. D a v i s . W e have done that in Kansas, aud now we have come
to Congress to do it.
Mr. H a r t e r . But let us return to the illustration. You would say,.
“ Mr. Harter, I discovered by a law passed the other day, which was.
signed by the President, that we are entitled to take out $10,000 addi
tional circulation; ought not we to do it?” And I say, “ Let us seewhat effect it would have upon our profit for a year. Ten per cent cir
culation would give us $10,000.” I say, “ W e could not, under the law,
lend all o f that, but we can lend $8,300.” Ten per cent (the Kansas
rate) on $8,500 would bring our bank $850 a year net profit, absolutely
with no expense to us.
Mr. H a u g e n . There is the expense o f the tax on this additional
circulation!
Mr. H a r t e r . That is $85.
Mr. H a l l . I t would be $100, as it would be 1 per cent ou the $10,000..
Mr. H a r t e r . Y ou are right. So we have $850; and, taking $100
from that, would leave us $750, which wonld be absolutely net profit
to be divided between you and me jointly and equally, which would
not be possible, o f course, under the present law.

Mr. Cox. Most every banker has gone through that reasoning time
and time again.
Mr. H a r t e r . Yes, sir.
Mr. Cox. Let me call your attention to this. O f course, we started
npon the point that there must be an inducement to take out circula
tion; that is the only method. I f you have this issue increased in that
way it would naturally advance the price o f the bonds.
M r. H

arter

. A little .

Mr. Cox. Aud it Is impossible to prevent it. Now, we know as a
matter o f experience that the reasons that the banks retired their cir
culation so much was the bonds got to such a high price that when
they sold at 130 the bankers made more money by withdrawing the
bonds than by keeping up the circulation.
Mr. H a r t e r . N ow , I may with proper courtesy answer my friend’s
question!

Mr. Cox. Certainly.
Mr. H a r t e r . When he assumes that the price o f bonds would
advance he answers himself, because the advance in price would be
owing to the fact that more bonds were being bought for deposit.
84°----- 7
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M r. H a l l . B u t w o u ld n o t th a t v e r y a d v a n c e p r e v e n t th e ir t a k in g
■out c irc u la tio n th e w a y i t d oes n ow ?
Mr. H a l l . W e have evidence here from the president o f one o f the

largest banks west o f the Allegheuies— President Gage, o f Chicago—
in which he says that his bank has not taken out a dollar’ s circulatiou.
Mr. H a r t e r . That bank is a notable exception and it is one o f the
greatest banks in existence, and it enjoys advantages which are uncom
mon among banks. It has a perfectly enormous deposit without any
interest, and circulation is o f no consequence to such a bank; but such
banks are exceptions.
Mr. H a l l . I have been informed that the same is true o f live o f the
largest banks iu New York.
M r. H a r t e r . T h e y a re also e x c e p tio n s , and w e m u st n o t j u d g e
b u sin ess b y e x c e p tio n s ; an e x c e p tio n u s u a lly p r o v e s a ru le.
Mr. S p e r r y . I would like to call your attention to the fact—it is

assumed that these banks deposit bonds to the full amount o f th e
capital.
M r. H

arter

. O h , no.

. Mr. S p e r r y . They deposit the minimum amount which the law allows
them to deposit under the national bank act?
Mr. H a r t e r . There are some things to account for this. It is some
thing to say, for a banker like Mr. Gage—it is a pleasant thing perhaps
to him to be able to say that his bank has no circulation aud that it
<does not care for it. But there are not many banks like his bank. I
am not proposing a compulsory measure, but I am doing that which I
believe is far better. I present to the bankers o f this country an oppor
tunity for an additional profit without any additional investment.
Mr. Cox. Now, 1 want to call your attention to this, for 1 am greatly
interested in this bill. You propose to issue dollar for dollar upon th e
par value of the bonds?
Mr. H a r t e r . Yes, sir.
Mr. Cox. You put that in the hands o f a corporation, and it goes to
work with that money ?
Mr. H a r t e b . Yes, sir.
Mr. Cox. Now, then, you turn around, and after you have done th a t
and given dollar for dollar tor the bonds and tax the people o f th e
United States 4 per cent in order to pay those identical bonds that th e y
have, let me ask you now, as between man and man, and as a legislator,
if that is right ?
M r. H a r t e r . 1 th in k th e gen tlem a n is m ista k en in his v ie w o f t h i s
m a tte r. T h e s e b on d s a re a lr e a d y in e x isten ce.

Mr. Cox. There is only one tax on the banks and that is charged u p
-on every man’s bank books as part of the expenses, 1 per cent; but I
ask you as a legislator, would you provide a system that gives a banker
dollar for dollar on his bond to loan to people at such a rate o f interest
as rules, and they pay for it according to what it is worth; now, w h a t
right then, when they do that, have you to turn around under your sys
tem o f taxation and make them pay 4 per cent more on that same
identical bond?
The C h a i r m a n . Allow me to suggest the additional question, as t o
whether the same principle would apply i f you allow the State banks t o
issue circulation upon State bonds and get interest on the State bonds,
and also from the people. Do you think that is right, or not?
Mr. H a r t e r . I think it is, but I think the whole situation as stated b y
-ny friend Mr. Cox is a fallacious one.

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Mr. Cox. Tlie chairman's question seems to be a part o f your argu
ment, and that is what it was intended for.
The C h a i r m a n . I simply desired to have that go along with your
question.
Mr. H a r t e r . I will not incorporate it as a part o f my argument, but
it is proper that 1 should take the opportuuity which is given to make
use of it, and I*know that nobody would be more willing 1 should than
Mr. Cox. Bat the point is this: Yoar question is stated in this way:
“ Would you have the Government issue bonds expressly for this purpose
upon which it should pay 4 per ceut interest; would you have the
Government go into debt to pay interest for the purpose o f providing
security for these notes?” I should answer no, sir. But we must" take
the situation as we find it. These bonds are in existence. The Gov
ernment is compelled to pay the interest upon them whether in the
hands of private holders or not, so there is no loss o f interest to the
people, there is no heavier burden upon the taxpayer because these are
deposited by banks, and therefore there is no room for the question Mr.
Cox has asked me. There is no tax put upon tbe country because a bank
buys bonds in the open market and then deposits and gets circulation
upon them. They are in existence now and the Government is obliged
to pay interest upon them, and it makes no difference to the Govern
ment or the taxpayer whether that interest goes into the hands o f a
bank or to a private holder. The national-bank system puts no burden
upon the people and it is a mistake, it seems to me, to urge that view.
I certainly would be willing that any national bank in the United
States should buy in tlie open market existing Government bonds and
deposit them as security for circulation.
Mr. Cox. Now, right at that point, 1 understand that worked very
well. Suppose you take your bonds and deposit them with the Gov
ernment o f the United States and you get issues on that bond dollar
for dollar of its par value. The tax upon the circulation is not paid by
the bank— every man understands that— it is a part o f the expenses o f
the bank, and that is 1 per cent. Now, suppose you take the bond and
get dollar for dollar o f the par value and you repeal that 1 per cent tax
on the circulation and you have got no use for the 5 per ceut, assuming
you admit that. Now, then, if you get that money dollar tor dollar,
clear o f all expense, clear of any cost, what can be unfair in that proposi
tion to you and which would relieve the people; you get the very thing
you are trying to get, an increased circulation, and at the same time
yon reduce the tax that has to be paid on the bonds!
Mr. I I a r t e r . I believe the gentleman is now alluding to the John
son bill?
Mi'. Cox. W hat would be the harm in that?
Mr. H a r t e r . I confess I have no objection whatever to the Johnson
bill. I think his bill is very wholesome legislation, but his bill in no
w ay interferes with the measure we are now talking about. They may
w ell go hand in hand; and the passage o f the Johnson bill wonld be
no objection to the passage o f this bill; but 1 would like to answer the
question o f the chairman also. I can see no injustice if State banks
were authorized to issue notes after depositing adequate securities, and
i f it should be done I see no injustice whatever in the State banks
receiving interest on these securities they deposit. I have another bill
which I am about to present, in which I endeavor to provide circulation
without collateral security, which would do away with this entire ques
tion Mr. Cox has just raised.
M r. W

arner

. I s i t n o t a fa c t, in a d d itio n to w h a te v e r fo r c e th e re

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BANKING AND CURRENCY.

may be in the answer o f the geutlemau from Tennessee, that the p a y
ment o f 4 per cent interest upon tlie bonds is not a particular hardship
caused by the banking system or any burdeu upon the people caused,
by the banking system ? Is it not a fact that the people have actually
been relieved from a large portion o f taxes which they otherwise
would have had to pay on account o f the fact that t»he demand fo r
these bonds for baukiug purposes has beeu largely instrumental iu
reducing the rate of interest the Government has had to pay— from 7.3
per cent down to 3 per cent?
Mr. H a r t e r . In reply to the gentleman I will say he is quite righ t,
and I am obliged to him for the suggestion, which adds a great deal to
the force o f what I have said.
Mr. J o h n s o n , of Indiana. Repealing the 1 per cent tax on nationalbank circulation would be an additional incentive to get the money j
you would not advise that, however?
Mr. H a r t e r . You would intrench upon the rights o f the people and
inject a real element o f injustice in place o f the imaginary one whicli
has been suggested here to-day. In other words, I think the tax o f 1
per cent is a very moderate and a very fair tax iudeed upon bank-note
circulation, and I do not think it ought to be decreased, especially at
a time when the revenues o f t i e United States are decreasing and its
expenses are increasing, and when we are face to face, as everybody
knows who looked at the last quarterly return of the Government o i‘
the United States, with a great deficiency whicli must be met by the
issue o f bonds bearing interest.
Mr. H a l l . W as it not expressly asserted and understood at the time
when the tax o f 1 per cent was put on the circulation that it was for
the purpose of meeting expenses incident to the issuance of the circula
tion, and will not one-half or one-quarter of 1 per cent pay all those
expenses and leave a surplus?
Mr. H a r t e r . I can not; answer positively whether that was the
statement or not, but certainly it was not in the nature o f a contract,
and it is equally certain that the present time is not one when the Gov
ernment can afford to be generous to corporations which are in profit
able existence and whose profits depend somewhat upon the advan
tages they secure through the incorporation given them by the United
States Government. I f the Treasury was overflowing with money I
should say it would be quite right to reduce the tax, and my ltiend,
Mr. Davis, might have more money circulating in the United States,
but under the present condition o f affairs I would not favor any reduc
tion in the tax on national-bank circulation.
Mr. S p e r r y . Y o u think it would give a demand for them if it was
adopted ?
Mr. H a r t e r . Because I think the profit under a system like thia
would be very considerable on circulation, and the law is not compul
sory, and the banks would not be required to take out the extreme
amount of circulation unless they chose to do, but if they so chose it
would be evident that the banks considered it was profitable to them
to take oat the circulation and pay the tax, just, for instance, as the
producer o f whisky at Peoria regards it as a profitable enterprise to
make whisky and pay 90 cents a gallon tax upon it.
Mr. J o h n s o n , o f Indiana. You admit the only way to accomplish
this is to make it profitable ?
Mr. H a r t e r . Yes, and this will make it so I think. I think also,
rather than to work upon any new theory either you or I might develop
here, it is better to make as little change in existing laws as possible.
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The laws are very good and they have been working very satisfactorily
until recently, therefore, it seems to me, the chauges ought to be small
and moderate in amonnt and extent and they ought to be made slowly.
If, however, this should not be effective in increasing the circulation
under the 1 per cent tax, then it might be wise to reduce that tax.
Mr. S p e r r y . In your judgment i f you relieve the bank tax the effect
would be to inure to the beneiit of the banks!
Mr. H a r t e r . Instantly, yes, sir; to the benefit o f the banks.
Mr. S p e r r y . You agree with Mr. Cox that the people pay the ta x !
Mr. H a r t e r . I think all taxes are distributed. Where you levy a
tax, i f it is on real estate, it is the renter who finally pays it; ifon capi
tal, the borrower pays; but it seems to me the banker has the feeling
that he gives it, and that he gets the whole benefit o f it, and he is very
anxious, as you must have observed, to have the tax taken off.
Mr. S p e r r y . Mr. Cox’s suggestion is that the burden falls upon the
people; do you agree with that?
Air. H a r t e r . A ll burdens finally rest upon the people, who get the
favors of tlie banks by being borrowers. You can not change that by
law.
Mr. S p e r r y . I f Mr. Cox’s theory is true it will benefit the people to
have the tax off by reducing interest on the money loaned ?
Mr. H a r t e r . It would benefit them infinitesimally, and very iudirectly, bnt it would be a direct and large disadvantage to the General
Government. A s a matter o f economy in the long run, I am certain it
w ill be wise and well to keep the tax of 1 per cent circulation.
The C h a i r m a n . Did I understand you to say you «favored taking
o ff the 10 per cent tax on the circulation o f State banks?
Mr. H a r t e r . Under proper conditions I favor it, but without what
seems to me to be proper conditions I should not.
Tlie C h a i r m a n . Would you under equal conditions say the circu
lation should be taxed 1 per cent, the same as national banks ?
Mr. H a r t e r . They certainly should be taxed to the same extent as
the national banks. I would not legislate to give disadvantages to
State banks or give them circulation tinder more favorable conditions
tlian national banks get it on.
The C h a i r m a n . W ith proper regulations you are in favor o f the
reduction o f the 10 per cent to 1 per cent ?
Mr. H a r t e r . I certainly am.
Mr. W a r n e r . You consider it entirely practicable?
Mr. H a r t e r . Thoroughly so.
Mr. B l a c k . Do not you think it is in the Democratic platform ?
Mr. H a r t e r . I have interpreted that to mean that we would take an
excessive and unreasonable tax off o f State banks by reducing it to a
fa ir and equitable tax, and that----Mr. H a l l . You recollect those words in the platform?
Mr. W a r n e r . You would take off tlie prohibitory tax?
Mr. H a r t e r . Yes; it is fair to assume that our party, indeed, that
a ll o f us, have some common sense left in us, and it is not to be supposed
th at the national Democratic platform proposes to authorize the issuing
o f unsecured paper by State banks.
Th e C h a i r m a n . I believe you said there was another bill that you had ?
M r. H a r t e r . Yes, and I now come to House bill No. 62, and this I
consider one of the most important bills, in a business sense, and a
hum an sense as well, that has ever been presented to the House, and I
d o not think I can claim anything like entire originality for it either.
I t is a bill in the nature of an insurance policy for the depositor and
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stockholder. I t is a bill providing that under no circumstances shall
an officer or an employ^ o f any national bank be permitted to borrow
any money whatever from the bank he is connected with;but it does
not prevent a director o f a bank, whose sole connection is that o f a
stockholder and a director, from borrowing money, nor does it pre
vent au officer or employe o f one national bank from borrowing
from other national banks all the money he can get.
Mr. Cox. Has your attention been called to the bill that has been
reported by this committee?
Mr. H a r t e r . Yes, sir.
Mr. Cox. You remember this same bill o f yours was under considera
tion and there was a bill formulated by the committee and report<*l t o
the last House!
Mr. H a r t e r . I say in response to that, Mr. Cox, I think the b ill
reported is a good bill, and I am oue of those meu who are willing t o
take less when he can not get the whole, and I believe your bill is iu
the right direction, and I am very confident that the result will show
it to be so. Your bill will be a wedge which will ultimately secure th e
passage o f such a bill as this o f mine, and I shall vote for your b ill
with a great deal o f pleasure.
Mr. H a u g e n . Wherein does your bill differ from the bill reported b y
this committee?
Mr. H a r t e r . It does in this particular, that under no circumstances
does it permit an officer or an employe of a bank, directly or indirectly,
by overdraft, discount, or loan, to borrow anything from the bank he is
connected with.* It makes him absolutely a trustee for the capital and
deposits of that bank.
Mr. H a l l . Mr. Cox’s permits no borrowing except by a vote o f th e
directors?
M r. H a r t e r . N o.
Mr. H a l l . Yours allows the directors to borrow?
M r. H a u t e r . J u s t as n ow .
Mr. H a l l . In that regard, your bill is looser than Mr. Cox’s b ill!
The C i i a i r m a n . Mr. Cox’s bill does not refer to the directors at all.

Mr. Cox. I beg your pardon. When you get your mind on the prop
osition you will find 110 trouble with this bill. The bill in the House
which was reported by this committee prohibits the directors, presi
dent, vice-president, and employes o f any character in the bank from
borrowing any o f the assets o f the bank except in a certain way----M r. H a r t e r . By giving due publicity, I believe.
Mr. Cox (continuing). And it must be kept as a part of the minutes?
and in addition to that there is another restriction upon them, that it
is made upon the reports called for by the Comptroller o f the Currencyshowing the liability o f everyone in any capacity whatever who is
connected with the bank, though that report is not made public for
reasons very obvious. Now, let me give you the reasons why the bill
was made so it would be stringent, but not absolutely prohibitive.
You take tlie rural district, take my own country, where our banks
hardly ever exceed $100,000. You can not organize a bank with such
stringent restrictions. There are very few men who have got the
money to go into it. Aud if you say to them that they are absolutely
restricted and can not borrow money out o f the banks, that just leads
the officers into another bank. That is the result and that was the
reason last Congress that we qualified your bill to that extent, so as to
facilitate, if possible, the organization of banks in the rural country
with small capital, so that the directors and president or vice-president
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conld borrow money under such conditions as I have stated to encour
age banking in that way. Now, when you come to the proposition o f
overdrafts, this bill that is iu the House absolutely prohibits it because
there was 110 way to get at that only to cut it off. Now, I think if you
will take your bill, i f I had your bill before me, and examine it care
fully with the bill before the last Congress and then take into your
mind the scope of country which it is intended to cover— the agricul
tural aud rural country— I think you would see that we have gone
p retty nearly as far as we can in that direction.
M r. H a r t e r . W hile I can not .say I am entirely con verted to the
view expressed by Mr. Cox, I can s»y, with the utmost heartiuess o f
this measure that it is a wholesome one, a long step iu the right direc
tion. A s a member o f the House I will vote with great cheerfulness
for th at bill.
Mr. Cox. This bill iu the last House was submitted to the Comp
troller o f the Currency, who made an examination of it very carefully
and it met with his approval, and I have not had time to submit it to.
the present Comptroller of the Currency, but I am sure that no one.
w ill object to that bill when he understands it.
Thereupon the committee, with the understanding that Mr. H arter
should continue his remarks at the next meeting, rose to meet on?
Thursday, October 5, at 10 a. m.

C o m m it t e e

B a n k in g

and

Currency,

Washington, D. C., Thursday, October 5, 1893.
The committee met at 10 a. m., Hon. William M. Springer in thechair.
FURTHER STATEMENT OF HON. MICHAEL D. HARTER. A REPRE
SENTATIVE IN CONGRESS FROM THE STATE OF OHIO.
Mr. H a r t e r . Mr. Chairman and gentlemen of the committee: I
believe, with your consent, 1 will ask to have the hearing 011 House bill
No. 66 begun de noro, from the fact that 1 think i f there are fewer inter
ruptions during my main statement, I can make it both briefer and
clearer.
The C h a i r m a n . The notes taken in reference to the bill will be
erased, and you may start de novo.
Mr. H a r t e r . I wish to say that I will be glad to answer auy ques
tions which my statement may call forth. The object of this bill is to
perpetuate and extend the usefulness o f the national-bank system,,
not to curtail it in any way, and to do this in a safe manner by making
just as lew changes iu the existing law as possible, it has been my.
effort to have these changes so clearly stated that their effects can be
followed readily and therefore the consequences o f the adoption o f this
bill will be foreseen from the start.
Clearly, I think, unless the Government is to increase its bonded
indebtedness, the limit o f circulation o f the uational-banks has been,
if not reached, nearly so. A s the country goes on developing, it would
seem to an impartial observer that it wonld be a great misfortune to
abridge the system, certainly it would be in the mind o f a man who
considers the system to have been safe and useful. Owing to its wide
dissemination through. the country aud the dependence upon it o f

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nearly every interest, the curtailment or the abolition of it would be
one o f the most stupendous disasters that could occnr to this country.
A n y prudeut man who cares to look at these questions from the stand
point of the general welfare will, I thiuk, be glad to recognize the
usefulness o f this system and be anxious to perpetuate and extend i t
The aim o f this bill is to provide a means by which the circulating
notes o f national banks will always be thoroughly secured and safe,
so that they will have the confidence o f the people and continue to be
regarded as they have been regarded during the last thirty years. In
doing this an attempt has been made, as will be seen, to protect the
Government amply and at the same time to put no unreasonable bur
den upon the banks. I believe the efforts to make the system more
profitable to the banks, and therefore more attractive to capital, with
out being in any respect burdensome to the people, can be accomplished.
The first section o f the bill provides for doing away with collateral
security in the shape o f United States bonds for the circulation o f notes
o f national banks, and authorizes banking associations having such
collateral bonds on deposit to remove them from the custody o f the
Government.
Section 2 presents a security which it is proposed to substitute for
the collateral security, and this security is a first lien upon all assets
o f every national bank association.
Section 3 proposes to insure the Government absolutely from any loss
•by adding another kind o f security, which is the power to make assess
ments upon the other national banks iu any given State iu which delin
quent banks may be located, to make up any deficiency in the security
which the Government receives under section 2. You will observe that it
is arranged that those assessments shall be equitable, being based on the
capital aud surplus of the banks located in the State in which the delin
quent bank had been doing business. It is very clear that section 3
protects the Government absolutely and perfectly from any possible
loss growing out of the substitution of the security described in section
2 for the security which the Government now receives from the banks
in the shape of United States bonds. A clause should be added to the
bill as a part o f section 2 clearly making the United States responsible
for the redemption o f national bank notes issued under it, which I have
in the draft before you overlooked.
To a practical man the first question arising would be this, I think:
Had the provisions of this law prevailed since 1863, or during the whole
of the last thirty years, what would have been the result to the Uni tod
States, and what would have been the effect upon the bauks themselves
growing out o f this change in the method o f securing the circulation
o f their notes ? I answer that a first lien upon the assets o f the banks,
as provided for in section 2, would have supplied the Government with
the funds to make it whole for its full and prompt redemption o f all
national bank notes, less an aggregate sum o f not more than one mil
lion and a half dollars. This deficiency, covering a period o f thirty
years, would, under the terms of this bill, have to be made up o f assess
ments upon the banks, which is provided for in section 3. An assess
ment amounting to about one-sixth of 1 mill per annum upon the capital
stock o f the national banks in existence during this period would have
made up this deficiency to the Government. It is easy to see that an
assessment of this size is so infinitesimal as not to give rise to any crit
icism or to be open to objection on the part o f stockolders in these
institutions.
The C h a i r m a n . W ill you explain whether there might not be a

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greater liability o f loss i f the bonds o f the United States were not put
up as collateral?
Mr. H a r t e r . I think probably that there would have been a some
what greater liability to loss, bnt, in view o f probable legislation, which
will rednce the power o f the officers o f national banks to borrow the
funds of the banks over which they have charge, and the fact that my
bill in section 4 provides that the aggregate circulation, secured iu the
manner proposed by the bill, shall not exceed 75 per cent o f the amount
of the paid in and unimpaired cash capital o f each bank, I think that
losses would not be as large in the coming thirty years, with the cir
culation secured in this manner, as they have been during the past
thirty years o f operation o f the banks under the existing law. It
might |K)8sibly be contended that in giving the Government a first lien
upon the assets o f national banks as its security wonld iujure to some
extent the interests o f depositors, but this objection 1 think disappears
when you remember that under the present system the Government
already has a preferred lien upon every bank in' the shape o f United
States bonds deposited as collateral security for the circulating notes.
Directly replying, sir, to your question, i think there would be no
possible loss to the Government.
The C h a i r m a n . The Government has never been compelled to assert
its lien, owing to the fact that the bonds have always been sufficient.
Mr. H a r t e r . The bonds being a portion o f the assets o f each bank,
the result is finally the same, that the Government has a preferred lien
npon the assets of each bank to secure its circulation.
The C h a i r m a n . Not upon the assets as represented by the deposits,
but npon the assets as represented upon the capital stock, which is
merged into the bonds.
Mr. H a r t e r . The lien would be of the same general nature. The
bond lien o f the Government is a first lieu upon the total assets, no
matter what they may consist of. Under this law a lien o f the Gov
ernment would be a first lien upon the assets of the bank, and while it
might be said there is a distinction, there is really no difference, and
that, so far as stockholders or depositors are concerned, it makes no
difference whether the United States is secured by bonds or in the
manner the bill under consideration proposes.
The C h a i r m a n . Not unless it should be dissipated by losses or be
stolen.
Mr. H a r t e r . I think also the fact that under section 3 each bank
wonld have a tolerably direct interest in the control and management
of the other banks in the State would be wholesome, and would result
from tlie passage o f a bill like this.
During the last thirty years the Government has received in taxes
on tlig national bank note circulation about $72,000,000; and even with
the omission o f section 3— a section which, however, I think is very
necessary to the completeness o f the bill and just to the banks, as well
as necessary for the full protection o f the Government— the Govern
ment losses, as already stated, would have amounted to only a million
and a half dollars, leaving the net profit to the Government in the shape
of taxes on circulation o f the banks during this period about $70,000,000.
The C h a i r m a n . You do not take into consideration the cost o f print
ing!
Mr. H a r t e r . From which, o f course, would have to be deducted the
cost of the printing o f the bills and the administration o f the comp
troller’s office. The expenses attending these items I have somewhere
among my papers, but I have not had time to look them up, nor do I
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thiuk it is necessary, for I can say the total o f such expenses is but a
small part indeed o f the sum which the Government has received from
the taxation on the circulating notes o f the banks. Under a bill like
this, which would give a reasonable opportunity for the iucrease o f
national bank capital and which would almost certainly result in a
large average increase in the amount o f circulation issued by each bank,
it is certain that the receipts o f the Government from the taxation on
national bank circulation would greatly increase iu future. It will be
seen, I think, that the circulation granted upon these terms to national
banks would be more profitable to the banks than the circulation they
have received from the Government under the present law when the
price o f United States bonds and the rate o f interest received upon
them are taken into consideration.
Another great advantage to the people o f the country, and to the
business interests o f the country, in the continuation o f a system like
this, would be the practical increase o f available bank capital in the
United States. I will endeavor to make this clear as it appears to m y
mind.
M r. W a r n e r . D o yo u m ean as a b asis fo r c u rre n c y ?
M r. H a r t e r . I m ean a s a b a sis fo r loan s to th e p u b lic.
Mr. J o h n s o n , of Indiana. For all banking purposes?
Mr. H a r t e r . For all banking purposes. For the purpose

o f illus
trating this feature in a general way, and avoiding unnecessaiy frac
tional sums, we will suppose that a national bank is now in existence
having a capital stock o f $100,000 and a surplus fund o f $15,000. W e
will now suppose that this $11.1,000 is invested in United States bonds,
aud that this sum has enabled the bank to place iu the Treasury o f the
United States, through the office of the Comptroller o f the Currency,
$100,000 at par in 4 per cent bonds o f the United States, and that the
bank has received $90,000 of circulating notes. Let us snppose that
this bank has no individual deposit whatever, and chat its total assets
are represented by the figures just stated. Let us see, under this state
o f affairs, what service, in the way o f accommodation to borrowers, this
bank could render to the community in which it is located.
The present law, I think wisely, requires that at least 15 per cent o f
the liability o f a bank— whether such liability be caused by cumulating
notes or its deposit account—shall be held by the bank as a reserve.
This would require that the bank should keep on hand, out o f the
$90,000 o f circulating notes received from the Comptroller, the sum o f
$13,500. This would leave available for loans upon the part o f the
bank the sum o f $70,500. Now let us see what amount o f accommo
dation to the community in which it was located a bank could extend,
i f its circulation was secured under the provisions o f the bill we are
now considering.
In the first place, its $115,000 of capital and surplus could be loaned
out, as there is nothing in the law, and there should be nothing,
requiring any reserve to be held agaiust the capital and surplus.
Mr. H a r t e r . The bauk will start then with an ability to loan
$115,000, and the bill provides that a bank under these circumstances
would be entitled to $75,000 o f circulating notes, and under the law it
would be necessary to hold a reserve o f 15 per cent against this
$75,000 liability.
This reserve would amount to $11,250. Take this sum from $75,000,
the amount o f the circulating notes received, and it would leave
$63,750 which the bank would be authorized to employ in discount.
By adding this $63,750 to the $115,000 already referred to, we find
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that the bank would have power to accommodate the community
depending upon it for loans to the extent of $178,750, instead o f hav
ing the power to loan only $76,500; so that under this bill the national
bank capital of the United States would be practically doubled.
In section 4 an emergency circulation is provided for. The security
for this, it will be noticed, is made the same as the existing collateral
security provided for by the law now in force. This circulation is
intended to meet a sudden and desperate commercial condition in the
country—such a state, in other words, as we have been going through
for seven months, more or less, in the United States. This circulation,
as the bill describes it, is not intended to be o f a permanent character,
but to operate as a kind of safety valve, and would be elastic in its char
acter, providing this very necessary element at a time when, under our
present system, it is always wantiug. It provided a bridge, it seems
to me, over every dangerous crisis likely to occur, financially speaking,
in the future history o f the country. You will observe that the tax upon
this emergency circulation, instead o f beiug the ordinary tax o f 1 per
cent, is fixed at the enormous rate o f 6 per cent. The object in fixing
so high a rate is to cause the prompt withdrawal o f this emergency cir
culation as soon as the necessity for it ceased. One o f the misfortunes
of the ordinary way of meeting commercial panics and financial crises
in this country has been that the cure has been, iu its results, almost,
if not quite, as bad as the disease. The locking up o f money (caused in
the main by the timidity o f those who held it, and rarely, perhaps never,
by organized banking institutions) under panicy circumstances has
always and largely reduced the supply o f current money in the country.
Section 4 o f the bill would meet this condition, and upon the return
into general circulation o f the ordinary currency o f the country so locked
up, the emergency circulation provided by the bill would be promptly
retired. I think it would be a calamity in the future, as it has been in
the past, to allow all emergency money, thus called into existence by
dangers o f a temporary character, to remain iu circulation, producing^
a redundancy, after the crisis is over; for, considered in connection with
the business interests o f the country, immediately succeeding a period
of panic, it would probably, in its consequences, be only swond in injury
to the real business interests o f the country o f the panic or condition of
the crises itself.
Section 5 is the usual section which provides for the repealing o f such
portions of the law as would be in conflict with the toil I under discussion.
I have stated briefly, and as clearly as I can on the spur o f the moment,
the objects o f the bill, and the manuer in which these objects would be
carried out i f the bill became law. I am conscious that in doing so I
have overlooked, perhaps, some features o f interest, and have probably
disregarded some of the apparent objections, at least, that may have
arisen in your minds, and if you desire to ask me any questions in con
nection with the bill to the extent that I am able to answer, I will do so
with great pleasure.
Mr. J o h n s o n , of Indiana. Under the existing law each bank is
responsible only for its own administration.
Mr. H a b t b r . Yes, sir.
Mr. J o h n s o n , of Indiana. And under your system the banks in a
given area are made responsible for the proper administration of each
one of the banks in that territory?
Mr. H a b t e b . T o a very limited extent.
Mr. J o h n s o n , o f Indiana. That would be a drawback to banking?
Mr. H a b t e b . I would have to answer that by saying that people
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who expect to go into the business would consider the extent to which
that would be a drawback, aud in considering that, they would prob
ably do as 1 have endeavored to do in my argument before you this
morning— ascertain from the experience o f the past what would prob
ably be the liability that would be incurred in future under this law;
and this, as I have already stated, would be infinitesimally small.
Mr. J o h n s o n , o f Indiana. But you must remember that under the
past condition o f affairs it has been found impossible that there should
be a deficit, owing to the fact that Government bonds were up as
security.
Mr. H a r t u r . I am aware o f that; but I wish to say this: The num
ber o f banks can easily be reduced, very much indeed. In fact, I think
the word “ enormously” is proper, under the circumstances, especially
if, as seems probable, the bill reported by your committee, which limits
the power o f the officers o f national banks iu borrowing npon their
own accounts, directly or indirectly, from the funds of the bank they
happeu to be in charge of, becomes a law. Investors in national-bank
stock will conclude (if both bills become law) that instead o f their
liabilities in succeeding years being largely more under this law, the
chances are that their liabilities as stockholders would be very much
smaller; and if this is true (and I believe it is), then the inducement to
invest in national-bank stock would be increased rather than decreased.
Mr. J o h n s o n , o f Indiana. It seems to me you attach too much
importance to the effect o f this bill limiting loans to officers o f banks;
and it does seem to me that the making o f ea«h bank responsible for
the conduct o f every other bank in the State would be such a draw
back that people would go into State banks o f issue, and thereby
bring about a scarcity of money, instead o f a sufficiency o f money.
Mr. H a r t e r . The safest prediction for the future must be drawn
from our experience o f the past, and fortunately an illustration which
will go to establish the correctness o f my prediction in this matter is
at hand, for I recall that one o f the most popular banking systems we
ever had in the State of Ohio was our Ohio branch, or State banking
system. Under that system ea«h bank was liable, to a greater extent
than this bill provides, for the debts o f the other banks; and not only
was there no difficulty in inducing capital to go into our State branch
banking system, bnt charters were very eagerly sought for.
Mr. J o h n s o n , o f Indiana. That was probably before the present
system was known., fiauks might be willing to accept circulation
under the conditions existing at that time, but might not do it now.
M r. W a r n e r . W h a t w a s th a t system f
Mr. H a r t e r . It was the branch system

in the State o f Ohio. This
class o f banks were all closed up in consequence of the 10 per cent
United States tax placed on State bank circulation.
Mr. J o h n s o n , o f Indiana. The point I was making was that since
this time it has been developed that there is an easier aud safer system
of bauking than existed then, and perhaps with this knowledge a man
who would have gone into the old system would not be willing to do so
now and be liable for the defalcations o f other banks.
Where do you get your ideas wluch are embodied in this b ill!
Mr. H a r t e r . It is a little hard to answer that question positively.
This is a subject to which I have given more or less attention for about
thirty years, and I have been obliged at times to change my opinion
and to shift my views upon these questions.
The strongest argument I have ever read or heard in favor'of notes
secured as proposed in section 2 o f the bill was made by Mr. Horace
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BANKING AND CURRENCY.

White, at Drexel Institute, iu Philadelphia. Up to the time I heard
hisargument, I was o f the opinion that it was essential that bank-note
circulation should be secured by some kind o f acceptable collateral.
Siuce that time I have changed my mind on that subject. The addi
tional security j>roposed in the bill, which gives the Government the
right of assessment, 1 got from a book published, I think, by the presi
dent of the Philadelphia National Bank. The emergency-circulation
feature, I supposed, I had discovered for myself----Mr. J o h n s o n , of Indiana. You evolved that from your own inner
consciousness!
Mr. H a b t e r . Yes: I supposed I had evolved that from my own
inner consciousness, so to speak; but I found within a very short time
after 1 had made this supposed discovery that the same general prin
ciple was embodied in a law which controls the operation o f the Keichbank, in Germany, aud it is not very dissimilar from the protection
given to the business interests o f Great Britain by the suspension o f
the bank act in that country. I claim no special merit or novelty in
the measure. I simply claim for it that it takes the national banking
law as it now exists, and, upon safe and simple lines, modifies that
system so that it may continue to be at least as useful in the future
as it has been in the past.
Mr. J o h n s o n , o f Indiana. Under the present system the people are
protected against failures; but under the system which you propose
banks would have to go into liquidation.
Mr. H a r t e r . This bill makes no such changes as the gentleman’s
question would indicate.
Mr. J o h n s o n , of Indiana. The Government would have to settle for
the hank f
M r . H a r t e r . Y e s , sir.

Mr. J o h n s o n , o f Indiana. I)o you consider it safe to the bill-holder ?
Cnder H e present system it is impossible for a bank to squander the
peoyAe’s money; but under this system they could do so.
Mr. H a r t e r . Section 3 of the bill provides that these assessments
shall be paid within thirty days. I think assessments, however, from
the experience o f the past, would be exceedingly infrequent.
Mr. J o h n s o n , o f Indiana. I did not notice whether you gave a lien
on the bank for assessments to supply deficiencies.
. Mr. H a r t e r . The power to assess would be a lien on the bank sub
ject to assessment, and therefore there is no special clause to that
effect in the bill.
Mr. W a r n e r . Y o u refer in section 2 to this Government guaranty
of a note. There is no guaranty.
Mr. H a r t e r . I w o u ld p r o v id e fo r such a g u a ra n ty .
Mr* W a r n e r . In other words, you do not propose that

the Govern-

®<®t shall give a guaranty ?
H a r t e r . I p ro p o se th a t th e G o v e rn m e n t sh a ll g u a ra n te e th e
redemption o f th e notes.
W a r n e r . W hat is the present Government guaranty?
"Ir. H a r t e r . R e d e m p tio n gu a ra n teed .
W a r n e r . I s th e re a n y such g u a ra n ty ?
Mr. H a r t e r . Y es, sir. I t w ill be found in one section, I think, o f the

g a lle d Sherman law.

wh 9nAIEMANrefers to the Government holding bonds, and
M** w ^ank *s dissolved the Government takes up the notes.
irq
. kner . In other words, it is an acceptance o f the notes. This
n entirely different thing from a guaranty.
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BANKING AND CURRENCY.

M r. I I a r t e r . Here is a practical guaranty which is almost as efficient
as it would be iu specific terms. I exhibit a five-dollar bill issued by
the First National Bank o f Orlando, Fla., which shows the nature of
the liability o f the Government as set forth in the following terms:
This note is receivable at par in all parts o f tbe United Staten iu payment of all
taxes and excises and all other dnes to the United States, except duties ou import*;
and all salaries and other debts and demands owing by the United States to indi
viduals. corporations, and association** within the United States, except interest
upon the public debt.

I would also state that another thing making the notes absolutely
secure in the hands of holders is the fact that, while they are not legal
tender otherwise, they are under the present law, and would remain
under this bill, a legal tender between national banks.
Mr. W a r n e r . In reference to this guaranty by the Government to
which you refer, you do not refer to any Government liability beyond
that under the present law?
Mr. H a r t e r . Yes; for the full and prompt redemption of such notes.
Mr. W arn' e r . Do you propose that these notes should be made a legal
tender or specially receivable in any other degree than as under the
present national-bank law?
Mr. nARTER. I do not; in other words, I would make 110 change in
that portion ofth e existing law.
Mr. W a r n e r . You have referred to the branch banking system of
your State. IIow was that managed ? Was each o f the banks left
entirely to manage its own business affairs, or was it managed by some
committee or representation o f different banks?
Mr. H a r t e r . That was managed by a central committee or board
o f control located at the capital o f the State. But the supervision of
that banking system bore no comparison iu promptness and thoroughness to the supervision of the Comptroller o f the Currency as exercised
over the national banks o f tlie United States.
M r. W a r n e r . A s 1 u n d ersta n d th e a rra n g e m e n t o f th a t system
d e scrib ed b y you , it w as s o m e th in g o f a L lo y d ’s a rra n g e m e n t.
Mr. H a r t e r . I 11 a general aud modified way.
Mr. W a r n e r . Where is there a precedent to any exteut for busi

ness men being willing to go into such a Lloyd’s arrangement as is
proposed by your bill? Is there any precedent from the beginning of
the business o f the world to the present time where men have been
willing to become partners with other men in liabilities without a pos
sibility of sharing profits and without the possibility o f sharing in the
control?
Mr. H a r t e r . 1 think the case I have cited in Ohio is only one of a
large number in point.
Mr. W a r n e r . I appreciate the fact that in some respects it is
peculiar.
Mr. H a r t e r . It becomes a precedent, and will become more valu
able than ever because the supervision exercised over banks then was
not as thorough and careful as that exercised over the national-bank
associations now, and the liability under such a system as is proposed
by this bill would be much smaller for stockholders than it was then;
and I argue from that that the willingness, and I may say the anxiety,
that existed during the time that that system was in use in Ohio to
invest iu the capital stock of banks would be increased instead of
diminished.
Mr. W a r n e r . W hile you do not claim that there has ever been a
precedent which involves the distinction which I make, yet in your

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BANKING AND CURRENCY.

opinion the plan you propose is less objectionable as an original prop
osition than that outlined by my question f
Mr. H a r t e r . 1 m ean to s a y t h a t 1 d o n o t th in k th e y are e x a c t ly
parallel, b u t p r a c tic a lly so.
Mr. W a r n e r . The Ohio circulation was
Mr. H a r t e r . Not the circulation o f the

secured by collaterals.
branch banks. Our stock
banks, organized under our free banking law o f 1852, were secured by
deposits o f public stocks.
Mr. W a r n e r . I do not quarrel with the gentleman as to their proba
ble safety. I wanted to know whether there was any precedent on
earth for this.
Mr. Cox. How can it be expected that a man would take his money
and invest it in an institution that was subject to danger from the
action o f other institutions!
Mr. W a r n e r . I am free to say that I would not; but I agree that
Mr. Harter is as good a business man as I am, and I do not waut to
quarrel with him as to a matter o f opinion. A s I understand, tliete is
between $600,000,000 and $70u,000,000 o f national-bank capital now
employed in this country. I may be mistaken about the amount. You
propose to permit this issue to the extent of 75 per cent and an emer
gency issue o f 50 per cent f
M r. H a r t e r . Yes, sir.
Mr. W a r n e r . Y ou are providing for a currency which is enormous—
between $400,000,000 and $500,000,000—and which, in an emergency
that might arise, would be increased to between $700,000,000 and
$800,000,000 perhaps. I f that be the case, what earthly basis o f argu
ment, as regards possible risk, does the gentleman make, from our
experience with the national-bank currency, which is now outstanding
to the exteut, I believe, of less than one-fourth o f the capital o f all
national banks, and which, before it was allowed to be issued, was
backed by special security ?
Mr. H a r t e r . I really can not understand the scope of the question.
Mr. W a r n e r . It is this: W e have had an experience with currency
which has been but a comparatively small per cent o f our banking cap
ital, and which, antecedently to being issued, was backed by special
deposits. Even i f the result is as you have stated, what conclusion
can be drawn from that fact as to what the probable results would be
of a currency issued to two, three, or four times that amount, upon the
same capital, without any special security whatever?
Mr. H a r t e r . I answer that security would be precisely the same in
one case as in the other, or, rather, under this bill the security would be
greater, because the percentage o f circulation to be issued would be
smaller; it would be smaller as 00 is to 75. Under the present law
there is no legerdemain by which the assets o f the bank are in any
way increased. In one case the assets remain iu the bank, aud in the
other case a portion o f them are specially set aside and are deposited
with the United States Government.
Mr. W a r n e r . I doubt i f 1 have made myself clear. .You say that
our experience has shown that the Government has called upon the
banks o f the country for only $1,500,000 in thirty years in which we
have had a national-bank system; and you say, even if there had been
no special security there, that the risk would have been infinitesimal.
Admitted that the risk was only $1,500,000 by a system which provided
ample security to meet it, and under which the result o f experience
shows only one-fourth to one-half o f the capital represented was at any
time represented by notes, now I ask him if that is any criterion o f
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the risks that would be involved uuder his system, under which it is
proposed to leave the mutter entirely under the control o f the officials
who do break banks, without the security which now lessens risk, and
with double, treble, or quadruple the amount of currency issued on the
same capital ?
The (Jh A ib m a n . That matter will be considered by the committee
later.
Mr. H a b t e b . I will endeavor to answer the question. When I
stated that, the losses would have amounted to but a million and a h alf
dollars, I meant to state that under the conditions governing the con
duct o f banking for thirty years past that had been the loss, and had
not the Government received this collateral security this record o f
failed banksduringthis period shows that the losses on circulation, i f the
Government had had only a first lien upon the assets instead o f collateral,
would not have aggregated more than a million and a half dollars. I
take it for granted, first, that the conditions in the mangement o f banks
will not be any more perilous during the next thirty years than they
have been in the past. I can safely go further and say that as a result
of salutary legislation proposed by this committee the risk o f loss
mnst be decreased. My estimate, too, is based upon the supitositiou
that banks will be managed as well and no better than they have been
in the past thirty years.
Mr. W a r n e r . Does not the gentleman’s plan involve an increase o f
currency to a greater amount than is now taken out by the banks f
Mr. H a r t e r . Yes, in the aggregate.
Mr. W a b n e i i . But you propose to increase the amount of currency
outstanding against the same capital?
Mr. H a r t e r . The percentage o f liability of loss would not be
increased thereby. The securities received from borrowers would
increase the assets o f the bank, which would be an offset against the
increased circulation liability. I do not argue that if in the course o f
twenty years circulation should double or triple itself the aggregate
losses during that thirty years would not in dollars and cents exceed
the aggregate as stated for the last thirty years. I think it would; but
the ability to bear such losses would be correspondingly increased.
Mr. W a r n e r . Y ou depend upon the virtue o f a first lien upon the
the assets. Now, another question. You were speaking about assess
ments. I f I issue a certain number o f bank notes', say $100,000, and
my total assets amounted to 9200,000, that first lieu practically gives
a mortgage o f 50 per cent on all o f the securities. I f I issue bank notes
to the extent of $150,000 against assets o f $200,000, the result is that
the security is only that o f a mortgage o f 75 per cent on the assets.
Mr. H a r t e r . The assets have in the meanwhile been increased.
Mr. W a r n e r . Y ou do not consider a mortgage o f $150,0000 upon
$200,000 collateral as good security as a mortgage o f $50,000 upon
$100,000 collateral, do you?
M r . H a b t e b . N o.
Mr. W a r n e r . I am

trying to draw a parallel between these two sys
tems. How can yon say that your first mortgage lien, which is secured
by a margin of only 15 to 25 per cent, is equal to a first mortgage lien,
which is only about 40 to 50 per cent o f value o f the collateral?
M r. H a r t e r . T h e assets n e c e s s a rily in crea se w ith th e lia b ilitie s o f
th e ban k .
Mr. W a b n e b . Exactly; but the value o f the preference is in propor

tion to the percentage of the lieu to the security, is it not?
Mr. H a b t e b . The ratio o f lien decreases somewhat, but not in a
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BANKING AND CURRENCY.

rapid proportion, especially as the amount which this bill provides for
issuing is only 75 per cent o f the paid-up capital; whereas, under thepresent system, 90 per cent may be issued, so that in. the end the secu
rities vary but little, i f any.
Mr. W a r n e r . But the gentleman has already admitted that the
amount o f the currency now outstanding is somewhat less than onethird o f the capital o f the national banks. The object of this bill is to
increase the amount ontstanding in proportion to that capital. I f you
increase that, doubling or trebling that amount o f the lien upon the
same amount o f capital, do you not thereby reduce the comparative
value o f that lieu f
Mr. H a r t e r . Necessarily, somewhat. W e fall back upon the expe
rience in these matters in the past, and that experience will amply jus
tify the position 1 have taken before this committee.
M r. W a r n e r . Y ou th in k th a t th e n otes w ill b e e n tir e ly s a f e f
Mr. H a r t e r . The bill amply provides for their security.
Mr. W a r n e r . Is there any reason why the State banks should

not
be included in the operation o f this law, except to the extent to which
they are not at preseut subject to inspection f
Mr. H a r t e r . I think the only reason why State banks should not
be included in this bill is it would mix the authority o f the State with
that o f the nation, and would result in complications highly undesir
able.
Mr. W a r n e r . In other words, it is an attempt to confine the con
trol o f the currency to the Federal Government, because you recognize
that complications might arise if yon attempt to do otherwise.
M r. H

arter

. Yes..

Mr. W a r n e r . Would not a result o f the passage o f this act be to
drive out o f business instantly and finally every .national bank doing
business which did not wish to substitute its present method and join,
this combine f
M r. C o b b , o f A la b a m a . I w o u ld s u p p le m e n t th a t q u e s tio n w ith t h e
in q u iry w h e th e r y o n h a v e a r ig h t to d o th a t u n d e r th e la w ?
M r . W a r n e r . I h a v e assu m ed th a t th e la w w o u ld b e g o tte n arou n d .
Mr. H a r t e r . A s to the legal portion o f the question, I am unable

to answer; nor can anv other man until a i^ r a case is made and »
decision secured. A s to the other part o f the question, I would say it
would necessarily result in the retirement from the national-bank sys
tem o f such banks as, after weighing the advantages and disadvan
tages, concluded upon the whole that it was undesirable to do business
under this system.
Mr. W a r n e r . So that the extent to which the currency m ight.be
increased would have to be discounted by the extent to which it would
be decreased.
Mr. H a r t e r . The gentleman’s statement is entirely accurate if he
takes into the account the increase dne to the organization o f new banks.
Mr. W a r n e r . Your hypothesis, I presume, is correct, upon the hypo
thetical statement which you make as to the inducement offered by
your bill to issuing more currency on a given amount o f banking capi
tal. I t was, however, I believe, based upon the assumption that there
were no deposit accounts; that is to say, your calculations would have
to be varied to the extent to which deposit accounts would vary the
figures.
Mr. H a r t e r . I think that the deposit accounts need not be taken
into consideration, because the size o f them is not controlled by lawr
940----- 8
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and therefore they are a factor which can be safely eliminated from the
disoassion o f the bill, for the bill does not in any way control the volume
o f deposits or the method o f employing them.
Mr. W a r n e r . That is what I supposed was your intent. That being
the case, the only security that is left for this currency, short o f a final
resort to assessments upon the capital o f other banks, is a first lien
apon a fund only 25 per cent greater than itself; and, indeed, it becomes
a lien upon collateral less in nominal amount than the notes at par
whenever, by default, bad management, or otherwise, the capital o f a
bank becomes impaired to the extent of 25 per cent.
Mr. H a r t e r . Not exactly. In practical banking, which would- be
different from the case supposed, every bank would have a deposit
liability.
Mr. W a r n e r Y ou a re perfectly correct, but in the hypothetical
statement what would be the c a s e f It is only upon the hypothetical
case that you can imagine that there would so great an increase o f the
circulation in proportion to the capital. Is not that so?
Mr. H a r t e r . The same inducement would exist as in the hypotheti
cal case, except that the assets upon which the Government has a first
lien would be more or less increased.
Mr. W a r n e r . Present a hypothetical case and the amount o f risk
in it.
Mr. H a r t e r . Take the case of a bank having a capital stock o f
(115,000, including surplus, which I have already mentioned. In that
hypothetical case the lien for the $75,000 circulation which the Govern
ment has given it would rest simply upon the $115,000 originally paid
in, but the chances are that the bank would have----Mr. W a r n e r . May I ask you from whence you get that $115,0001
Mr. H a r t e r . It is $100,000 capital aud $15,000 surplus.
Mr. W a r n e r . And part o f the notes which you received from the
Government.
Mr. H a r t e r . I do not think you understood me ftilly. Suppose in
the hypothetical case referred to we took the capital stock at $100,000
and allowed the bank $15,000 reserve; that is, under the hypothetical
case, the first lien of the United States for the ultimate payment o f
the $75,000 rests upon the $115,000 assets, but the probabilities are the
bank would have a depdMit at least equal to its capital stock. It would
probably be nearer three.times that amount; but suppose the deposit
would equal the capital stock, then the assets o f the bank would aggre
gate not $115,000, but $215,000, so the lien o f the United States would
be against, not $115,000, but against $215,000.
Mr. W a r n e r . That is quite clear. Now, your assumption as to the
security for the notes is based not so much upon the provisions o f this
bill as apon your knowledge o f the banking business, so that it seems
that nnder thelegitimateexercise o f banking business the first lien would
be not merely upon the capital but upon the deposits, which would be
largely in excess o f that.
Mr. H a r t e r . You are quite correct.
M r. W a r n e r . Ia i t le g itim a te t o d o a b a n k in g bu sin ess w ith o u t
d ep osits, b u t s im p ly fo r th e p u rp ose o f flo a tin g c u rre n c y t
Mr. H a r t e r . Banks might be tempted to do that, but would natu

rally wish in all cases to add the profitable feature o f receiving deposits.
M r . W a r n e r . They should not be tempted to do that which they
ought not to do. Having the Government’s franchise for that purpose,
do you think they ought to do that instead o f doing a legitimate busi
ness f
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BANKING AND CURRENCY.

115

Hr. H a b t e b . That there would be cases o f that kind 1 have no ques
tion, but the circumstances are such that they would be very limited in
number.

Mr. W a b n e r . There would be no objection to providing something
in the bill to guard against that f
Mr. H a r t e r . There might be a proviso that each bank should open
its doors and do a legitimate business.
Mr. W a r n e r . O r that the currency outstanding should not exceed
75 per cent o f its capital or 33£ per cent o f its gross assets ?

Mr. H a r t e r . I should not object to that.
Mr. W a r n e r . The next question is this: Tou provide a tax o f live
or six per cent upon the emergency circulation?
M r. H a r t e b . Y e s , sir.
Mr. W a r n e r . That, o f

course, would be issued at a time at which
the ordinary limit o f circulation would have been practically reached
and at a time at which it would be profitable to a bank to pay this 6
per cent per annum for the right to have further currency ?
Mr. H a r t e r . Yes, sir.
Mr. W a r n e r . W hat is the reason that you prefer a lump tax of that
kind instead o f a progressive tax to allow for a steadily increasing
stringency?
Mr. H a r t e r . For this reason: Our experience in the past has been
that banks having that privilege take out emergency circulation for an
extremely short period o f time. During this progressive period o f
stringency referred to, the banks usually fortify themselves iu the
ordinary manner.
M r. W a r n e r . B y re d u c in g d iscou n ts?
Mr. H a r t e b . Yes. It is a wholesome

thing to do and often times
checks the growth o f a panic and brings borrowers gradually to realize
that money is difficult to obtain, thereby inducing them to curtail
operations and limit their wants.
Mr. W a r n e r . Your answer is, that while a progressive taxation
might be theoretically preferable, this wonld not compensate for the
complexity involved?
M r. H a r t e r . Y e s .
M r. S p e r r y . I d o n o t see in y o u r b ill w h ere y o u p r o v id e fo r a n y
circu lation w h a te v e r.
Mr. H a r t e r . Section 4 provides [reading]:
That each national banking association shall be permitted to issne and circulate
notes, as per section 2 o f this act, equal to seventy-five per cent o f its naid-in and
nnimpairea capital stock, and every national banking association shall have the
light to issne and circulate an additional amount « f notes equal to fifty per centum
o f its paid-in capital.

The provision, of course, is not mandatory.
Mr. S p e r r y . S e c tio n 2 reads:
That the United States shall have a first lien upon all the assets o f every national
banking association to secure it from loss growing out o f its guarantee o f the notes
of such banking associations.

That does uot provide for notes or anything. I t merely assumes
that there are notes. Where do you provide for notes except the
emergency notes?
Mr. H a b t e b . Section 2 provides that the Government shall have a
first lien.
Mr. S p e r r y . That assumes that notes have been issued, but where
in your bill do you provide for them?
Mr. H a r t e r . That provides security, and authorizes a bank under
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such security to issue them. I t is not mandatory, but permissive.
does not command, but gives them permission under section 4.

M r . B l a c k . T o u a u th o riz e an a d d itio n a l 75 p e r cen t.
Mr. H a b t e b . The bill does not command the issue o f

notes. I t is
left optional with each bank.
Mr. S p e b b y . I read the next section as meaning the emergency
circulation solely. Where do you provide for a guarantee o f circula
tion by the United States.
'Mr. H a & t e b . I t should appear iu section 2, but has been uninten
tionally omitted.
Mr. S p e b b y . You intend that that shall be stated when you get your
bill to suit you— that the United States should iu fact redeem all the
notes?
Mr. H a b t e b . Yes, sir.
Mr. J o h n s o n , o f Indiana. The loss would fall on the Government.
Mr. H a b t e b . There could be no loss to the Government.
Mr. B l a c k . I confess my unfamiliarity and lack o f knowledge on
these matters for I have a great deal to learn. I understand that the
law as it now exists contains a guarantee o f these notes by the Govment?
Mr. H a b t e b . I t does not contain a specific guarantee. Inasmuch as
the Government receives this money in the payment o f dues o f the
United States it guarantees them. Section 2 should be so amended as
to make the Government responsible for the prompt redemption o f all
notes issued under the bill.
M r . S p e b b y . Y o u ca n n o t fin d a n y such la w .
Mr. B l a c k . I t seems to me the provisions o f your

bill gives the G ov
ernment a first lien.
Mr. H a b t e b . Even as the bill now reads, i f it became law, the G ov
ernment would be liable practically for every dollar o f this money
because in case o f the failure o f a bank the people would pay every
dollar o f the notes into the Government on dues, and therefore the
Government would be liable in reality for every dollar issued by at
national bank.
Thereupon the committee rose, to meet on Monday, October 9, at 10
o’clock a. m.

C o m m it t e e

B a n k in g

and

Cubrency,

Monday, October 9,1893.
The Committee on Banking and Currency this day met, Hon. W illiam
M. Springer in the chair.
REPEAL OF TAX ON CIRCULATION OF STATE BANKS.

STATEMENT OF HON. E. E. LESTER, A REPRESENTATIVE FROM
THE STATE OF GEORGIA.
Mr. Lester appeared before the committee in favor o f bill No. 97,
which is as follows:
A B ILL to repeal sections thirty-four hundred and twelve and thirty-four hundred and thirteen
of the Revised Statutes of the United States, and all other laws which impose a tax on cir
culation other than that of national banka.

Be it enacted by tke Senate and Hout* o f Repre»entatire» o f the United State* o f America

in Congrent atnembled, That sections thirty-four hundred and twelve and thirty-four
hundred and thirteen o f the Revised Statutes o f the United States, and all amendD ig itiz e d by v ^

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inents thereof, and all other laws or parts o f laws which impose a tax o f ten p>T
centum, or any other sum, on circulation o f notes or other things o f currency, or
which impose a tax on all banks and associations and persons who receive o rp a j out
the notes or circulation o f other than national banks, or which discriminate in taxa
tion against circulating notes, be, and the same are, hereby repealed.

Mr. Lester spoke as follows:
Mr. Chairman aud gentlemen of the committee: 1 shall not Retain
the committee a great while this morning or at any other time. The
matters that I may suggest to the committee are those with which the
committee are all familiar. There are some provisions of the Constitu
tion, however, which bear upon the question in the bill I introduced
here so old and hackneyed 1 am afraid, Mr. Chairman, that their being
old and hackneyed is some reason even for their being overlooked and
not considered. The bill I introduced is simply to repeal the provis
ions o f the national bank act, which imposes a tax o f 10 p e r centum
on the notes o f all banks, banking associations, and persons who may
issue them. The provisions to which I refer are sections 3412 aud 3413
of the Revised Statutes. Section 3412 provides that—
Every national banking association, State bank, or State banking association, shall
pay a tax o f 10 per centam on the amount o f notes o f any person or o f any State
Dank, or State banking association used for circulation aud paid out by them.

Section 3413 provides:
Every national banking association, State bank, or banker, or association shall
pay a tax o f 10 per centum on the amount o f notes o f any town, city, or municipal
corporation paid out by them.

This bank act inangurating and putting into operation the national
banks of the country was made, Mr. Chairman, as we understand and
as we know very well, for purposes which the conditions existing at
the time o f the making o f that act made something of a necessity.
The purposes and objects o f it, like the purposes and objects o f every
other act and measure, ought to be considered when we come to the
question whether the law shall stand or whether it shall be repealed.
The reasons why those provisions, at least o f the national bank act o f
1863 and 1864, should be repealed independent o f their unconstitution
ality, are two. One is that the reason for the law has long since ceased
to exist. The other reason is (aud I think it is clear) that, having
served its ends, it now stands as an obstacle in the way o f what we or
I conceive would be the interest and the convenience o f the people.
The national bank act took the place o f the policy which was
adopted during the war o f issuing Treasury notes, commonly called
greenbacks, to meet the demands o f the Government. It was sug
gested (and it was put into operation), arising from the necessity o f
raising rands with which to prosecute the war, that national banks,
8nch as we have, should be put into existence for the purpose mainly
and chiefly o f sustaining the credit o f the Government or supplying
the Government with the ineaus o f prosecuting the war. I think, Mr.
Chairman, that this is a historical fact known to everybody who has
any knowledge whatever upon the subject, viz, that that was the
main and chief object and purpose o f the national bank act—to furnish
the means o f disposing o f the national obligations, the national bonds—
that is, to furnish a market for them by supplying inducements to
individuals to take and use aud pay for the national bonds the
national obligations. In other words, to furnish a market for the
national bonds. The devices which they undertook to make are
expressed in these national bank acts—that private corporations
under one general system under the law o f the Government should be
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inaugurated, should be chartered, which charter and which right
given by the Government were, inducements, o f course, for individuals
to place their means and moiiey into these institutions, the result
being the benefit which the Government itself o f course received b y
the disposal o f its bonds. That it served its purpose and it served i t
well there can be no doubt. It did accomplish that object in a large
measure—perhaps to the fullest extent o f what was expected o f it.
That act, however, made for the purpose o f meeting an emergency and
for the purpose o f helping the Government and assisting the Govern
ment in its operations has been continued after the emergency had
passed, and the reasons for it had ceased.
Mr. Chairman, this law having an existence under the authority o f
the Government, and serving its purposes, as I have stated, had the
effect, and intended effect I may say, o f doing an injury which was con
sidered o f course an incidental and a minor one at the time by giving
an absolute monopoly o f the circulating medium, as we may call it, o f
the whole country to these institutions, thereby depriving the citizens
and the country o f the use of such means as might become a necessity
from time to time o f facilitating their exchanges, o f transacting their
business, o f carrying on their affairs. I t destroyed all State banks bygiving that monopoly to the national banks. I t was not considered
sufficient, or to answer the purpose, that the national banks should
have the right to* exist as corporations, to have the many privileges o f
corporations. But in order to make it effective still more in favor o f
the banks and to have what was considered to be a national currency.
This provision was made, viz, o f putting a tax upon the State bank
issues and the State bank notes, aud the notes, I may say, Mr. Chair
man, o f any individual person which might be used one time or a hun
dred times over the counter o f a bank. That was to perfect the
monopoly. That was to drive out o f existence all currency, notes,
papers, and documents, or whatever might be used for the purpose o f
currency in the common business o f tlie country, and to drive that all
away in order that the national banks might have, as I said, the
monopoly o f the business. That was the effect. The State banks now,
Mr. Chairman, and banking institutions can not in a single transac
tion use your note or my note over its counter even to pay the bank’s
own debt. I f I owed you $100 and my note is in a bank, that note can
not be passed over the bank’s counter to you in payment o f a debt
which the bank owes to you. I t is about as strict and as perfect a
piece o f legislation, taking in the amendments and constructions which
have been placed npon it (which I think are legitimate), as has ever
been accomplished to serve an intended purpose.
Mr. C o b b , o f Alabama. Do you mean to say if the bank held your
note for $100 and the bank owed Mr. Springer $100 that tlie bank
could not pay Mr. Springer that except----Mr. L e s t e r . Except by payiug the 10 per-cent tax.
Mr. J o h n s o n , o f Ohio. How about the clearing-house certificates?
Mr. L e s t e r . It is the same way; in other words, you can not adjust
the balances which individuals owe one another in that bank.
M r. C o b b , o f A la b a m a . W o u ld t h a t s o rt o f tra n sa ctio n com e u n d e r
th e d e fin itio n o f “ u sed fo r circu la tio n ? ”
Mr. L e s t e k . Yes; that has been construed so, and the limit has

never been given to the term circulation.
Mr. C o b b , o f Missouri. That has never been enforced?
Mr. L e s t e r . Perhaps it has never been discovered. I t may or it
may not have been. I am telling you now the scope o f this particu
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lar provision. A t any rate I know bank notes, and municipal corpora
tion notes, and all other kinds o f notes and obligations or even indi
vidual private notes can not circulate through a bank, without payment
of the penalty tax o f 10 per cent.
Mr. J o h n s o n , o f Ohio. How do you get around the clearing-house
certificates; are they violations o f law?
Mr. L e s t e r . They violate the law, so they say, that is one trouble.
Now, to see how this thing works. The national banks have a mon
opoly o f the currency. That is clear. Now, there is no provision o f
that law which seeks to compel the national banks to issue the amount
of currency beyond, I think, about one-fifth o f its capital; is that it !
Mr. H a l l . They are not required to issue a dollar.
Mr. J o h n s o n , o f Ohio. Not a dollar, but they are requir d to put the
bonds in.
Mr. L e s t e r . That is what 1 mean. They have to put in the bonds
equal to only a small amount o f their capital stock. It is true that
they have to deposit a certain amount o f bonds. Now, say a 1260,000
bank deposits 950,000.
.
Mr. C ox. One-fourth o f the capital stock.
Mr. L e s t e b . N o w , they put in the bonds and, as you say, they are
not required to take out currency, but may do so. Assuming they do
take it out, as I understand it, they put up their bonds and take out
currency, as they have done. It is all very well and very easy for them,
if a national bond would remain at par or below par. It might be a
good transaction. But it depends upon the business o f the country
and the state o f it, whether it would be to their interest or not, as for
every bond they put into the Treasury they have to pay for it. O f course
that is known. They have got to pay for them, and the very act o f
putting those bonds in the Treasury increases the price o f the bonds
and, therefore, diminishes the inducement for them to take out the issue.
Now, the last report o f the Comptroller o f the Treasury, I think, showed
$143,000,000 o f currency o f national banks in use.
Mr. W a r n e r . Two hundred millions in all taken out, and I think a
hundred and eighty odd millions in use.
M r. L

ester

. T h e y h a v e ta k e n o u t som e sin ce th e la s t re p o rt.

Mr. C o b b , o f Missouri. That is not all in circulation.
Mr. L e s t e r . There is no provision in the act to compel them to sup
ply the currency which is necessary for the country to have. They
have uot only a monopoly, but an option. Even if the act was consti
tutional, i f the act was right and proper, and the Government’s duty
was to supply currency to the people, they have not provided and can
not well provide for the issue through these national banks o f enough
of the currency to supply the demands o f the people. You all know
that $143,000,000 will not do it, or $200,000,000 will not do it. Now, to
show the effect o f the stringency o f this provision. I f you and I aud
all the members o f this committee are interchangeably dealing with each
other from time to time, aud there is a balance in favor o f you against
someone else, we could .meet through our banks or associations, per
haps, in our business and settle our balances there. But, as it is now,
unless you use national bank notes, every single one o f these transac
tions is a separate one, which must be adjusted and fixed upon its own
basis. The banks o f New York and other places undertook to ease the
pressure which was brought upon them by the tying up of the money,
which lately occurred, and undertook to do what looks like ought to
be a legitimate transaction, and whether it affected other places and
banks or not, it was a convenient one, aud there was nothiug against
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it except this tax law. The banks iu New York and other places had
large balances against each other. So instead o f paying the balances
in currency they issued so-called clearing-house certificates. The
elearing house is an association o f the banks, by which one demand
goes against another, and one transaction closes up the whole business.
Now, this looks like an innocent helpful transaction, yet if one o f these
certificates passes over the counter of a bank in an ordinary transaction
between the bank and an individual, it or rather the bank becomes
liable to this penalty-tax.
Mr. C o b b , o f Alabama. Have you any judicial construction for those
words, “ used for circulation,” the words o f that act?
Mr. L e s t e r . I think I have a construction o f it made by the Comp
trollers of the Currency. I went with some gentlemen before the
Comptroller o f the Currency and they discussed this question with him
when the trouble came up, just after Congress met in August, when
the banks o f Savannah were apprehensive o f trouble, on account o f the
stringency in currency, when they could not even draw their balances
from the banks which owed them. They were about to undertake to
be security each for the other, aud those banks wished td do something
o r other by which balances might be adjusted and their matters car
ried on without greenbacks or national bank notes. They went before
the Comptroller aud submitted to him various forms o f obligations.
Certified checks was one, then these clearing-house certificates was
another, where each bank became pledged to pay the debts o f the other,
so much o f the securities o f each bank being up as security----Mr. J o h n s o n , o f Ohio. You mean so many securities, collaterals?
Mr.’ L e s t e r . Yes, sir; in other words, each bank being surety for
each other for the amount each bank took the certificates for. The
Comptroller referred to the constructions which had been placed upon
this act and it was just as I tell you now. They applied to every
single transaction which might have the appearance o f passing notes
o f any person over in payment o f a debt.
Mr. J o h n s o n , of Ohio. They would not allow you to do in Savaunah
what they did in New York?
Mr. L e s t e r . I believe they are going to take them up iu New York.
I understand that matter is to be investigated.
Mr. W a r n e r . A ll over the country?
Mr. L e s t e r . They did not do it in Savannah because they happened
to get along without it. They did not care to take the responsibility.
Mr. J o h n s o n , o f Ohio. They perhaps were more law-abiding citizens
there than iu New Y o r k ?
Mr. L e s t k r . I would not say that.
Mr. C o b b , o f Alabama. Has your mind been directed, and that o f the
Comptroller, to this point, passing over these certificates o f the bank
and class o f paper attempted to be put out, in regard to the certificates
issued upon the sale o f cotton and such things? Did you have a dis
cussion with the Comptroller o f the Currency in regard to the tax upon
that?
Mr. L e s t e r . Whatever the paper may be, I do not care what it is, i f
the bank passes it over the counter it is liable to the 10 per cent tax.
Mr. Cox. I f it is negotiable, it is subject to that rule?
Mr. L e s t e r . I f it passes, i f it is a note o f any person that passes
over their counters, they are liable to pay the 10 per cent.
Mr. C o b b , o f Alabama. A s a lawyer are you prepared to sustain the
construction o f the Comptroller?

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Mr. L e s t e r . I am, I think.
but o f the law itself.

1 do not complain o f the construction,

M r. C o b b , o f A la b a m a . A n d th e w o rd s “ u sed fo r c irc u la tio n ” w ill
ap p ly t o c irc u la tin g n otes t
Mr. L e s t e r . Used for circulation.
M r. C o b b , o f A la b a m a . T h e w o rd s iu th e a c t th e re a re “ used fo r c ir
cu lation ,” a n d th e p o in t I w a n t to m a k e is w h e th e r o r n o t i t is used fo r
c ircu la tion to p a y o u t to th em a n d -----M r. L e s t e r . T h e y p a y o u t his n o te to yo u , an d y o n ta k e th e sam e
note a n d p a y it to so m e b o d y else.
M r. C o b b , o f A la b a m a . N o t n ecessa rily .
M r. W a r n e r . Is n o t th e re a d is tin c tio n b e tw e e n p u ttin g o u t a n o te
for c ir c u la tio n as d istin g u ish ed fro m p u ttin g i t o u t fo r c o lle c tio n ?
Mr. L e s t e r . Suppose the same note got back to the bank again and

they put it out twice, do you think twice would make putting it out for
circulation where once would not?
Mr. C o b b , o f Alabama. I t seems to me that iu construing the act
something o f the intent must be taken into consideration. That is the
difference between taking your note owned by the bank, paying an
individual obligation to the bank is a different thing from an issue for
circulation which bears upon its face the intention to circulate from
hand to hand as money.
Mr. L e s t e r . I t is a “ note” “ o f a person” and they use it whenever
they pass it over in payment o f their obligations.
M r. C o b b , o f A la b a m a . N o t fo r c ir c u la tio n ; to p a y a d eb t.
Mr. L e s t e r . That is what every circulation is, everything

which
passes for money goes for that purpose. It would make no difference
for my purpose even if the construction should not embrace clearing
house certificates. This tax, excluding the class o f cases you speak of,
would embrace enough.
Mr. C o b b , o f Alabama. I agree to that.
Mr. J o h n s o n , o f Ohio. Do you favor the repeal o f the 10 per cent
tax for the purpose o f increasing the circulation as the best means
of getting more money in circulation, or would you prefer to have a
national currency, a national bank currency?
Mr. L e s t e r . I will show you before I get through,that we can not
have an exclusive national bank currency. That is not feasible, iu my
opinion.
Mr. J o h n s o n , of Ohio. W e have it now.
M r. L e s t e r . N o , s ir ; w e h a v e s o m e th in g w h ich d o es n o t a n sw er th e
purpose.
Mr. J o h n s o n , o f Ohio. A l l the currency we have in circulation is

national currency?
Mr. L e s t e r : Simply because it is marked “ national currency,” and
all other excluded. That is about the only reason for it. It is not a
curreucy furnished by the Government, aud is uot a national currency
in that sense.
Mr. J o h n s o n , o f Ohio. The national banks guarantee it.
• Mr. L e s t e r . It is a currency that happens to be national because
there is nothing else but that to have, but it is not a national currency.
Mr. J o h n s o n , o f Ohio. I do not think you mean that quite?
Mr. L e s t e r . Yes, I do meau that. Now, I was speaking o f the
effect o f this act, which is to give to the national banks a monopoly o f
the currency without auy provision in it to compel them to supply
what is sufficient and what is necessary, but with a provision that

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practically prohibits every other kind o f currency but that o f the
national banks.
W ell, now, i f what they have provided here in the national-bank act,
by reason o f this little provision imposing this prohibitory tax, is not
sufficient to supply the wants o f the people or to take the place o f other
currency; i f it does not serve that purpose, but actually hurts or injures
that purpose, why ought it not to be repealed! I t absolutely does no
good there, except as I have stated, i t supplies, but does not supply
sufficiently. I t prevents the supply, because it is a monopoly, and will
not allow any other source o f supply. Now, was it not wrong to put
in the act this prohibitory tax provision without a provision o f some
kind to compel a sufficient issue! I f the Government had the power
to force a general currency upon the country o f a particular kind, was
it not prbper it should provide that it should.be sufficient! Well, it
does not do this.
Now, as to another thing, before I forget it. I do not think when I
am repealing this act I am destroying the national banks; although I
do not think, with my ideas o f the Constitution, that the national-bank
acts were constitutional; yet, at the same time, they have been passed
apon in the country, and there are rights vested which would, perhaps,
make it not proper to destroy them, no matter what constructiou o f the
Constitution would be placed upon it now. It seems to me that, not
withstanding this repeal, they would still Imve all the rights and privi
leges that they now have, except that harmful one, the monopoly o f the
currency, and I would let them supply it as for as they can and as mach
as they lawfully can.
Now, taking up the other proposition, I say that the Government o f
the United States has no power and no authority to fix or fosten a cur
rency upon the country. It is under no obligation to supply the peo
ple with a circulating medium, although I know that some o f the courts
have assumed to find such new and latent power iu the Constitution.
Jndge Chase in his report as Secretary o f the Treasury said it was a
necessary power, and I believe President Grant may have said in one
o f his messages that it was the duty o f the Government to supply a
circulating medium. W ell, I say this, that we onght to have a supply
o f paper money,.but I submit, the Government is under no obligations
' to furnish the supply; that it never assumed any such obligation to do
it in the 70 odd years o f its existence before the passage o f this bank
ing act, or rather before the act authorizing the issue of greenbacks.
W hat powers has it? A s I stated, these are old and hackneyed things
o f which I am speaking, but the Government’s duties are prescribed
clearly enough in the Constitution. I f this Government was a sover
eign state o f itself, there might be some question as to what it might
assume to be sovereign powers, or sovereign duties i f yon pleases But it
is not. It is a Government as we all know o f limited powers; limited to
the extent given to it by the States and by the Constitution of the
United States, that is o f the States united. Now, that Constitution is
either the limit of the Government’s powers or it is not. I f it is, then
it is to be construed with some regard to propriety, with all regard as*
to the meaning o f it, I say with all regard to the meaning o f it. I f it
is not, then we have no Government at all, yet are o f course, all, under
obligations to support, it and as Representatives we have sworn to do
so. What do we mean when we say that! W e mean to say we will
maintain it o f course as we understand it and as it is written. Some
differ about the construction o f the language, the various parts o f it;
but, Mr. Chairman, there is little difficulty in the construction in my
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mind o f the Constitution in all of its essential features and none what
ever with reference to the question o f finance.
Mr. J o h n s o n , o f Ohio. Has not the Supreme Court decided in regard
to that?
Mr. L e s t e r . It has, in regard to the legal-tender quality o f green
backs.
Mr. J o h n s o n , o f Ohio. Do not you agree with that!
Mr. L e s t e r . It has decided it twice; it was decided one way iu one
court, and auother in another. Which one do you think is right?
Mr. J o h n s o n , of Ohio. The last one?
Mr. L e s t e r . No; the first one was influenced only by considerations,
I believe, o f what the court understood the Constitution to be, and
the other by considerations I know not of. A t any rate, the two
opinions are irreconcilable. One court or a majority o f it decided,
Judge Chase at the head o f them, that Congress could not make any
thing legal tender, except gold and silver. When the case came up
again two judges had been added to the conrt, and they decided it
differently, and they had a majority of, I think, 5 to 4, just about the
same as the first decision, except the other way. Now, which is worth
anything?
Mr. J o h n s o n , o f Ohio. I think the last decision was wrong, but I
am glad o f it.
Mr. L e s t e r . Yon mean you are glad o f the decision. Now, i f it
was a question of our making a Constitution----Mr. J o h n s o n , o f Ohio. They made it?
Mr. L e s t e r . I think they had hardly any power to do that.
Mr. J o h n s o n , of Ohio. They stretched it like thunder.
Mr. L e s t e r . They stretched it, and they broke it. It is liable to
be stretched some, perhaps, but not as much as that. Now, 1 say yon
can not find in the Constitution a power in Congress to do this. The
enumeration o f the powers o f Congress on the subject o f money
embraces these two only, viz, “ To coin money,” and to “ regulate the
value thereof and o f foreign coin,” and “ to borrow money on the credit
of the United States” (Art. I, Sec. 8, Const. U. S.). The framers o f the
Constitution o f the United States evidently recognizing the fact, which
they had apparently expressed in that provision, gave Congress the
right to coin money. That coin only should be money, and that gold
and silver only shonld be the coin by providing that.the States should
not “ make anything but gold and silver coin a tender in payment o f
debts” (Art. I, Sec. 10, par. 1).
Mr. J o h n s o n , o f Ohio. And that prohibition was not against the
Federal Government ?
Mr. L e s t e r . That was in the interest o f the people, and in the inter
est o f the policy which apparently the authors o f the Constitution
had in view or acted upon when they put that provision in giving Con
gress the power to coin money. Iu other words, the framers say that
nothing but coin should be money or tender money, and in order to .
keep it from being anything else they curtailed the powers, or rather did
not give the powers to the National Government to do this, viz, to coin
money, and then took away from the States themselves the right to
make anything but gold and silver coin a tender in payment of debts.
The power to make anything a legal tender is not given to the United
States. Powers not delegated belong to the States (amendment to Con
stitution, X ), but the States are prohibited from making anything but
gold and silver coin a legal tender, therefore gold and silver coin are
the only legal-tender money.
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Mr. H a l l . Alexander Hamilton in a letter, in two-thirds o f it, is
quite clear on that question.
Mr. J o h n s o n , o f Ohio. W as not an argument made here that coining
money was coining paper money?
Mr. L e s t e r . I should say that such a proposition is too absurd to
be considered by people who undertake to construe the Constitution
as a written document.
Mr. J o h n s o n , o f Ohio. Tlie gentlemen had pretty good authorities f
Mr. L e s t e r . W hat were they?
Mr. J o h n s o n , o f Ohio. 1 do not remember them all.
Mr. L e s t e r . I heard another proposition, viz, that to “ regulate the
value o f money” meant to regulate the volume o f it; that is to say,
Congress when it undertook to coin money----Mr. J o h n s o n , o f Ohio. It seems to me that you heard that argument
before the committee the other day.
Mr. L e s t e r . I did. That to coin money and regulate the value o f
it, meant to make money, and as you said the gentlemen construed, I
think, the coining o f money to be the making o f it, that is, that the
stamping anything with the Government stamp is money, and that the
coining of money aud fixing the value o f it, meant the fixing the vol
ume o f i t That to me is an absolute absurdity, as a proposition. W h y
i f the Government has the right as expressed here to coiu mouey and
fix the value o f it and that meant to make money, and to fix .the value
o f it, I would ask, why is there a provision o f the Constitution givin g to
the Government the power to borrow mouey; why should it not make all
that it is required?
Mr. J o h n s o n , o f Ohio. I did uot hear the fellow answer that question.
Mr. L e s t e r . The Government has power to do what? I t has the
power to borrow moirey. It has the right to coin money and regulate
the value o f it. What is money then? W e can understand that it
means coin, and the Government has the right to borrow coin. But i f
this means that the Government may make money, or make anything
money it pleases, why should the Government undertake to borrow
that which it can make and which it may declare to be money? O f
course, I hardly think that proposition worthy o f consideratiou at all.
But it comes with these theories and demands made which have been
occasioned by pressure owing to the condition o f financial affairs as
they were for some time in this country. There has been great stress
upon the people iu reference to money and in reference to prices,
especially in reference to the currency. W e know how people come to
make construction o f laws by their own feelings and by their own
desires. Some one suggested that proposition, that this was the
meaning o f the Constitution, and of course it took at once with some
body else who wanted relief and wanted mouey; so, wanting money,
needing money, that, as they thought, being a cure for all evils o f the
kind from which they suffered, it was easy to consider the Govern
ment to be the source o f money.
The C h a i r m a n . W ill you explain your views o f the Constitution
in section 10 o f article 1, wherein it is stated that no State (omitting
the other part) shall emit bills o f credit. How do you reconcile that
with your desire to have the State banks established by the States
authorized to issue bills of credit?
Mr. L e s t e r . I have not said that I desire State banks to be estab
lished. They are already established and may issue bills if the State
shall so authorize, provided this prohibitory tax imposed by the nationalbank law is repealed. To issne bills o f credit by the State is a differ
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ent thing from the issaing o f bank notes by chartered banks, becaase
that is not issuing bills o f credit by a State, but they are bauk notes,
issued by the maker and not by the State and must be payable in gold
and silver coin.
The C h a i r m a n . Do you hold that the creature is greater than the
creator!
Mr. L b s t e r . I do not, but I do not consider the creator or creature
has anything to do with that question
The C h a irm a n . A State has not the power to emit bills o f credit,
then how can it give the power to acorporation created by its authority T
Mr. L e s t e r . It is. not a State bill o f credit. I had a decision here,
I think, made by the Supreme Court in 11 Peters’ Reports, page 257,
where that question came up and it was decided that a bank bill was
not a State bill o f credit by the State. It was the case o f Brisco, v».
Bank o f Keutucky. A State may not issue bills o f credit, but it may
charter a bank, and tne bank may issue a bill o f credit^ if you are
pleased to call it such. It is its own obligation, and it is bound to
redeem that obligation in gold or silver coin.
Mr. J o h n s o n , o f Ohio. Would they have the right without the inter
vention o f law— would they have the natural right f
‘ Mr. L e s t e r . A person has the right o f doing anything not restricted
by law.
Mr. J o h n s o n , of Ohio. The chairman makes the point that we have
a law and they can not pass that, because the State could not give a
power which it did not have.
Mr. L e s t e r . I t does not require any law to do it.
Mr. J o h n s o n , o f Ohio. Then they have a natural right?
Mr. L e s t e r . Only in bo far as the charter o f an incorporated bank
gives permission to issue notes and bills can they do it; only because
of the fact that in all the States, wherever they had banks, the issuing
of bills o f that sort was prohibited#by statute or regulated by statute.
Mr. J o h n s o n , o f Ohio. Does not this cover the point that State
banks have all the powers not expressly granted to national banks T
Mr. L e s t e r . The chairman’s point was that this power was taken
away from the State.
Mr. C o b b , o f Alabama. Do not you strike the point here that in the
absence o f any provisions o f the law o f the State any individual or
combination o f individuals may issue money at pleasure and circulate
it as money!
Mr. L e s t e r . Anyone may do it. You can do it in Alabama to-day
and I in Georgia. I may issue bills and pass them to any person, pro
vided there is no law to prevent it.
Mr. C o b b , o f Alabama. The ]>ower to issue money; is not that right
conferred by the States when not prohibited by a State!
Mr. L e s t e r . In the first place, it is not money at all.
Mr. Cox. Take the clause o f the Constitution which prohibits a State
from having anything tendered for debts except gold or silver. Now,
if the power has been conferred upon the States, or the power had
remained in the States to issne bills o f credit, could not you see at
once that the powers existing in the States to issue bills would have
provided another thing and been in contradiction to the clause cited!
Mr. L e s t e r . I suppose that is right. That may have been the rea
son. I do not undertake to say what the reason for this provision is
other than I have already stated.
Mr. Cox. Would it not have that result!
Mr. L e s t e r . But for these provisions the States might and perhaps
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would have issued bills of credit and might have made them a legal
tender.
Mr. L e s t e b . W ell, it so happens so far as the danger o f taking that
10 per cent off, that prohibition in other words, call it what you
please, o f circulating money or a similitude o f money, that it might
make a redundancy o f the currency, that whatever may be the appre
hension about that it could be no worse thau the present condition is
under the other system. The notes would pass in the community for
the purpose o f paying debts by agreement o f the parties; and, wherever
that might be the case, bills would be issued where they are permissi
ble, but by the law o f almost every State a prohibition is placed, and
doubtless would be placed, on every bank they chartered limiting their
amount, and a prohibition is put upon the issuing o f change bills or
anything that has a similitude o f money by individuals. That is the
case in Georgia, and I believe it is in Alabama ^nd a numbet of other
States. That was for the protection o f State banks, I believe.
Mr. J o h n s o n , o f Ohio. W as not that wrong ?
Mr. L e s t e b . No; the State has the power to do it.
Mr. J o h n s o n , of Ohio. Is not that the same character o f wrong o f
which you are now complaining?
Mr. L e s t e b . No, sir. Those were communities, and the State had
the power to do that. I do not believe, Mr. Chairman, that when you
come down to the circulation o f promises lo pay but .that everybody
would desire to kuow the source o f them.
Mr. J o h n s o n , o f Ohio. And you want the best?
Mr. L e s t e b . Yes; you want some restriction, otherwise you might
flood the country too much, and I say that such provisions are a pro
hibition, or rather a safeguard, against the over issue o f State bills. I f
they are not good, i f these bills are not as they should be, i f confidence
in them is lost, having to be redeemed iu gold or Bilver or legal-tender
money, they will be presented for redemption, and that ends that ques
tion o f their existence. I f they did pass and are taken hy the com
munity in its transactions, and they settle balances and differences
between the people, is anybody hurt? The difficulty with the present
system is that the currency is liable to congestion all the time, whereas
the other plan would not be so liable to it because it would be more
generally distributed. Why, suppose the banks o f any State, in the
emergency, had been called upon, and the communities bad the right to
settle their obligations with anything they pleased to settle them with,
commerce would go on, trade would go ou and continue, prices o f com
modities would increase and be advanced in a way, or at least com
modities would command reasonable prices, not being dependent upon a
restricted currency; whereas, i f currency is cornered and restricted,
prices do not obtain at all, and there is a stoppage o f business.
I t has been suggested, I believe, that we need a national currency.
For what? Convenience. Does it make any difference, Mr. Chairman,
so far as that matter is concerned, does it make any difference to the
people generally o f a community whether they have that convenience
or not ? The great business o f this country is not traveling. The busi
ness o f the country is producing and manufacturing and the exchang
ing o f commodities. This is done most largely at home. Transactions
are made and business is carried on there. W h y does a man want a
national currency or something that will circulate in every State o f the
Union— and I do not say a good bank bill would not do that? When
you go to New York and travel, as you frequently do, when you go there

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to bay goods or to sell goods, or for any other purpose, do you carry
your money in a roll o f greenbacks!
Mr. J o h n s o n , o f Ohio. Yoa had to do it lately beeause you could not
get anything else.
Mr. L e s t e r . Because yonr check was not good there. Yon could
not get anything on the check lately and yon had to do it. You do
not do that unless yon are obliged to do it in such an emergency as
Mr. Johnson mentions. You take your money and go into your State
bank and you buy a check on New York, reserving only enough to pay
yonr traveling expenses, so that the inconvenience arising from the fact
that the currency mfty not be current everywhere is iufinitesimally
small. It is not o f sufficient consideration, it seems to me, to outweigh
the other considerations which go into this matter.
Mr. B l a c k . What you propose would not diminish this so-called
national currency t #
Mr. L e s t e r . I say no. You would still have the so-called natioual
currency.
Mr. J o h n s o n , o f Ohio. Bnt you are opposed to it !
Mr. L e s t e r . N o, I am not. I am opposed to its exclusiveness.
Mr. J o h n s o n , of Ohio. I thought you were.
Mr. L e s t e r . D o not misunderstand me. I would not interfere

with national-bank notes or the national-banking system now, except
to take away the evil features o f the national-bauk acts.
Mr. J o h n s o n , o f Ohio. O r greenbacks}

Mr. L e s t e r . No, sir; o f course not. Now, the currency is congested
and iu places where it can be controled like New York city it has been
sold at a premium, because people must have it to effect exchanges
and discharge obligations which might as well be discharged with some
other means.
Mr. J o h n s o n , o f Ohio. W hat other kind o f currency is best; is it
not best to extend one that has proved itself than to create a new one
that may be doubtful?
Mr. L e s t e r . H ow can yon extend the national-bank m atter!
Mr. J o h n s o n , o f Ohio. You can extend the natioual currency.
Mr: L e s t e r . In what w ay!
Mr. J o h n s o n , o f Ohio. By converting bonds into greenbacks, if

yon want to increase your gold reserve.
Mr. L e s t e r . Suppose you have not got the bonds f
Mr. J o h n s o n , o f Ohio. When you have not auy bonds, you decide

that when you get to that particular place.
Mr. L e s T e r . That would not do much good for our country in the
south and west, I mean in regard to the currency. W e want to
increase the general prosperity. The trouble is not so much as to the
quantity o f currency as to its distribution.
Mr. W a r n e r . D o I understand the gentleman from Georgia to
suggest also that i f tbe inconvenience should occur, which the gentle
man from Ohio apprehends, that that very fact would give a market for
the national-bank currency, and his question would answer itself; that
the mere deprivation o f the national-bank currency mouopoly would
not deprive its bills o f the market which they have!
Mr. L e s t e r . That is correct.
Mr. W a r n e r . And if anybody wanted them----Mr. L e s t e r . They could take them.
Mr. J o h n s o n , o f Ohio. I am not advocating the national-bank bills,

you understand.

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Mr. L e s t e r . When you talk of national banks aud their issue of
bills you should bear in mind that recently bills could not be had
although the outstanding issue was $200,000,000. This shows that they
do not meet the emergency when the emergency comes. Then, if you
cau provide another means by which the troubles from this cornering
and hoarding may be prevented, why should it not be done! The
repeal o f this clause, thereby giving the State banks and people the
right to use notes and bills, would supply a remedy. You still retain
what you have and all that is good in the national-bank system, aud
you take away from it all the bad, and in taking away the bad you
give to the people something that supplies a deficiency made by 'the
exclusive character o f the national-bank currency.
Mr. J o h n s o n , of Ohio. Do not we issue greenbacks to buy silver!
Mr. L e s t e r . H ow !
Mr. J o h n s o n , o f Ohio. Treasury notes are greenbacks.
Mr. L e s t e r . W hat do you mean by that?
Mr. J o h n s o n , o f Ohio. Does not the law which we are now trying
to repeal provide for issuing Treasury notes to buy silver!
Mr. C o b b , o f Alabama. I do not know o f any law to issue a Treas
ury note to buy silver.
Mr. J o h n s o n , o f Ohio. The Sherman law which we are trying to
repeal is a law issuing Treasury notes to buy silver bullion!
Mr. L e s t e r . Yes; I am afraid I am detaining the committee too
long if yon are to get into a silver discussion. I do not think that has
anything in the world to do with this.
The C h a i r m a n . W e are not on that subject.
Mr. J o h n s o n , o f Ohio. I was only showing you that i f we bought
silver with Treasury notes, we could buy other things and get more
mouey in circulation.
Mr.' L e s t e r . W h a t right has the Government to do th a t! I would
meet you there and say it had no right.
Mr. J o h n s o n , o f Ohio. I would say that the Supreme Court decided

it had tlie right.
Mr. L e s t e r . Then I would say the Supreme Court has stated the
case both ways and you are left to yourself to determine.
Mr. C h a i r m a n . I do not know that I have anything further to add.
Mr. H a l l . You have discussed thus far the constitutionality o f this
matter and the public policy o f it. I would like to ask you, if in your
judgment, a limit, or what our friend from New York would call an
administrative control over this State bank currency would be a viola
tion o f the Constitution !
Mr. L e s t e r . B y the Government!
Mr. H a l l . Just this far. Suppose that there was a provision, con
ditional repeal in the line o f the bill contemplated by Col. Oates, of
Alabama, iu his argument, that it should be conditionally repealed,
that the banks should comply with certain conditions, for instance,
that all moneys issued by these State banks should be stamped here by
the national Treasury and an administrative control o f that kiud given
as distinguished from economic control, now, I want to know whether
that would be in violation o f the Constitution!
Mr. L e s t e r . That would, in my opinion, be as much as the other. I
do not think the General Government has the power to do anything o f
that kind, o f course. A s a matter o f policy or a matter o f practice it
would be a great deal better to do that than not to do anything at all,
but I do not see that the Government has any power or right to inter
fere in such matters. I f it has, then you may as well adopt the propo
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sition which imposes upon tlie Government, by virtue o f its sovereignty,
the duty to provide a currency for the people. I f you do that, i f it is
the Government’s duty to provide a curreucy for the people, why then
the Government ought to issue its own notes or whatever else it can do
in that way directly. To such proposition, o f course, I am thoroughly
opposed. I do not believe in fia^ money, and I do not believe in it simply
because I say the Government has no power to make it.
Mr. J o h n s o n ^ o f Ohio. I f it is redeemable in gold it is not fiat money?
Mr. L e s t e r . W hat is redeemable in gold?
'Mr. J o h n s o n , o f Ohio. A ll these notes which are put out are redeem
able in gold?
Mr. L e s t e b . W h a t is put out?

Mr. J o h n s o n , o f Ohio. Treasury notes; these national currency notes,
they are redeemable in gold by the Government at the option o f the
holder o f the note, then they are not fiat money?
Mr. L e s t e b . W h a t are you discussing now?
Mr. J o h n s o n , o f Ohio. You were answering him, and you said you

were opposed to fiat money; is that fiat money when the Treasury note
is redeemable in gold?
Mr. L e s t e b . N o; provided the Government borrows the money and
issues the note.
Mr. J o h n s o n , o f Ohio. I f it circulates-----Mr. L e s t e b . Let it circulate, there is no question about the Gov
ernment borrowing. By virtue o f that power, I suppose it has the right
to issue notes.
Mr. J o h n s o n , of Ohio. I f the Government makes legal tender, is that
fiat?
Mr. L e s t e b . I understand “ fiat money” to be inconvertible paper
money not containing even a promise to pay, but issued by the Govern
ment upon the assumption that mere fiat o f the Government can give
value to it as a circulating medium.
Mr. J o h n s o n , o f Ohio. And irredeemable?
Mr. W a r n e r . Whether irredeemable or not?
Mr. L e s t e b . Irredeemable.
Mr. W a r n e r . May I ask the gentleman from Georgia, because my
Mend did not exactly express my idea, although he referred to it. A
tax for purposes other than revenue I take it every Democrat deems
is absolutely unconstitutional and absolutely indefensible. Now, sup
posing this tax was absolutely repealed, but that the Government, in
recognition o f the condition o f things which would be left by a naked
repeal—a condition o f things due to restricted development during the
last thirty years, a paralysis during the last thirty years o f the State
banking system—should undertake to exercise its power o f regulating
commerce between the States and insist as a prerequisite to the per
mission o f any currency to circulate outside o f the State in which it
was issued, that, for example, it should be printed all at one place to
obviate counterfeits, that it should be registered at one place to obvi
ate overissues, or such other administrative provisions as should have
nothing to do with the amount, from time to time, o f the currency—would
that, in the gentleman’s view, be unconstitutional?
Mr. L e s t e b . I think that would be unconstitutional because there
would be no power to do it. To those who believe that the G overn
ment has power to regulate commerce and apply it in every sort o f
way, o f course that would be legitimate, but to me it is not. I do not
think that under the power to regulate commerce, to coin money, or to

940-----9
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tax, the Government has any power to make money or to regulate car*
rency, the representative o f money. I have heard this suggestion,
that the Government has the right to prescribe and regulate internal
commerce, and thereby the right to prescribe the shape, form, and
dimensions of a steamboat, and as money is necessary to internal com
merce, it follows that Congress can regulate the matter o f money. But
i f we extend this analogy a little further, so as to apply it to this mat
ter of money, we would give the Government the power to say there
should not be a steamboat, or that some particular person should own
that steamboat and nobody else. That would not be regulating com
merce. I t would be a power to destroy it as well as to regulate it.
Mr. W a r n e r . W e agree, I think, on the fact that the use o f the
taxing power, except for revenue, is absolutely unconstitutional, but
that the power o f regulating commerce between the States—though
on the interpretation o f that question we might differ—is constitu
tional. That is to say, the power to regulate interstate commerce is
expressly given by the Constitution to Congress and the Federal Gov
ernment f
Mr. L e s t e r . Yes.
Mr. W a r n e r . S o this distinction comes in: W e are absolutely aban
doning the exercise o f a power which does not legally exist—which
is absolutely unconstitutional—to tax for the purpose of prohibition.
That is not in the Constitution. My question is as to whether, i f the
legitimate power can be found there, the gentleman would object to
its usef
Mr. L e s t e r . I f you find a legitimate power under the Constitution
I do not object to its exercise i f it serves a good purpose.
Mr. W a r n e r . In other words, as far as the exercise o f concerns the
power to regulate commerce, you would have no objection, but you do
.object in any case to the present tax because it is unconstitutional?
Mr. L e s t e r . I do not think under the power to regulate commerce
you could get any question o f this sort which yon apply to it, that is
to say, in regard to the right to regulate commerce. How has putting
restriction upon the issue o f money or promissory notes anything to
do with the regulation o f commerce?
Mr. W a r n e r . The gentleman misunderstands my question. W h a t
I was getting at was this: A n y provision which would be a legitimate
regulation o f commerce as distinguished from taxing power, would not
be objectionable.
Mr. L e s t e r . I perfectly agree with you. I f you can find a provi
sion which would make the act constitutional, why o f course I would
not object to it except in this way; I wonld prefer the other for the rea
sons I have mentioned, as a matter o f public policy.
The C h a i r m a n . I would like to ask the gentleman from Georgia
whether he would regard a provision which might make the States Sa
ble for the issues o f the banks o f the States the same as the General
Government is liable for the national-bank issues as coming within the
provisions of the Constitution?
Mr. L e s t e r . I do not think the States ought to do that. I do not
think they ought to be made responsible for the debts o f the bank..
If, however, they allow them to issue their notes upon State bonds o f
course there should be some provision made by the State for the
redemption o f the bills as a matter o f policy, because the State has to
redeem its bonds in gold or silver.
The C h a i r m a n . Could not Congress require the States to be

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responsible for the issues o f their banks the same as the Government
o f the United States is responsible for the issues o f the national banks f
Mr. L e s t e r . Y ou mean, w hy can not Congress do that ?
The C h a irm a n . A s a condition preceding the removal o f the tax f
Mr. L e s t e r . I say in the first place the Government has no consti
tutional power to demand a condition o f the kind.
Mr. B l a c k . They would be required to do one unconstitutional thing
to do another t
Mr. L e s t e r . I have no doubt in this matter but the States will be'
v ery careful about the issue o f the bills. I have no doubt in the world
when the banks are chartered hereafter,, i f the repeal o f this law takes
place, that restrictions would be thrown around the banks by the
States. They might require as a condition o f charter that they should
hold in the treasury o f the State, or somewhere else, even State bonds
or other thing as security for redemption.
The C h a i r m a n . I want, in this connection, to call the attention o f
the committee to the decision o f the Supreme Court o f the United
States, in 1869, in the case o f Yeazie Bank against Fenno, as reported
in 8th Wallace, p. 548, and I want to read one extract from that
opinion iu this connection as bearing exactly on the line o f argument
and answer o f the gentleman. I t is as follows:
I t can not be doubted that under the Constitution the power to provide a circula
tion o f coin is given to Congress, and it is settled by the uniform practices o f the
Government and by repeated decisions that Congress may constitutionally authorize
the emission o f bills o f credit. I t is not important here to decide whether the
quality o f legal tender, in payment o f debts, oan be constitutionally imparted to
these bills; it is enough to say that there can be no question o f the power o f the
Government to emit them; make them receivable in payment o f debts to itself; to
fit them for use by those who see fit to use them in all the transactions o f commerce;
to provide for tlieir redemption; to make them a currency, uniform iu value and
description, and convenient and useful for circulation. These powers, until recently,
w ere only partially and occasionally exercised. Lately, however, they have been
called into full activity, and Congress has undertaken to supply a currency for the
entire country.
The methods adopted for the supply o f this currency were briefly explained in the
first part o f this opinion. It now consists o f coin, o f United States notes, and o f
th e notes o f the national banks. Both descriptions o f notes may be properly
described as bills o f credit, for both are furnished by the Government, both are
issued on the credit o f the Government, and the Government is responsible for the
redemption o f both; primarily as to the first description, and immediately upon
default o f the bank as to the second. When these buls shall be made convertible
in to coin, at the w ill o f the holder, this currency w ill, perhaps, satisfy the wants o f
th e community, in respect to a circulating medium, as perfectly as any mixed cur-,
rency that can be devised.
Having thus, in the exercise o f constitutional powers, undertaken to provide a
currency for the whole country, it oan not be questioned that Congress may consti
tutionally secure the benefit o f it to the people by appropriate legislation. To this
end Congress has denied the qnality o f legal tender to foreign coins, and has pro
vided by law against the imposition o f counterfeit and debased coin on the commu
nity. To the same end, Congress may restrain by suitable enactments the circula
tion as money o f any notes not issued under its own authority. Without this power,
indeed, its attempt to secure a sound and uniform currency for the country must he
futile.

L e t me call your attention to the fact that that opinion was pro
nounced by Chief-Justice Chase, and the court at that time consisted
’ o f Associates Nelson, Clifford, Miller, Grier, Wayne, Davis, and Fields,
and it was the opinion o f the court, with the exception o f Nelson and
Davis, who dissented, but you will find there is eminent Democratic
authority upon the bench, without those two gentlemen, in the opinion
o f Justice Chase delivered as the opinion o f the court, and this opinion
has never been reversed and is now the law o f the land as much as i f
it was 'a part o f the Constitution o f the United States.
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Mr. L e s t e r . That is where I differ with the gentleman. The argu
ment 1 have been attempting to make here in this room is antagonistic
to the dicta of Judge Chase expressed in that decision.
The C h a i r m a n . I understand the gentleman has taken a different
view, but that does not change the fact that the Supreme Court has
here decided in this way.
Mr. J o h n s o n , o f Ohio. And is not the Supreme Court the authority
in this Congress for legislation !
Mr. L e s t e r . No; the Constitution o f the United States is the only
authority. In reference to that decision, you will notice that it contains
a recital o f assumed tacts upon which the decision is based. Among
them, that Cougress had undertaken to provide a currency for the coun
try, and that it would no doubt provide legislation for the purpose to
accomplish that end. W hat would you say now in view o f the fact
Btated, and in view o f the present condition o f the currency f Would
you say Congress did undertake to provide currency for the people t I
say that Congress never did it and never undertook to do it, and I say
fhrther, i f they did undertake it they have not done it, and that decision,
while it might sustain the views o f those who assume to think such
things to be constitutional, it is not authority to command the acquies
cence nor to bind the consciences o f Eepresentatives sworn to support
the Constitution.
The C h a i r m a n . There is now paper circulating as money to the
amount o f $1,100,000,000 pursuant .to acts o f Congress, and it was
deemed sufficient for the wants o f the trade o f this country by the
Congress o f the United States. It may not be, but how do you supply
moref
Mr. L e s t e r . I f the Congress o f the United States has determined
that, I was not aware o f it.
The C h a i r m a n . By the issuing o f this amount?
Mr. L e s t r r . That is another construction or interpretation in which
I do not concur.
The C h a i r m a n . Congress has taken to itself by passing legislation
the sole power o f furnishing currency to the people, first by imposing
a 10 per cent tax upon State banks, and undertaking to furnish through
the various acts o f Congress, which have passed, a proper currency
adapted to the wants o f the trade, and up to this time the judgment o f
Congress is that a sufficient amount of currency has been provided,
/tnd it is the duty o f this Congress to determine whether a sufficient
amount has been devised or not, and i f not to provide more o f it.
Mr. W a r n e r . And it is the duty o f Congress to determine whether
to provide it that way or not?
The C h a i r m a n . Certainly.
Mr. W a r n e r . I s it not also its duty to determine whether it has
any business to go into the banking business at all?
The C h a i r m a n . I t is the business o f Congress to determine what

authority they have under the Constitution, and there must be an in
terpretation o f it.
Mr. L e s t e r . 1 say with reference to the Congress o f the United
States that it has never done anything o f the kind : that they have
never undertaken to do that as a primary object, and the only way you
can infer what they intended is to consider that they imposed an ille
gal tax upon State bank issues.
Mr. Cox. Do not you agree that this proposition is true independent
o f that decision, to issue notes to circulate as money is a right existing
in an individual except as restrained or restricted by local authority?
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The Constitution o f the United States restrains the State, aud the
State legislature may restrain or regulate the power o f the individual
to issue bills to circulate as money, hence the power is not in the State
to empower individuals to issue Dills, but only restrains or regulates
the right already existing in the individuals. It follows also the
United States Government has no right to restrict or regulate the
power o f individuals to issue bills to circulate as money.
Mr. L e s t e b . Y ou have expressed my opinion better than I could
have expressed it, perhaps. Every individual has the right to do what
he pleases provided he is not restrained by law, and it makes no differ
ence what it is he may do unless it violates a law o f God or man. He
is a citizen o f a State, and that State o f course has a sovereignty o f
itself and has a right as a community to punish or impose upon him
restrictions, but without those restrictions he can do what pleases him,
because there can be no power other than law superior to him.
Mr. Cox. I want to see i f you agree with me. The chairman spoke
about the rights conferred by a State; my contention is tliat the State
confers no right by legislation to the individual to issue bills, but that
right exists above any State regulation, except as it may be restricted
by that power which is inherent in the State to restrain individuals as
well as other matters.
Mr. L e s t e b . That is true. I say he can do what he pleases, unless
he is restrained by law. The reason why States have given the right
to banks to issue bills— I think you will find it so in New York and
in other places— why they have given to a particular corporation like a
bank the right to issue bills, is because by other laws they have re
stricted the people.
Mr. Cox. 1 say individuals.
Mr. L e s t e b . That is it. I would say this further, it has been sug
gested ( I heard it from Col. Oates, the other day, who was here) that
Congress had the right to impose this 10 per cent tax, jn the exercise
of j>ower o f taxation. I do not agree with that. I think they have a
right to collect revenue, but I «lo not think in doing that in this
instance they followed the Constitution. But suppose they did. There
is an objection made, which may have force with the national banks
and those people who think with them, that i f this 10 per cent tax is
repealed it would make a discrimination against the national banks,
because they are taxed 1 per cent on their issues. W ell, now, while I
do not think that makes any difference in the matter, it lias been sug
gested that you put as a condition upon the State banks the same pro
vision ; in other words, repeal the 10 per cent and put on 1 or 2, or
whatever national banks pay as a condition o f their issuing bills. I
think that would be violative of principle. I will say, however, in
order to meet that difficulty, the 1- per cent tax can be easily removed
from these national banks iu order to remove the objection.
Mr. J o h n s o n , of Ohio. Does your argument equally apply to the tax
proposed in the so-called antioption bill, a tax not intended as a reve
nue ta x f
*
Mr. L e s t e b . I think it would. F d o not think any o f those laws are
constitutional laws. It was plain the intent w as not to raise revenue,
but to suppress the thing proposed to be taxed.
Mr. J o h n s o n , o f Ohio. You think that was plaint
Mr. L e s t e b . It was plain enough.

Thereupon the committee rose, to meet at 10 o’clock a. m. Tuesday,
October 10,1803.

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BANKING AND CURRENCY.
C o m m it t e e o n B a n k i n g a n d C u r r e n c y ,

Washington, D. 0., Tuesday, October 10,1893.
NATIONAL BANKS: SECURITY OF DEPOSITORS; ISSUES ON SECURITIES OTHER THAN
NATIONAL BONDS. STATE BANKS: REPEAL OF TAX ON CIRCULATION.

STATEMENT OF HOV. JOHN S. WILLIAMS, REPRESENTATIVE IV
CONGRESS FROM THE STATE OF MISSISSIPPI
ON h o u s e b i l l 2014.

Mr. ChainAan and gentlemen o f the committee, I want to say in con
nection with this bill, in the first place, that I have tried to the best o f
my ability to prepare the bill so that it should not have an original
feature in it, and that I think is the best part of it. There is nothing
in it, as far as I could prevent, that does not seem to me somewhere in
some particular banking system to have stood the test o f time. The
skeleton o f the bill is taken from a bill introduced in the House by Mr.
Harter, of Ohio, in the last Congress, and it is numbered 9707. In so far
as I could, I have preserved Mr. Harter’s language, and in some sec
tions I have preserved it verbatim, because I thought that the provis
ions o f his bill had been discussed. The two bills proceed upon the
same idea to some extent.
I found this bill first in the proceedings o f the American Academy
o f Political Science. I found in the proceedings o f that society an
article by Mr. Horace White, and another by Mr. Walker, o f Massa
chusetts, and various other articles from various other sources. Besides
that, I have analyzed the banking system known as the Suffolk bank
system o f Massachusetts; and also the bank systems o f Indiana, Louis
iana, South Carolina, and others.
Underlying the whole question o f a banking system with me are tw o
central cardinal ideas; one idea is that the Government has no righ t
to make anything a legal tender except money, the idea in my mind
being that nothing is money except something which can be coined; the
Constitution saying Congress has the right to -coin money (the verb
“ coin” fixing the significance o f the substantive “ money” and indicat
ing clearly metallic money) and “ regulate the value thereof.” That
last phrase means that Congress had the right to regulate the value o f
one coin with reference to that o f the other coin. O f course i f there
had been but one coin, Congress could not regulate the value o f that,
as its value would have been regulated by reason o f supply and demand;
so that I believe the Government has a right to take a.metal, coin it
and stamp it, the stamp saying that there is so much weight and certain
grade of fineness. I do not think the Government has a right to make
anything a legal tender except money. I do not stand here to say
that the Supreme Court is not a higher authority than anything else.
The cardinal point is first that the Government has no right to take
away from the money o f the Constitution its legal-tender quality; and,
secondly, the Government has no right to give that quality to anything
else.
The Government must begin to educate the people. I conceive that
there is nothing more important at the present time than this question
o f the education o f the people. I think in the main we are suffering
because we have never really resumed specie payment. W e have a
greater proportion o f paper currency o f a fiat character outstanding
than any solvent people in the world. W e have educated our people

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up to a point where it is difficult for them to understand the difference
between money and a promise to pay money.
The first clause in this bill is that the Government shall not hereaf
ter guarantee the payment o f the circulating notes o f any banking
association. The Government does not now guarantee such notes.
The clause is inserted for its educational influence. The people down
in my section o f the country think the Government does guarantee the
payment o f national-bank notes. A t the forefront o f legislation that
announcement should be made, and it is important.
Although I do not think the Government has a right to make any
thing except mouey a legal tender—either the Government’s promise,
the State’s promise, a bank’s promise, my promise, or any kind or
a promise a legal tender—yet I think the Government has a right to
say, where a man or a corporation proposes to put in circulation, not
as money, but instead o f money, notes to pass current as money, and
that it is the duty o f the Government to see, in behalf o f its citizens,
that that note has the soundest, safest, and best possible security back
of it looking to its redemption.
The main fault in our national-bank system is one which, in my
mind, was not sufficiently construed by the Supreme Court in the
Yeasey case. That was that the national-bank note was not payable
in money, but in a legal tender; so I think the first thing we have to
do is to provide for an ultimate redemption in coin, and not in what is
called “ lawful money o f the United States.”
The next idea following that was this: that there must not only be
ultimate redemption, but there must be current redemption, which is
lacking in the present system, and which deprives it o f all elasticity.
Tou w ill find that I provide for that.' W ith the permission o f the
committee, I will go on and take up the bill clause by clause, explaining
it as w ell as I can.
Section 2 is as follows:
Sbc. 2. That there shall be no lim it to the amonnt o f circulating notes which any
national-bank association may issne, except that said notes shall at no time exceed
one hundred per centum o f the par value o f the bonds and coin deposited to secnre
the same by such association.

In reference to this, I want to come to the question how a nationalbank system and a State-bank system, both o f whom issue notes, shall
go along side by side in carrying on the business o f the country. The
question occurred to me that they ought to go along on an exactly equal
footing; so that this bill provides—tor it is entitled “ A bill to amend
the national banking acts, to repeal the ten per cent tax on State bank
issues, and for other purposes”— it provides for certain amendments to
the national-bank act, and then generally it provides, in the first place,
that any bank chartered by a State to issue notes may do business on
the same sort o f security, undei>the same charter, provisions of inspec
tion, examination, and reserve, as national banks may, the only differ
ence being that when they are chartered by a State there shall be
such verbal variations as are necessary in order to adapt the banking
system to the State machinery instead o f to the federal machinery—
that is, wherever the words “ Comptroller o f the Currency” occur, the
proper State officer will be named to take the place o f those words; and
whenever the United States Treasurer is mentioned, the proper State
officer w ill be inserted, my intention being to put the two systems upon
an exactly equal footing in the b ill; then to leave things to the law of
nature, which is the “ survival o f the fittest.” M y idea is that the
national-bank system will continue to do most o f the business in the large
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cities o f the coantry where it is best adapted: whereas the State ban ks
w ill be best adapted to the sparsely settled communities and smaller
cities, and will do their business.

When we come to large places like New York and Chicago, people
want uniformity as well as perfect safety; so that a bank in those cities
may reach out to a very great distance, and may do a very diversified
business, almost international in its nature, in some cases. Although,
it is true that gold is a kind o f money or currency in which international
balances are made payable, I know by experience that these others
were used as substitutes. In a large city a man wants the stamp ofth e
nation on the money to give it authority in the ‘‘ markets o f the world;”
whereas in smaller communities that is only a secondary or a tertiary
matter. The object there is safety, so as to give to currency confidence
and elasticity.
Section 2, which has been read, should be taken in connection with
section 4, providing that coin, as well as certain public securities, must
be deposited with a properly designated State officer, etc.; and also in
connection with this clause in section 7:
That d o national-bank association shall be hereafter required to keep on deposit
with the Treasurer o f the United States any further security or fund for the pay
ment o f its circulating notes than that provided for in this aot, to wit, twenty per
centum o f gold and silver legal-tender coin, and eighty per centum o f bonds o f the
character hereinbefore provided for.

That is the most important feature of this bill. Its importance con
sists in this: it requires not a deposit of bonds alone, but it has a two
fold feature. It requires a deposit o f bonds and coin, the two together
amounting to 100 per cent o f the total issue o f the bank, the coin
amounting to 20 per cent o f the total amount deposited to secure cir
culation, and o f that 20 per cent deposited half to be gold coin and
half to be silver coin, and provides that there shall not be kept on
deposit at any time more than 60 per cent o f either metal against 40
per cent o f the other.
That kind o f mixed deposit o f coin and public securities is the basis
o f the system o f the Bank o f England, and it is that which gives it
elasticity, and strength. That is the basis o f the Reichs bank system
o f Germany, and it has made that system the soundest institution (with
out the advantage of experience and historical confidence to bolster it
up) that now exists in the world. The system o f the Bank o f England
is not based upon law in this respect, but upon custom and usage.
O f course you are acquainted with it, and I want to indicate where it
comes in here, and to show you where it might help you and give you
an understanding of how this bill will accomplish the same purpose.
The Bank o f England has £14,000,000 sterling o f circulation based
on Government securities and it issues notes upon that basis to the
ftall value. The bank is divided into two separate departments: the
deposit department and the issuance department. They are kept so
entirely separate that the banking department can not go with a note
o f the Bank o f England itself to the issuance department and get it
back in the shape of a note. It was found that the Bank o f England
could not supply a paper currency necessary for the commerce o f Great
Britain upon the basis o f this amount, £14,000,000 sterling. Hence it
was permitted to issue other notes on deposit o f coin. Frequently cri
ses would come to the bank, as we havefonnd that one has come recently
in this country. In such cases it would be found that the banking
department would hold immense amounts o f Government securities over
and above the amount required as security for its notes, and it would
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be found when it was necessary to convert its securities into money in
order to meet a run, that the securities could not be converted. There
was no law for this system. It was an expedient o f Parliament. That
shows how our English friends have established their system. When
a run was made upon the banking department o f the Bank o f England,
and when finally it was found that a run might cause a suspension o f
the bank, the officers o f the bank would indicate to the officers o f the
“ Government,” or the Cabinet, and would receive a letter from the Gov
ernment saying:
I f yon transcend the amount allowed by law we w ill stand between you and Par
liament to the best o f our ability.

In that case the Bank o f England would be made safe. Invariably
Parliament makes that rule. The banking department o f the Bank of
England carrying the securities would take them to the issuance depart
ment and receive in return notes o f the Bank o f England, and that
would give this margin o f elasticity iu times o f crises. Everybody
would know in that case that the Bank o f England was safe. Every
time the Bank o f England has received that Government letter, it has
stopped a panic in Great Britain. There is a provision which Parlia
ment always subsequently makes, and that is that the bank must pay
over to- the Government the ajnount o f profit which it has made on this
excess, and this acts as a check upon the bank to prevent harmfiil or
unnecessary inflation. A s the bank makes no profit it does not want
to continue, except to save the bank from impending ruin, or in answer
to positive necessities.
My bill provides lor that in this way: In the Bank o f England they
have a provision to prevent the bank in ordinary times from transcend
ing that amount, unless it deposits par for par coin for the Bank of
England notes which it issues; so that the Bank o f England’s system
practically rests upon a mixed deposit o f bonds and coin, because it
has never been found that the original amount o f issue was sufficient
to do the business. About one-sixth o f the circulation o f the Bank o f
England is now—and the general average varies— secured by deposit^
of coin in the vaults o f the bank.
I provide here that there shall be this mixed deposit. I think it will
work this way: Instead o f checking the panic by taking the profits on
excessive issues when there is a crisis, it is provided that there shall
be no lim it to the amount o f notes it shall issue, except the amount of
its deposits; but there is here a check upon the bank which will pre
vent it from undue inflation, and that is that for every $100 in notes
which it issues it must deposit $20 o f coin in addition to these public
securities, which it must buy in the market, and for which it must pay
or has paid money. It will prevent in ordinary times banks from over
issuing, and will enable them, with a slight increase o f securities in
times o f crisis, to convert (for otherwise they would be inconvertible)
public securities into currency for purposes o f relief, and to avoid
impending trouble.
I f that system had been in vogue this year, for example, when the
banks had any amount o f public securities on hand, they could have
simply carried those public securities to the Treasury o f the United
States. The banks could not sell them. There was no sale for them,
not because they were worthless, but because there was no money in
the hands o f the people w th which to buy them; that is, in the hands
of people who had “ confidence.” The banks could theii have relieved
the currency stringency—and this was a currency panic, and nothing
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else under the sun—by coming up to the Treasury and obtaining instead
o f these securities $100 in national-bank notes by the deposit o f $80
worth o f public securities, and also a deposit o f 920 in lawful coin of
the United States. This requirement o f the coin is at once a check
and a safeguard.
Here were banks holding immense amounts o f these securities as
good as gold, and all that was necessary in the world was that they
could be turned into actual currency for the time being; and a certain
amount o f those securities would have tended to restore confidence.
It has been found in England that actual conversion is hardly ever
necessary. The very moment that the people know that the “ Govern
ment letter” has been written confidence is restored. This has hap
pened three or four times.
I think that clause, taken in connection with another clause which I
wish to add to this bill—and I thought I had done so until I examined
it—will have an important effect, and that is that national banks shall
be prohibited, after a certain date, which you could fix, from issuing
any notes under a certain denomination. M y own idea is that $10 is
the right figure. The Bank o f France has practically ceased to issue
notes under denominations o f fifty francs. The Bank o f England has
never issued notes under the denomination o f five pounds, and I think
the stability o f their finances has been due to the fact that the people
were in the habit o f handling coin and knowing that coin was money.
Therefore the coin staid in the country.
W e have never resumed specie payment in this country. There
never has been a day since 1860, practically, when the United States
was upon a specie basis, and we are not upon a specie basis to-day.
Men talk about standards o f money, one set o f men contending that we
are under a gold standard; another a bimetallic standard, and another
a silver standard. W e are to-day on a fiat-money standard, and there
has never been a day when the United States or the banks o f the United
States could have redeemed its money in specie. This is all right.
There is no better peace-and-prosperity currency than a promise to pay
given by a people who are able to keep their promises ultimately, where
they are able to redeem, provided they have not issued so many prom
ises to pay as to create distrust. Our present system, i f serious inter
national trouble should come, would topple in twenty days. There is
no doubt about that.
I do not know that I could explain any farther the effect and advan
tage o f the mixed deposit system unless I were to give you a general
idea o f my views o f the system and its actual working. You have be
fore you the book from which I have read containing these proceedings,
and it is not necessary for me to read it all. You will find it in
“ Theories and History of Banking,” by Mr. Dunbar.
Mr. Cox. Concernmg notes o f small denomination, your idea is now
solely to drive them out by taxation!
Mr. W i l l i a m s . Yes, sir. Or rather, I do not drive them out, but I
prevent them from coming into existence. A s to national-bank notes
I do not drive them out, but after a certain date national-bank notes
below a certain denomination are not allowed to be a part o f the cur
rency. I think one o f the greatest benefits accruing from this system
o f State banking on county and district and State securities is this:
that it will decrease the interest burdens no& resting upon the people.
There has been much discussion about the advisability o f hhving in
each State or national bank charter a provision that no bond should be
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accepted which bore above a certain rate o f interest unless the party
depositing such bond and getting currency upon it would agree that dur
ing the period for-which he deposited the bond it should draw interest
only to a certain amount. I call the attention o f the committee to that,
and that may be fixed hereafter. A provision might be put in the law
that a depositor should receive interest at the rate o f 5 per cent in
payment o f all interest. I concluded in this bill that that was not neces
sary, because I believe the effect o f it would be that the States will control
the matter. I think that the system itself will provide a means so that
whenever refunding time comes along, the counties, States, or districts
w ill be enabled to float their bonds from that time on at a decreased
rate o f interest. I t w ill be a natural effect o f the increased demand
for the bonds. This would not be coercing anybody, but i f banks take
advantage o f this they should agree as part o f the consideration not
to receive over a certain amount.
Section 3 reads as follows, and I want to call your special attention
to it:
S e c . 3.. That State banks, State banking associations, and bankers expressly author
ized under State statutes to issne circulating notes shall pay no Federal or United
StatM tax upon such notes: Provided, That all such notes are secured in the same
manner and to the same extent as the notes o f national hanks; that is, by coin and
bonds o f the precise character designated in this bill, which bonds and coin must be
duly deposited with a properly designated State offloer in the State in which the
issuing bank or banking association or banker is domiciled, and provided the State
charter authorizing such bank o f issuance contain provisions safeguarding issuance
and depositors identical with the provisions herein contained, except in so far as a
change o f verbiage is necessary to adapt such provisions to State instead o f national
governmental machinery. No circulation o f any State bank or banking association,
or banker, not having complied with provisions identical with those o f this act, is
or shall be hereby in any manner exempt from taxation as now established by law,
and every national banking association shall pay a tax upon the circulating notes
issued by it and in circulation o f one per centum per annum upon the average
amount o f the same. Such taxes shall be paid semiannually, and shall be collected
by the internal-revenue collectors o f the United States.

Under the present law there are certain limitations as to capital, both
as to the amount o f notes which can be issued and the minimum o f
taxation that a bank has to pay. There is in this bill no limitation
upon the amount o f the notes which a bank can put in circulation except
as to the amount o f coin and securities deposited. That is variable
from time to time as the needs o f business may require, and for that
reason when I came to the provision in reference to the 1 per cent
(which has been read) upon the average amount o f circulating notes
for the year, I put' in the provision regardless o f capital or individual
deposits, “ such taxation to be paid semi-annually,” etc.
Mr. Cox. A t what rate do you fix that in your bill ?
Mr. W i l l i a m s . A t 1 per cent. But I devote its net proceeds to the
establishment o f a “ redemption fund.” That is a feature o f the bill
which is not at all new. It has been tried in several banking systems
and has been seen to work very well. I took this tax o f 1 per cent to
make a fnnd for the protection o f the note holder. A fter that there is
a provision to reimburse the Government for the cost o f engraving and
printing the notes.
Mr. Cox. That is for the benefit o f the note holder f
Mr. W i l l i a m s . Yes, sir; that leaves the stockholders’ liability over
and above the stock for the general protection o f all the creditors o f
bank. I t was my idea that bonds o f the character designated here to
be deposited, together with this redemption ftand, and standing also in
the back ground for the protection o f the note holder, and also giving

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the lien on all the assets of the bank in favor o f the note holder, would
be sufficient protection without the further provision which has been
made in so many bills for this liability over and above the stock for the
benefit o f the note holder.
There are some things which 1 would like to mention in connection
with the redemption fund. Mr. Horace White, I think it w&s, treated
that very ably.
[Mr. Williams here read from the Annals o f the American Academy
o f Political. Science, a copy o f which is in the hands o f most o f the mem
bers o f the committee. The portion which he read is found on page 24
o f Volume m o f the date o f March 5,1893.]
Section 9 o f my bill reads as follows:
S e c . 9. That a fund o f one million dollars shall be created out o f the taxes col
lected under this act (after deducting the cost to the Government o f the United
States o f printing, engraving, and delivering the circulating notes), and the said
fund shall be maintained from the same source; and i f the coin and the proceeds o f
the bonds deposited to secure the circulation o f any banking association and the
first lien upon its assets together are insufficient to reduce the outstanding notes o f
the association, then the deficiency shall be made good out o f this fund.

That gives a first lien on all assets o f the bank to protect the note
holder. I f this and the circulation deposit together shall not be suf
ficient to redeem outstanding notes, then the deficiency shall be made
up out oi this fund.
I think that the 10 per cent tax should be repealed, and that each
State should be left to fix a currency system suited to itself. I think
that would be best as a theory and a political principle into which n o
practical consideration o f mine would enter. I think it o f the highest
importance, however, that a State banking system should be established,
and that it shall be one which will be upon a sound basis and not subject
to any reaction o f public sentiment. In the present condition o f aftairs,
considering the lack of experience o f present State legislatures in hand*
ling financial and banking questions, I do not believe it would be safe
to leave the question to their undefined control. I believe if it were
soleft,thatthelegislatureof South Carolina to-morrow would issue notes
and pass them as money upon the sub-treasury scheme. I have fears
also about the legislatures o f some other States. I believe that in
Nevada, and perhaps some other Western States, they might issue
notes upon deposits o f silver bullion. The point I want to make, how
ever, is that two or three State s out o f the forty-four might not intro
duce safe and sound banking principles although the other forty-odd
did, the attention o f the people would be called to the two or three
systems which were rotten and visionary, more than to the forty-two
that were sound and all right. There is need o f education upon the
subject o f the uniformity o f the circulation and the security o f our
money, because as soon as the American people get it into their heads
that some where there is unsound money in circulation, there would be
a reaction against the State banking system which would kill it. I
want to introduce a State banking system which shall stand the test
o f time. It might be a fact that two or three o f the States, so far from
having a system o f sound notes, would have a system which would be
the by-word o f the American people for visionary and impracticable
provisions. W hat we should do, in my opinion, is to -provide a means
to aid us who want to carry the Government back to its original
moorings upon this question. You should consider the conditions in
bringing it back so that when you get it back it will be therfe to stay.

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I think we have got to come to it gradually. A t the present time the
Federal Government does not redeem notes in coin, but in flat money.
The Government made that flat money a legal tender, and followed it
with this legislation, and started out upon a system which is wrong. I
do not believe we can remedy it in a day, but must work to it gradually,
and after a while we will have a system not only practical and sound,
bnt thoroughly sound for all time.
I will read section 4:
S e c . 4. That in addition to the United States bonds now required b y law to be
deposited with the Treasurer o f the United States to secure the circulating notes o f
national banking associations, the Comptroller ofthe Currency is hereby authorized
and required to accept registered bonds issued by any State, county, municipal
corporation, or taxing district o f a State, subject to the following restrictions—

I want to explain what I mean by the term “ taxing districts” o f
States' The soundest bonds afloat to-day in the State o f Mississippi
are bonds o f the levee district, and in the State o f my friend Mr. Cox,
they have taxing districts, for instance the city o f Memphis. I
thought I would insert that language in reference to taxing districts
so as to include those municipal corporations. These bonds are
subject to certain restrictions, as to being at par, etc.
The bill o f mj^ friend Mr. Harter, which was introduced in the laBt
House, provided that those bonds should be listed on a stock exchange.
M r. Harter did not understand the business as it is conducted down
our way. W e have no stock exchanges upon which bonds can be
listed. H e also provided in his bill that they should be listed on a
stock exchange o f a city o f not less than 500,000 population. I would
rather have a Yazoo County bond than a bond o f any other kind. It
can not be bought. I do not suppose that it is listed or that it could
be listed in.any stock exchange in a city of 500,000 population. And
yet it is perfectly good. Our people who would do business with local
banks know that it is good. The local bank could deposit that bond
under the provisions o f this bill, because at par and above par. I t
could not be deposited in a Chicago or New York bank because they
always deposit securities which are listed upon their own exchanges,
because they are in the habit o f judging of the soundness of securities
b y the fact that they are listed on their own exchanges.
Mr. Cox. Do you know o f any existing bonds which have the provis
ion to be paid in coin, which you require. They are mostly payable in
dollars.
Mr. W i l l i a m s . There are a great many payable in coin.
Mr. Cox. I suppose that bonds o f the State are payable in dollars
like they are in my Statef
M r . W i l l i a m s . I t would come about finally that they would be pay
able in coin, and it is the underlying principle o f which I spoke in the
beginning o f my remarks, when I said that I wished to bring about a
system as nearly as possible where promises o f all sorts are payable in
coin, and I think that State bonds in nearly all the States of the South
to-day are simply payable in lawful money o f the United States. But
there is no reason why they should not be made payable in coin. The
idea in my mind was that bonds deposited ought to be like the notes
issued, made payable in coin.
Paragraph 3 o f section 4 is as follows:
Third. No bond shall be accepted npon which payment o f interest has at any
tinw within five years been in default, or which at any time within tw o years prior
to tbe dat6 o f its offer for acceptance has sold publicly upon any stock exchange
where it was listed, or in market overt, for less than 100 cents on the dollar o f its
face Talne.
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Mr. Harter’s bill contained nearly this exact language, except that
he confined the text to sale on stock exchanges.
Fourth. No bond shall be accepted i f the total levy o f the county, city or taxing
district issuing it exceeds 2 per centum per annum, and i f at any time subsequent
to the deposit o f any bond the levy o f the county, city or taxing district issuing it
shall be increased, so that the total levy shall exceed 2 per centum per annum,
the Comptroller shall have the right and it shall be his duty to call for new security,
in the stead o f such bond, o f the character o f bonds herein required to be deposited.
Fifth. No banking association or banker shall be permitted to have more than
20 per centum o f its bonds on deposit in the bonds o f any one State, any one county,
any one city or any one taxing district.
Sixth. Whenever any class o f bonds on deposit has been publioly sold below par
for the period o f thirty days on any stock exchange where listed, or the Comptroller
learns and believes that its actual marked value for thirty days has been below par,
the Comptroller shall require a bond to be substituted which w ill in all respects
meet the requirements o f this act.

That is all in reference to the limitations or safeguards as ito the
character o f the bonds to be deposited. I think I have dwelt suffi
ciently upon this feature o f the security, which is to be part coin and
part public securities. There is one feature o f it that I would like to
ask that you carry in your minds. The practical working o f this
requirement for 20 per cent o f coin and 80 per cent o f securities would
have the additional effect upon the present system o f making it singu
larly elastic instead o f ironclad, as at present. This is, in my opinion,
one o f the chief thingB to be aimed at, that we Bhould have a currency
which will adapt itself necessarily and automatically to trade needs
and necessities. W e need currency per business necessity and not per
capita. This is a system which, when a business stringency arises,
will in an automatic way provide for inflation, aud in using that worn
“ inflation” I do not give it the commonly accepted meaning, because
the word has been abused and used in a wrong sense! In a time when
everything was going on right and when there would be a redundancy
o f currency, this system would enable a man to come and get his
security, withdrawing it and using it for other purposes, and therefore
it would destroy his liability upon the notes.
Mr. H a l l . I think I have heard enough of the discussion to get a
pretty clear idea o f what you are driving at. Does the State or the
National Government issue these charters to these banks!
Mr. W i l l i a m s . That depends. The National Government would
issue charters to national banks and the State governments would
issue charters to State banks.
M r . H a l l . W hat authority would a State have to issue a charter
which would be under the direction o f the Comptroller o f the United
States Treasury f W hat power does this bill give the Government
over a bank created by a State charterf
Mr. W i l l i a m s . No authority under the sun. This bill declares that
all State-bank issues which are relieved from the 1ft per cent tax shall
be the issues o f banks having State charters, whose provisions are
identical with the provisions under which the national banks are
organized, being subject to like provisions for examination and inspec
tion and for the safety o f the notes issued. The Comptroller o f the
Treasury never interferes with the administration o f the State banking
system. The line o f demarcation between the State-charter institution
and the Federal institution I keep perfectly clear all the time. The
only thing in the bill that would seem to confuse the two systems is
this, that the 10 per cent tax is not repealed out and out. I t is repealed
only as to such banks and bankers as issue notes or are authorized to
issue notes by the State under charter provisions prescribed as neces
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sary and prerequisites; such as shall have in their charters provisions
for examination, deposit, etc., that are required o f the national banks.
Mr. H a l l . Y ou have in one o f the subdivisions o f section 4 a pro
vision that where bonds fall below par the Comptroller shall have the
right to call for new securities,
Mr. W i l l i a m s . Another clause provides that every clause o f any

State banking act shall conform to the requirements o f the national
banking law, except so far as a change shall be necessary in order to
adapt the verbiage to the State-government machinery. The name o f
the proper State officer would be substituted for that o f the Comptroller.
Mr. C o b b , o f Alabam a. That is, where State charters apply?
Mr. W i l l i a m s . Yes, sir; and that would work in this way: You are
a banker and you establish a bank in the South. The Government
would come to you and say “ Your circulation is subject to the 10 per
cent tax.” You would say “ No, I am exempt;” and you present your
charter from the State which authorizes you to do business. I t is found
to be in proper shape, and you are exempt.
M r. C o b b , o f Alabam a. Suppose it is not so decided T

Mr. W i l l i a m s . W ell, you would appeal from the internal-revenue
collector to the courts. But practically that question would never
come up, because nobody would undertake to float any very considerable
quantity o f notes without being satisfied, before doing so, whether the
notes would be subject to the 10 per cent tax. Practically charters
would have the opinion o f the United States Attorney-General. W hat
I want to emphasize upon that subject is that I have stadiously drawn
the line o f demarcation, so that under no circumstances could a Fed
eral officer supervise or examine into the administration o f affairs o f a
State-chartered institution, dictate its management, or do anything
else. The only thing that the Government can do is that before it
surrenders its right under the law to certain revenue, it shall see to it
that the State charter conforms to the Congressional requirement. My
idea is that these systems should run pari passu on $n equal footing
as to burdens and opportunities. A fter they are established they are
separate and independent systems, under separate and independent
sovereignties, for the purposes o f control aud administration. I am
willing to let the national-bank law stand, provided State banking can
be put on an equal footing with those institutions. Whenever we pro
vide State charters and put State banks on the same footing they should
be exempt from Federal taxation. The provisions o f this bill are not
all that can be put into a State charter. I t provides that these pro
visions shall be put into a State charter, but other things may be put
in besides, provided they do not conflict.
Mr. H a l l . In other words, you inject into the State statutes the
national-bank statutes f
M r. W i l l i a m s . I do, in so far as it is capable o f adaptation to the
State government machinery.
Mr. H a l l . There are a great many provisions in your bill in regard

to the circulation o f national-bank notes; you make it a condition,
precedent to the establishment o f this system, that we shall iqject the
national-bank law iuto the State statutes; suppose these provisions
are not complied with in a State charter!
Mr. W i l l i a m s . Then a State bank would not be exempt from pres
ent taxation.
Mr. H a l l . In other words, one o f the conditions is that the United
States Government has absolute control over the matter!
Mr. W i l l i a m s . Not absolute control over the matter.
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M r. H a l l . B y virtue o f this 10 per cent tax?

Mr. W i l l i a m s . The 10 per cent tax already applies and the banks
frill have to pay it. I f some o f the State legislatures went to work
and started a bank on cotton, grain, and other perishable commodities
as security for their notes, they would have to pay the 10 per cent tax.
I t would be in the interest o f the State banking system to do that.
W hile there might be forty-two out o f the forty-four States which
would have a good, sound, safe, uniform system o f currency based upon
securities and the deposit o f coin, whicli would make them perfectly
good, yet i f only two States started wildcat schemes, those two States
would be more in the public mind, and would do more to bring the
system into discredit than the other forty-two to encourage its growth.
I t would kill the State banking system and fasten upon us the
'dutches'of the national banking system closer than ever.
Mr. H a l l . Does not this national-bank system extend throughout
the whole country!
Mr. W i l l i a m s . Yes, sir. I t is the use o f the taxing power o f the
Government to stamp out State banking institutions. W e propose to
make them safe. I t is not an extension o f the national-bank system,
but it is an establishment o f a safe banking system for the States as
well as for the Federal Government. You know exactly what I mean,
but I object to your way o f stating it. Your way o f stating it would
appeal to prejudices which would be unwarranted under the circum
stances.
Mr. Cox. Suppose you deposit, say county bonds. I know how the
thing works practically in my own State. I f you deposit county bonds
and the county fails to levy a tax to pay interest on the bonds or to
pay the bonds, and I know o f instances where magistrates have resigned
to prevent the levying o f taxation, what would you d o!
*Mr. W i l l i a m s . The State officer, who takes the place in the bill of
the Comptroller o f the Currency, would refuse to receive such bonds, or,
,if already received, would require other bonds to be substituted for them.
Mr< H a l l . Suppose he did not!
Mr. W i l l i a m s . I am glad you mention that.

A bank having com
plied with all the provisions o f the law, it is for a State officer to say
whether this particular county bond A or State bond B is o f the kind
required under the provisions o f the bill.
Mr. W a r n e r . Your plan provides in some regards for a very strict
limitation o f State banking institutions. You explain that your rea
son is to provide against,possible trouble and to avoid any apprehen
sion o f unsound financiering in currency issues!
Mr. W i l l i a m s . Yes, sir.
Mr. W a r n e r . In view o f that aim allow me to ask you whether it

would be well or in accord with your scheme to provide for some judi
cial proceeding by which the Comptroller o f the Currency'might at
any time, in case he saw fit, test the extent to which the corresponding
officer in each o f the States had carried out the law ! Would it be
proper under your plan to provide some means or some process similar
to a quo warranto by which the Comptroller would have the right to
inquire into this matter!
Mr. W i l l i a m s . No; and my objection is a fundamental one, and it
is one which goes to the very soul o f the matter. I think it is proper
that a strict line o f demarkation should be drawn between the State
and the Government machinery. I believe that the Government o f
the United States has a right to say that there shall not be injected
into the system by unsound charter anything which would unduly and
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unfairly discriminate against its own fiscal agents, the national banks.
When you come to the point pf saying that a Federal officer shall inter
fere with or at any time supervise, correct, or sit in judgment upon the
administration o f a State bank by State officers, then 1 should object.
Mr. W a r n e r . The gentleman misunderstands me.
Mr. W i l l i a m s . No, sir; 1 do not.
Mr. W a r n e r . Let me explain. My suggestion would not exclude
any person from bringing similar proceedings in court. It is a sugges
tion which would not work either in favor o f the Government system
or the State system.
Mr. W i l l i a m s . I f you are speaking o f the Comptroller as an indi
vidual, I think he could do that anyway, provided he had an interest
and status iu court, as any other individual might, but he could not do
it as a Government officer. Wherever the Comptroller o f the Currency
thinks that a State charter did uot comply with the law, o f course the
collector o f internal revenue simply goes to the bank and levies the tax.
Then the question wonld necessarily come up as to whether the State
charter had provided these safeguards which are a prerequisite to
the exemption o f the bank issue from taxes. When it comes, however,
to the administration o f tbe system, that must be left to the State,
because the moment you overstep the bounds o f the State authority and
allow a Federal officer, judicially, or otherwise, to exert authority o f this
kind over a*State bank, that moment you have done a thing which
would be o f more importance than the entire financial question itself.
Mr. W a r n e r . I do not become enamored o f these things on short
acquaintance. A s 1 understand the gentleman, he calls to my atten
tion the fact that as a necessary result o f the power o f collecting the
10 per cent tax, all matters which have been suggested as a basis o f
litigation would actually become such, and as I understand the gen
tleman, he sees nothing insuperable in that objection 1
Mr. W i l l i a m s . The distinction in my mind is one that is clear to
me, bnt it is one that is difficult to make clear to others. In my mind
the two are entirely separate and distinct.
Mr. W a r n e r . Has the gentleman suggested any way by which the
taxing officer o f the .United States, the Secretary o f the Treasury, or
any other officer could meet this question!
Mr. W i l l i a m s . Not at all. The officer simply meets one question,
and that question is, does the charter o f the institution comply with
the law ! A re its provisions such as are required in a charter
before exemption can follow f The question o f administration and the
faithful performance o f the conditions o f the charter by its officers aud
agents is a question to be determined by the authority which grants
the charter.
I want the committee to understand distinctly that this bill is
introduced as a mere means o f getting the general idea before the com
mittee, as a basis to work from, and is not to be considered as a bill
which is complete in all its provisions. I think the bill you agree ou
ought to go more into detail than I have done—ought to be, in fact, a
codification o f the banking laws, with these amendments.
Mr. J o h n s o n , o f Indiana! It seems to me that the logical course for
you gentlemen to pursue who are jealous o f the power o f the National
Government and its right to interfere iu these questions is that you
should introduce a bill for pure and simple State banks.
Mr. W i l l i a m s . That is my ideal exactly, and it is the thing towards
which I am aiming. I would introduce such a bill now if I considered it
safe now. The education and experience which State legislator* have
940------ 10
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not had for thirty years any occasion or opportunity to receive upon
financial matters is to be considered. It would not do te thrust
responsibility upon them at once without preparation. I would be glad
to do it. I think the State legislators need a little training before we
can go quite that far.
Mr. H a l l . You have been speaking about the bad financial ideas in
the minds o f the people o f the Uilited States which you and I, and
especially our colleagues in the Western States, have come iu contact
with; and is not that education due in a great measure to the financial
legislation o f this Government for the last thirty years f
Mr. W i l l i a m s . Yes, sir. The people o f this country have been m iseducated until the ordinary common citizen does not understand the
difference between money and a promise to pay.
Mr. C o b b , o f Missouri. D id you say that the legislature o f M issis
sippi was in favor o f the sub treasury scheme?
Mr. W i l l i a m s . N o ; but I should not be very much surprised i f some

scheme like that were inaugurated in Mississippi, and I should be sur
prised i f it were not inaugurated in South Carolina.
Mr. C o b b , of Missouri. You think this style o f legislation would h a re
its start in the banking system f
Mr. W i l l i a m s . That particular legislation ought not to start any
sort o f a false system. 1 think that these things ought ultimately to be
left to the State legislatures; and let them make errors, i f they choose.
From eri'or would be evolved true principles and soundness. But w h y
not prevent possibility o f error at the start by establishing a sound
system ?
M r. C o b b , o f Missouri. Then the people would have to suffer for those
errors.
Mr. W i l l i a m s . The people who sent those legislators to the legisla

tive halls would have to sufler. A t present I think we ought not to
do anything of a kind that would lead to a reaction iu public sentiment
on this question and a consequent deathblow to State banking. T o
me, this is a question o f policy and feasibility. It is very seldom that
I go off on a question o f pure policy, but for this once I think that this
is the practical and politic thing to do.
Section 10 is as follows:
8 e c . 10. That no officer or director o f a national banking association ran borrow
from said banking association on terms different from the terms extended to the
public; nor can any national bank lend on the security o f its own stock, nor can
any officer or director o f a national bank indorse for another in said bank, or borrow
money from it on the indorsement o f other officer or officers, director or directors.
Any director shall be individually liable for any losses accruing from an infraction
o f the laws governing national banking associations b,v the board o f directors,
unless he shall have voted against the same and caused his vote to be entered on the
minutes, and notified the Comptroller o f the Currency o f such infraction within
thirty days after its occurrence; or, i f not present at the meeting o f the directors
at which the infraction occurred, then within thirty days after the fact o f the
infraction came to his knowledge.

Section 11 is taken from the old Massachusetts banking system, and
is as follows:
S e c . 11. That any director o f a national bank going out o f the State for more than
sixty days or absenting himself from five successive‘meetings o f the board shall be
deemed to have resigned, and his place shall be filled at once. No person can be a
director o f a national bank whose stock is pledged for debt.

I want to call especial attention to section 12. I think one o f the
chief disadvantages o f the present system o f banking is that there is
no provision for current redemption. Final redemption is indubitable;
but there is no provision for current redemption.
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Section 12 is as follows:
Sec. 12. That the refusal or failure to pay coin for its own notes on presentation
at its counter, and on demand o f coin therefor, at once or within ten days after such
demand, shall, i f the bank so refusing or failing be a national bank, constitute causer
for the appointment o f a receiver, and, i f the bank so refusing or failing be a
State bank or a 8tate banking association, or a banker expressly authorized by the
laws o f a State to issue circulating' notes, the said failure or refusal shall take the
circulation o f said bank from within the provision 1or exemption in this act, and
shall, ipso facto, work a reimposition o f the ten per centum tax on its circulating notes,
as heretofore imposed by law, for the current fiscal year.

The present system is a system o f paper redemption. The nationalbank notes are redeemed in greenbacks. This change will make them
redeemable in coin, after t«n days’ notice. There is another thing
which onght logically to follow the idea of this b ill; but I did not put
it in the bill, because I thought it would meet with so much objection
that it was hardly worth urging. Not only in my opinion should 20
per cent o f the deposit to secure circulation be reserved in coin, but in
my opinion banks ought to be required to keep the reserve to protect
depositors in coin entirely. That would provide a real bimetallic basis
for this country. I t is true that the gold and silver would be chiefly in
the reserves o f the bank, but there would be in the country as money
a perfectly safe, sound, automatic currency convertible into coin at any
time and based on coin.
Mr. J o h n s o n , o f Indiana. Is that inserted in contemplation o f bimet
allism ?
Mr. W i l l i a m s . N o, sir; it is iuserted more in contemplation o f the
fact that bimetallism has perhaps obtained its deathblow. There are a
great many people who believe that the principles and objects o f bimetalism can.be accomplished by putting paper in circulation. I f you get
a system where no bank note or paper under a certain amount is issued,,
you provide for actual circulation o f the coin in retail transactions to
start with, and if you get a bank system in which reserves are kept in
coin, you provide for a circulation on the basis o f coiu.
Mr. W a r n e r . Your bill would be practicable i f we should have a
single gold standard, or-----Mr. W i l l i a m s . Bimetallism. It would be equally applicable in any

case, and at the same time would have the effect----Mr. J o h n s o n , o f Indiana. In your opinion that law would be much
more feasible i f we had genuine bimetallism ?
Mr. W i l l i a m s . I f we had genuine bimetallism I would never have
introduced this bill, because it wonld have been entirely unnecessaryBut that has very little to do with this discussion.
Mr. J o h n s o n , o f Indiana. Your bill would be much easier o f opera
tion i f we had the use of gold and silver as standard money.
Mr. W i l l i a m s . A s current and actual money in circulation, no
matter what was regarded as the “ standard,” it would be easy.
Mr. J o h n s o n , o f Indiana. I f we had both gold and silver in use as

standard money it would be much easier to comply with your bill.
Mr. W i l l i a m s . You are confused in your mind as to what is bimet
allism— I mean as to what is the actual current circulation o f both
coins. No matter what ideal standard should be used my idea would
operate successfully. Your idea is that true bimetallism would be
really a double “ standard.”
Mr. -J o h n s o n , o f Indiana. There is no confosion in my mind, I think.
Would not the effect o f that bill o f yours be strongly in favor o f the
use of silver as a standard money in order that its terms might be
applied f Would it not require thatf
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Mr. W i l l i a m s . Not at all. It would require silver as money; not
necessarily as a standard money.
Mr. J o h n s o n , of Indiana. Would it uot be much easier to accumu
late a reserve or both gold and silyer than it would be i f you had gold
or silver alone as a standard!
Mr. W i l l i a m s . History settles that thing. A ll the standard France
has at present is a gold standard, but the actual reserve iu France is
half and half o f each metal, not mathematically but substantially.
There is an answer from current history.
Mr. J o h n s o n , o f Indiana. The Bank o f France redeems in gold.
Mr. W i l l i a m s . She redeems in both metals. I do uot mean h a lf
and half mathematically. The Bank o f France has a right to use both,
and does use both always and freely in meeting its notes and other
obligations.
Mr. J o h n s o n , o f Indiana. Is uot one o f the objects you have in the
introduction ot that bill to create a necessity for the use o f silver a s
standard money!
Mr. W i l l i a m s . A s money, yes; but not as standard money.
Mr. J o h n s o n , of Indiana. W ill you answer the question!
Mr. W i l l i a m s . I am tryiug to. One o f the incidental objects o f this

bill is to make room for the use o f silver as mouey, but not necessarily
as standard money.
Mr. J o h n s o n , o f Indiana. Then you answer 1‘ No ” !
M r. W i l l i a m s . A s far as your question puts the word
in front o f the word “ money, ” I answer no.

sta n d a rd ”

Here is something which I want to call attention loin a general way.
Section 13 is as follows:
Sue. 13. That the present prohibition upon national-banking associations prevent
ing them from lending money on real estate security is hereby removed.

I f you put in a section like that which I have read, safeguarding the
action o f the directors in a bauk and requiring them to be present a t
all the meetings, and requiring that they shall not leave the State, and
compelling the actual participation o f the directors in the conduct o f
the bank, it will make the affairs o f a bank safe and sound, no matter
how free it is left as to choice o f security for loans. I do not think
there is any danger from a bank in leaving it free to loan money on
real estate. Beal estate is, after all, the source o f all wealth.1 I t
is usually the case that real estate is not immediately convertible into
money, but 1 think we may safely leave that to the business sense o f
jwivate enterprises, and let the directors o f a bauk elect what th ey
shall do in this respect. They will guard their own interests. Down
in my own part o f the country that is the only security men have.
Well-to-do planters have no other security under the sun.
Mr. W a r n e r . A bou t what percentage o f assets o f a bank should b e
invested iu this particular kind of security! W o u ld yon say the
amount ought not to exceed 10 per cent o f the assets!
M r. W i l l i a m s . S o for as I am concerned it would depend upon the
character o f the limitation as to whether it would meet my approbation
that any limitation should be put upon it at all. I think it could b e
safely left to the banks.

When you go to a city the banks will not take real estate as security,
because, to a large extent, it is speculative in value ; but down in my
section real estate has no speculative value. Its value has been about
so much for twenty or thirty years. The board of directors would ,be
governed by their surroundings, and I think they may be safely left free
to be so governed.
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Section 14 is as follows:
Se c . 14. T h a t a ll p arts o f e x is tin g la w s c o n tro llin g n a tio n a l-b a n k in g associations
not in co n flict o r in con sisten t w it h th e p ro vis io n s o f th is act are h ereb y reen acted,
inclu ding a ll p ro visio n s fo r e xa m in a tion a n d fo r p ro te c tio n o f d ep ositors.

There is a good deal o f meaning in that. It requires that the pro
visions o f the national-bank law for examination and inspection shall
also be substantially a part o f the provisions of the State banking sys
tem. I think the provisions for examination and reports is the most
important, safest, and soundest feature o f the national-banking system.
Section 15 is as follows:
S ec. 15. That no State bank or banking association, or banker authorized by the
law o f a State to issue circulating notes, shall be exempt from the operation o f the
present existing Federal law taxing snch notes, nnless in the charter from the State
so authorizing it to issue circulating notes there be provisions complying with and
according with the requirements o f each and every provision o f this act, except
section nine hereof, ana lines nineteen, twenty, and twenty-one o f section three
hereof. The State banks and banking associations hereby intended to be exempted
are not exempt nntil they are chartered with provisions substantially identical with
the provisions o f this act, such compliance o f provisions being prerequisites to the
exemption herein and hereby enacted.

I f that section had been read earlier it would have saved a good
deal o f discussion.
Mr. H a l l . Is it made a prerequisite to the issuance o f the charter 1
Mr. W i l l i a m s . Yes, as to the provisions being in the State charter,
no, as to the administration aud performance o f the charter require
ments under the charter after its enactment.
Mr. H a l l . Under yonr bill can a State issue a charter ?
Mr. W i l l i a m s . Yes, sir; but the banker does not obtain exemption
from the 10 per cent tax on circulating notes unless the charter under
which he operates be a charter whose provisions are in compliance with
the provisions o f the. national-bank act..
Mr. H a l l . Who says whether a charter complies with the provisions
of that act?
Mr. W i l l i a m s . Ultimately the courts might. I t is the duty o f the
collector o f internal revenue in the first instance under this bill, be
cause it is a Federal tax. I f the collector of internal revenue and a
bank disagree, then the disagreement must be determined judicially. I
do not see anything in this bill which could be construed as allowing
either o f the two systems to nullity the other. W ill you state your
question again ?
Mr. H a l l . In the last section o f the bill which you have just read,
and which excepts section 9, you say that this charter issued by the
State must comply with every provision o f this act, except this section 9.
Mr. W i l l i a m s . And lines 19 to 21, which I neglected to insert in the
b ill
Mr. H a l l . That puts the entire State-banking system under the
supervision and control o f the National Government?
Mr. W i l l i a m s . No; but this Federal officer must see whether the
charter provisions uuder which a man proposes to issue circulating
notes is in accordance with the provisions o f this bill. That is all. I f
that is determined adversely to the party it is derided judicially.
Mr. J o h n s o n , of Indiana. In a State court or in a United States
court?
Mr. W i l l i a m s . In a United States court because it is a question o f
Federal taxation.
The C h a i r m a n . The process which the Government would pursue
would be this: The collector o f internal revenue would demand taxes.
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The person from whom taxes were demanded would refuse to pay; and,
when the collector insisted upon payment, the party would pay under
protest. He could sue the collector to pet the money back, and the
party losing the suit could take it to a United States court, wliieli
wouid finally decide the question as to whether the charter complied
with the act of Congress.
Mr. W i l l i a m s . I t would decide that one question, and somebody
must o f course decide that. That is the sole question, determining
the prima facie or substantial identity o f charter provisions. There is
nothing else left for the Federal officer to decide at all.
Mr. I I a l l . W hat does that charter issued by the State set forth?
M r. W i l l i a m s . The charter o f the State sets forth whatever i t
chooses to, provided it sets forth these provisions, and provided th a t
' nothing in it conflicts with these provisions, safeguarding issues and
deposits.
Mr. H a l l . It must set forth that every condition precedent has been
'complied with except section 9.
Mr. W i l l i a m s . The charter does not set forth that the conditions
precedent have been complied with. The State charter itself, contain
ing these provisions, is the condition precedent.
Mr. H a l l . Suppose a state issues a charter, and the conditions are
set forth as being complied with, when in fact they have not beeuf
Mr. W i l l i a m s . That case could not exist.

Mr. H a l l . It is arrived at by a quo warranto or in a suit between
the collector and the party.
Mr. W i l l i a m s . I f the State in its charter had complied with the
requirements, then the State by its charter would have conferred the
right o f exemption upon the State bank issuing these notes. There is
nowhere any question as to whether a bank in its administration has
complied with the provisions o f its charter. The whole question is to
be determined by the Federal authorities as to whether the conditions
precedent o f legal enactment in the charter have been complied with,
and the State must be left to determine for itself whether the adminis
tration o f the affairs o f a bank have been in accordance with the law
or not and to enforce compliance with its law. In other words, it is
jufet like this : When we come to consider the question o f the opera
tion o f the Fifteenth amendment, there can be passed by no State a law
which conflicts with that law, or with any law o f Congress passed to
carry the Fifteenth amendment into execution; but when you come to
the question o f determining whether a State law, carrying out the pro
visions o f tbe Fifteenth amendment, has been violated, then the State
law punishes that. These provisions, Federal and State, are required to
be in accordance. The two systems must be on an equal footing o f
legal enactment, and when it comes to a question of administration
subsequent to the granting o f the authority in the legal enactment,
each is separate. But before this can be done the Federal law requires
an enactment by the State in accordance and substantially identical
with the legal enactment under which the Federal bank system has
been authorized.
Mr. H a l l . Suppose a State issues a charter and says in that charter
that all the conditions precedent in reference to this bank have been
complied with—the 80 per cent o f bonds and the 20 per cent o f coin—
when in truth not one single bond has been deposited ?
Mr. W i l l i a m s . You do not understand me yet. It is not necessary
to the exemption o f this taxation that they shall have been deposited.
I t is necessary that the charter shall require it. The State enforces the
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requirement for its banks and the nation enforces the requirement for
national banks.
Mr. H a l l . It is necessary that the States should have certified to
the fact.
Mr. W i l l i a m s . Yes; and that a man doing business should do it
under a charter with these provisions.
Mr. H a l l . Without Federal interposition, nobody would ^now
whether it had been complied with or not.
Mr. W i l l i a m s . Your question takes for granted that it would be
possible for some State in the Union to issue a charter requiring that
these things should be done, and certifying that they had been done,
when they had not been done. That is uot even possible o f consid
eration. A ll that is necessary is that we shall have the two systems
running along on all fours, coming under the same character o f author
ity with the same provisions in reference to the safeguarding o f its cir
culating notes.
Mr. H a l l . Then where is the national inspection?
Mr. W i l l i a m s . Nowhere; but there is a State inspection for State
banks identical with the national inspection for national banks provided
for under the bill.
Mr. J o h n s o n , o f Indiana. You have a system for State banks pure
and simple?
/
*
M r. W i l l i a m s . O f course; as for as administrative control goes.
Mr. J o h n s o n , o f Indiana. There is no power in the Federal Govern

ment to investigate that system.
for the State to determine. •
Mr. W i l l i a m s . O f course.

I f the statutes are disregarded it is

M r. J o h n s o n , o f Indiana. W h y not introduce a pure and simple
State-bank bill?
The C h a i r m a n . I think Mr. Williams has answered the question

fully, and I believe the members o f the committee understand the mat
ter.
Mr. W i l l i a m s . I hope so; but I am singularly unfortunate in one
respect, and I appreciate it as much as anybody can— the difficulty
which I have to make clear to the minds o f others things which are
quite clear, to my own mind. I think this is clear.
Mr. J o h n s o n , o f Indiana. I simply wanted to get it into the record
■correctly and to show very plainly that this is a State banking system.
Mr. W i l l i a m 's . I was not thinking o f the record, but you can put
this in the record: the legal provisions of safeguard for issuance and
depositors under the two concurring systems of national and State
banking would be substantially identical. The question as to whether
the substantial and identical provisions o f law were in eaoh case in good
faith carried out in the administration o f the respective systems would be
left for determination to the officers o f the respective systems. The State
government after having once chartered an institution in such a way
as to comply with the provisions which Congress required as charter
prerequisites to exemption from Federal taxation,would enforce its pro
visions; and the act which would confer upon the chartered bank a
right to issue certain notes, would, under the joint operation o f the
State charter and the act o f Congress, exempt the notes o f the bank.
The agents o f the Federal Government would have nothing to do with
the administration o f the affairs o f the State bank by the State officers
and the agents o f the State government would have nothing to do with
the administration o f the affairs o f the national banks by the officers o f
the National Government. I f I have failed in any way in the bill to
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keep the line of demarcation after the charter containing prerequisites
o f exemption has been granted to a State bank, it is perfectly clear to
you that it has been caused for lack o f ability on my part to keep them
distinct.
That is about all I wanted to say; but I would like to call attention
to this bill which I have marked, aud which I will leave here. It shows
in various places the history o f these laws.
There is another practical difficulty, at least it would strike you as a
practical difficulty, but it is not. A man might object that a bank
might be chartered and issue its notes, and a Government officer would
come along afterwards and say that the Government would tax those
notes; but practically there would be no difficulty about that, because
no man would go to work under a State charter until that matter had
been settled. The grantiDg o f that privilege would be in the nature
o f a permit or release by the Federal Government.
Thereupon, the committee rose, to meet Thursday, October 12,1893,
at 10 a. m.

C o m m it t e e o n B a n k i n g a n d C u r r e n c y ,

•
>
Thursday, October 12,1893.
The Committee on Banking and Currency this day met, Hon. W il
liam M. Springer in the chair.
STATEMENT OF HOJT. T. C. McEAI.
Hon. T. C. McRae, Representative from the State o f Arkansas, ap
peared before the Committee on behalf o f H. R. 127, which is as follows:
A B ILL for an inoreaae in the iaaue of TreMuiy note* aud the retirement of national-bank notes

Be it enacted bg the Senate and Home o f BepretenUttire* o f the Fnited States of
America in Congress assembled, That the Secretary o f the Treasury shall, on the first
day o f Jnly, eighteen hundred and ninety-four, or as soon as practicable thereafter,
increase the issue o f the United States Treasury notes to an amount equal to the
total taxes and revenues o f the United States Government collected for the fiscal
year ending June thirtieth, eighteen hundred and ninety-four; and thereafter he
shall annually, on said day o f each year or as soon as practicable, further increase
the issue o f said notex as the aggregate taxes and revenues may have been increased
for the preceding fiscal year.
Sue. 2. That whenever any national-bank notes shall be surrendered the Secre
tary o f the Treasury shall issue au equivalent amount o f Treasury notes o f the same
denominations, and deposit the same in the Treasury, to be paid out as other moneys
belonging to the Government. No national bank shall hereafter be allowed to issue
circulating notes o f any kind whatever, and so much o f the national-bank law as
authorizes the issue o f bank notes is hereby repealed.
Skc. 3. That the Treasury notes provided for iu this act, aud nil other Treasury
notes heretofore issued, shall be a legal tender for t h e payment o f all debts and
dues, public and private, including import taxes', and when they shall be received
into the Treasury under any law from any source whatever, and shall belong to the
United States, they B h a ll not be retired, canceled, or destroyed, but shall be reis
sued and paid out again, and kept in circnlation.
Sec . 4. That a sum sufficient to carry out the provisions o f this act is hereby
appropriated ont o f any money in the Treasury not otherwise appropriated.
Sec . 5. That all laws and parts o f laws providing for the sale of bonds o f the
United States and all other acts and parts o f acts inconsistent with the provisions
o f this act are hereby repealed.

Mr. McRae addressed the Committee as follows:
Mr. Chairiran and Gentlemen o f the Committee: I thank you for
the invitation to appear here this morning and make % statement in
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support o f my bill 127. I will not undertake to elaborate the princi
ple and idea invoked in it bat will simply state it and ask the careful
consideration o f the committee before final action upon the bill. I un
derstand that i f the expenditures o f the Government are not already
in excess o f the receipts o f the Treasury, they are very likely to become
so very soon unless there is an increase in taxes or a reduction o f ex
penses. I t is pretty generally conceded that we need more money.
Speaking from the standpoint o f the needs of the Treasury I would say
that we must have it soon or rnn on a credit. Taxes are already too
burdensome to the people, and speaking for my constituents 1 protest
against an increase o f taxes or the sale o f interest-bearing bonds to get
gold when We can issue notes just as good without interest. If, there
fore, we can by this measure issue more money for the Treasury, and
avoid an increase o f taxes, or a sale o f bonds without violating any
established principle o f our Government or o f sonnd finance, then I
contend we should not hesitate to adopt it. The first section o f this
bill provides for an increase o f the Treasury notes, known as green
backs, to the extent o f the difference between the existing volume and
a sum equal to the total amount o f taxes and revenues annually col
lected. I know o f no authority in finance for adopting this limitation,
rather than a fixed amount. I have suggested this because 1 believe
we can easily maintain a volume o f paper currency bottomed on and
limited by the amount o f our taxes. I think the actual business o f
the Government will go far toward determining the amount o f paper
that can be floated with safety. When there is a dollar of taxes col
lected for every dollar o f Treasury notes issned by the Government I
think we can keep such notes at par with our coined money with smaller
per centum o f reserve than is required now.
I believe we can do it with as little or less reserve than is required
of national banks. For the most o f the time for the last century we
have had some kind o f national paper circulation. Some o f it has
been a legal tender for private debts and some o f it not. Some o f it
has been redeemable in coin and some convertible into interest-bearing
bonds. A t times o f inflation it has been at a heavy discount, while at
other times o f financial disturbances it has been at a slight premium.
Bat, Mr. Chairman, when convertible into coin on demand and not
issued in excess o f the ability o f the Government, such currency has
always been satisfactory and necessary to the people because portable
and convenient. The Supreme Court o f the United States has de
cided, whether correctly or not, that Congress can make these notes
a legal tender in times o f peace as well as war, and so I have provided
that the notes to be issued under this bill shall be a legal tender tor
all debts public and private. The bill would provide an immediate
increase in the Treasury notes o f something over $150,000,000. I f it
is trne that the receipts o f the Government are less than the expendi
tures, there will be no difficulty in getting that amount iuto active circnlation in a short time. One trouble about notes o f this kind here
tofore has been in getting them iuto circulation. The receipts o f the
Treasury have been in excess of the expenditures, bnt we are uow con
fronted with a deficit instead o f a surplus. I do not want to be un
derstood by the committee as favoring irredeemable or fiat money, or
even an over issue o f redeemable paper money.
I am opposed to such an idea as much as any person can be. I do
not believe that a dollar o f paper money ought to be issued by this
Government that is not convertible on demand iuto coin, but in as
much as it has been determined to be necessary that we should have
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a national paper circulation, and the people have found it economical
aud serviceable, we should, 1 thiuk, use all we can with safety before
we resort to the use o f bonds. I f the Government receives it for a ll
taxes and debts due it, aud pays it out for all debts due from it, and
makes it a legal tender between citizens, the.re is, in my opinion, n o
difficulty in keeping the amount provided for by this bill at par w ith
coin and in active circulation. They are promises to pay, and th e ir
whole value lies in the credit o f the Government and the fund or ta xes
pledged to their redemption. I know, Mr. Chairman, that there a re
those who contend that we can issue an unlimited amount of ir r e
deemable Treasury notes, but I have no sympathy with such visionary
schemes, and 1 would not ask you to venture beyond the point of safety
and soundness. Money that is not safe is dangerous. The great K e n
tuckian, the late Senator Beck, contended we could double the amount
o f the greenbacks we now have without increasing our gold reserve.
I do not wish to controvert his position, but I have not asked the com
mittee to go so far as he thought we could go. I know that as long as
we keep within the limits o f this bill we will be perfectly safe. It may b e
that when we go this far that the way will be clear to go a step farther.
The second section is aimed at the national-bank circulation, and is
intended to prevent a contraction o f the circulating medium by substi
tuting Treasury notes for the bank bills as they are retired. I would like
to see the national-bank notes all retired. I think the time has come to
discontinue the national banks as banks o f issue, i f not entirely. I f
continued at all, let them confine their business to that o f receiving
deposits, making discounts, issuing exchanges, etc., without issuing
notes. But there is no reason why the committee should not adopt the
principle contended for in the lirst section o f the bill even i f you should
disagree with me as to the second proposition and desire to retain the
national-banking system. I am unalterably opposed to national banks,
and I would like to seethe Government cut loose from them. I believe
that banking is essentially thatcbaracter of -private business with which
the Natioual Government should have nothing to do. The States
ought, in my judgment, to have the complete control o f this as well
as all other private business. The tax upon State banks should be
repealed, and the whole matter o f the organization and control o f banks
remitted to the States. But it is not my purpose to discuss that ques
tion here. The point that I insist upon at this time, and the one th at
I believe is practicable and sound and ought to be adopted promptly,
is that of increasing the Treasury notes to meet the temporary emer
gency.
Mr. B l a c k . I did not quite understand you iu this respect. I under
stand you do not want any paper money i f it is not redeemed in gold
and silver!
Mr. McliAE. No, sir.
Mr. B l a c k . Would the issuing o f this additional sum that you call
for involve an increase o f gold and silver to redeem it?
Mr. M c R a e . It would not, in my opinion, require any increase o f the
gold reserve held at present to redeem the greenbacks, for I contend
we can carry a very much larger volume than we now have with the
$100,000,000 o f gold reserve.
Mr. B l a c k . Your idea is that we should carry a much larger volume
o f paper money?
Mr. M c R a e . That is the idea. W e can, I think, carry all I ask you
to issue with the same reserve that we now have. A s a matter o f fact
we have redeemed from 1879 to 1892 only about $50,000,000 o f Treasury
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notes. In order to aid tbe panic this year about $100,000,000 have
been presented for redemption. The truth is, that when the people
know that the notes are receivable for all import duties and taxes, as
they have been since resumption, and that they are not issued beyond
the ability o f the Treasury to keep the promise o f redemption, they do
not want them redeemed and will not, as long as the credit o f tlie Gov
ernment is good. They prefer to use the notes, and they are kept in
active circulation, performing all the functions o f money. I f you limit,
as I seek to limit Uy this bill, the amount issued and to be issued to
the actual amount o f taxes and revenues o f the Government, it is uot
necessary to provide an additional sinking fund or gold reserve.
Mr. H a u g e n . You do not claim that there is any particular reason
•why you fixed this particular amount f
M r. M c R a e . None, except I think there should be some limit, and I
have fixed this because I am satisfied it is within the lines o f safety.
There are a great many people who insist that we should go fortber
than this, and I am myself inclined to think that we might go farther, but
I prefer to have the committee and Congress proceed in this matter very
cautiously. It seems to me to be conclusive that when the Govern
ment for legitimate expenses lays its taxing powers upon the people—
taxes that can be paid in notes—that we can carry an equal amount o f
notes with no larger per cent o f reserve than is required o f National
banks for their circulation. . The revenues will, in a large measure, sup
port them. I f they are receivable for taxes, and must be taken from the
Government for salaries, there can certainly be no serious danger as
long as we keep the volume within the limit of our revenues.
Mr. B l a c k . H o w much would this increase it?

Mr. M cR a e . It would be about $150,000,000.
Mr. J o h n s o n , o f Indiana. I t is now about how much?
Mr. M c R a e . I think the revenues are now about $500,000,000 and
the notes are about $346,000,000. I f the revenues should be decreased,
as some o f us believe they will be, the increase o f notes would be less, but
the amount for the first year would be determined by the revenues
for the preceding fiscal year. If, again, the income for the next year
is increased, theu to that extent the Secretary o f the Treasury would
be authorized to increase the notes, and so in that way we would have,
instead o f a fixed volume o f paper money, a flexible currency, based
upon the business o f the Government.
Mr. J o h n s o n , o f Indiana. The objection that has been urged to that
form o f currency has been the lack of elasticity, the inability to let it
out, and o f having it contracted. That is the obiection I have heard
urged to the greenback issue. It is claimed that the local banks,
whether national or state, if properly bottomed would probably obviate
that question?
Mr. M c R a e . 1 believe in a well-regulated system o f State banks, but
this is not inconsistent with the principle I now contend for, that o f
the United States issuing such paper money as it can maintain at par
without increasing its taxes. I believe also in the use of gold and silver
to the full extent, and if I could have my way----Mr. J o h n s o n , of Indiana. You will find in a work o f Trenholm, “ The
People’s Money,” recently published, a discussion o f one phase o f the
subject which you present, that is the capacity to absorb currency, and
you will find it very instructive.
Mr. M c R a e . I will be very glad to examine it, and w ill do so by the
time this question is considered in the House.

Mr. B r o s i u s . May I ask one question.

Your purpose is to keep the
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volume of paper money issued by the Government all the time equal to
the amount o f revenue needed by the Government?
Mr. M c R a e . Yes, sir.
Mr. B r o s iu s . W ell, is there any principle o f finance or taxation on

which you can base the idea that the volume o f the peoples’ paper
uioney ought at all times be equal to the amount o f its revenues?
Mr. M c R a e . No; there is no principle o f finance upon which I rest
my argument except that all paper money should be redeemable in
coin or bottomed on taxes, and when we do not isqpe more than oar
annual taxes it would require but a small reserve to accomplish this.
Mr. B r o s iu s . I did not know but what there was some principle
upon which you predicated this proposition because it is totally a new
proposition to me, although it may not be so to the other gentlemen.*
Now, as taxes increase, and as our Government grows, o f course taxes
increase, and you are increasing the gold liabilities or coin liabilities o f
the Government every year much larger?
Mr. M cB a e . Yes, sir; but only in the proportion that the revenues
o f theGovernment and the necessitiesof public business have increased.
Mr. B r o s iu s . You do not have in your bill any corresponding mode
o f increasing the coin assets o f the Government so that the propor
tion between the coin assets and coin liabilities o f your Government is
constantly growing?
Mr. M c R a e . 1 think there is no necessity for an increase in our coin
assets, as long as our notes do not exceed our revenues. W e la y a
tax—
Mr. B r o s i u s . But taxes have not anythiugtodo with the own assets
o f the Government?
. Mr. M c R a e . Taxes are the only assets o f the Government o f tlie
United States. In other words this Government can only get assets by
taxes.
, Mr. B r o s i u s . I f you do not increase the coin assets in the Treasury
but continue issuing paper money why your money by and by w ill be
largely paper because the ratio o f paper to coin is constantly increas
ing, unless at the same time and concurrently with the increase o f th e
paper money you provide for the corresponding increase o f those
assets?
Mr. J o h n s o n , o f Indiana. One part o f the bill provides it shall be
substituted for national bank notes; does not that affect the point you
make. I understand the national bank notes are redeemable in cu r
rency and every time you take a national bank note you do not-require
an increase o f the reserve ?
Mr. M c R a e . Certainly not, nor would tlie slight increase o f her
notes here provided for require any increase o f the reserve. W e ou gh t
to cease to use Treasury notes as money entirely or have the full bene
fit o f the system. I f we admit the right to issue them, and the neces
sity for more money, we can not avoid the further issue, except upon
the theory that it is not safe and sound.
Mr. B r o s i u s . A re you able to say from your recollection—I am sore
I am not—the ratio o f increase ?
Mr. M c R a e . No, sir; but I would say that it would be from 3 t o 5
per cent.
Mr. B r o s i u s . Then you will increase the paper in the same ratio f
Mr. M c R a e . Yes, sir.
Mr. W a r n e r . M ay I ask the gentleman what is his reason for lim it
ing the amount o f notes to the amount o f taxes?
Mr. M c R a e . 1 have already stated that there is no reasou th a t I
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know c f except to make a safe limit and still keep it flexible. This
limitation npon the amount is to some extent an experiment, aud I do
not waut the Government to issue for the present any more paper mouey
than its annual income. It is the old idea that Treasury notes bottomed
on taxes will always be at par with the best currency if convertible into
it. It is an effort to use the credit o f the Government with the people
when it can be safely done instead o f taxing the people to raise this
snm o f money.
Mr. W a r n e r . I appreciate the suggestion, and it was my fault I
was absent at the time, but I take it for granted o f course any paper
money that is issued will to a large extent remain outside in circula
tion as distinguished from being paid in tor taxes!
Mr. M c R a e . Certainly; i f properly limited.
Mr. W a r n e r . So there may be some sort o f proportionin the minds

i
|
f

of people who adopt the idea that taxes or the power of taxation is the
proper basis for currency between the amount of taxes which the Gov
ernment levies for a year or two years or something o f that kind and
the amount of currency that can be safely based upon it tor the pur
pose o f circulation. I confess that I do not see, and in the short time
I have beeu here I have not heard the question asked so as to be
auswered by yourself, any reason why it should be fixed at precisely
the amount o f taxes rather than twice the amount or rather than half
the amount. I do not understand the gentleman to have said, this is
an experiment and that he thinks that this amount can be safely
floated, but the question I would put is, if the gentleman thinks it can
be safely floated, why does he think sot
Mr. M c R a e . I think so because the taxes will materially aid us in
floating it.
Mr. W a r n e r . On that theory can not we float—for example, there
would he kept on the average ontst andin g $300,000,000, outside the Treasury, and we will say at this time the convenience o f the country requires
a certain amount o f paper money which is approximately $300,000,000.
Now, if that is the case, the question is what amount can be properly
used for taxes actually going into the Treasury as distinguished from
what is kept outside; why would it not be well to make the whole issue
$800,000,000?
Mr. M c R a e . A s I said, I do not want to issue a dollar of paper
money that we could not keep at par, and I am not satisfied that we can
float $800,000,000 without a larger gold reserve. It does not follow,
however, that we can float $800,000,000 as easily as $500,000,000.
Your question implies that an individual or government can pay twice
as much as easily as one-half o f his or its income. This I do not believe.
Treasury notes are promises to pay, and their whole value lies in the
credit of the Government and the taxes levied to secure their payment.
Mr. W a r n e r . W hat I was getting at was this, and I wish to see if it
is your idea. In England, for example, they started out on that plan,
not based upon taxes exactly, but with the idea that, no matter what
would be the character o f the currency as long as it was limited to that
amount, the people would have to take a certain amount of the circulating notes; and, so long as the credit of the Government was good
for anything, they would practically be kept outside of the Treasury
by the necessities o f business.- That amount Was fixed, I believe, at
£14,000,000—I believe now it is £16,000,000—and then they issued a
certain additional amount, not, however, based upon taxes, but if they
had chosen to base it upon taxes there was no reason why they could
not have done it. Now our experience shows that some three hundred
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and odd millions is bound to be kept out o f tbe Treasury for the busi
ness o f people, then if you are going to base the currency upon the
taxes, why should not the amount of additional currency be, at least,
we will say, one year’s taxes, or why do you limit it to one year’s taxes
instead o f two years’ taxes, or why should it not be limited to six
months’ taxes! W hat 1 am trying to get at is the principle on which
you were working and upon which you are predicating your reasons.
Mr. M c R a e . S o large a part of our Treasury notes will not b e kept
out o f the Treasury if we issue them beyond our ability to protect
them. I am in favor o f the Government issuing all the paper money
it can keep at par, but not another dollar. I am not willing at present
to go beyond the limit fixed in my bill. I do not expect under it any
greater per cent to go into the Treasury than does now, because redemp
tion will be substantially as certain as it is now. I maintain th at the
people will not become alarmed at the overissue o f paper money as
long as it does not exceed the annual necessary revenues o f the G o v
ernment. I prefer this to a fixed volume as now.
Mr. W a r n e r . The necessities o f the Government we understand
rise and fall to some extent; o f course salaries are fixed, but not the
other things which have to be paid for by the Government; so i f there
should be a depreciation o f the currency, the result would be taxes
would have to be higher, then if the taxes were higher and the result
o f your plau o f issuing more currency was to bring about further depre
ciation, then taxes would have to be raised again, and does not that
plan involve the danger o f a vicious circle following the result o f the
increase o f the amount o f taxes required by reason o f depreciation
from any cause; then an increase o f the amount o f currency to meet
the new increased taxation, then a further depreciation as the result
of the increase o f circulation to the end o f a bottomless depreciation,
unless you can say not merely that the first amount can be used, but
its results can not be to depreciate the currency?
Mr. M c R a e . Y o u r question assumes that the increase I ask w ill
depreciate the currency, and if it would have that effect it ought n ot to
be made. I assume that it w ill not depreciate Treasury notes.
Mr. W a r n e r . You are proceeding on that assumption!
Mr. J o h n s o n , o f Indiana. He has said two or three times that he

did not know 01 any relation on which he bases the amount.
Mr. W a r n e r . I did not understand that.

STATEMENT OF HON. S. B. COOPER.
Hon. S. B. Cooper, a Representative from the State o f Texas, next
appeared before the committee in behalf o f the following b ill:
[ H . R . 246, Fifty-th ird Congress, fir»t session.]
A B I L L to authorize th e issue o f Un ited States notes and for the redemption o f the same.

Be it enacted bg the Senate and House o f Representatives o f the United States o f Amer
ica in Congress assembled, That the Secretary o f the Treasury is hereby authorized
and directed to issue three hundred million dollars o f United States notes, not bear
ing interest, payable to bearer at the Treasury o f the United States, and o f such
denominations as he may deem expedient, not less than one dollar and not more
than one hundred dollars each, and said notes herein authorized to be issued shall
be receivable in payment o f all taxes, internal dues, excises, debts, and demands o f
every kind due to the United States, and shall be a legal tender in payment o f a ll
debts, public and private, within the United States.
Sec . 2. That the United States notes authorized to be issued by this act shall
be o f the same form and design, and shall be printed, engraved, and signed in th e

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same manner as was by law provided for United States notes under the act o f Con
gress entitled “ An art to authorize the issue o f United States notes aud for the
redemption or funding thereof and for funding the floating debt o f the United
States,” approved February twenty-fifth, eighteen hundred and sixty-two.
S ec. 3. That whenever there shall non be sufficient money in the general fund o f
the United States Treasury to pay the current expenses and indebtedness o f the
United States the Secretary o f the Treasury shall pay off and discharge said
expenses and said indebtedness with United States notes authorized to be issued by
this aet.
Sec. 4. That for every three dollars o f the United States notes, authorized b y
this act, that shall be paid out and pat into circulation by the Secretary o f the
Treasury, there shall, by said Secretary o f the Treasury, be placed and deposited in
the Treasury o f tlie United States one dollar in coin money o f the United States,
and said coin money so deposited shall be kept and held as a special reserve fund
with which to pay off and discharge said notes when the same, or any o f them,
shall be presented for payment or offered for redemption; and to carry into effect
the provisions o f this section o f the act the Secretary o f the Treasury is authorized
and directed to reserve and retain out o f the general revenues received by the
United States, from whatever source, sufficient com money o f the United States to
make the deposit, and provide and preserve the special reserve fund provided for in
this act; ana in the event the Secretary o f the Treasury is unable to obtain from the
general revenues received by the United States sufficient coin money o f the United
States to keep and maintain the special reserve fund herein provided for, then, and in
that event, the Secretary o f the Treasury is authorized anddirected to issue,on the credit
of the United States, registered bonds to an amountnot exceeding one hundred million
dollars, redeemable at the pleasure o f the United States after live years, and paya
ble twenty years from the date o f said bonds, and bearing interest at the rate o f
per centum, payable semiannually, and the bonds herein authorized shall
be o f such denominations, not less than fifty dollars, as may be determined on by
the Secretary o f the Treasury; and the Secretary o f the Treasury may sell such
bonds, or such number thereof, as may be necessary, at the par value thereof for
the coin money o f the United States, and the coin money o f the United States
so received for said bonds shall be kept as provideiLin this act as a special reserve
Aud with which to pay off and redeem the United States notes authorized by this
aet.
8kc. 5. That whenever any o f the United States notes authorized by this act shall
be mutilated or otherwise injured so as to be unfit for use, the same may be returned
to the Secretary o f the Treasury, and said Secretary o f the Treasury shall deliver to
the holder o f such mutilated or injured notes new notes for the same, and said
mutilated and injured notes shall be destroyed under sneh regulations as the Secre
tary o f the Treasury may prescribe.
Skc. 6. That whenever any o f the United States notes authorized by this act shall
be paid to and received by the United States, the same shall be paid ont. again
whenever it is possible so to do, so that the circulation o f said notes shall at no
time be decreased or diminished.
Sxc. 7. That the faith and credit o f the United States o f America is hereby pledged
for the prompt payment o f the notes Authorized to be issued by this act, when pre
sented for redemption, and for the prompt payment at maturity o f the .bonds,
principal and interest, authorized to be issued by this act.

Mr. Cooper addressed the committee as follows:
Mr. Chairman and gentlemen o f the committee: I will occupy only
a brief time with my statement—in fact, I think the bill argues its own
cause. By way o f apology, Mr. Chairman, I will state that I received
your courteous note on yesterday afternoon, but my interest in the
extraordinary proceedings going on in the Senate kept me up pretty
late and I am not prepared with the accurate data I would like to have
in presenting my views upon this bill.
To begin with, I can adopt much o f the argument that has been used
by Mr. McRae in presenting his views upon the bill which he has intro
duced. Now, this bill provides for the issuing o f $300,000,000 o f green
backs, Treasury notes, bottomed upon $100,000,000 coin money, following
in the line o f the greenback issue o f 1862, but this bill provides for a
reserve fund of $100,000,000 o f coin money o f the Government with
which to redeem these notes. This $100,000,000 is to be obtained by
taxation, by a revenue derived by the Government from taxes, i f possi

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ble, and if there is not sufficient revenue derived in that way, then the
bill authorizes the issuance o f bonds to be put upon the market for the
purpose o f procuring a reserve fund.
The bill lias three purposes. First, to secure a larger volume o f
money. It would give us immediately an increase in circulation, and i f
all the notes authorized by the bill were put in circulation it would be
something over 93 per capita.
I believe the volume o f money in circulation is inadequate and we
ought to increase it, and, besides, there is a very strong demand b y the
people for increasing the circulation. Next, it will, I think, tend to
destroy national banks, and the party to which I belong does not
approve o f the power now placed in the hands o f national banks to
issue, emit, or put into circulation money. They want this power
retained iu the Government and the Government only to exercise it.
Next, it is probable, at least possible, that we are going to have a
deficit, and I understand already there are not sufficient taxes collected
to pay the current expenses o f the Government, aud it is probable that
this deficit may continue, because we are going to proceed with a char
acter o f legislation that is going to give alarm, which may be im agi
nary, but nevertheless hurtful, and I think is iinmaginary, but at the
same time it is going to temporarily curtail our revenues. Now, this
bill provides for supplying that deficit, and the manner in which the
money is to be put into circulation is by paying it ont in discharge o f
the current expenses of the Government aud by supplying the deficit
in the current revenues o f the Government, and whenever $3 o f money
is paid out it becomes the duty o f the Secretary o f the Treasury to place
in the Treasury a reserve IHnd o f $1 o f the current coin o f the country
to redeem the notes so put in circulation. The credit o f the Govern
ment is also guaranteed for the payment o f these notes.
The bill provides for continuing that money (the notes) iu circulation.
When it is once paid out and then paid in, it is required to be again
paid out by the Secretary o f the Treasury, if it is possible so to do.
Now, with reference to the volume of money: W hile it may appear that
we have a larger vplunie o f money than we have had before at an y
time (now something like $25 per capita), I do not think it is true. Y o u
may ask why I do not think it is true. I can not speak accurately as
to what volume o f money was iq circulation per capita in 1860, but I
know the expenses o f the Government to each individual was about $2.
Now, while we have an increase in population, and the expense o f
maintaining the Government ought to relatively decrease as population
increases, the reverse has been the rule, and it costs now $8 a head
taxation to run this Government. Therefore, there is more money continuously in the Treasury o f the United States, and it is required to b e
kept there, aud more money constantly in the treasuries o f the State
governments, county governments and municipal governments, and
following it down through the labyrinth o f corporate and individual
treasuries you will find there is a great amount o f money kept out o f
circulation and in deposit in these special places for the purpose o f
carrying on the business of the governments, municipalities, and corpo
rations. Besides, no harm can result, I take it, from increasing the
currency, if it is increased upon a solid and stable basis. W e are now
carrying $346,000,000 o f this character of currency, and we are carrying
it upon $100,000,000 reserve fund. I f we can carry that, we can carry
the amount provided in this bill, upon the reservation therein pro
vided.

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Mr. H a i x . Y ou have no authority for that statement that we have
$346,000,000 in circulation!
Mr. C o o p e r . I have only the published statements o f .the Secretary

of the Treasury. I do not think now there is $346,000,000 in circula
tion or $346,000,000 in existence, and my reason for stating that is
this----Mr. H a l l . I just thought possibly you had some data on that.
Mr. C o o p e r . W e had a circulation o f fractional currency o f some
thing over $75,000,000, aud we undertook to retire and redeem that
and we found over $26,000,000 that could not be found. I t had been
destroyed, mutilated, or otherwise disposed of, and if there was that
much fractional currency lost or destroyed, between its issuance and
redemption, I think it more than probable that o f the $346,000,000,
possibly one-third o f it is not actually in circulation and has been lost
or destroyed.
Now, Mr. Chairman, I do not want to trespass upon the lime o f the
committee, and I have stated the outline o f the material points con
tained in this bill and the first and main object I seek is to increase
the circulation upon a solid basis. The second reason is, 1 believe it
will tend to destroy the national banks. Now, the national banks,
while they are safe institutions and while they supply good money,
they are dangerous and undemocratic institutions and are intrusted
with dangerous powers. They virtually control the currency o f this
country and can do great harm and injury i f they see proper to exercise
that power.
Between 1882 and 1892 they contracted the currency o f this country
$192,000,000. Notwithstanding in 1882 we did not have near the
quantity o f national banks we now have, they then had in circula
tion $364,000,000; to-day, or rather in 1892, they had in circulation
$172,000,000. They have contracted our currency $192,000,000, or more
than one-half o f their entire issue. Now, I do not like to put such
power in the hands o f any corporation or person. Power is dangerous
wherever you let it rest, and it is rarely exercised for unselfish pur
poses, but too frequently it is used aud manipulated for selfish ends.
I do not think that any corporation or individual ought to have power
over the finances o f this Government. B y the power they now have
they can contract the currency o f this country at will, and they have
contracted it on an Average o f nearly $20,000,000 a year for the past
ten years. They can not conveniently contract the currency provided
iu this bill when it is once put in circulation.
Gentlemen, I believe I have nothing further to say, and I am very
much obliged to you.
Mr. W a r n e r . May Lask the gentleman whether he has any data
as to the amount now held or probably held in State and municipal
funds except over what was so held in former years!
Mr. C o o p e r . I have not that with me, but i f I had had an opportu
nity I think I could have gathered that data. I have a portion o f it, not
with me, but at my room, but that line I have traveled over to some
extent and have gathered some information and I know it is largely in
excess now o f what it was.
Mr. W a r n e r . W ill it be too much to ask the gentleman to furnish
us with that compilation as early as he may ! I t was a very interesting
point o f his argument.
Mr. C o o p e r . I will undertake to do so.
Mr. W a j s n e r . And unquestionably it is a strong point so far as it
’ 940----- 11
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extends. Now, as to the proposal. To sum it np, would it be proper to
say that what you propose is a great national bank o f issue controlled
by and practically constituted o f the Government as distinguished from
the Bo-called national banks as they now exist?
Mr. C o o p e r . Let the Government do what the national banks are
now doing.
Mr. W a r n e r . Now, the result o f that would be to leave the amount
o f currency to be fixed from time to time by the wisdom o f Congress?
Mr. C o o p e r . Yes, sir.
Mr. W a r n e r . On the other hand----Mr. C o o p e r . I would leave it to the wisdom o f Congress relative
to the increase o f paper currency. The metal currency will be con
trolled by natural laws, circumstances and conditions, and the laws
o f Congress.
Mr. W a r n e r . In other words, you propose to leave the question of
coin currency to be settled automatically by the effect o f free coinage
o f either or both gold or silver, and you believe that is the best way
to do it; but as regards the paper currency you believe it should be
arbitrarily, I do not necessarily mean wrongfully, fixed?
Mr. C o o p e r . I believe it should arbitrarily be left to the judgment
o f Congress.
Mr. W a r n e r . N o w , may I ask why you believe that such absolute
freedom should be left, on the one hand, for coin currency to adjust itself
to the demands of business, and, on the other hand, why yon propose, so
far as any automatic effect o f business is concerned, to put so perfect a
straight jacket upon the paper currency?
Mr. C o o p e r . I believe in the wisdom o f the people, and that they
will direct Congress whenever they think there is not a sufficient sup
ply o f money to furnish the money and place it upon a solid basi9, and
whenever there is a surplus, whenever there is a plethora of paper
money, it ought to be contracted, but it should uot be in the hands of
any individual to do so.
Mr. W a r n e r . W hat I was about to refer to was this:. O f course
the Government would presumably—that is, a Democratic Congress
would presumably—act in accordance with the will o f the people, and
I have great faith in Providence, but would it not be one objection to
your scheme that there may be sometime a Republican Congress?
And what would you do in case a Congress should unfortunately be
controlled by the parties who are interested in national banks or inter
ested in the hoarding up o f gold or silver, and who might cut down to
half the capacity o f our currency and leave us that way for years,
perhaps, until we could get a Democratic Congress?
Mr. C o o p e r . I t would b e evidence to m e-that people wanted it i f
Congress did that.
Mr. W a r n e r . Y ou think business might occasionally wait a year

or two for its currency rather than to have it left elastic.
Mr. C o o p e r . I think this is elastic enough.
Mr. H a l l . Y ou come from the State o f Texas, where you have had.
to deal with these wild-cat ideas o f currency, etc., and let me ask you
this: Do not you believe as long as the National Government has con
trol o f fixing the volume of currency that it will tend to increase the
desire to see these wild-cat theories put on the National Government;
but i f you put the power o f issuing money closer still to the people,
not through the natioual-bank system, but get right down close to the
people so they themselves will control it with their State legislation
that it will tend to bring about conservatism on the part o f the people,
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or, in other words, keep them from indulging in these wild-cat views,
and consequently make them more oautiousf
Mr. O o o p e r . For some reasons 1 would like to, as far as possible,
localize the currency, but I do not want individual control.
Mr. H a l l . I have seen men who were county judges who were the
most cautious and careful men in the transaction o f all county business,
and yet they would advocate the subtreasnry in the National Govern
ment; and I have seen the same in my State and other Southern and
Western States.
Mr. H a u g e n . Y ou would give the county board the authority to issue
money so as to get it nearer the people!
Mr. C o o p e r (in reply to Mr. Hall). That is an infirmity o f human
nature.
Mr. W a r n e r . There is an objection to your plan from my standpoint.
I can not conceive o f a more effective plan for congesting the currency
at the seaboard, especially at New York, than the one you propose.
Now, have you considered this from that standpoint.
Mr. C o o p e r . W ell, I can not say that I have. I do not understand
in what line it would do it.
Mr. W a r n e r . The national banks as they now exist through differ
ent parts o f the country, if I may use the illustration, while a very
imperfect medium o f securing currency for the different sections o f the
country, are practically .obliged as a condition o f their existence to put
out some currency in that part o f the country, and as it is redeemed,
etc., to put it out again. A s a matter o f fact, while they do not-supply
as much as is wanted, they from time to time do supply currency, and
as years go on they keep putting out currency in the different parts o f
the country. Now, I understand your plan would be to issue green
backs lrorn a central source, and while the difference between that and
the present national-bank plan might not be very great in its opera
tions, it would take away your only incentive or pressure to issue a
currency at points far remote, from the center o f government or center
finance, and would leave the gravitation, which now keeps currency
congested in New York and Boston and Philadelphia, to act with still
greater freedom, andthat would leave the rest o f the country still more
drained.
Mr. O o o p e r . I think the currency would go wherever there is a sur
plus o f products, either manufactured or agricultural products. I f we in
Texas have something to sell, we will get the benefit o f the currency that
is iu New York, and this bill authorizes it to be paid out where there is
a deficiency, and so we can get it generally diffused i f there is a deficit.
This does not authorize the putting out o f $300,000,000 in one lump, but
it says it is to supply a deficiency in the current revenues o f the Govern
ment and in that way we will get i t
Mr. W a r n e r . I do not wish for a moment to argue upon the truism
which you suggest, but is it not a fact that during nine months o f the
year under the present operation o f the law which you mention, the cur
rency is congested in the money centers o f the East and North, and
during the two or three months o f the year, when your crops are being
marketed th$t the necessity now arises, even under the present system,
for coming to these money centers and actually getting bales o f bills for
actual transportation, to move your crops f That was the suggestion
to which I referred.
Mr. C o o p e r . That may be true, but I undertake to answer that by
saying I do not think there is any system that human ingenuity could
devise by which money would not be controlled by those who have the
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means and opportunity to control it. It would be controlled in the c ity
o f Galveston, my own State, i f New York was at Galveston. I think
that money will be controlled by those who have the power and th e
ability to control it aud who can make more money by controlling it.
Mr. W a r n e r . I understand you propose to h a v e th is currency based
upon gold?
Mr. C o o p e r . Based upon coin.
Mr. W a r n e r . I understand my colleague was rather hinting at cu r
rency which would be based to some extent on what you might c a ll
local securities. Now, 1 confess there will be no question that in N e w
York or within a few hundred feet o f my office there is held more g o ld
and silver in private hands than in all the rest of the country p u t
together. Now, if.you take a system which is based upou gold, which
can not be expanded without the Government buying more gold, do n o t
you tend to put the control o f the circulating medium o f the country
more and more in the power o f those who control or own the g o ld
and silver than under a system based, even to a small extent, upon local
securities f
Mr. C o o p e r . Yes, sir; but the taxing power o f the Government can
get that gold without purchasing it.
Mr. W a r n e r . Does the taxing power o f the Government operate to
drain a part o f the country or deplete a part o f the coontry where-----Mr. C o o p e r . In my opinion, there is no danger o f a depletion so
long as the balance of trade is in our favor.

STATEMENT OP HOH. W. J. BRYAH.
Hon. W . J. Bryan, a Representative from the State o f Nebraska, n ext
appeared before the committee in behalf o f the following b ill:
[H . S . 3378, F ifty-th ird Congress, first Mission.]
A B I L L to secure the depositors in national banks against loss, and so forth.

Be it enacted by the Senate and House o f Representatives o f the United States o f America
tit Congress assembled, That every national bank organized under tbe laws o f th e
United States shall, on or before the first day o f January o f each year after the pas
sage o f this act, deposit with the Treasurer o f the United States a sum equal to onefourth o f one per centum on its average deposits for the three months preceding said
first day o f January. Special notice shall Ije given immediately in case o f default,
and any bank failing for sixty days after receiving special notice to deposit such ta x
shall forfeit its charter: Provided, That whenever the Treasurer shall nave on hand
in the special fund raised by such tax the sum o f ten million dollars the Comptroller
o f the Currency shall by order suspend the tax until the amount in the special fund
falls below the said sum o f ten million dollars.
Skc . 2. That whenever the Comptroller o f the Currency shall be advised o f th e
failure o f any national bank he shall at once ascertain the amount due depositors
and creditors o f the bank (not ineluding stockholders, officers, or directors), and
from the special fund provided for in section one o f this act shall; as soon as con
venient, cause to be paid to such depositors and creditors (not including stockholders,
officers, or directors) the amounts due them.
Sec. S. That the assets o f snch failing banks shall be turned into cash as now pro
vided and the amount realized shall be used, first, to satisfy all claims not provided
for in section two, and, second, the amount remaining shall be paid into the special
fund provided for in section one o f this act: Provided, That nothing herein shall b e
construed to exempt the stockholders from the liability o f one hundred per centum
o f their stock in addition to their stock, and no stockholder shall receive any pay
ments on his stock from the assets o f such failing bank until all debts due from tn e
bank have been paid and the special fund provided for in section one reimbursed to
the extent that it was drawn upon, as provided for in section two.
SBC. 4. That the United States hereby assumes no liability to depositors o f national
banks except as a trustee to distribute the special fund in this act provided for, and
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the Comptroller o f the Currency shall pay out o f the money in the order in which
he receives notice o f failure, paying all proper liabilities o f one bank as aforesaid
before any on liabilities o f a Dank whose failure is subsequently announced, and in
case the special fund is insufficient to pay all proper liabilities the Comptroller o f
the Currency shall cause such money to be expended in paying such proper liabilities
pro rata, ana the amount remaining unpaid shall be made good as the special fund
is replenished, and in case the special fund is entirely exhausted banks shall be cared
for in order o f failure as fund is renewed.
Sec . 5. That to provide against a contraction o f the currency by the holding o f
this special fund in trust, the Secretary o f the Treasury is hereby empowered aud
directed to issue and pay out, for the general expenses o f the Government, United
States Treasury notes, commonly known as greenbacks, like those authorized by the
law approved February twenty-fifth, eighteen hundred and sixty-two, equal to the
amount held in said special fund, and such Treasury notes shall have all the ljBgaltender qualities possessed by the Treasury notes issned under said act o f February
twenty-tilth, eighteen hundred and sixty-two.

Mr. Bryan addressed the committee as follows:
Mr. Chairman and gentlemen o f the committee: I am very glad to
have a chance to present the merits, as I understand them, o f the bill
which has been referred to your committee. That bill is number 3378.
I do not know that there is anything in the bill which will give special
advantage to the people o f New York, and I am rather glad it does
not, because my observation has been that wherever a bill is accused
of givin g any special advantage to the people o f New York it is unani
mously opposed by the people o f New York; and as this bill does not
give them any special advantage, but simply distributes the advantage
over the country generally, I think I can count upon the support o f the
New Y ork members with much more assurance that if I had anything
which specially favored them. I will read the bill, and I will speak o f
the various points as I read them. The bill provides:
That every national bank organized under the laws o f the United States shall, on
or before the first day o f January o f each year after the passage o f this act,'deposit
with the Treasurer o f the United States a sum equal to one-fourth o f one per centum
on its average deposits for the three months preceding said first day o f January.
Special notice shall be given immediately in case o f default, and any lmnk failing
for sixty days after receiving special notice to deposit such tax shall forfeit its
charter.

' O f course, that is simply a provision by which we can enforce the law
when it is a law; and it gives them sixty days’ notice, special notice,
and takes away any possible injustice that might come from any negli
gence on their part.
Prtm dri, That whenever the Treasurer shall have on' hand in the special fund
raised by such tax the sum o f ten million dollars the Comptroller o f the Currency
shall, by order, suspend the tax until the amouut iu the special fund shall full below
the said sum o f ten million dollars.

The tax o f one-quarter o f 1 per cent would therefore be operative only
until the amount o f $10,000,(100 is raised, and it is easy to take the
amount which the banks have on deposit and calculate how long it
would take to raise the fund o f $10,000,000. Do you know, Mr. Chair
man, the amount deposited!
The C h a i r m a n . In May it was $1,900,000,000.
JHr. B r y a n . Say about $2,000,000,000, and one-fourth o f 1 per cent
on that would be $5,000,000; so at that rate it would take two years
of taxation only to raise the $10,000,000, and I think I am safe in say
ing that during the existence o f the national banks the amount o f loss
to depositors has not exceeded $10,000,000; that is, after taking the
assets o f the bank and liabilities o f the stockholders (100 per cent in
addition to their stock), that the depositors of the national banks have
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not lost $10,000,000. I say that without any figures and without mak
ing it as an accurate statement, but I think I am safe in assuming that.
M r. H a u g e n . ,I think it is about some $6,000,000.
M r. W a r n e r . Y ou say the depositors o f the national banks h ave
not lost $10,000,000 f

Mr. H a u g e n . They have not lost over $6,000,000.
Mr. H a l l . There is a very interesting article o f Mr. Horace 'W hite
on that very subject, aud my recollection is he makes that very state
ment.
Mr. W a r n e r . W e have had more failures o f national banks within
the past few months than we had, I was about to say, from the begin
ning o f the system.
Mr. H a l l . W e are talking about the depositors’ losses.
Mr. B r y a n . I am talking about depositors, and you will notice th at
not all the banks that fail cause a loss to their depositors; you under
stand that many o f those banks have reopened. I simply mention th a t
to show when that fund is once raised by a tax which lasts two years
on the basis I have suggested, that fund would be sufficient to pay a ll
the losses which have occurred in the last thirty years for national
.banks, and I have mentioned it here to show how trifling would be th e
weight apon those banks; that when you have once raised this fund, i t
is only when it falls below that snm that the tax is renewed, and th e
chances are that the fund which you have raised would make unnec
essary any other fund or any other tax for a great many years, or pos
sibly one other assessment o f $5,000,000, which would be raised by th e
one-quarter o f 1 per cent, would save all losses for ten or fifteen years
to come, and you can see that the burden upon the banks is very insig
nificant.
Now, the next section provides :
That whenever the Comptroller o f the Currency shall be advised o f the failure o f
any national bank he shall at once ascertain the amount dne depositors and creditor*
o f the bank-----

By that I mean the men who are depositors— not stockholders, direct
ors, or officers—and those who have sent money or bills to the bank
for collection, so that every person who is not responsible for the man
agement o f the bank may at once receive the amount due him. It then
goes on to provide:
And from the special fund, provided for in section one o f this act, shall, as soon
as soon as convenient, cause to be paid to such depositors and creditors (not includ
ing stockholders, offloers, or directors) the amounts due them.

Now, under the present system, i f a bank fails the Comptroller sends
his agent to take charge o f it, and the assets are realized upon, and.
during all that time the people o f that community have their money
tied up in that bank, and the bank has to collect the money before i t
can pay it out to any o f the depositors, and the fact it does not pay o a t
the money to the depositors makes it difficult to collect its assets, fo r
persons who owe the bank have people owing them, and when yon have
one man’s money tied up other men suffer from it. The fact o f the
Government at once paying these depositors from a special fund the
amount that is due to them will make it easier for the bank to collect
its assets, its debts from people who owe the bank, and thas the bank
is reimbursed, so it can reimburse the fund from which the Comptroller
has drawn to pay these depositors and avoid that embarrassment of*
the business o f a community which often comes from a failure o f a
bank.
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Section 3 provides:
8TC. 3. That the assets o f such failing banks shall be tnrned into rash as now pro
vided and the amount realized shall be used, first, to satisfy all claims not provided
for in section two, and, seoond, the amount remaining shall be paid into the special
fund provided for in section one o f this act: Provided, That nothing herein shall be
constraed to exempt the stockholders from the liability o f one hundred per cen am
of their stock in addition to their stock, and no stockholder shall receive any pay
ments on his stock from the assets o f snch failing bank until all debts due from the
bank have peen paid and the special fund provided for in section one reimbursed to
the extent that it was drawn upon, as provided for*in section two.

This simply means that those perrons who are interested in a bank,
for instance, a stockholder, might have a deposit in the bank and he
also owes on his stock an additional liability. That is not to be paid,
nor i^ h e to be relieved from this additional liability until the special
fund has been reimbursed. It does not relieve a stockholder o f the
additional liability, and does not relieve an officer o f any o f the duties
which are imposed upon him by the present law, but it simply says
that after the disinterested persons have been paid by the Government
then the assets shall be used first to settle the equities between those
people who are interested persons, and the fund shall be reimbursed to
the extent it has been drawn upon, and then whatever other assets
there are go to the stockholders as under the present law. I t specifi
cally provides that there shall be no interference with the liabilities
now imposed by law upon tbe stockholders o f a bank.
Mr. C ox. Let me call attention to the proposition you are on there.
The present Comptroller o f the Currency reaches the point you discuss
this w ay: Supposed bank fails and an examination is made, and he
makes an assessment. That is collected at once. I f he takes that
assessment and pays it out to those who are entitled to it, the creditors
of the bank, then when he gets through with that, then as the assets
of the bank are realized npon and that comes in, the creditors being
satisfied, that goes to this fund. Is that your idea which is suggested
in that part o f your bill?
Mr. B r y a n . N o; my idea is that the disinterested persons, the depos
itors, who are not stockholders, officers, or directors, but outside credi
tors o f the bank, shall have their money paid at once, and then the
Comptroller shall go to work and collect any assets just as he does now.
And let me suggest that, while the law says that the Comptroller shall
collect these assessments, he is not always able to do so. In Lincoln,
where a president o f a bank, not having learned that “ honesty is the
best policy,” took abouta half million dollars, aud is now suffering aheavy
peualty o f five years in the penitentiary for the act (he has not reached
the penitentiary yet, but he is expecting to go there as soon as he gets
tired o f the hotel), the Comptroller has assessed the stockholders, and
has commenced suit against them to collect the money (but remember
that this liability o f the stockholders is no more than the liability o f any
other debtor and must be eollected just in the same way), and during that
time, while the Comptroller is trying to make these stockholders pay up—
and by the way, the gentleman who absconded was one o f the largest
stockholders, and the gentleman who was with him as assistant o f the
bank is the next largest stockholder—all thedepositors have their money
tied up so that it has now been something like three months, and only 10
per cent has been paid to the depositors out o f the bank, and it will
perhaps be three months again before any more will be paid, while my
plan gives immediate relief, and then the Comptroller goes ahead just
as he does now with the collection o f assets.

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Mr. B l a c k . It' you w ill permit me I w ill stato that we had a bank
failure where the depositors had some $400,000 or $500,000 tied u p in
that same way.
M r. B r y a n . I u the case where a bauk is solvent and fails, as they
failed during this present financial stringency, the depositor may get
his money and they may resume after awhile and fix it up, so he w ill
not suffer much; it is only in the case o f an embezzlement or some
thing like that where there is a real loss, but the embarrassment comes
ju st the same.
Mr. B l a c k . Your plan is to provide a fUnd to pay it at once!
Mr. B r y a n . Y es; aud I will explain later the reasons why I think it

ought to be provided.
I w ill now read section 4:

Se c . 4. That the United States hereby assumes no liability to depositors o f national
banks except as a trustee to distribute the special fund in this act provided for, and
the Comptroller o f the Cnrrency shall pay out the money in the order in whioh he
receives notice o f failure, paying all proper liabilities o f one bank as aforesaid
before any on liabilities o f a bank whose failure is subsequently announced, and in
case the special fund is insufficient to pay all proper liabilities the Comptroller o f
the Currency shall cause such money to be expended in paying snch proper liabili
ties pro rata, and the amount remaining unpaid shall be made good as the special
fund is replenished, and in case the special fund is entirely exhausted banks shall
be cared for in order o f failure as fund is renewed.

The Government will administer this trust fund, and further than
that it does not guarantee the deposits, so there is no debt or liability
upon the taxpayers o f the country to make good anything to deposi
tors o f a national bank. This is a fund which that special assessment
creates, and no other person can be injured by it because it is no bur
den to anyone else.
Mr. H a l l . W ill you pardon me for interrupting you there just a
moment! Under this system ot yours that would make the depositors
o f a national bank perfectly safe, would it not !
Mr. B r y a n . Yes, sir.
Mr. H a l l . I want to kuow if that would not tend to cause men to
leave all the State banks and deposit in the national ban ks!
Mr. B r y a n . I will reach that in a moment; I intended to speak on
that.

Section 5 provides:
Sue. 5. That to provide against a contraction o f the currency by the holding o f
this special fund in trust, the Secretary o f the Treasury is hereby empowered and
directed to issue and pay out, for the general expenses o f the Government, United
States Treasury notes, commonly known as greenbacks, like those authorized by the
law approved February twenty-fifth, eighteen hundred and sixtv-two, equal to the
amount held in said special fund, and snch Treasury notes shall have all the legaltender qualities possessed by the Treasury notes issued under said act o f February
twenty-lifth, eighteen hundred and sixty-two.

This provides for the issue of greenbacks just equal to that which is
collected as trust money and held in a special fund. It does not
increase the circulation, but simply provides against the contraction o f
the circulation.
Now, having given the bill in brief, I would like to state to the com
mittee why I think the bill ought to be passed. In the first place, the
burden upon the banks is comparatively light, and it will bring to the
banks more advantage in the way of securing deposits than the bur
den will be on the other side, and I have had several national bankers
write me commendmg the plan as a plan which ought to be_adopted,
and I believe it is the only instance in which you can help both the
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tleman from Missouri states, have the tendency to draw money from
the State banks to the national banks, because a man who has money
on deposit will deposit it where it is safest. Now, that fact does not
alarm me for this reason, that the moment the State banks find that
the national banks have an advantage because o f the security, then
the State banks will be interested in having a similar fund provided in
every State for their security, and the result o f it will be that this
security given to national-bank depositors will tend to make more safe
all kinds o f banking, and when you have secured all the depositors of
a national bank and State banks, a panic such as we have gone
through, for I hope we have about passed through it—a panic will not
have the effect it has had this year. W e will not discuss the financial
stringency further than to say this, in which I think you will all agree
with me, that the way the people have felt this stringency has been
that people drawing their money from the banks and hoarding it have
compelled the banks to draw in their loans, and the banks drawing in
their loans, as a matter o f self-preservation, have crippled the commu
nities and made stagnaut business enterprises. Now, if every deposi
tor was sure o f his money he would not go to the bank and draw it
out and hide it in a stocking, or udder the carpet, or in a stove, or
between the ticks o f a bed; he only does that because he fears he will
lose his money. I f he knows there is a fund raised and deposited with
the Treasury out o f which every depositor will be paid, the depositors
w ill not feel as they have done, aud that in itself, that protection against
a panic is in itself more than compensatory to the banks for all they
pay to raise this fund.
Mr. J o h n s o n , o f Indiana. W hat relation do the deposits sustain to
the fund— what numerical proportion; they would be vastly in excess
o f the fund?
M r. B r y a n . Y e s; the amount o f the deposits is vastly in excess o f
the fond.
Mr. J o h n s o n , o f Indiana. Do you think i f thatlaw had been in exist

ence at this time it would have prevented runs on the banks?
Mr. B r y a n . I have no doubt o f it.
Mr. J o h n s o n , of Indiana. Say the total amount o f the deposits is
one hundred times the amount o f the fund; do you think the depositor
would have understood that, and that would have been sufficient pro
tection?
,
Mr. B r y a n . I have not any doubt, although the amount is in the
discretion o f the committee. This amount is an arbitrary sum which I
have fixed.
Mr. J o h n s o n , o f Indiana. But when you go too far with your fond
you impose quite a hardship upon the banks?
M r. H a u g e n . Y ou think it would stop the first run, and in that w ay
it would stop fifty others?
M r. B r y a n . There is no question about that.
Mr. H a u g e n . I f you prevent the first you can prevent fifty more!
M r. B r y a n . Yes.
M r. W a r n e r . I f I understand correctly the amount made payable

in the case o f a bank breaking is all out o f proportion to the amount
finally lost, in fact so great that there is no relation between them. It
may well be that the amount you propose, $10,000,000, may be suffi
cient as a guarantee against final loss; but what earthly good would
$10,000,000, available to pay the depositors, be in case o f a failure of
a large number o f banks within a comparative short time? Let me
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tem in New York State, and tlib very first time there came a crash a
few o f the banks whose depositors were supposed to be secured used
up all the fuuds that protected the depositors o f all, aud those banks
o f our State had to be carried by the banks who were not carrying any
such fund and who had not relied upon it, but who had by conservative
management protected themselves. M y point, in other words, is this,
that while tbe ultimate loss might be less than $10,000,000, the amount
that might be required to make good the depositors even in a mild
crash might be a great deal in excess o f $10,000,000; and that the
moment that a bank having a grossdeposit o f anything near $10,000,000
had been known to go under, the public would then be apprised that
the deposit funds were about exhausted, and that would create a dan
ger point which would bring panic on o f itself, just as we came very
near having a very sharp panic when the gold reserve got below
$100,000,000, although there was no earthly reason why it should not
have been reduced to $95,000,000 or even lower so far as ultimate secur
ity was concerned.
Mr. B r y a n . I think the fact that the panic which was prophesied
did not come is an answer to that, but tlie gentleman from Wisconsin
suggested, I think, and very aptly, that these banks have been ruined
by runs upon them. Now, if there is a fund that is baek o f the banks
to guarantee the depositor, it may not be absolutely proof against fail
ures, or against a run, but it certainly makes less probability o f a run
in so far as it prevents those banks which are solvent from having to
suspend, and while I do not think we can find a panacea, I do not think
we can find a remedy which is absolutely security—because when our
Government was back o f the greenbacks they went below par when
the credit of-the Government went below par—but I think this goes
far towards preventing a panic and lessening a fear o f one, and i f it
does that it is a step in the right direction.
Mr. W a r n e r . Suppose, for example, a single national bank with a
deposit of $5,000,000, which is much less than many banks have, should
have the president abscond and have a bad run upon it— that is not an
uncommon result. I t does not happen every day or every year, but it
happens not infrequently— the first thing to be done is to close that
bank until its affairs can be straightened out. I t will take one-half o f
your total amount of $10,000,000. Now, i f you had a single other bank
with that much deposits fail before the affairs o f this bauk had been
* so far liquidated as to return that fund, would not the result be to
bring on a rush o f depositors to get their money before the great United
States trust fund could be replenished f
Mr. J o h n s o n , o f Indiana. In other words, does protection protect?
Mr. W a r n e r . 1 say our experience is all against your theory.
Mr. B b y a n . T o u think that any effort to make more secure the depos
itors has the contrary result o f making them less secure!
Mr. W a r n e r . Yes; I believe that every time you provide a security
which is inadequate for the purpose, 9 people out o f 10, not knowing that
fact, abBolutey rely upon it until some morning they wake up and find
how little security there is; and then would come this rush.
Mr. B r y a n . I f I believed with the gentleman I certainly would not
have introduced this bill.
Mr. W a r n e r . That has been the result in our State.
Mr. B r y a n . But my idea iu introducing the bill was that anything
that we could propose which would make more secure and render less
danger o f loss would be a benefit. I f I believed as the gentleman from
New York that every attempt to improve the conditions which fell short
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of absolute protection would aggravate it I would not have introduced
the bill, but believing as I did that it is impossible to reach absolute
perfection, but that it is wise to come as near as possible to it, I intro
duced the bill.
Mr. W a r n e r . My suggestion to the gentleman is that the $10,000,000
which he proposes, as estimated from our experience iu the State o f
New York—aud I will be glad to get the precise figures in regard to
it—was thoroughly inadequate, and this I think would be so, unless there
is some radical distinction which I do see now between the two con
ditions.
Mr. B r y a n . The bill provides i f there are not sufficient funds that
the amount collected in afterwards shall be used for this purpose, so
that if there was not enough in the fund at the time, there is a subse
quent collection made, and I can not help believing that this additional
security to the depositor will prevent a run iu the first place, and make
the run less daugerous in the second place.
Mr. W

arner.

W e had losses which used up all our fund.

Mr. B r y a n . The general understanding is that a case decided in
coart is decided upon the circumstances o f the case and without know
ing all the circumstances we can not make a comparison.
Mr. Cox. I would like to call your attention to the proposition back
o f that and see i f I get it clear. Take all the banks which are in exist
ence and your bill provides that these banks shall pay this money into
the Treasury by a certain date. Now, as I catch your idea there that
money goes into the Treasury and it becomes responsible to the depos
itors for that money?
'
Mr. B r y a n . Yes.

Mr. Cox. Now, to start with that proposition. Now, say it is known
to the people that a large bank with $5,000,000 deposits defaults and
oes into the hands o f a receiver. Now, you take out o f that; fnnd
5,000,000 and pay the depositors o f that broken bank. Now, say the
other banks go on and preserve themselves, do not you work out this
proposition that you make all the banks security for all the others?
Mr. B r y a n . To that extent there is no question about i t . .
Mr. Cox. Does not the man who acts a rascal in the end get the
benefit o f the whole thiog?
Mr. B r y a n . Not at all.
Mr. H a u g e n . Yon do not relieve the banks?
Mr. B r y a n . Not at all.
Mr. Cox. Now, then, say the broken bank has its $5,000,000 paid
back; the good banks have furnished the money. How are yon going to
reimburse this amount and furnish that $5,000,000; are you going to go
on with your tax again and collect another tax, and then when another
bank breaks assess another tax on those who keep up their business,
and continue and collect in that way to pay those who break; what do
you do with the assets o f the broken bank?
Mr. B r y a n . W hy it states in the bill the Comptroller o f the Currency
goes ahead and collects as he does under the present law, but instead of
paying the depositors, they being already satisfied, it is paid in to reim
burse this fond.
Mr. Cox. To the banks who furnish i t !

{

Mr. B r y a n . I did not say to the banks, but it is paid to the fund,
and as the fund is increased the necessity of course for taxation is taken
away and the banks you speak of, those banks which are solvent, they
get their pay for the amount which they have contributed to this fund
by the increased security given to their depositors and the increased
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advantage which the bank has whose depositors are secured. The
banks will be more than paid tor this tax in the advantage brought to
them by security. Now, there is a great deal o f money at all times
which is hoarded by people who are nervous about banks. Now, yon
bring that money out o f the stocking. Let them feel safe, and they
will bring it to the banks and that increased deposit will more than com
pensate the banks, so it is really no hardship to the bank which does
not fail.
Mr. Cox. The increased benefit o f the deposit is more than the loss
in the way o f ta xf
Mr. B r y a n . Yes, sir; that is what I believe. That is the opinion o f
a number o f bankers who have written to me. Let me add this, although
I do not want to trespass too far upon the time o f the committee. In
regard to the rotten bank or scoundrel getting the benefit o f it, I think
the gentleman is wrong in assuming that any person who violates the
law gets any benefit——
Mr. Cox. I did not assume, but I said there was dauger o f it.
Mr. B r y a n . The law provides punishment for embezzlement and for
wrongful acts connected with banking. Now, the man who commits
that act is dealt with according to the law.
Mr. J o h n s o n , o f Ohio. But you say the man o f whom you spoke is
living in a hotelt
Mr. B r y a n . I think he has not gone to the penitentiary, but there
are nearly five years’ time in which he can go.

I have introduced a bill, which is before another committee, to
increase the penalty for embezzlement, and it is not necessary to argue
that question before this committee. I t is not any desire to make less
heavy the punishment for these things; it does not bring any aid to
any person who is guilty o f any violation o f law; but when a man
embezzles and he is punished by incarceration in a penitentiary, it does
not give relief to the man from whom he has taken the money, and
this bill is to protect the innocent depositor from the wrongful act o f
that man; and my law takes care not to interfere with any o f the penal
statutes. It is the innocent depositor who suffers now on account o f this
man’s wrongful act. One paper—in St. Paul, I believe—suggested that
in the same way I might ask that every business man should be taxed
to raise a fund to protect people who dealt with him; but I think themembers o f this committee will recognize that there is a wide distinc
tion between money and other kind o f property; that when we deal
with a man and buy anything o f him we generally understand what
that property is worth and make our trade with him upon that knowl
edge which he and we have. When we loan money to a man we inquire
whether that man is good or not, whether his security is ample; but
when we deposit in a bank we take it for granted that that bank is
good, and the depositor can not go there and watch and see whether
the directors watch carefully the loans made by the banks; they can
not go there and see whether the president is putting upon the books
o f the bank what is deposited, and can not see the certificate Which is
issued.
In the case o f our bank at Lincoln the State treasured deposited
$150,000, which I believe was in one certificate, and the cashier put the
money in his pocket and put on the books $50 deposit. W ell, now, the
depositor can not go and see whether those books are correct. H e
can not tell how that bank is being managed. H e simply puts his
money in there for security, and it is the business o f the Government
to make that bank as secure as possible, and it has acknowledged that
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responsibility in various ways. W e have laws that you shall not loan
more than a certain amount to one individual. W e have laws that
you shall not do certain things in connection with banking. W e have
laws to inspect these banks. Now, what are these laws for, except
to make more securb the men who deposit their money in banks! The
Government, therefore, has recognized the difference between dealing
with money and dealing with other property, and wliat 1 ask in my
bill is that tbe Government shall go a step further and by a simple
instrumentality, by an easy process, raise a guarantee fund. In the
first place this protects the depositors, protects them far more than
the law which requires an examination o f banks, far more than a law
which prevents the loaning to a man more than 10 per cent; far more
than a law which is proposed here— and I believe the law is a good
one, but which I do uot think gives as much protection as my law does—
the law which provides that a bank shall not loan to its officers or
directors, except under certain conditions. Now, the purpose o f all
these restrictions is the same, and I believe my bill, which raises this
sum and which puts a burden upon the banks which is absolutely
insignificant, and which guarantees the iunocent depositor who puts
his money in the bank, will do more for the depositor than all these
laws which you have provided, and it will do more for the community,
because when you keep a bank from suspending you have conferred a
benefit upon that community, and i f the result is to compel the State
banks, as I believe it will, to go to their legislatures and ask the same
thing to protect their depositors, the result will be that added to yonr
national fond o f $10,000,000 you will have your fond in every State for
the same purpose, and whenever depositors in both the State and
national banks feel secure there will be no money drawn out o f the
banks in panics, and we would not suffer from such a stringency as we
have lately passed through.
Mr. H a l l . You not only think there will be amendments to laws
already existing, but you think they will require a compliance in all
their terms, such as throwing further safeguards around the State
banks, such as State-bank inspectors, etc!
Mr. B r y a n . Most o f the States have followed in the national bank
footsteps, I think.
Mr. W a r n e r . I was about to ask whether the analogy afforded by
the conduct of State banks since the passage o f the national-bank act
afforded any support to the gentleman’s expectation, and indeed whether
it did not rather show it was ill founded. For example, there are these
provisos in the national-bank act which are intended to secure deposi
tors, and I take it that they are to some extent effectual; but is not it
a fact that, so far as the gentleman knows or believes, our State-bank
laws have not to any great extent been either assimilated to the
national-bank act in these particulars or have greatly improved them
selves in the last twenty-five years! A re not our State banks running
npon very much the same basis, with practically the same laws that
they were twenty-five years ago! In other words, have not these pre
cautions adopted by the Government to secure the depositors in
national banks been utterly ineffectual so far as setting a good exam
ple and bringing about a change in the State banks!
Mr. B r y a n . I f the gentleman will allow me to reply, I would say I
cannot answer from an investigation whether that is true or not,but I
know in my own State we have adopted amethod o f bank inspection, and
I think I am correct in saying that has also been adopted in other
States, and I feel sure o f this, that i f there has been a tardiness among
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the States following the rules laid down for national banks, when you
come to a matter like this o f guaranteed deposits, that the interests o f
the depositors would see to it that the State bank is compelled to pro
vide the same security; so i f the examples thus far have not been fol
lowed it is no argument against their following the example in this
ease.
Mr. W a r n e r . I appreciate the force o f the gentleman’s argument,
bnt to a great extent where the system o f inspection exists I under
stand they are simply exercising the system which was in existence
without reference to the national-bank system.
Mr. B r y a n . I f the State banks did not need to follow the example
set by the Government in that respeot, because they had inspection, o f
course the gentleman will not complain because they have not ohanged.
Mr. H a u g e n . I would like to ask another question.

Mr. B r y a n . I will be glad to answer any question that I can.
Mr. H a u g e n . You have provided in yonr bill for an amount to be
available upon the suspension o f a bankf
Mr. B r y a n . Yes, sir.
Mr. H a u g e n . And that would be a great draft upon the fund in the
case o f afailure o f two or three large banks. Now, suppose yon change
the availability o f the fond to such a time as the resources o f the bank
have been exhausted, that would secure the depositor as well as yonr
plan would it, and it'would be a safeguard to the fondT
Mr. B r y a n . Y ou are correct, but it would delay the matter some
what and to that extent it would meet with objection.
Mr. W a r n e r . I t wonld not provide the degree o f absolute prompt
ness provided in this bill.
Mr. B r y a n . The great thing I desire is security.
Mr. W a r n e r . And promptness?
Mr. B r y a n . Security is the first thing and promptness is the next.
Mr. H a u g e n . There is less danger to the fond.
M r. B r y a n . Yes, yon are right.
Mr. W a r n e r . A t thesametimemay I ask the gentleman from Nebraska
whether there would not be one decided disadvantage in the plan pro
posed by the gentleman from Wisconsin, not merely that the advantage
o f promptness would be lost, but, to the extent to which losses were
not obviated by promptness, an actual loss in the assets o f the bank in
realizing apon bad debts and everything o f that kind would so increase
the possibility o f an ultimate liability as would probable destroy that
advantage too?
Mr. B r y a n . M y opinion is the bill is better with this provision than
without it from the met that yon pay them promptly and yon avoid
the embarrassment in the community. That would enable the bank to
collect its assets more easily and would be a greater advantage than
yoo would acquire by striking ont that provision and making the
depositor wait.
Mr. H a u g e n . And yon also remove the legal pressure pat upon the
banks to take care o f itself?
Mr. B r y a n . I think there wonld be no force in that argument because
the stockholders, directors, and officers are jast as liable under my law
as they are now.
Mr. H a u g e n . But he woold be allowed to take his time under yonr
law?
Mr. B r y a n . That is true, but he will not desire to take his time. I
can say that the director or stochkolder or officer can have no. reason,

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then, for bejng less careful, less considerate thau under the present
law.
Mr. H a u g e n Then there is the great danger to the fond.
Mr. B r y a n . I believe a fund o f $10,000,000 would be ample. I f a
bank fails the people understand that the money is paid out at once,
the assets will becollected and the fund reimbursed; and they will also
understand that upon next January there shall be an assessment which
will raise that fund if it foils short, so i f they do not get their money
now they are bound to get it and there can be no loss. The fact that
the fund has no proportion to the aggregate liabilities o f the bank is
not a weighty argament in this case, because every depositor knows in
time that the fUnd will be raised and he will be paid, and that I think
will absolutely prevent rnns which have been made npon banks in
times o f panic, and it will prevent these banks flailing, and therefore
prevent the drawing upon this fUnd.
Mr. Cox. Your $10,000,000 fund becomes exhausted if it is paid outf
Mr. B b y a n . Yes, sir.
Mr. Cox. Because a great many o f these bauk assets do not amount
to anything!
Mr. B r y a n . Let me answer that. In all the thirty years o f national
banks, the fact is, as some one has suggested, the total loss to depos
itors has not been much over $(1,000,000, and that shows that your
assumption that the assets are worthless is not well founded.
Mr. Cox. I say some o f them.
Mr. B r y a n . To no great extent.
Mr. Cox. That was not the point to which I was asking your atten*
tion. I t is this: Say the $10,000,000 is exhausted from whatever
reason and the only way to supply in order to reimburse the fUnd is
through the assets of'the broken bank !
Mr. B r y a n . Yes, sir.
Mr. Cox. That is the only way you reach it !
Mr. B r y a n . Yes, sir.
Mr. Cox. Now, the fund becomes exhausted and you have to assess
another tax to make it good, and then after that is exhausted you have
to assess another!
Mr. B r y a n . Yes.
Mr. Cox. Then how can you arrive at any certainty about i t ! Take
this panic on hand now, and six, eight, or ten banks have broken in a
technical sense and the depositprs closed out, and they want their
money, now does it not strike you that you would have to be continu
ally assessing the solvent banks to supply those which have broken!
Mr. B r y a n . A greater than I has said that you can only judge the
ftature by the past, and judging by the past, I do not think the danger
of which you speak is a proximate one at all.
Mr. Cox. I f it does not go to that extent, does it not result in the
end that the good banks, that the well-managed banks, stand as a
guard for the badly managed banks!
Mr. B r y a n . W e ll, you may say it, but it is theoretical. I say the
advantage which they receive is greater than the disadvantage imposed
upon them ; and ju d gin g the future b y the past, supposing that the fail
ures in the future w ill not be greater than those in the past, it will not
be a very heavy burden on the bank even if there w as no offset in the
way o f advantage, and you can not assume or speculate that the next
thirty yeaTS w ill be entirely different from the past thirty years.

Mr. Cox. But a man who goes into a bank whose liability is fixed by

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law, he is going to speculate all along the line how much it costs him
to stand security for the bank!
Mr. B b y a n . H e knows how much it will be and knows what the past
record has been, and he will also be able to see what an advantage it
will be to him to be able to say to depositors, “ come aud deposit your
money and here is the fund to protect you.”
Mr. Cox. I do not see how a man----Mr. B b y a n . 1 do not expect all of you to agree with me.

Mr. Cox. 1 do not see how a man who goes into a bank would go
into it i f the tax is to be assessed to keep up a fund for other bauks.
I f you exhaust that fund you have to assess another tax. Now, I take
it that a man will think over this thing, and i f he does not know exactly
what it will cost him, and I think perhaps i f that bank was in Tennessee
he would not want to go into the business.
Mr. B b y a n . H e knows that it will uot be more than one fourth of 1
per cent on his deposits. H e does not know how many years that will
run, but he knows it is a very trifling tax, aud he knows that unless
the future is different from the past it will not last long.
Mr. Cox. You recognize the fact that a large per cent has to be kept
in the vaults of a bank for the protection o f the depositors!
Mr B b y a n . Fifteen per cent outside o f reserve cities.
Mr. Cox. One more questiou. W ith your proposition do not you
think it would be nothing but right you should repeal the 1 per cent
tax on the-national banks!
Mr. B b y a n . That brings up an entirely different question. But I
would say this, the 1 per cent which the Government has levied upon
our banks’ circulation, not upon our deposits, was intended, as I under
stand it, to cover the expenses to which the Government was put in the
issue of bauk currency.
Mr. Cox. I t does more than that.
Mr. B b y a n . I know it does more than that. For my part, I am not
willing to take it off because I believe the banks, under the present
law, are able to make a larger per cent upon the money actually invested
in the currency that they issue than an ordinary business man upon his
money invested. I am not willing, that being the case, to take off the
tax which realizes something to the Government, and I caii not see any
justice in that proposition.
Mr. H a l l . I f that is the case, w hy do not the national banks take
out more curreucy!
Mr. B b y a n . They have' taken out dbmething like $37,000,000 in two

months.
Mr. H a l l . And there is a bank with $3,000,000 capital which has
never taken out a dollar!
Mr. B b y a n . And the reason was that the demand for bonds for that
purpose raised a premium on the bonds until it became a source o f lit
tle profit. When bonds came down to 110 then it became more profit
able, and i f we had bonds at----- .
Mr. H a l l . A s I understand your statement to be, it is a fact that
national banks are able to make out of its circulating notes which it
takes out a greater per cent than any ordinary business man upon his
investment!
Mr. B b y a n . No, sir; I said upon money which they actually invested

in the issue of currency. Now, for instance, with a bank which has
$100,000 capital, it can buy $110,000 worth o f bonds, and upon that it
receives $90,000. Now, the $90,000 it receives is just as good as the
$90,000 which it paid for the bonds and its actual in vestment to secure
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that currency ia only about $20,000 or $21,000. From the interest they
receive upon the bonds, 4 per cent, $4,000, you deduct the amount they
pay, 1 per ceut, Which is $900, and cost o f issuing money, etc., you will
find that they receive an interest upon the $20,000 which they have
actually invested, a larger dividend than an ordinary business man
receives in his business. I f you should spread that profit over the
$100,000 it shows less, but I can not understand i f they receive $90,000
why that $90,000 does not replace $90,000 o f the amount they spent for
the bonds, and for the use o f the additional sum they receive some
thing like 12 per cent profit to-day. •1 went to the Comptroller after
making that statement. I thought 1 might be in error in not giving
credit for the 5 per cent that the Government keeps as a redemption
fund for the notes, and 1 found that the 5 per cent is counted in their
reserve, and is therefore just as available as i f it was in their vanlts
and the figures were absolutely correct. There is no way tff contra
dicting the fact that the national bank o f to-day does make upon the
money actually invested in the bonds about 12 per cent profit.
Mr. H a l l . Do you call the $90,000 national bank notes actual money
instead o f notes for which the bank is liable!
Mr. B r y a n . A bank organized with $100,000 capital pays that money
in gold, silver, or paper. I t then takes that money and buys bonds,
and it has to add enough money to make up the $10,000 or $11,000 pre
mium. It issues its notes. That $90,000 is put in the vaults just as if
it was money, just as i f it was capital in the first place, and it can lend
or do what it likes with it. A ll it has invested is the difference between
what the Government allows it to issue and the price o f‘ the bonds, the
difference between the face o f the bonds and the issue plus the premium
on the bonds. Now, take the 2 per cent bonds. There is as much
profit on the 2 per cent bonds to the bank to-day as on the 4 per cent
bonds. The 2 per cent bond is selling-at 98. The bank issues $90,000,
so that the actual money invested is $8,000, aud upon that $8,000 it
draws $2,000 interest less $900, say about $1,100 less expenses; then
when these bonds are paid, and they are payable at the option o f the
Government, there is $2,000 it will make on the bonds, so it is as profit
able to-day to issae currency on 2 per cent bonds as upon the 4 per
cent bonds, and I think there is no escape from the argument and from
the statement that upon the money actually invested the national bank
to-day is making more than the average business man, and for this
reason the Government can not reduce the burdens upon these banks.
Mr. W a r n r r . W o u ld not there be a larger circulation as the result
of a greater inducement, provided that tax was taken off f
Mr. B r y a n . I think so.
M r.'W ARNER. Now , there
a question, looking at it from another
standpoint, whether it would not be well, in recognition of the fact that
a great many believe that there is a lack o f currency, simply to take
off that 1 per cent tax and let the country have the additional cur
rency!
. Mr. B r y a n . I appreciate the force o f that argument, and I also

appreciate the fact that the argument is made by those who in the first
place deny that we are needing any more money. But, admitting that
we do need it, let us see who gets the benefit o f it. Now, i f your pro
position is correct, let me suggest this, instead o f saying any national
bank can issue this money say that any man who holds a Government
bond can go and deposit his bond with the Treasury and receive back
90 per cent o f the face o f the bond and at the same time receive inter
est on the fece o f the bond. I do not favor this, but simply Buggest it.
940----- 12
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Mr. W a r n e r . That would' be extremely----Mr. B r y a n . Does the gentleman deny that that would increase the
circulation f
Mr. W a r n e r . I admit it.
Mr. B k y a n . D o you not think it would increase it as much as yonr
plant

Mr. W a b n e r . I t OTotlld make every bond owner his own banker.
M r. B r y a n . That may be.

The C h a i r m a n . The chair desires to call the attention o f gentlemen
who may wish to pursue this question further to the report of the Comp
troller o f the Currency for 1892, Vol. 1, pp. 214-225, and on those pages
you will find statistics showing losses and all matters relating to col
lections o f the liabilities o f national banks from the foundation up to the
present time.
Thereupon, the committee rose, to meet at 10 o’clock a. m., Friday,
October 13,1893.

C o m m it t e e o n B a n k i n g a n d C u r r e n c y ,

Friday, October 13,1893.
The Committee on Banking and Currency met at 10 a. m., this day,
Hon. William M. Springer in the chair.
STATEMENT OF HOJT. W. J. TALBERT.
LO AN TO STATES, ON STATE-BOND SECU RITY.

Hon. W . J. Talbert, a Representative from the State o f South Caro
lina, appeared before the committee in behalf o f the following bill:
[H. R. 884, Fifty-third Congress, first session.]
A B ILL for the enlargement of the volume of currency and the distribution of the same.

Be it enacted by. the Senate and Houte o f Bepreeentatinee o f the United Statet of
America in Congreet aeeembled, That upon the demand o f any State o f the United
States, expressed through any legally authorized officer o f said State, the Secretary
o f the Treasury be, and is hereby, authorized and directed to issue notes o f the
Government o f like denominations as the Treasury notes at present issued and in
circulation, which notes shall be a legal tender at their faee value for all dehts,
public and private, and noninterest-bearing, and an amount o f said notes, not to
exceed thirty dollars per capita upon the population o f such State according to the
last census preceding the application, shall, upon application to the Secretary o f the
Treasury by said officer, be issued to such State upon the conditions hereinafter
prescribed.
Sbc. 2. The State making a demand in aooord with the first section o f this act
shall deliver to the Secretary o f the Treasury the lawful bonds o f said State to
the full amount o f Government notes demanded, and such bonds shall be taxable at
the rate o f one per centum per annum, said tax to be covered into the United States
Treasury on or before the first day o f April o f each year by the proper State author
ities, said bonds to fall due at the expiration o f twenty yean from their date: Pre
sided, That such State shall have the right at any time before the said bonds fill
due to turn over to the Secretary o f the Treasury the full amount, or any put
thereof, o f Government notes issued to such State; or in lieu thereof said State*
may redeem and recover suoh bonds, or any part o f the amount thereof, with lawful
money o f the United States. When such bonds are recovered by the return o f said
notes, the Secretary o f the Treasury shall destroy said notes.
Sec . 3. That each State to which said notes may be issued shall make provision
for the distribution o f the same as it may deem best for the welfare o f the inhab
itants thereof.
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Mr. Talbert addressed the committee as follows:
Mr. Chairman and gentlemen o f the committee: In appearing before
yonr Committee on Banking and Currency, composed as it is o f able
lawyers, bankers, and others, it is needless for me to say that a feel
ing o f embarrassment should take possession o f me, only a plain farmer,
and I thank you for the privilege o f saying only a few words in refer
ence to the bill in question. I have introduced this bill for the enlarge
ment o f the volume o f the currency, and the distribution o f the same, and
had it referred to thi&committee for consideration, hoping that some merit
might be found in it by your body, and 1 do not propose to occupy but
very little o f your time, as I lay no claim to being a financier, though
having some common-sense idea o f business, having made a success at
my own calling. This bill, as you see by its reading, authorizes the
Secretary o f the Treasury to isBue notes o f the Government o f like
denominations as the Treasury notes at present issued and in circula
tion, which notes shall be a legal tender at their face value for all
debts, public and private, etc., and shall, upon application to the Sec
retary o f the Treasury by said officer, be issued to such State upon
the conditions hereinafter prescribed. Sectious 2 and 3 are as follows:
Skc. 2. The State making a demand in accord with the first section o f this act
shall deliver to the Secretary o f the Treasury the lawful bonds o f said State to the
fall amount o f Government notes demanded, and such bonds shall be tazahle at the
rate o f one per centum per annum, said tax to be covered into the United States
Treasury on or before the ttrst day o f April o f each year by the proper State author
ities, said bonds to fall due at tbe expiration o f twenty years from their date: Pro
vided, That such State shall have the right at any time before the said bonds fall
due to torn over to the Secretary o f the Treasury tlie full amount, or any part
thereof, o f Government notes issued to such State; or in lieu thereof said States
may redeem and recover such bonds, or any part o f the amount thereof, with law
ful money o f the United States. When such bonds are recovered by the return o f
said notes, the Secretary o f the Treasury shall destroy said notes.
8bc . 3. That each State to which said notes may be issued shall make provision
for the distribution o f the same as it may deem best for the welfare o f the inhab
itants thereof.
DEPRESSION IN A G R IC U L T U R A L INDUSTRIES.

There is, in the rural sections of our country, the agricultural ele
ment, (an element I claim to represent, composed o f the most conserva
tive class o f our citizens), a widespread feeling o f distrust, dissatis
faction, and discontent, resulting from an agitation and discussion o f
the financial condition o f our country, which has taken the shape o f
earnest and serious protest against thfe course o f Federal legislation in
ti^at direction for the last twenty-five years, culminating in a system o f
finance which is so adjusted as to be utilized by a few, a system so
directed as to transfer the fruits o f their labor from their own into the
pockets o f others. In 1850, in the good old times, the assessed wealth
of the United States was $8,000,000,000; and o f this the farmers owned
$5,000,000,000, or over two-thirds or the wealth o f the nation. In 1860,
when yon know the clouds o f war had begun to gather over this nation,
when gold and silver begnn to seek their hiding places— and, as I have
said in other discussions, the war was not fought over the negro or
anything o f the sort, but it was fought to enslave the white man under
a moneyed aristocracy,—in 1860, the assessed wealth o f the United
States was $16,000,000,000; and o f this the farmers owned $7,000,000,000,
not quite one-half. Then closed the most prosperous period o f this
country. In 1870, the nation’s wealth was $30,000,000,000; and o f this
the farmers owned only $11,000,006,000, not qnite one-third.
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M r. H a l l . D id yon deduct the indebtedness o f the farming class f
Mr. T a l b e r t . I will come to that after a while in the winding up of

this table. This was less than one-third, five years after the close o f the
war. In 1880, the assessed wealth o f the United States was $45,000,000,000; and o f this the farmer owned $12,000,000,000—less than one*fourth.
Now, I am running hurriedly over this and I do not propose to detain
the committee long; and, as a matter of course, being no financier, I
only am submitting these things for your consideration, and I do not
know that I could sustain any severe cross-examination on finance,
being, as I have said, nothing but a plain farmer. Some bill of the
sort was introduced at the last session o f Congress by Col. Livingston,
o f Georgia, and this is something similar to it, and adopting that idea
I have been endeavoring in a manner to reproduce it and to have it
introduced here with a desire that some merit might be found in the bill
In 1890, the nation’s wealth was assessed at $62,000,000,000; and of
this the farmers owned $15,000,000,000. Then, their lands were mort
gaged for over 50 per cent o f their value, say $9,000,000,000, and that
left them only $6,000,000,000—less than one-sixth. I have not the
exact figures since that time, but it has gone on in that ratio. Now,
just here, in 1850 our farmers owned over 70 per cent o f .the wealth of
the country; in 1860 about 50 per cent; in 1880 about 33 per cent, and
to-day they own less than 20 per cent, and yet they pay over 80 per
cent on every dollar collected in taxes. This is alarming, and enough
to put this class o f people to investigating the cause of this line of
poverty.
Again we see, from 1850 to 1860, farm values increased 101 per cent.
From 1860 to 1870, farm values increased 43 per cent. From 1870 to 1880,
farm values increased only 9 per cent. Now, then, notwithstanding this
alarming decline in farm values, the aggregate wealth o f the country
increased 45 per cent from 1870 to 1880, while those who produce this
wealth are not the recipients by any means; and the agricultural popula
tion increased over 29 per cent. From 1850 to 1860, agriculture led manufacturing 10 per cent in the increased value o f products; from 1870 to
1880, manufacture led agriculture 27 per cent; showing a difference in
favor o f manufacturing o f 37 per cent. The value o f the ten leading
staple crops o f the country in 1866 was $2,007,462,231. The value of
the same crops in 1884, eighteen years later, was $2,043,500,481. Dur
ing this time, the cultivated acreage had nearly doubled and agricultural
implements and machinery had vastly improved, and yet the crop of
1884 sold for only 2 per cent more than the crop o f 1866. There must
be a cause for this, and surely it is plain to behold.
The average value per acre in yield o f all our crops in 1867 was $19‘
and in 1887, twenty years later, the average was but $9, showing a
depreciation; as follows:—Wheat from 1860 to 1870, average price per
bushel $1.99; from 1880 to 1887 the average per bushel was $1.07. Corn,
from 1860 to 1870, average price per bushel 96 cents; from 1880 to 1887
average price per bushel 46 cents. Cottou, from 1860 to 1870 average
price per ponnd 48£ cents; from 1880 to 1887 average price per pound 9
cents; so that to-day a dollar costs the wheat farmer two and one-third
times as much; the corn over two and one-third times as much, and
the cotton over four times as much as it did from 1860 to 1870.
M r. H a u g e n . Y ou do not have the increase shown b y the last census
in farm values f
M r. T a l b e r t . N o, sir.
M r. H a u g e n . D o you know what it w a s!
M r. T a l b e r t . I don’t know exactly, but it tends in the same direc
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tion, and would be proportionately the same. The same decline would
follow.
The C h a i b m a n . Those are currency prices to which you refer!
Mr. T a l b e r t . Yes, sir.
Mr. B r o s i u s . You do not have in connection with that statement o f
the fall in prices o f agricultural products, a table as to how much less
it costs to produce agricultural products in the United States!
Mr. T a l b e r t . I have not the statistics, but it is in the same propor
tion. But that does not at all change the trend o f my argument.
Mr. B r o s i u s . 1 was simply directing your attention to the fact that
you have no statement on that point.
Mr. T a l b e r t . It is in the same proportion, 1 should presume, but
that makes no difference. Now, 1 contend, gentlemen o f the commit
tee, that the great question o f the day is the money question; financial
reform is what we need, and the great question o f the day is, whether
the dollar or the citizen, whether manhood or money, shall rule this
country; and 1 contend that this condition o f things is tlie result of a
monetary system fastened upon the people since and during the war
by the enactment o f what might be termed seven financial conspiracies;
that is, the enactment o f seven laws. Now, I have not the time to go
into any discussion o f those laws, but will only just mention them and
the dates o f their passage. The exception clause, passed February 25,
1862, which you, gentlemen, know was an exception put upon the green
backs which debased them and prevented them being legal tender for
the payment o f all debts. They were restricted to the nonpayment o f
imports and interest on the debt. The national-bank act was passed
March 25, 1863, which I think has a pernicious tendency, as all will
admit without debate. The contraction act was passed March (>, 1866,
by which the currency was lessened and contracted. The creditstrengthening act was passed March 18, 1869. Nearly all of the 5-20
bonds which were payable in the kind o f currency in which they were
bought were made payable in coin, thus robbing the people o f mil
lions. The funding act was passed July 14, 1870, which perpetuated
the’ national debt. Then came the demonetization act o f March 12,
1873, which Carlisle said was more destructive than wars and pesti
lence; aud the resumption act o f June 14,1874, to be consummated Janu
ary 1, 1879, thus making it p o s s ib le to so manipulate the money o f the
country by the national bankers and W all street gamblers as to virtually
control the price o f produce and every species o f property and to put a
regulation upon every branch o f labor. But we are told that a dollar
will buy more to day than ever before. That is too true, and none
know i t better than the laborer. Is labor benefited when a dollar will
purchase more o f its products than ever before! I t is not so much in
the purchasing power o f the dollar that the farmer is interested, but he
is profoundly interested in the debt-paying power o f the dollar. W ill
this dollar, which cost him two to four times as much as when money
was plentiful—will it pay more of his debts! W ill it pay more interest!
W ill it pay more on his mortgage! W ill it pay more taxes! These
are the questions which deeply concern our depressed, oppressed, and
debt-ridden people. The dollar controls the price of labor and produce.
A s a matter o f course, as this contraction o f the currency occurred it
naturally caused a corresponding shrinking in the value o f prodncts
and in the value o f labor and in the value o f all kinds o f property. That
was the natural consequence.
Mr. H a l l . Would not you be nearer correct i f you said iu the price
o f all products!
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Mr. T a l b e r t . That is virtually the same thing.
M r. H a l l . I can not agree with you there.
Mr. T a l b e r t . W ell, the difference is a minor one.
Mr. T a l b e r t . A bo u t the close o f the war Mr. Lincoln sa id :
I see in the near future a crisis arising which unnerves me and causes me to trem
ble for the safety o f the nation. As the result o f the war corporations have been
enthroned and an era o f corruption in high placeB w ill follow and the money power
o f the country w ill endeavor to prolong its reign' by working upon the prejudices of
the people until wealth is aggregated in the hands o f a few.

Gentlemen, you know how well that prophecy has been fulfilled in
considering tne condition which confronts us to-day. Alexander Ste
phens said:
That the first steps o f the shylocks, after they had legislated all the money into
''their pockets, wolild be to absorb the railroads; second, to get command o f all com
mercial exchanges and the great arteries o f trade, and in tne third place to possess
themselves o f all the real estate: then serfdom and slavery under a moneyed aristoc
racy would as surely follow. That prophecy has certainly been fulfilled in a meas
ure.

Gan you doubt to-day, looking around, and does it not impress upon
any thinking man the conviction that despotism and corporate role
to-day has fastened its clutches upon our free institutions, so to Bpeak;
and that to-day, living in the land o f the free aud home o f the brave
we are not a free people: that we are living to-day under the domination
o f a money power and are ruled by a moneyed aristocracy, so to speak.
James A . Garfield declared in 1880 tbat^—
Whoever controls the volume o f currency is absolute master o f the industry and
oommerce o f the country.

I think that is true. Thus stands to-day the money power, owning
the railroads, telegraph wires, steamship lines, and commercial
exchanges. They have gobbled up all the vacant lands, and through
the agencies o f banks, commission merchants, aud laud loans associa
tions have shingled our homes with mortgages, owning nearly every
thing in existence, and in their arrogance stand ready to offer opposi
tion to every measure that may be proposed for the relief o f the people.
In addition to all this we see United States bonds (4 per cent bonds,
which would be utterly worthless but for the sturdy blows o f the strong
arms of labor), due in 1907, which were bought at 64 cents on the dollar,
selling at $1.25 on the dollar, when we know that a mortgage on not one
farm in a thousand for the same time, one-third its value, at the rate of
7 per cent interest, could be sold at its face value. W e are alarmed
when we see under our financial policy the major part of the wealth of
67,00J,000 people pass into the hands o f 30,000 men. W e see central
ized capital allied to corporate powers invading our temples o f justice,
subsidizing the press, controlling conventions, corrupting the ballot
box, dictating the platforms o f parties, overriding individual rights,
intermeddling with fiscal authority, and directing legislation, State
and national.
PROPOSED MEASURES OF B E L IE F .

W e see to-day, figuratively speaking, the will o f one man, at least,
attempting to rule the Congress o f the United States. The President
o f the United States stands, as I said in a speech the other day, scepter
in hand, daring Congress to give the people what they asked for. We
see the rich growing richer and the poor growing poorer, and yet with
each recurring year we continue to sow in faith, toil in hope, and reap
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in dispair. Surrounded by tbe 'most wonderful progress and develop
ment the world has ever witnessed, yet standiug appalled with impend
in g bankruptcy and ruin. Now, Mr. Chairman, these being facts which
I do not think can be successfully controverted, such a system ought to
be changed; and, believing this and kuowing this to be the sentiment o f
the people I represent, I have brought forward this bill as a substitute
for the present banking and funding system, which bill 1 do not claim
to be original entirely, but, as I have said, something like it was intro
duced last session by Col. Livingston, o f Georgia. I have also brought
it forward as a substitute at the same time for the State-banking sys
tem. I conceive this to be a substitute for the famous subtreaeury
system which has been so much abused and so little understood. I t is
nothing more nor less to-day than a plan to change the present financial
system o f the National Government. I also conceive this to be a sub
stitute for the State-banking system. This plan, I think, covers the
financial plank in the Ocala platform, one o f the Alliance demands.
A n d just here let me say, that while I am an Alliance man I am a
Democrat. I want to disabuse the minds o f the members o f this hon
orable committee ot this one idea, that an Alliance man is a Populist.
I t is no such thing; and there is a wide gu lf between them. I claim to
be an Alliance man, advocating certain measures; and yet I have done,
and expect to do it, within the Democratic party as long as the Demo
cratic party stands by its principles and platform; and that I submit to
be tbe financial plank o f the platform o f the Farmers’ Alliance, strictly
speaking.
Th e General Government has reserved to itself the right to coin
money and emit bills o f credit. Yon can find that in Article I, section
3. o f the Constitution, and section 10 o f Article I is plain that the State
shall make nothing but silver and gold a legal tender. This Govern
ment has, however, neglected to supply the necessary kind and quan
tity o f money to effect exchanges essential to the interests and welfare
o f every section alike. I t is the duty o f every national government to
institute and regulate a medium o f exchange; but that this duty has
been imperfectly performed appears from the fact that when specie is
made the only tender iu payment o f debts neither the Government nor
the mass o f the people have or can have any adequate control over it.
The capitalists control the money and through the money control the
Government. The defects o f the present monetary laws further
appear in the great power given to national banks, so well described
a few mornings ago by Col. Oates, o f Alabama, to yonr committee;
also from the variations in the rates o f interest o f Government stocks
constantly fluctuating in value. I f the Government does not secure a
uniform value to money for its own use it can not regulate as it ought
the currency o f the country. I t is impossible to secure to labor its
earnings under systems by which tbe Government and the public
depend upon a few capitalists to furnish the medium and standard for
the distribution o f the productions o f labor.
The bill in question will give to us a uniform currency, a currency to
be issued by the nation and the States respectively, each State receiv
ing only so much as it requires under the act when demanded by any
regularly legalized officer, and such funds to be disposed o f as each
State may direct by law; and that is what I conceive to be a substi
tute to the State-banking system, for each State, by its legislature, can
direct bow this money shall be loaned. It can be loaned upon any
security which is good. The State, o f course, places bonds in the
National Treasury to secure the National Government, and then loans
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its money to citizens in South Carolina or Pennsylvania under State
laws as they may direct. They might in South Carolina lend money on
one thing and in Pennsylvania they might lend on another, henoe yon
could not adopt any uniform system, and hence I leave it to the States
themselves to arrange that matter. It is clear that Congress has the
constitutional right to coin money, etc. This makes it the duty o f the
General Government to provide the money o f the nation, and it is
accordingly bound to make money in quantities adequate to the wants
o f business and to institute it in a way which will secure the effectual
regulation o f its value. The present deplorable condition o f the coun
try is a sufficient argument against the national-banking system, and,
as I have said, it is a pernicious system. A ll o f the old authorities are
against uational banks, Jefferson, Madison, and Benton. I just here
will read some sketches from Jefferson— I have here some miscellaneous
authorities, but I will only read from Jefferson. Jefferson stated:
Bank paper must be suppressed aud the circulation restored to the nation to whom
it belongs.
The power to issue money should be taken from the banks and restored to Con
gress and the people to whom it belongs. I sincerely believe hanking establishments
are more dangerous than standing armies.
I am not among those who fear the people. They, aud not the rich, are our
dependence for continued freedom; and to preserve their independence we must not
let our rulers load us with perpetual debt.
Put down the banks; and, i f this country could not be carried through the longest
war with the most powerful enemy without ever knowing the want o f a dollar,
without dependence on the traitorous class o f our citizens, without bearing hard
upou the resources o f the people or loading the public with an infinite burden of
debt, I know nothing o f my countrymen.

Mr. H a u g e n . W hat is that pamphlet!
Mr. T a l b e r t . It is a pamphlet called A history o f the. United States
dollar, from which I have culled other information. It refers to Thomas
Jefferson and many other writers.
Mr. B r o s i u s . B y whom was it published!
Mr. T a l b e r t . B y X. A . Dunning.
Mr. W a r n e r . Does it give the date o f Mr. Jefferson’s suggestion!
Mr. T a l b e r t . No, sir; it does not give particular dates here, though
it is accurate, being taken from best authorities.
Mr. J o h n s o n , o f Ohio. Can you give us the place where we can find

that in Mr. Jefferson’s writings?
Mr. T a l b e r t . It is found in Jefferson’s speeches and writings. I refer
to this, but I could go and give numerous other authorities.
STATE BANK CIRCU LATIO N.

T o continue my argument, the history o f the state-banks system is
sufficient argument against them under the old plan. This bill, as I
understand it, provides a general substitute for the State and national
banks. A t the beginning o f the war, reliable reports from eighteen
different States show that in 1800 out o f 1,230 State banks 140 were
broken, 234 were closed, and 131 were worthless. Besides there were
in circulation 3,000 kinds o f altered notes, 1,700 varieties o f spurious
notes, 460 varieties o f spurious imitation, and 700 other kinds more or
less fraudulent, and one might expect out of every eleven notes that
five had been tampered with.
Mr. H a u g e n . D o you get that from official reports!
Mr. T a l b e r t . Yes, sir.
'
Mr. W a r n e r . H o w long a time does that exhibit cover!

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185

Mr. T a l b e r t . That was at the close o f the war, going back over
the history o f the State banking system.
Mr. W a r n e r . Y o u mean from the beginning!
Mr. T a l b e r t . That was the condition in 1860.

far back it goes.

I do not know how
It only shows the fallibility o f the State bank system.

Mr. H a l ' l . Y ou got that from M r. H epburn’s report!

Mr. T a l b e r t . Yes, sir, and other better authorities. Now, gentle
men, I thank you for your kind attention and I feel that it is an honor
that I have been invited to appear before you. A.s I have said, I am
no financier, simply a plain farmer with certain ideas about business,
and I have introduced this bill and referred it to your committee for
consideration, and would be glad i f you would consider and look it
over and see if you can And any merit in it. I hope that some o f the
suggestions in it may find favor with you in connection with other bills
which you have before you.
CURRENCY P E R C A P IT A .

Mr. W a r n e r . Does your bill provide for $30 per capita new cur
rency in addition to that now afloat!
Mr. T a l b e r t . Yes, sir.
Mr. W a r n e r . W h y is it fixed at $30 per capita!
Mr. T a l b e r t . My idea is that I find we need a per capita circula

tion o f about $50 to do the business o f the country; and, I suppose, with
the gold and silver in circulation, in addition to the currency already
outstanding, that $30 per capita in the States would run it up to that
amount. That would be left, o f course, to the States; each State could
demand or ask for just the amount it thought proper, and give security
in bonds which would secure the National Government. Then each
State could provide as it thought best through its legislative power for
the distribution o f this money. The circumstances in each State being
different, it is fair to assume that Ohio could have what it liked and
South Carolina and Georgia, where our circumstances are different,
could do as they thought best and loan it upon such security as they
thought best, some on cotton or other produce, others on bonds or just
such good security as the people were best able to give.
Mr. W a r n e r . Then your idea would be to leave outstanding the
greenbacks now outstanding and also the national-bank currency, sil
ver certificates, etc.!
Mr. T a l b e r t . That is a matter for the national banks, as I under
stand, the Government would withdraw special privileges.
M r. W a r n e r . S o far as your system is concerned it is not intended
to withdraw them !
Mr. T a l b e r t . I do uot propose to make war upon any banking insti

tution at all, but the present national bonds draw interest, and under
this plan no interest accrues. This is, as I understand it, a change
which is desired by my people in the present monetary system o f the
National Government; and o f course all banking institutions would
have to stand upon their own merits.
Mr. W a r n e r . W h a t interest would you place upon the State bonds!

Mr. T a l b e r t . I do not know; that could be arranged hereafter
either by the States or the National Government.
Mr. H a u g e n . Say 1 per cent!
Mr. T a l b e r t . The 1 per centum is for the issuing o f this money only

to pay expense o f issuing these Treasury notes.
Mr. W a r n e r . My question in regard to the interest is based upon this:
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I f the Government did not want to issne a large amount o f currency,
then by putting the interest high upon those bonds it might probably
. nullify your bill.
Mr. T a l b e r t . I t could not go over $30—that is, the per capita cir
culation, and the interest to be arranged by law, either State or national.
Mr. W a r n e r . B y putting the interest high, it might nullify yonr bill
so as practically to discourage the States taking out any!
Mr. T a l b e r t . I suppose i f the Government was disposed to issue
money it would not enact any sach laws, or have such laws as would
protect itself.
Mr. W a r n e r . Your idea is to leave the question o f the interest on
the bonds to the discretion o f the Secretary o f the Treasury t
Mr. T a l b e r t . Yes, sir; or Congress, or State legislation.
Mr. W a b n e b . N o w , in regard to this tax; who is to pay this taxi
Mr. T a l b e b t . That is to be paid by the State which deposits the
bonds.
Mr. W a b n e b . I t is not a tax upon the bonds, but it is a tax apon
the State in proportion to bonds issued t
Mr. T a l b e r t . Yes, sir.
Mr. W a b n e r . N ow , should not there be some requirement provid
ing for the loan o f this money by the .State, such as not to exceed a cer
tain per cent of interest f
M r. T a l b k b t . That, possibly, might be advisable.
Mr. W a b n e b . By the State simply borrowing the money at low

interest and lending it out at high interest, you can see where (he
trouble would come in !
Mr. T a l b e b t . That is a matter entirely with the State; and, o f course,
each State would be disposed to protect her people; so that would not
,be probable.
Mr. W a r n e r . Would you pass legislation here that would allow
each State to make its State expenses out o f your currency plant
Mr T a l b e r t . I do not understand that it will do that, and as I said
this is a matter for future legislation. You gentlemen can take the bill,
and i f it is not properly arranged it can be properly arranged.
Mr. W a r n e r . It will not interfere with your plant
Mr. T a l b e r t . N o, sir.

Mr. W a r n e r . W hy do you contract the currency at the end o f twenty
yearst
Mr. T a l b e b t . That is simply a matter o f term; it required to have
some term, aqd each State can redeem those bonds at any time that
she sees fit.
Mr. W a b n e b . You do not believe in the State banking system!
Mr. T a l b e b t . I contend that State money can not be made stable
and uniform. I contend, the National Governmentought to issue money
sufficient to have a uniform national currency, and I submit in that
particular this is a substitute for the State bank system. Now, it is pos
sible there might be such restriction thrown around State banking sys
tems as to make these State bills safe and sound, but I do not see how
it can be done. Bnt you gentlemen have under advisement bills, I
think, o f that sort.
Mr. W a r n e r . Y ou prefer a currency issued b y the General Govern
ment!
Mr. T a l b e r t . A currency that would be decentralized and localized,
a national currency, and there wonld be no trouble about different kinds
o f bills, where every man would be satisfied i f it was good and uniform,

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187

and i f he lives on one side oftbe river and crosses on the otber he would
not have to discount his money, as I understand it.
POPULIST OR ALLIANCE.

Mr. W a r n e r . Not to go into politics, but to make a distinction be
tween the plan proposed by the gentleman from Kansas and yours, the
argument for which is similar in a good many respects:— Now, what
distinction, as you understand it, is there between the Populist idea of
a financial system and the Alliance idea o f a financial system! W hat
I want to get at is the difference between the plan o f the gentleman
from Kansas, and the plan o f the gentleman from South Carolina; or
perhaps we can get at it in a broader sense.
Mr. T a l b e r t . The Populists or Third party people have left the Dem
ocratic party and are outside o f the Democratic party. The Farmers
Alliance in my State are members o f the Democratic party. The Farm
ers Alliance are Democrats in South Carolina, and there is a difference
between the Peoples’ party platform and the Farmers Alliance, there is
a decided difference, and the Farmers’ Alliance in South Carolina are
making their fight in the Democratic party as Democrats.
Mr. B l a c k . W hat is the difference between your financial scheme
and their financial scheme— they call themselves Populists and you
call yourself a Democrat, and Mr. Warner’s question is: W hat is the
difference between your financial seheme and the Populists’ financial
scheme T
Mr. T a l b e r t . I do not know that I can answer, as to that. This is
my scheme as I understand it. 1 have offered it as a substitute for the
Fanners’ Alliance Bubtreasury idea, as something which I think is bet
ter and covers the grpund, from the simple fact that it gives back to the
States the right to loan this money to our people upon such security
as they can furnish and such security as the State authorizes will be
satisfactory. Now, I do not understand the substance o f the measure
introduced by the gentleman from Kansas, as I have never seen his
bill, and I do not believe it is anything like that.
M r. J o h n s o n , o f Ohio. The Ocala platform has in it a provision in
regard to the subtreasury.
M r. T a l b e r t . Yes, sir. The subtreasury plan, as I have explained,
is a desire for a change in the present financial system o f the National
Government. Now, the Third-party platform, or the Populist plat
form, as 1 understand it, demands the ownership o f the railroads, and
the Alliance platform demands the control o f the railroads and not the
ownership, and the Farmers’ Alliance proper are members of the Demoaratic party, and they are good Democrats, and stand upon the Dem
ocratic platform, and are making their fight for their measures witlun
the Democratic party; and, as for as politics are concerned, as I under
stand it in my State, the members o f the Farmers’ Alliance would
advocate the nomination tor office o f men in the Democratic primaries
who staud upon their platform or the nearest to their platform, and the
measures which they support. W e are making our fight as Democrats,
and in the Democratic primaries and in the Democratic conventions,
and we will support the nominee o f the Democratic primary.
Mr. H a u g e n . And whether he stands upon your principles or not,
yon will support him!
Mr. T jClb b k t . Yes, sir; i f we go into a primary or convention, we
will abide result. O f course, we will expect the nominee to stand
Nquarely on the platform he was elected on; we are Democrats, that is
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my position, but I did not oome in here and expect to go into a discussion
o f this kind.
The C h a i r m a n . I would say this discussion is drifting from the b ill
under consideration.
Mr. T a l b e b t . I hope the committee will excuse my digression; as I
said, I am no financier, but I introduced this bill with the hope that
possibly it might become a law, or it might help you gentlemen to
formulate some other bill which yon have before you. 1 am not dicta
torial or anything o f the sort, but 1 feel it is a measure worthy o f your
consideration.
Mr. W a r n e r . I understand the gentleman misunderstands my ques
tion----M r. T a l b e r t . I w ill be glad if you leave out this political digres
sion.

Mr. W a r n e r . 1 did not intend to go into it. M y question was con
fined to the financial plan entirely.
Mr. J o h n s o n , o f Ohio. Mr. Chairman, I rise to the point o f order
that this discussion is not upon the bill which is before us.
Mr. W a r n e r . I insist upon my right to ask a question, and when I
ask it it will be time for the gentleman from Ohio to object if it should
be out of order.
The C h a i r m a n . The gentleman will submit his question.
Mr. W a r n e r . Certainly; my question is this: The gentleman from
Kansas proposed the other day a plan, not in detail like yours, but it
involved the issue by the Government o f currency, and in some respects
it was supported by arguments similar to yours. H e said, as you have,
that in the matter of detail there were numerous details which he had
not thought of, and which would have to be worked out. He presented
it, as 1 uuderstood him, as the People’s party bill— the People’s party
plan.
Mr. T a l b e r t . I present this as a member o f Congress; I do not pre
sent it as a Farmers’ Alliance measure or anything else, but as a finan
cial measure which all parties can and ought to agree to.
Mr. W a r n e r . Y ou have presented a plan, and at the same time
have explained that you did not present it as a People’s-party plant
Mr. T a l b e r t . N o, sir; it is no(.

Mr. W a r n e r . My question was not intended to go into the politioai
matter, but to ask you what, if anything, was the difference between
the financial theories o f the Populists and the Alliance-Democrate.
Mr. J o h n s o n , o f Ohio. 1 raise the point o f order that the question
asked by the gentleman from New York has no reference to the bill
under discussion, as to the difference between the platform o f these two
parties, and I submit that that question is not in order.
The C h a i r m a n . The chair understands the gentleman from New
York to ask him to explain the difference between the financial planks
o f the Populist party and the Alliance party f
Mr. W a r n e r . Not at all----Mr. T a l b e r t . I submit that I did not come here to explain the
People’s party platform, but 1 came here to speak upon this bill which
1 have introduced, and I have done it as I understand it.
The C h a i r m a n . The chair ttiinks that the gentleman from New York
is wandering a little from the line o f discussion. In other words, it does
not make any difference so far as this bill is concerned whether it is in
accordance with the political platforms o f the two parties, but it is a
question as to whether what this bill contains is meritorious or not.

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Mr. W a r n e r . My question is, whetber there is a distinction in his
mind between the two, not political bnt financial.
The C h a i r m a n . Does that relate to this question f
Mr. W a r n e r . It most certainly does. There has been produced
here a plan which is like this plan in some respects and differs from it
in others: and the gentleman has produced a plan which resembles the
plan produced as a Populist plan. I am not asking abont the Popu
list plan, but I am asking him i f he makes a distinction between the
tw o ; and i f so, what is that distinction, not political but financial. I f
he makes a statement that there is a distinction, that answers it; or, i f
he makes a statement that there is no distinction, he answers it.
Mr. T a l b e r t . I certainly said I made no distinction, and I submit,
M r. Chairman, that this is a constitutional bill and it comes within the
provisions o f the Constitution. Congress has a right to coin money and
emit bills o f credit. I have examined the Constitution and I think this
b ill comes within its provisions. I t is a plan that is advocated by the
people in my country aud by all classes without regard to party. The
people want a change in the financial system and intend to have it or
know the reason why.
Mr. W a r n e r . The people o f your country were inside the Demo
cratic party and that all----Mr. T a l b e r t . In my State we have very few but Democratic people,
M r. Chairman.
Mr. H a u g e n . What is the difference between your plan and the
Democratic platform f
Mr. J o h n s o n , o f Ohio. I raise the question o f order. That has noth
in g to do with this bill.
Mr. T a l b e r v . N o w , I contend that this is a Democratic plan,
because it is the people’s plan; and I say that this is a Democratic bill,
that it is full o f Democracy, and it is based upon the bed-rock princi
ples o f Jacksonian Democracy.
Mr. B b o s i u s . In yonr examination o f the Constitution, did you find
in it any warrant by the Government o f the United States to loan money
to the several Statest
Mr. T a l b e b t . W ell, as I construed it, I did; but that is a matter
o f construction.
Mr. B b o s i u s . W ill you name the section and article.
M r. T a l b e b t . I have named it in my remarks, and w ill say that under
the general welfare clause it is constitutional always to give the people
relie f from burdensome laws.
M r. B b o s i u s . 1 beg your pardon.
Mr. T a l b e b t . I t was nnder discussion here.
Mr. H a u g e n . Y ou think it could emit bills o f credit in the Statest
Mr. T a l b e b t . That is my construction, but I am not a constitutional

lawyer and I did not come in here to make a constitutional argument
or an argument o f any political party, because all can agree on a finan
cial policy. I came in here as the representative o f my people to make
a simple, plain statement upon this bill which I have introduced. Y ou
gentlemen can make just such disposal o f it as you think best, for you
gentlemen can inquire into these matters. A re there any other ques
tions, Mr. Chairman t
The C h a i r m a n . I believe not.
Mr. T a l b e r t . I thank yon, gentlemen, for yonr courtesy.
Mr. H a l l . I will just say, Mr. Chairman, that I do not want it to be
understood on account o f my remaining silentthat I concur in his state
ment relative to the relation between the Alliance and the Democratic
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party, or relating to the relations between the Alliance and the Popu
list party. M y silence does not indorse any o f that.
Mr. H a u g e n . I would ask that my colleague, Mr. Babcook, be heard
on his bill.
Mr. T a l b e r t . 1 would like to ask my Mend, Mr. Hall, if be means
to say I came in here advocating the Third Party or the Alliance, o r
anything o f the sortf 1 jnst simply introduced the bill and 1 do n ot
want to be understood as interjecting anything in a discussion----M r. H a l l . 1 do not mean anything o f that kind at all.
.
Mr. T a l b e b t . I thank you, gentlemen, for your courtesy.

STATEMENT OF HO*. J. H. OUTHWAITE.
Hou. J. H. Outhwaite, a Representative from the State o f Ohio, n ext
appeared before the committee' in behalf o f the following b ill:
[H . B . 10011, Fifty-aeoond Congress, second session (Report No. 2315); H . B . 258, Fifty-third Congnaa,
f l i n t session.]

A B IL L to provide for the needy and frequent redemption of United States paper oorreney and
national-bank notea which have become soiled, impure, andean, or otherwise unfit for use.

Be it enacted by the Senate and Souse o f Representatives o f the United State* o f America
in Congress assembled, That the Secretary o f the Treasury is authorized and directed,
to make the necessary and proper regulations to secure the speedy and frequent
redemption o f all United States paper currency, including all United States notes,
gold certificates, silver certificates and Treasury notes o f eighteen hundred and
ninety, and all national-bank notes which have become soiled, impure, unclean, or
otherwise unfit for use, when presented in sumsof not less than onehundred dollars,
and for the preparation and issue o f new United States paper oorreney in place o f
such as shall nave been redeemed on account o f having become soiled, impure,
unclean, or otherwise unfit for use, and for the transportation o f such United States
paper currency and o f snch national-bank notes to the Treasnryof the United States
or any o f the subtreasuries thereof, and for the transportation o f the new United
States currency or new national-bank notes in return for the United States currenoy
or national-bank notes which have become so unfit for circulation: Provided, That
all natienal-bank notes which aTe redeemed because they have become unfit for use
shall be disposed o f and replaced as now provided by law, except that the expenses
o f all transportation shall be paid out o f the Treasury o f the United States.
Skc . 2. That the sum o f fifty thousand dollars be, and the same is hereby, appro
priated out o f any money in the Treasury o f the United States not otherwise appro
priated, the same to become immediately available, to enable the Secretary o f the
Treasury to carry into effect the provisions o f this act.

Mr. Outhwaite addressed the committee.
Mr. Chairman and gentlemen o f the committee: The *biU which 1
desire to bring to your attention is entitled “ A bill to provide for the
speedy and frequent redemption o f United States paper currency'and
national-bank notes which have become soiled, impure, unclean, or
otherwise unfit for use.”
Mr. Cox. Is that the same bill we reported for you last Congress f
Mr. O u t h w a i t e . Yes, sir. Those o f us who live at any distance
from the city o f Washington have observed-that the circulating medium
becomes very much soiled, unclean, bad smelling, and unfit for use.
O f course, nobody ever rejects a bill on account o f this feature o f the
bill itself, but it is sometimes disagreeable.
Mr. H a u g e n . It is “ filthy lucre.”

Mr. O u t h w a i t e . I t is in the true sense o f the word “ filthy lucre,” and
my attention was called to it by a physician in the city of Columbus
who had been making some experiments to investigate whether such
bill could carry the seeds o f contagious diseases, and I will call your
attention to a report which was made by a bacteriologist o f the Stirling
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Medical College, the most prominent medical college at the capital o f
my State:
C o l u m b u s , O h i o , December IS, 1892.
D ic a r D o c t o r : In r e p ly to y o u r requ est th a t I fu rn ish a s ta tem en t o n m y in v e s
tig a tio n s c on c ern in g th e b a c te ria fou n d on w o rn an d d ir t y p a p er m on ey, I m u st say
th a t a r e p o r t a t th is tim e w i l l o f n ecessity b e v e r y b r i e f an d im p erfe ct, as m y w o rk
is o n ly p a r t ly com p le te d . I h a v e exa m in ed e ig h t b ills . T h e a b rid g e d d e ta ils are
as f o l l o w s :

One-dollar bill, series o f 1878, culture showed three kinds o f bacteria. One dollar,
series 1886, culture showed two kinds o f bacteria. Two-dollar bill, series 1886, one
bacterium. One dollar, series 1886, two kinds o f bacteria.
The above bills were obtained in the city here from several sources, and examined
as soon as received. They were much worn and very dirty.
Further, a one-dollar bill was plaoed in an envelope and carried in my pocket one
month. In that time it had no opportunity to become infected. A culture from it
showed tw o kinds o f bacteria.
Finally, I made tw o cultures from one-dollar bills, series 1886, sent from New
Orleans. These cultures were made three days from the date o f the mailing o f the
letter containing the bills at New Orleans. Growths o f three kinds o f bacteria have
developed.

The purpose in doing this was to show that the diseases might be
communicated from one part o f the country to another by this soiled
currency. First, they might be sent from a region infected by yellow
fever^from a patient who had had that disease, and this disease might
be transmitted into another region susceptible o f that kind o f disease,
and so cholera inig^t be transmitted from New York to some point
inland, and so smallpox might be transmitted from one region to another.
I received a letter from a gentleman in Pennsylvania stating that his
•on had received a soiled note at the counter o f their little store one
day, and being in haste to do something else thoughtlessly put it
between his teeth for a few minutes and carried the bill in that way
only for a short time. His father called his attention at the time to
the imprudence o f such a thing, aud said to him that the family who
had just paid that bill in had smallpox at their house. W ithin nine
days o f the time he was taken with smallpox, and he had no other
exposure as far as he could tell.
H e goes on to say:
I t must not be understood when I speak o f one, two. or three kinds o f bacteria
these were the whole number o f microorganisms on any one bill. The nioney was
in each instance washed in 90 cubic centimeters o f sterilized water. O f this water,
after tbe money had been placed in it, one-tenth o f a cubic centimeter was added to
nutrient gelatine.
Although only one kind o f bacterium may have developed from this culture there
were nearly always a large number o f colonies. For instance, one o f the bills sent
from New Orleans showed at the end o f five days thirteen colonies o f two kinds o f
bacteria. As I used one five-hundredths o f the whole amount o f water in which the
bill was washed, there would be thirteen times five hundred bacteria— approximately
13x500=6,600 microorganisms on the piece o f money.
I t remains yet to determine the nature o f these various microbes obtained by onltu re ; that is, to ascertain i f they be pathogenic germs capable o f producing disease.
This work w ill consume considerable time, and a full report w ill be made at some
future date. The results already obtained are sufficient to warrant one in calling
attention to the danger there is in disease being transmitted by .our circulating
medium. The more paper money is worn the greater w ill this danger be, as the
roughened surface o f an old bill affords an excellent lodging place for germs. The
results o f the examination o f the bills sent from New Orleans also show the mails
may be a means o f transporting disease microbes. The practice o f sending money
by mail would be very largely discontinued were the rates for money orders
reduced.

Respectfully,
J. C. G r a h a m , M. D.,
BaeteriologUt to Starling Medioal College.
D r. C. F . C l a r k .
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Then I had another statement ltom the London Lancet on the same
subject, which 1 will read:
P A P E R M O N E T A S A C A R R IE R OK IN F E C T IO N .

The possibility o f infection being conveyed to a large nnmber o f persons by means
o f paper money has often been suggested, and un examination o f the notes of the
Bank o f Spain current in Cuba, which has recently been published by Drs. Acosta
and Rossi in the Croaica Medico-Quirurgico de la Habana, shows that this form of
currency is indeed liable to contain septic germs. The notes ohosen for their experi
ments were some that had been in use for a good while, and were such as represented
values o f a few pence only. It was estimated that two notes, weighing altogether
about 15 grains, contained more than 19,000 germs o f various kinds. Cultures were
made in broth, gelatin, and agar, and'these were injected into the peritoneal cavity
o f rats and guinea pigs, most o f which died within twenty-four hours, the post-mortem examination showing signs o f peritonitis and congestion o f the liver and kidneys.
The blood o f the heart and the peritoneum was made use o f to inoculate solid media,
in which colonies developed so rapidly that it was impossible to determine tbeir pre
cise nature, many different forms being intermingled. (London Lanoet.)

Now, 1 know that there are a great many people who do not believe
in this bacteria theory o f the transmission o f disease, but it will do no
harm so far as the protection o f the people from the use o f this filthy
money is concerned. W h y should not they have clean money all over
the country as well as here at the center f W hy should not oar money
be exchanged frequently! I t would cost very little, and the Bank of
England never reissues a note, no matter how clean the note is when it
is brought in, but a new note is issued. The expense would not be
very great. The law provides that the national banks shall bear the
entire expense o f the transmission o f the issue and expense resulting
at the Treasury in the purchase of the paper and work done, and all of
that, the labor o f producing the money, and the expense o f transmit
ting it back again. Now, this bill only relieves them o f the expense of
transmission; it does not relieve them from the expense at the Treas
ury, and let me say in this connection that the tax upon the national
banks leaves something of a surplus always in the Treasury, which is
something more than is required to perform those things which are
required to be performed by the nation^ banks, so that while the pro
vision does not distinctly take it out o f that fund; that fund comes from
the national banks in a sufficient amount to cover the expenses so far as
national-bank notes are concerned; and as to other bank notes, I say if
it is the duty o f the Government to furnish money to the people, it is
the duty o f the Government to furnish clean, wholesome, decent
money, not money that is bad smelling and repulsive, and suggestive
o f disease to those who believe in that theory. I am thoroughly well
satisfied it has been transmitted in this way, but in regard to those who
differ from me I have no desire to criticise at all.
Mr. Cox. 1 want to ask you in regard to your bill. Your bill was
before the committee, and after we went through an examination there
was a bill reported; now is this an exact copy o f thatf
Mr. O u t h w a i t e . No; it is not the exact bill. That bill made an
appropriation to be immediately available o f $50,000 because the Secre
tary o f the Treasury at the time recommended that amount, but that
appropriation was intended to be immediately available. This bill
which 1 have introduced is a bill which provides for general legislation
requiring it to be done. There were certain regulations made b y the
Treasury some years ago, and I believe it was discontinued in 1882, and
that there has been no appropriation made since 1882 because there
was no imperative legislation compelling this thing to be done.

Id______.

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193

Mr. H a u g e n . D o you think the Treasury would have authority now
to issue an order to put this into operation without an actf
Mr. O u t h w a i t e . I believe the Treasury would have the authority,
that is, not altogether, not so far as paying the expenses back aud
forth.
M r. H a u g e n . D o you make these expenses payable out o f the col
lection o f taxes from the national banks t
Mr. O u t h w a i t e . N o; I make it payable out o f the general Treasury.

The regulation that was adopted heretofore required the banks to pay
all expenses. W ell, now, the banks acting in that capacity are actiug
directly as the agents o f the people, and direct agents o f the particular
community in which they reside, and therefore I think the Government
should pay that expense.
Mr. H a l l . Do not the leading medical men in Germany, France,
England, and United States agree in the existence o f bacteria microbes
and iu the transmission of disease, say by old clothes, etc.?
Mr. O u t h w a i t e . Yes, sir; and even by a lock o f hair. A lock o f
hair has been known to transmit disease, a lock o f hair that has beeu
locked up for years iu a trunk, aud also it has been transmitted by
toys. I know o f an instance o f a book which had been the plaything
of a child who had died o f scarlet fever. It was taken out by a grand
mother and given to another little grandchild, and the result was two
deaths by scarlet fever.
Mr. B r o s i u s . I think I remember your bill in the last Congress,
before the committee, but 1 think there is already a provision in the
law for the redemption and destruction o f mutilated currency. W ill
not it cover the purpose of this bill to extend that provision o f exist
ing law to impure and unclean currency?
Mr. O u t h w a i t e . There is no provision in any law providing for
the pay o f expenses o f transmission o f money from some place out
in the interior to the Treasury and back again. Now, we have a low
rate o f transmission by express wherever the United States Express
Company goes, but even that is something o f a tax if the bank has to
pay it.
Mr. B r o s i u s . Who pays the expense o f transmitting mutilated cur
rency?
Mr. O u t h w a i t e . The banks that send it in.
Mr. H a u g e n . The banks constantly keep sending mutilated cur
rency to the Treasury ?
M r. O u t h w a i t e . Yes.
Mr. H a u g e n . S o i f they included a few dollars more o f soiled currengy it would not be any more additional expense, or rather not any
material expense?
Mr. O u t h w a i t e . I t would be some material expense.
Mr. H a u g e n . H ave you made an estimate?
Mr. O u t h w a i t e . I f we maintain the present system o f currency

with small notes, $1, $2, and $5, the expense would range— it would be
something more than $50,000 the first year, but it would be something
on an average o f $50,000.
Mr. C o b b , o f Alabama. The United States Government transmits
money from post-offices by mail; why could it not be done here?
Mr. O u t h w a i t e . That is a very good suggestion, but perhaps some
legislation relating to the postal service might be necessary in that
case.
Mr. C o b b , o f Alabama. The money certainly comes safely by mail.
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Mr. O u t h w a i t e . It might be necessary to authorize the Treasury
or banks to use the mail in shipping in this way.
Mr. J o h n s o n , o f Ohio. The obstacle in the way o f having clean
money to-day is the expense o f transmitting and the losing o f iutereet
on the part o f the bank?
Mr. O u t h w a i t e . That is it.
Mr. J o h n s o n , o f Ohio. And you want to remove that obstacle)
Mr. O u t h w a i t e . Yes, sir; the expense. There is another expense
connected with the transmission of United States paper money; all
United States paper money, greenbacks, silver certificates and the coin
certificates, all o f those have to be reprinted at the expense o f the G ov
ernment or reproduced at the expense o f the Government. Now, the
Government officials always desire to make a good showing o f economy
and discourage that as much as possible and are slow about doing it.
1 do not mean to make any criticisms, but there seems to be some
reluctance, and unless legislation compelling them is put upon the
statute book they do not at all times feel obliged to do it.
Mr. H a u g e n . They fear they may be criticised by an economic Con
gress f
Mr. O u t h w a i t e . Possibly.
, Mr. C o b b , o f Alabama. Would it not be well to make it that this
money should be transmitted through the mails under such regulations
as the Postmaster-General might prescribe f
Mr. O u t h w a i t e . That is a very good suggestion, and I leave it with
the committee.
Mr. Cox. Free o f exchanget
Mr. O u t h w a i t e . That is a very good suggestion, and it might be
well to put it in this bill.
Mr. H a u g e n . In case o f loss, who stands the loss!
Mr. C o b b , o f Alabama. The Government.
Mr. W a r n e r . In the case o f the Government forwarding currency
to any person, o f course it has a full check o f its own; and the registeredletter part o f that is perfectly good; but would it not require some
-pretty careful legislation to provide a proper kind of voucher which
would show the amount sentf
Mr. J o h n s o n , o f Ohio. They might pay the money to the postmaster
who might transmit it.
Mr. C o b b , o f Alabama. The Postmaster-General would prescribe such
regulations as would procure the check o f which my colleague speaks.
Mr. O u t h w a i t e . Yes; it might be counted in the presence o f a clerk,
say.
Mr. C o b b , o f Alabama. The amount o f loss would be at the mini
mum. The fact that it is Government money secures it against loss in
transmission through the mails. That is the experience o f the Govern
ment in reference to its post-office money.
STATEMENT OF HON. J. W. BABCOCK.
Hon. J. W . Babcock, a Representative from the State o f Wisconsin,
then appeared before the committee in behalf o f the following b ill:
[H. R. 1591, Fifty-third Congress, first seaalon.]
A B ILL to amend the national-bank act.

Be it enacted by the Senate and House o f Representatives o f the United States o f
America in Congress assembled, That the Secretary o f the Treasury shall cause the
affairs o f every banking association organized tinder the laws o f the United States

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to be examined, daring each period o f two calendar months, by a suitable person or
persons, who shall immediately make a full and detailed report o f the condition o f the
association to the Comptroller o f the Currency, bi;t no banking association shall be
examined twice by the same person during any period o f twelve calendar months,
nor shall any person be appointed to examine the affairs o f any banking association
who is a director or other officer in any banking association organized under the
laws o f the United States.
S e c . 2. That the President o f the United States, by and with the advice and con
sent o f -the Senate, shall appoint suitable persons, not over three-ttfths o f whom
shall be adherents o f the same political party and not exceeding one hundred in
number, to make such examinations o f said banking associations as may be directed
by law, and for that purpose the persons so appointed shall have power to make a
thorough examination into the affairs o f any banking association, and in so doing
to examine any o f the officers or agents thereof under oath.
Sec . 3. That all persons appointed under the provisions o f this act to be examin
ers o f banking associations shall hold office during good beha vior, and shall receive
a compensation o f three thousand dollars per annum, together with transportation,
and three dollars per day for subsistence.
S e c . 4. That at the close o f each fiscal year all moneys paid into the Treasury,
under existing laws relating to national-banking associations, and not appropriated
to pay the expenses o f the Dureau o f currency and the expenses o f salaries in this
act provided for, shall be covered into a special Aind, to be known as the “ bank
fund,” which the Secretary o f the Treasury shall establish in the Treasury o f the
United States.
* .
Sec . 5. That all moneys covered into said bank fund are hereby pledged and
appropriated to pay the loss caused to any person by depositing money with any
national-banking association whose affairs may be placed in the hands o f a receiver
as provided by law ; but no depositor shall receive, under the provisions o f this sec
tion, a greater amount o f money than the am onatof such deposits due him after the
affairs o f such banking association has been finally wound up.
Sk c . 6. That upon adeposit o f bonds as provided by sections fifty-one hundred and
fifty-nine and fifty-one hundred and sixty o f the Revised Statutes, the association
making the same shall be entitled to reoeive from the Comptroller o f the Currency
circulating notes o f different denominations in blank, registered and countersigned,
as provided Jay law, equal in amount to the current market value o f the bonds so
transferred and delivered, but not exceeding the par value o f Baid bonds.
S e c . 7. That any banking association organized under the laws o f the United
States may, at any time within one year after the passage o f this aot, comply with
the provisions hereof; but no banking association shall be entitled to receive cir
culating notes exceeding ninety per centum o f the par valne o f the bonds deposited
by it w ith the Treasurer o f the U n ited States unless such bonds exceed in amount
one-half the par value o f the subscribed capital stock o f such banking association.
Se c . 8. That an act entitled “ An act to amend section fifty-two hundred and forty
o f the Revised Statutes, o f the United States, in relation to the compensation o f
national bank examiners,” approved the nineteenth day o f February, eighteen
hundred and seventy-five, ana said section fifty-two hundred and torty o f the
Revised Statutes and all other laws and parts o f laws in conflict with this act are
hereby repealed.

Mr. Babcock addressed the committee as follows:
Mr. Chairman and gentlemen o f the committee: I t is not my inten
tion to make an argument on this bill this morning, and I will relieve
your minds o f that at once. I wish to have you consider for a few
moments House bill 1951, which is entitled “ A bill to amend the
national-bank act.” This bill was prepared after consultation with
numerous bankers and business men, and finally submitted to the
Populists in the West. The object o f the bill is, first, to increase the
security o f depositors in national banks and the confidence in those
institutions during times o f panic. The second object o f the bill is
to increase the present circulation. Under the law governing national
banks we had, on the 4th day o f August, 1893, a capitalization o f
(698,000,000, and upon that the banks bad only emitted $184,000,000
o f nationsl-bank notes. This amount has been increased since that
date, but application has been made to retire a part o f it, which, of
course, the gentlemen o f the committee are all familiar with.
Mr. Cox. There is not that much in actual circulation; that is the
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amount issued; $184,000,000, but the amount in actual circulation is
nothing like that amount.
Mr. B a b c o c k . I kuo\r o f uo means to get at what the actual circula
tion is. This is the amouiit issued by the Comptroller to the banks.

Mr. Cox. I merely call your attention to it.
Mr. B r o s iu s . He held in his hand, which he has just banded to me,
a statement o f the Comptroller o f the Currency----Mr. Cox. Excuse me one moment, I understand that. This amount
o f money— $184,000,000 o f national-bank bills— has been sent out by the
Government. That amount is not the amount in actual circulation;
that is a different thing. There is the 5-per-cent redemption fund, and
iu addition to that there is another amount. I was just calling his
attention that he used the words “ amount iu circulation,” and this is
not the actual circulation, as it is not $184,000,000.
The C h a i r m a n . The authorized circulation is what he referred to
and not the amount that may be lost or destroyed or reserved or any
thing of the kind.
Mr. B a b c o c k . I will read the statement from the Comptroller.
In accordance with yonr request I have the honor to hand yon tlie following state
ment: Total number o f national banks authorized, 4,923; number o f national bulks
in operation, 3,737: paid-up capital stock, $698,000,000; circulation at close o f bus
iness August 2, 1893, $184,000,000.

I do not understand that the redemption fund is included in this
amount o f circulation o f $184,000,000. That is a special deposit with,
the Comptroller o f the Currency. The banks receive 85J per cent o f
circulating notes on the par value o f their bonds at the present time.
The national banks, under our present law, o f course, to a certain
extent have been controlled by the Government; and 1 believe it to be
the sentiment o f the West, or with the business men with whom I have
oome in contact, that they are not doing their duty as far as circulation is
concerned; that they should emit a greater proportion of their capital.
Under the present law a bank with a capital o f $150,000 or less mast
emit 25 per cent o f its capital, and a larger bank $50,000. The Union
National Bank of Chicago has a circulation o f only $45,000 with a capi
tal o f $2,000,000. The question arises, why are they national banks t
Simply to go before the people and obtain a credit as a national bank
over and above any other banking organization? Now, gentlemen, i f
this is the case, why should not we ask these banks to emit at least'50
per cent o f their capital in bank b ills! It wonld increase the circula
tion about $200,000,000 and give us a class o f currency upon which
there can be no question as to its ultimate payment or the value o f it.
M r. H a u g e n . D o you provide for that in your b illt
Mr. B a b o o o k . Yes, sir; the bill provides for that.
M r. H a u g e n . In what section o f it?

Mr. B a b o o o k . It is in section 7. Now, if yon please, I will take ap
the bill by sections and explain it as near as I can. Section 1 provides
for a different system o f examination o f banks. While the loss nnder
the national-bank acts has been the smallest ever known under any
banking system, less than one-fifth o f 1 per cent on the deposits, I
believe that can be still further reduced by a change in the system o f
examination, and this bill proposes that the examiners o f banks shall
be appointed for life by the President in the same manner as judges
npon the bench are appointed to-day. I t provides further for an exami
nation o f the banks every sixty days, and the idea o f that is to prevent
rotten institutions from continuing in business after they have met
with losses and should be wound up, examples o f which we have had
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in many places in tbe W est daring the last three months. It fiirther
provides that no examiner shall examine a bank oftener than once a
year, so that ander the provision o f this bill any national bank would
b e examined by six different examiners during the calendar year.
N ow , I hare had a large amount o f correspondence with bankers in the
W e s t (among the number are Mr. Gage, the president o f the First
National Bank o f Chicago, Mr. Odell, o f the Union National Bank), and
banks west o f the Mississippi River and' as far as California, in regard
t o the provisions o f the bill, and it seems to be the sentiment that *a
quarterly examination would answer the purpose as well as once every
six ty days, and should the bill be favorably reported by the committee
I should offer an amendment that it be made quarterly instead o f once
every sixty days; in that case the bank would be examined by four
different men, putting it out o f the question for collusion between the
officers and the examiners. Now, the case o f the Maverick National
Bank which failed at Boston shows that the examiner o f the bank was
one o f the largest debtors o f the bank, and had he done his duty the
bank would have been closed long before it was.
Mr. H a l l . While you are on that branch, will it interrupt you to
stop for a moment and allow me to interject a question which might be
o f interest to you and perhaps to the committee 1 Is it not a custom
ou t W est that the national-bank examiners frequently either send notice
ahead or let somebody know they are coming anti the president and
officers o f the national bank give them a good champagne supper when
they do come?
Mr. B a b c o c k . I do not know about the champagne supper.
M r. H a l l . 1 mean they are always received very well, ami I liaVe
know n o f the champagne suppers to be fixed up before.
Mr. B a b c o c k . I happened to be in company with three bank cashiers,

this was iu Illinois, and one was an old acquaintance o f mine, and this
b ill was referred to by them and it seems that they had been in a chain
o f banks where an examiner struck one bank who would telegraph to
the other banks: “ Theexaminer here to-day; lookout, he is coming.”
So they were notified that the examiner was coming, or in other words,
they had due notice.
Mr. C o b b , o f Missouri. Do you think it would be well that the
banks should not be examined at stated terms f You say quarterly,
and in that case the bank would know exactly when the examiner
was coming around 1
Mr. B a b c o c k . The bill provides that they shall be examined once
during sixty days.
Mr. C o b b , of Missouri. And you would make it quarterly f
Mr. B a b c o c k . Tes, sir. I would leave the date o f examination
entirely to the Comptroller o f the Currency so that the banks would
have no knowledge o f the time when the examiner was coming, and I
would only say that they must be examined once during that quarter.
Mr. C o b b , o f Missouri. So that they would be examined either tfte
first, middle, or last o f the quarter ?
Mr. B a b c o c k . Yes, sir. I would put it entirely at the convenience
o f the examiner and the Comptroller.
Mr. H a u g e n . The Comptroller would telegraph the examiner where
to go from day to day and no one would kuow where he is goingt
Mr. B a b c o c k . The idea in regard to changing examiners is this, for
instance. I believe the examiner in Chicago is a resident o f the city
and he has personal acquaintance with the different banks and there
fore is sensitive about making a report against a bank when possibly
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they should be reported as insolvent or requiring Government attention .
That is very embarrassing and the system is wrong. He should b e
entirely independent, and the examination should be conducted by a
nonresident which would be a necessity o f the case under the provisions
o f this bill. Now, let me take a moment’s time o f the committee to
say this. In our State there is what is called the Warehouse Syndi
cate, a logging and manufacturing concern that extends the entire
length o f the Mississippi River and its branches; they handle 700,000,000
logs a year. For many years it was a constant contention to separate
and divide these logs between them and they formed a pool. E very
man when he put the logs on the stream puts a maik on the log and
they are scaled and graded according to the grade—first, second,
third, and culls, and then the man is given credit for what logs go into
the river. When these logs come down to the different mills which
take them out, say there is a thousand different marks, and----Mr. B rositjs . It is ju st like oil out o f a pipe!

Mr. B a b o o g k . Yes. The pool provides a scaler to scale the logs,
and when that was started there was a great pulling and hauling'
between the mills to get little better logs, and as to who should scale
for them. Then they provided a system o f changing the scaler at a
mill every day. Say a man walks into my mill in the morning. I do
not eveu know who he is; he comes there and scales the logs and makes
a report, and then he goes to another mill. Three days is the longest
time a scaler can remain at one m ill; consequently all the mills get the
average work done by the scalers, and it is impossible, o f course, to
put up any job with any particular man for one day’s work. I t has
worked very satisfactory. This is where I got the idea o f changing
the system o f examination, or o f routine examination, to prevent any
possible collusion between the banks and the examiners. •
Now, this bill farther provides for the issue o f 100 cents on the dollar
on Government bonds, instead o f 90 cents. I have had many curious
comments in regard to that I had a letter which represented the
sentiment o f the Milwaukee bankers the other day. The point was
that it did not seem just to issue as large a circulation on the 2 per
cent bonds as on the 4 per cent bonds. But I can not see the force
o f their argument. I f the Government was behind it, and good for
100 cents on a dollar, there was the security. There is no more security
on the 4 per cent bonds, ultimately, than on the 2 per cents, i f the
Government fulfills its obligations. The question as to changing the
law from 90 to 100 per cent, it seems to me, hardly admits o f any argu
ment. In fact, I have never heard presented an argument against it
o f any force.
Now, another provision o f this bill to which I want to call the atten
tion o f the committee, aud then I am through, is this: A s far as bank
examiners are concerned, I think without any doubt, without any ques
tion in my own mind that the proposed change is a good one. I believe
tftat nine out o f every ten business men, bankers, or farmers, will
approve o f the idea o f a careful supervision o f banks that the public
may have confidence in them in the case o f a panic, and that the chan
nels of trade can not be disturbed as they have been in the past six
months. Now, this provides further—and to me it is very important,
but still it is open to a great many arguments for and against it—that
the tax on the circulation o f 1 per cent on which the Government has
or had np to the last fiscal year collected $78,000,000 from the national
banks, that this tax o f 1 per cent made on the circulation be set aside
in a special fund in the Treasury, and out o f that fund that the expenses
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of the Comptroller’s Office be paid, which were $118,000 last year, and
also the expenses o f examiners for which this bill provided, and that
any residue left shall be held for the benefit o f depositors; or, in other
words, this practically makes the national banks insure each other’s
deposits, the Government acting as agent in charge o f the fund. Now,
1ask you if, during the past six months, we had had a condition o f exami
nation o f the banks where you knew, or were reasonably certain, that
they had been carefully examined, and the assets were known to be in
good shape, and that behind that there was a fund in the hands o f the
Government sufficient to ultimately pay every depositor, then iu that
case the bank, instead o f congesting and aiding— and there is nothing'
in the world that aids or precipitates a panic worse than a bank, from
the very fact that when there is a scare in the country they have to
stop loaning and increase their reserve and protect themselves—now, i f
there had been this condition o f affairs, it would be practically impos
sible to precipitate a ran upon a bank, and instead o f having the bank
congest money they could loan down to their reserve instead o f hold
ing 40 to 60 per cent reserve—and I know o f one bank that held 90 per
cent o f reserve—but under this bill they could loan down to 25 per cent
and be independeut, and could help those who needed help. B y loan
ing a $5,000 that money would perhaps pay half a dozen debts o f like
amount.
Mr. H a l l . Y ou still believe in requiring the national banks to hold
that 25 per cent reserve!

Mr. B a b c o c k . I would not change that at all under the present laws.
Mr. W a b n e b . Y ou spoke o f $200,000,000 as being the yicrease of
the currency provided the national banks would take it out to the
extent o f 50 per cent o f their capital!
Mr. B a b c o c k . Yes, sir.
Mr. W a r n e b . Do I understand you believe under yonr bill that such
would be the result!
Mr. B a b c o c k . Yes, sir.
Mr. W a b n e e . N o w , you have, I take it, considered the question as
to the possible rise in the price o f Government bonds, provided they
had to be bought np by banks for that purpose!
Mr. B a b c o c k . Yes, sir.
Mr. W a b n e e . You still think the result would be, even i f the Gov
ernment bonds should rise in price, to induce them to take out that
amount o f extra currency!
Mr. B i b c o c k . The Government bonds would have to advance 10 per
cent to reach the price they were nominally in the past ten years.
Mr. W a b n e b . And you do not think they would rise over that!
Mr. B a b c o c k . No, sir. There is' now outstanding $650,000,000 o f
bonds, $585,000,000 o f Government bonds and $60,000,000 of Pacific
bonds. My idea further is that the Government will o f necessity emit
more bonds.
Mr. W a b n e b . The emission o f more bonds is necessary for the suc
cess o f your system!
M r. B a b c o c k . N o, sir.
Mr. H a u g e n . Y ou do not make it absolutely mandatory upon the
part o f the banks to take oat 50 per cent, but a bank which does not
do that can not get more than the 90 per cent!
M r. W a b n e b . I w as asking if he thought it was possible that the
issae o f more Government bonds would probably be necessary.
Mr. B a b c o c k . B u t not as a result o f this. I did not express that

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idea. I think the result o f thq present financial condition which exists
is that the Government itself will, in the end, be forced to issue bonds.
Mr. W a r n e r . I do not mean to put words in the gentleman’s mouth.
I understood what be said was this: B e thinks there might be an
issue o f $200,000,000 extra under this bill, and that in any case the
result o f other matters, not necessarily the result o f this bill, is that
we would get the full benefit which he suggests?
M r. B a b c o c k . Yes, sir.
M r. B b o s i u s . D o I u n d ersta n d th is b ill, p r o v id in g fo r ta k in g o u t 50
p e r c e n t o f th e c a p ita l o f th e b a n k s is m a n d a to ry f

Mr. B a b c o c k . N o, sir; but a bank to receive 100cents on the dollar
must emit 50 per cent o f its capital, and i f they do not do it they only
get 90 per cent, the same as under the present law.
Mr. Cox. Your proposition is, that i f the banks put in the bonds it
can get 90 per cent anyhow?
Mr. B a b c o c k . Yes, sir; that is the present law.
Mr. Cox. Your bill still retains that. Now, in order to induce the
banks to get the par value o f the bonds you make a condition upon
the bank that it shall take out 50 ,per cent o f its capital stock?
Mr. B a b c o c k . Yes, sir.
Mr. Cox. Does it not strike your mind at once if the bonds advance
in value, even if they are very little over what they are now, that the
interest o f the bank would be not to take it out, not to take out the
par value o f the bond at all, but to take out 90 per cent, and thus save
the investment on the new bonds and on the increased capital stock?
Mr. B a b c o c k . Y ou overlooked one thing.

Mr. Cox. Perhaps I do.
Mr. B a b c o c k . Which is a vital point o f the whole idea, and that is
that the credit o f a bank organized under this bill will be so much
stronger than any other organization o f banks that it will be to their
interest to organize under the proposed law. It will be to the bank’ s
interest to secure depositors and correspondents.
Mr. Cox. I see that. Suppose practically to-day we go to organize a
bank under your bill. Now you can get the par value o f the bonds in
circulation i f you do a certain thing; that is, you must take out 50 per
cent o f your capital stock. I f you decide not to do that, then you can
deposit one-fourth under the present law as it exists and take out 90
per cent. Suppose the bonds go to 112 or 113, and your bill will
absorb about half o f the bonds there are in the United States, and
then the moment these bouds begin to go up yonr in terests not to
take out these bonds, and that is what has caused the retirement in the
circulation ?
Mr. B a b c o c k . May not that be the factor to put the price o f the
bonds down again. It provides its own check.
Mr. H a u g e n . It is left to the judgment o f the bank whether it w ill
take out this or not.
Mr. B a b c o c k . I f the market price of the bonds is forced up to 150
the bank is not obliged to take it out?
Mr. Cox. Then, is not the very object o f the bill defeated in regard
to securing this increase of circulation?
Mr. B a b c o c k . The object would be by forcing the bonds up to 150;
but that is something almost preposterous.
Mr. Cox. I said that even i f they went to 115.
Mr. H a u g e n . They would simply suspend purchasing until bonds
came down where the banks could afford to buy them.
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Mr. Cox. And that would retire the circulation; that is the idea that
I wanted to draw oat.
Mr. H a l l . The effect would be that where yon make every national
bank o f the United States a guarantor o f the depositors o f every
other national bank it would virtually close up all the State banks
unless they by State laws come to the same condition.
Mr. B a b c o c k . That would be the practical working o f it iu the end.
Ton or I would deposit our money where the percentage o f assurance
was greatest.
Gentlemen, I thank you for your courtesy.
Mr. C o b b , o f Alabama. I want to ask you one question. You said
that under your system that there would be inducements to the national
banks to operate under it?
Mr. B a b c o c k . Yes, sir.
Mr. C o b b , o f Alabama. The reason for that is on account o f the
increased security to the depositors, and therefore their increased busi
ness 1
Mr. B a b c o c k . Yes, sir; that is the idea'exactly.

STATEMENT OF HON. 0. D. MEEK1EJ0HN.
Hon. G. D. Meiklejohn, a Representative from the State o f Nebraska,
then appeared before the committee in behalf o f the following b ill:
[H . R. 1993, F ifty -th ir d C ongress, flin t session.]
A B I L L to am end section fiv e thousand tw o hundred and n ine o f th e R ev ised S tatu tes o f th e U n ite d
State** re la tin g to national banks.

Be it enacted by the Senate and Home o f Representative* o f the United Staten o f America
in Congress assembled, That section five thousand two hundred and nine be amended
to read as follow s:
“ S e c t i o n 5209. Kvery president, director, cashier, teller, clerk, or agent o f any asso
ciation who embezzles, abstracts, or w illfully misapplies any o f the moneys, funds, or
credits o f the association, or who, without authority from the directors, issues or puts
in circulation any o f the notes o f the association, or who, without snch authority,
issues or pnts forth any certificate o f deposit, draws any order or bill o f exchange,
makes any acceptance, assigns any note, bond, draft, bill o f exchange, mortgage,
judgment,* or decree, or who shall willfully falsify any book, report, statement, or
account o f the association, either by making a false entry, omitting a proper entry,
or alteration o f any entry in any book, report, statement, or acooant, or by mutilation
o f any book, report, statement, or account, with intent to iivjure or defraud the asso
ciation or any other company, body politic or corporate, or any individual person, or
to deceive any officer or director o f the association, any officer o f the United States,
or any agent appointed to examine the affairs o f any such association, and every per
son who with like intent aids or abets any officer, director, clerk, or agent o f the
association in any violation o f this section, shall be deemed guilty o f a misdemeanor,
aqd shall be imprisoned not less than five years nor more than ten years.”

Mr. Meiklejohn addressed the committee as follows:
Mr. Chairman and gentlemen o f the committee, I would like to call
your attention for one moment to bill number 1993. This bill is to
amend section 5209 o f the Revised Statutes. This provision is found,
in this section:
Or who makes any false entry in any book, report, or statement o f an association
•hall be deemed guilty o f embezzlement.

The amendment which I suggest is to change this provision of that
section so it will read thus:
Or who shall willfully falsify any book, report, statement, or account o f the asso
ciation, either by making a false entry, omitting a proper entry, or alteration o f
any entry in any book, report, statement, or acconnt, or by mutilation o f any book,
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Na n k i n g a n d c u r r e n c y .

Mr. Cobb , o f Alabama. You say, “ make au alteration in an entry.”
Is that not sometimes legitimate! Would you not make it a corrupt
alteration?
Mr. MEiKiiEJ o h n . I would state to the gentleman that I have only
read that portion o f my bill which is the amendment, and the following
language is:
W ith intent to injnre or defraud the association.

Now, Mr. Chairman and gentlemen o f the committee, the object is
to define what falsification is under the present law. The falsification
under national-bank laws consists in making a false entry. This bill,
i f adopted, will make falsification to consist in not only making a false
entry but omitting to make a proper entry, or alteration o f auy eutry
or mutilation o f any book, report, statement, or account.
M r . C o b b , o f A la b a m a . W i t h in te n t to d e fra u d ?
Mr. M e i k l e j o h n . Certainly. In one o f the greatest
crashes in my State, involving some $300,000 or $400,000, in

financial
order to
prosecute under this criminal act it could only be done on the ground
o f falsification, where the falsifying of a record, book, report, or state
ment was done by making a false entry. The fact is, where this
embezzlement takes plaee, and the members o f this committee will
bear me out, is not only covered by a false entry but they are covered
by omitting to make a proper entry.
Mr. Cox. Did the cotirt hold that the only way a false entry could
be made was by making a false entry in the first place?
M r. M e i k l e j o h n . N o , s ir ; th a t in d ic tm e n t w a s o u ly b r o u g h t under
t h e p re s e n t a ct, a n d th e qu estion w a s n o t passed upon b y th e c o u rt

Mr. Cox. W ill you allow me to call attention to a decision which has
been made. Do you remember a large bank which broke at Boston
•nd the president was indicted nnder that section and the judge so
held in the commencement o f the trial with your view, but after mature
deliberation and consideration construed that part o f the statute to
cover any falsifying o f any character inside the statute?
M r. M e i k l e j o h n . W a s th is d ec is io n m a d e on th is se c tio n 5209?

Mr. Cox. Yes.
M r. M e i k l e j o h n . W h e r e is th a t d ecisio n r e p o r te d ?

Mr. Cox. W e had the case before us in the last Congress and exam
ined the bank and went clear through the matters pertaining to that
bank.
Mr. M e i k l e j o h n . I am not familiar with the decision.
Mr. Cox. I have interrupted you; now pardon me for one suggestion.
I see my friend aud colleague, Judge Cobb, was first impressed with
the idea that the language ought to be “ with intent to defraud.” Let
me call your attention to that as where the escape comes. W e had
under consideration here very fully and examined the Comptroller upon
that proposition. His view o f it was that it ought to be made prima
facie there was an intent to defraud and to put the labor upon the man
who is indicted to show that it was accidental. There is where the
escape comes.
Mr. M e i k l e j o h n . I am o f the opinion that an amendment in that
direction would meet with great opposition under the criminal law.
Mr. C o b b , o f Alabama. You do not understand my point. Making
a false entry itself is fraud, but when you go to make an alteration in
the entry that is a legitimate business sometimes; but to make an alter
ation in the entry with a fraudulent intent is to be gathered from the
facts o f the case.
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Mr. Cox. 1 see your point very clearly.
M r. M e i k l e j o h n . I desire to say farther, Mr. Chairman, that i f the
decision to which the gentleman from Tennessee refers has been made
that this would only corroborate tlie findings o f that decision by the
court.
The C h a i r m a n . I do not think in the decision to which you refer
that there was any entry made at all.
Mr. Cox. The decision is based upon this: The^language o f that act
was construed that it was not in the kind or manner in which you
made the false entry or how you produced the falsehood, but the ques
tion was, did you do with the intent as is suggested by Judge Cobb.
Mr. M e i k l e j o h n . May I inquire if the decision goes so far as to
hold the omission to make an entry would be a falsification with intent
to defraud the association t
Mr. Cox. I would uot-be prepared to say in regard to that. '
M r. M e i k l e j o h n . N o w , I w i l l n o t ta k e u p m ore o f y o u r tim e, b u t I
w ill o n ly s a y th is is th e c h a n g e I m a k e b y th is b ill in th is section . I
w ould lik e to s a y fu r th e r th a t on b ill 265, in tro d u c e d b y m y s e lf, to
increase th e issu e o f n a tio n a l b a n k s to th e p a r v a lu e o f th e b on d s 1 d o
not c a re a t th is tim e to b e h ea rd , as I b e lie v e o th e r g e n tle m e n d e s ire
to a p p e a r b e fo re th e c o m m itte e on th e sam e m easu re a n d I w ill a p p e a r
at th a t tim e.

STATEMENT OF HON. H. C. SNODGRASS.
Hon. H . C. Snodgrass, a Representative from the State o f Tennessee,
then appeared before the committee in behalf o f the following b ill:
[H . K . 292, F ifty - t h ir d Congress, fir s t session .]
A B I L L m a k in g i t ft m isdem eanor fo r a n y association d o in g business u nd er th e n atio n a l b a n k in g la w s
o f th e U n it e d S ta tes to ch a rge o r ta k e an ille g a l ra te o f In terest, and to co n fer npon th e S ta tes and
T errito rie s oonfcurrent ju ris d ic tio n w ith th e V n ited States.

Be it enacted by the Senate and Home o f Representative* o f the United States o f America
in Congress assembled, That any association formed and doing business nnder the
national banking laws o f the United States which shall take, receive, reserve, or
charge on any loan or discount made, or upon any note, b ill o f exchange, or other
evidence o f debt, interest at a greater rate than ib allowed by the laws o f the State,
Territory, or district where the bank or association is located (except that they may
he allowed the same rate allowed to banks o f issue organized under State laws, or
when no rate is fixed by the laws o f the State or Territory or district, any such asso
ciation shall take, receive, or charge on any loan or discount made, or upon note,
hill o f exchange, or other evidence o f debt a rate o f interest exceeding seven per
sentum per annum) shall be guilty o f a misdemeanor, and shall be punished upon
eonviction by a fine o f not less than three hundred dollars and not more than one
thonsand dollars for each offense.
8 e c . 2. That concurrent jurisdiction with the United States for the violation o f
section one o f this act is hereby conferred npon and given to the several States and
Territories, and they are empowered to pass such laws as w ill make its violation a
misdemeanor against the laws o f said States or Territories and as w ill enable them
to’ effectively enforce the observance o f this act against exorbitant, usurious, and
illegal rates o f interest, discounts, reserves, or charges by said associations doing
business under the national banking laws o f the United States. A ll laws pr parts
of laws in conflict with this act are hereby repealed.

Mr. Snodgrass addressed the committee as follows:
Mr. Chairman and gentlemen o f the committee, I will not detain you in
suggesting the reasons why I think this bill should be favorably reported
hut for a moment. It is a bill making it a misdemeanor for any associa
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tion doing business under the national banking laws o f the United
States to charge or to take an illegal rate o f interest, and to confer apon
the States and Territories concurrent jurisdiction with the United States.
Under this bill it will be noticed that the banking law is changed in
only two respects. It does not restrict or extend their rights under
the law except in two ways. Under the present law the national banks
can not take a higher rate of interest thau that fixed by the States or
Territories. For theviolation o f this law the only way to recover any
penalty is to bring sdit in a Federal court. In oar State, as in a good
many other States where there is a violation o f this law, and the party
sees proper to pursue the remedy in the Federal courts, he has to come
100 miles .sometimes to prosecute that suit, and besides, usually, the men
are poor and in great need o f financial aid who are imposed upon and who
find themselves in this condition, and they are afraid to come and make
complaint because the bank would shut down on them and crush them
out.
Now, in our State and in the county in which I live I have known
some men o f moderate means who have been absolutely bankrupt by
usury on the part of the banks charging all the way from 10 to 25 per
cent tor loans. I f men come in and have to renew they increase the
discount, and it has gone on until in many instances it has amounted
to absolute robbery. This bill, in order to relieve a man from having
to prefer the charge, provides i f a national bank takes a higher rate of
interest than that fixed by a State or Territory, except in certain
instances where there is no rate fixed, and then they will have to take
7 per cent, instead of being sued for penalty it is a misdemeanor, and
upon conviction they shall pay a fine of not less than $300 or more
thau $1,000. It also extends to the States and Territories concurrent
jurisdiction with the United States and allows the States, if they see
proper, to enact such laws as will give the State authorities power to
send for witnesses and power to make indictments without calling in
men who would be slaughtered aud ruined by the persecution o f these
banks. I f the banks desire to do an honest business and do not desire
to commit perjury and extort, money wrongfully and illegally from the
people, they cau have no objection to this law, because it gives them
the full benefit o f all the law gives them now, and such banks that
practice this method ought to be restricted iu some way, and this would
prevent these usuries on the part o f the banks. O f course, it is not so
in the cities, where there is a competition iu banks and plenty o f money;
but in States like ours, where there is a bank only here and there, 25,
30, or 50 miles apart, there is very little money in circulation. I believe
our State has a circulation per capita of only $6. No State need give
that power to a grand jury unless exigencies existed in that State, and
where those reasons do exist the people ought to have the right to be
relieved, and I believe the bill ought to be favorably reported.
That is all I care to say about it.
Thereupon the committee rose, to meet on Monday, October 16, at 10
o’clock a. m.

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C o m m it t e e o n B a n k i n g a n d C u r r e n c y ,

Washington,!). C., Monday, October 16,1893.
Hon. Newton C. Blanchard, a Representative in Congress from the
State o f Louisiana, addressed the committee on House bill 1814,
introduced by him and referred to the committee, relating to the repeal
of the tax on circulation o f State banks.
STATEMENT OF HON. N. C. BLANCHARD.
j

Mr. Chairman and gentlemen o f the committee: 1 introduced at the
beginning o f this session o f Congress a bill for the repeal o f the tax
upon the note issue of State banks. A number o f bills o f the same
character have been introduced by other members, and all referred to
this committee. Many other members o f the House believe, like myself,
that we should return to the old system o f State bank circulation
which existed prior to the late civil war. I believe we should adopt
that system as a supplement to the currency issued by the National
Government. A s matters now stand in the South, and equally so in
the States o f the West, so far as our money affairs are concerned, we
have been going from bad to worse. Things have been getting a little
worse from year to year. Money has been getting scarcer each year
among the people. The values o f our property have been depreciating
year by year, and coutinue to do so.
Mr. H a l l . You mean in that connection that the price o f all prop
erty has depreciated 1
Mr. B l a n c h a r d . Yes, sir. Wheu I said “ values ” I meant the mar
ket value o f property. That is true o f all classes o f property, and that
condition o f falling prices has been going on for twenty years, or since
1873. The gentlemen from New York (Mr. Cockran) in his speech in
the House pending the consideration o f the repeal o f the purchasing
clause o f the so-called Sherman act made a statement which to my
mind was a very remarkable one when he said that when' Congress
adjourned on the 4th o f March last the country was enjoying a period
of great and unexampled prosperity. Mr. Cockran in making such a
statement did not know what he was talking about, so far as the South
and W est are concerned. It occurs to me that his vision must have
been bounded by the rows o f brick houses in New York. 1 know from
personal contact with the people o f the Southwest that for years they
have not been enjoying a period of prosperity. The lines o f life have
become harder and harder each year, and there are now a larger num
ber of people out o f employment than has existed in this country for
half a century. I believe that is true of every Southern State, and o f
a great many, i f not all, o f the Western States.
I f y o u b e lie v e t h a t th is s c a r c ity o f m o n ey, th is d e p re c ia tio n in th e
price o f p r o p e r ty , th is c o n d itio n o f h a rd tim es, as 1 h a v e b r ie fly
d escrib ed th e sam e, is in p a r t d u e to s o m e th in g b e in g w r o n g in ou r
m o n eta ry system , y o u sh ou ld m a k e an e ffo r t t o r e lie v e th e situ a tion .

Take the condition o f the South to-day and compare it with what it
was in 1860 and prior to that time. The war has been closed now
approximating thirty years. A sufficient time has elapsed for us to
have gotten upon our feet again in a business way. Signs o f returning
prosperity ought to be evident everywhere throughout the South; but
are theyl I am sorry to say they are not. Before the war the very
best securities we had in the South were our rich agricultural lands,
and that was -especially true o f the alluvial lands in my own State,
which rank with the finest agricultural lands upon the face o f the
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BANKING AND .CURRENCY.

globe. In Louisiana we grow successfully four great staple products
in equal luxuriance, corn, cotton, rice, and Bugar. Prior to the war
the condition o f the agricultural classes was constantly improving in
my State. The condition o f the people grew a little better aud higher
and more prosperous each year. The war came on, and, o f course,
destroyed all this. A fter a lapse o f twenty-live or thirty years what
is the condition o f the agricultural people in my State f I t is not one
o f prosperity. The people appear to be getting poorer and poorer each
year. Their lauds are becoming “ a drag” upon the market. They
«an not find sale for them, and can not dispose o f them except, often
times, at a sacrifice. When it comes to borrowing money upon lands,
they are considered the very lowest class of security that money-lenders
want, whereas before the war our rich agricultural lands were held
to be the best and safest security that could be offered for money.
W hat has brought about this condition f W e think it is due in
large part to the monetary system o f this country. A s things now
stand, the W est and South are absolutely dependent upon New York
for their source o f money supply. This may be good news to my Mend
on the committee from New York (Mr. Warner), but the existence of
this condition o f affairs has been and is disastrous in the extreme to
us. When our merchants want to make money arrangements they
must go to New York. WThen your note, or mine, or anybody else’s is
discounted in the local banks it goes to New York for rediscount.
That condition did not exist before the war. That condition o f affairs
does not redound to our benefit. Our people ought to be emancipated
from financial dependence on any section or city o f this Union. There
is no way to do it except to return to the old system o f State banks of
issue. In my humble judgment this would do more good than the pas
sage o f a free-silver law.
Before the war we had in our State, under wise and conservative
State banking laws, perhaps the very best system o f State banking that
existed ailywhere.
Mr. H a l l . It w as as good as auy other; there were others equally as
good.
Mr. B l a n c h a r d . I say “ better,” because the national-banking act

o f June 3,1864, which is before me, is copied in large part firom the
■State-banking law adopted in Louisiana in 1853.
Mr. H a l l . Y ou adopted the old Suffolk banking system f
Mr. B l a n c h a r d . I think we had a good banking system perhaps as
early as any State in the Union; certainly prior to 1853.
Mr. H a u g e n . The law o f 1864 is a good law, which, you say, was
copied from yours.
Mr. B l a n c h a r d . In answer to that, I will say that the nationalbanking law served a good purpose at the time it was enacted. It was
enacted, as we all know, c£t a period when our country was in a crisis,
and it was needed to assist the Government in its financial operations.
For one, I do uot believe—and I state my opinion candidly—that the
national-banking system is best for our country in these times. But 1
am not here to oppose the national banks. I believe that the nationalbanking system could continue on, and that the State-banking system
which I advocate would be a valuable supplement to it. I believe that
laws could be ftamed by which State banks could safely make use of
bonds deposited in the State treasuries as security for their notes.
There is no reason why the two systems should not be combined. If
the 10 per ceut tax were repealed State banks o f issue would come
into existence; and to the expressed fear that they might drive national
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207

banks out o f existence, I would say that for every national bauk which
went out o f existence two or three State-banking institutions would
take its place, and that certainly would be better for the people o f the
West and South.
. Mr. W a r n e r . It wonld be a question o f the survival of the fittest f
Mr. B l a n c h a r d . Yes, sir. I do not see why these two systems can
not exist together. Under the State banking laws o f Louisiana (a
copy o f which I have here) the money issued by the Louisiana banks o f
issue was good all over the United States. A t no time was a single
bill of those banks at a depreciation, nor was any cry heard in any
quarter o f “ wildcat” currency, bo far as the banks of Louisiana were
concerned. Bear in mind that this was at a period prior to the railroad
and telegraph and long-distance telephone. Now, the long-distance
telephone is rapidly coming into use between the large cities of the
country, the telegraph reaches almost every village in the United States,
and the railroad penetrates every neighborhood. The railroads anni- •
hilate space and the telephone and the telegraph annihilate time.
I think the conditions existing to-day are fivefold better for the gen
eral and beneficial use o f money issued by State-banking institutions
than were the conditions which existed at the time this system o f cur
rency was in operation.
To give a practical illustration: I am in the city o f New York, and
apply to the Chemical National Bank for a letter of credit upon their
Berlin correspondent.
I tender in payment $1,000 o f Louisiana
State-bank money, supposing we had such a system. O f course, the
Chemical Bank wonld make it its business to be posted, but if its
Officials were not, the long-distance telephone would then be in opera
tion between New Orleans and New York, as it is now between Chicago
and New York, and i f there were any doubt about the money offered
the bank officials could telephone to their correspondent in New Orleans
and inquire about this particular issue of money. I f word came back
that it was good in New Orleans, it would be good anywhere in the
United States. That facility o f communication did not exist prior to
the civil war, yet without it our Louisiana State-bauking money was
good everywhere, dollar for dollar.
The C h a i r m a n . Is not tbat law still in existence because it has never
been repealed!
Mr. B l a n c h a r d . Yes, sir; but it is inoperative because o f the 10 per
cent tax.
The C h a i r m a n . Those banks can operate as banks o f discount!
Mr. B l a n c h a r d . Certainly. The old law o f 1853 has never been
repealed, and i f the 10 per cent tax be done away with we would at
once put it in operation again, or enact another law modeled after it.
The C h a i r m a n . State to the committee' briefly what would be the
modus operandi o f a State-bank system undef that law.
Mr. B l a n c h a r d . It would be about as the national-banking system
now is, except that the bonds would be deposited with the State treas
urer or auditor instead o f the Comptroller o f the Currency.
Mr. H a u g e n . Upon what would yonr circulation be based?
Mr. B l a n c h a r d . Upon State and municipal bonds. We have in
the State o f Louisiana about $12,000,000 o f State bonded indebtedness.
We have in the city of New Orleans about $15,000,000 to $16,000,000
of municipal bonded indebtedness, the two aggregating $27,000,000 to
$28,000,000. The interest|apon these bonds is paid just as regularly as
is the interest upon the National bonds. These bonds are now a little
below par; but it is only a question o f a very short time when they will
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BANKING AND CURRENCY.

go to par or above par, as .is the ease, I am told, in Alabama, where
their 4 per cent bonds are now above par.
I f this 10 per cent tax upon the note issue o f State banks were
repealed it would at once appreciate the value o f these bonds. Thatfact alone would carry them above par, for it would create another
demand for these bqpds. They could be used as a basis o f security for
the issuance o f money by State-banking institutions. I t would not
only have the effect o f appreciating the market value of the bonds, bat
it would have another good effect. The $27,000,000 or $28,000,000 of
city and State bonds referred to are now an umnixed evil. The people
are taxed to pay the interest upon them and taxed to provide a sinking
fund to meet the principal. The people o f the State derive no benefit
from this bonded indebtedness as matters now stand. But if this
tax were repealed we could get some benefit out o f it. W e could use
the bonds as security for the issuance o f money by State banks. Any
banker or banking corporation operating under a State banking law
could deposit in the State treasury State bonds, or the city bonds of
New Orleans, and receive notes up to the value of say 90 per cent of
the market value of the bonds when below par and 90 per cent of the
face value when at or above par. In this way we could supplement the
existing money supply in the State by the issue of from $5,000,000 to
$20,000,000 of State bank currency, which would go into the channels
o f circulation and give a new impetus to business and enterprise.
The property, the wealth, the credit o f the State o f Louisiana and
o f the city o f New Orleans, is just as gcfed for this $27,000,000 or
$28,000,000 bonded indebtedness as is the credit o f the United States
for the four hundred or five hundred millions o f National bonded indebt
edness. There would be no trouble about the bank currency secured
by a deposit o f these bonds in the State treasury. It would be good
everywhere iu the United States.
W e have advanced greatly in progress and civilization since the period
of the wildcat currency in some o f the Southern and Western States.
I have already mentioned the telephone and telegraph and railroads as
aids to intercommunication. I have no fear that any State o f the Union
would lemain long under the stigma o f disgrace that would attach to it
i f money issued by its banks should go below par or become depre
ciated. I f any State o f the Union were to adopt a banking law so
unwise that under its operation State-bank currency would become
depreciated, the very next meeting o f the legislature o f such State
would amend the law and perfect it so as to bring back its credit and
make it equal to the currency o f other States.
Mr. H a u g e n . Some States are prohibited by their constitutions from
issuing money.
Mr. B l a n c h a r d . That is true; but i f this 10 per cent tax be repealed
the beneficial effect would be speedily felt, and I have no doubt that
the States having this inhibition in their organic law would soon amend
the same so as to permit o f the use o f the system o f State-bank circu
lation.
Mr. H a u g e n . M y State does not prohibit it, but provides that a
banking act shall be submitted to a vote o f the people.
Mr. H a l l . M y State prohibits it absolutely.
Mr. B l a n c h a r d . It could be changed so as enable your people to
derive the benefit which would surely result from a return to this sys
tem.
I hold in my hand an article clipped from a reputable newspaper in
the city o f New Orleans, the Louisiana Review, touching this very mat

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209

ter, which I will ask the indulgence o f the committee to read. I know
the editor o f this paper to be a lirst-class man and responsible and relia
ble in every way. The article makes a comparison between the condi
tion o f the banks in the city o f New Orleans in 1890, when we had no
State banks o f issue, aud the banks in the city o f New Orleans in I860,
when we did have State banks o f issue.
The article is as follows:
STATIC B A N K S — N A T IO N A L B A N K S O F

1890

A N D STATE B A N K S O P

1860.

[L o u is ia n a R e v ie w , D ecem ber, 1890,]

The baneful effects o f allowing the Federal Government to exercise exclusive con
trol o f the financial system o f the country and to lim it the amonnt o f the circulating
medium, has been demonstrated by the difficulties that the agricultural, industrial,
and commercial classes have experienced, owing to the patent insufficiency o f money
and the high rates o f interest that the agriculturalists particularly have have been
compelled all along to pay.. To these evils must be added the depreciation o f tbe
virtue o f real estate occasioned by the provision in the national-banking law which
prohibits national banks from lending money on real estate security.
Naturally, in view o f this unwise and unjust discrimination, capital has been
turned away from real estate and has sought stocks, bonds, and other interest-bear
ing paper values, the most o f which escape taxation, can be readily converted into
cash or need as collaterals on loans.
Real estate being excluded from these advantages, while it is made to bear the
burden o f taxation, is virtually unmarketable and can not be said to have anything
like a fixed value.
T o us the remedy seems very plain. I t consists in tbe repeal o f the Federal statute
preventing the issue o f bank notes by State banks, and in reestablishing the old
State banking system with modifications that would enable the national banks to
act under State charters conjointly with their national charters.
W e can see no good reason why State and municipal interest-bearing bonds, specie,
mortgages on real estate, etc., could not be made the basis o f a safe State bank-note
currency which could be expanded, according to circumstances, to meet all the legit
imate needs o f the people. This is no w ild theory, for it was successfully operated
for many years before the centralization o f the finances under the Federal Govern
ment was effected.
In support o f our views upon this subject, we append the following statements o f
the resources and liabilities o f the New Orleans banks, on November 28,1890, and o f
the N ew Orleans banks under the State banking system, in January, 1860, as given
at that time by Governor Moore in his message to the legislature:

1800

Report o f the average daily condition after the morning exchanges o f the asso
ciated banks for the week ending Friday morning, November 28, 1890, after the
exchanges:
R esou rces.

U n it e d S ta te s le g a l ten
d e r s a n d n ational-ban k
O th e r ca s h ite m s ..............
S i^ h t ^exchange on N e w

Th in
m i s w eek .

;

64.050.800 ! at.30t.200
184.900
171,100
2,048,700
126.900

D a e fr o m d is te n t banks
a n d b e a k e r s ...................
l o a n s s o d d isc ou n ts.......

T h is w e e k ,
] aBtyeaJr

498,000
20,419,200
4,043,800

1,986,800
184,900
477,304
19,094.300
4,452,400

T h is w eek
- la st ye a r.

L ia b ilitie s .

T h is w eek .

C ircu la tio n .......................
D ep o sits (n e t a fte r ex*
c h a n g e s ).......................
D a e d ista n t ban ks and
b an kers s u b jec t to

$702,200

*941.700

18,865,700

19,006,000

O th e rlia b iiitie s to banks
and b a n k e r s ................
O th er cash lia b ilit ie s ___

1,506,600

1,544,300

2,601,500
07,900

1,634,000
80,000

23,982,000

23,156,000

32,202,900 | 30,671,000

940------ 14

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BANKING AND CURRENCY.

le e o .
[O o v e rn o r M o ore'a M es sa ge.]

The latest bank statement shows t h e aggregate liabilities o f the banks of New
Orleans, exclusive o f capital, to be $25,893,251; to meet this they have in specie
$15,721,271, equal to sixty and t h r e e -f o u r t h B o f o n e [hundred) per cent, o f their total
liabilities. They have exchange amounting to $7,356,581, which is nearly equivalent
to coin. The two items represent 89 per cent o f their entire indebtedness. Adding
to this the amount o f bonds deposited with the auditor as security for circulation,
for free banka, the immediate availability is $26,688,852, against $25,893,251 ofcliabilities: or 103 cents o f means to 100 o f debt. This is irrespective o f portfolios o f the
banks, which amount iu round figures to $19,000,000.
From the above it w ill be perceived that the total resources o f the New Orleani '
banks in 1890, amount to $32,262,900, against a total o f $45,689,852 in 1860.
These figures speak for themselves. They show that in 1860, when Louisiana had
* population o f some 650,000, one-half o f whom were slaves, who were not borrowers
o f money, our State banks had a working capital o f $13,500,000 more than our banka
have now, when the population o f the State was put down at more than eleven
hundred thousand.
I f these figures can be accepted as a proper basiB o f calculation, and we can not
aee why they should not, our banking capital should approximate eighty millions
instead o f thirty-two.
in view o f this discrepancy, it is easy to account for the depreciation o f real estate,
the difficulties under which ouragricnitural, industrial, and commereial interests are
laboring and the frequent complaints o f stagnation in many branches o f business and
fields o f enterprise.
The national debt which is the basis o f our exclusive national banking B.vstem, it
steadily diminishing, while our increasing population naturally requires additional
capital. I t is obvious, therefore, that the national banking system, which is already
inadequate to meet the public needs, should no longer be.lookedto as the only source
o f banking accommodations.
The finance question is o f the gravest importance, and out public men, our finan
ciers., the press, and the people generally, cannot .too soon give it their earnest con
sideration.

Mr. J o h n s o n , of Indiana. Do you not think the better condition o*
o f the banks in 1860, is due to the fact that railroadB have been built
since that time and there has been a change o f business from the river,
b y which Memphis, St. Louis, and other points get business that used
to go to New Orleans?
Mr. B l a n c h a r d . Perhaps, to a limited extent, that may figure in
this difference in the banking business as shown from 1860 to 1890,
but I would suppose that it would not account for more than 10 per
cent o f i t In 1860 we had a little over 600,000 people. Now we have
nearly 1,200,000. In 1860 more thau half o f the popnlation were slaves
who were not borrowers, and they must be eliminated from considera
tion. Now they are free, and many of them property holders and own
farms, houses, and lands, and must be taken into consideration.
Mr. C o b b , o f Missouri. They are borrowers 1
Mr. B l a n c h a r d . Yes, sir; in spite o f these facts, we see that in
1860 Louisiana, which was, and had been for many years under a State
banking system, was highly prosperous and the people contented and
happy. Business transactions was enlarging all the time. Business
concerns were multiplying. There was more money—almost double
the amount o f money, in the aggregate—in the banks o f New Orleans
then than there was in 1890.
Mr. H a l l , o f Missouri. One argument used by the opponents o f the
repeal of the 10 per cent tax on State banks is that the currency runs
the risk o f becoming a depreciated currency. I want to ask you if, in
your opinion, any currency based on State bonds, which are themselves
a t par, or above par, would not be as good as the State bonds f
Mr. B l a n c h a r d . Undoubtedly.
Mr. H a l l , o f Missouri. M y State o f Missouri could float in the New
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York market a 3 per cent bond at par. I f we based our currency on
that 3 per cent bond, or i f the bonds o f any o f our municipalities were
quoted at par, would not the currency itself be as safeas the bonds, and
be recognized as snch in the market I
Mr. B l a n c h a u d . Yes, sir; it would be as good as the bonds, the
basis o f security for its redemption. I t would be so recognized in the rnark etsof the country. W ith Missouri bonds at 3 ]>er cent, and being worth
par in the market, it is impossible for the bouds to be maintained at or
above par, and the currency which is issued on the bonds to fall below
par. I f the bonds deposited iu the State treasury, and registered to
prevent a thieving treasurer from getting away with thfem, are good in
the markets o f the United States, there can be no question but that
the currency issued upon those bonds would be equally as good as the
bonds themselves.
Mr. Cox. May I divert you there a moment? O f course the proposi
tion must be understood that this circulation is based upon State bonds.
Is it your purpose to repeal this tax with restrictions or limitations
upon State banks, or just simply a repeal?
Mr. B l a n c h a r d . M y own position is this: I do not think Congress
ought to do anything more than repeal thistax. I think that the States
can be trusted to handle this matter for themselves, just as they did
prior to 1860.
Mr. Cox. While the bonds o f your State and my State, are much
like each other and would make a safe currency, some other States—
South Carolina or Kansas, for instance— might undertake to bank upon
a different security or a worthless security; ought there not to be some
restriction there?
Mr. B l a n c h a r d . Perhaps yon were not in the room when I referred
to that matter briefly iu my remarks. I said that the conditions now
are vastly different from what they were when “ wild-cat” currency
existed in some States prior to the civil war. A t that time we did not
have railroads, telephones, and telegraphs. The long-distance tele
phone will shortly be in existence in all the large cities. The telegraph
now absolutely reaches every village. Railroads penetrate every neigh
borhood. These are advantages which we did not enjoy in the days o f
the “ wild-cat” currency. W e have advanced in civilization and enlight
enment since that time. It could’ be done better now than it was then.
I have no fear that unwise banking laws would be passed by any State
which would permit oi a depreciation o f its currency. A n unsound
currency would be a stigma o f disgrace upon a State, and the legisla
ture,. at the very first meeting thereafter, would so amend the law as
to bring the currency o f snch a State up to par with that o f her sister
States.
This return to the State banking system would give us a flexible cur
rency. I t would emancipate us from dependence on any section, and
would give us a source of money supply of our own. This source of
supply would be at home.
This further remark may be made on that line, that when a Louis
iana State-bank note left the State, it might make the circuit—would
go to Philadelphia, New York, or other city, but is certaiu to come
back to Louisiana for redemption for its domicile is there. The green
back, or the national-bank note, or the gold dollar will not do that.
It goes off and stays. But the State money would surely return to
the bank which issued it for redemption. Thus the supply o f money
in the State would be constant.
The State-bank currency would emerge from the banks late in the
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spring and through the summer when ninch money is needed to make
the crops, to gather them aud prepare them tor market, and move them
to market. Later, when the cotton o f the South and the wheat of the
W est are sold for the gold o f the world, the State-bank currency would
naturally and logically find its way back to the banks o f issue, and there
it would remain in the vaults o f the banks uutil the necessities of the
next year’s cropping operations and business operations drew it out
again. It would lower the rate o f interest, and .we iu the South and
W est need cheaper money with which to raise 7 ceut cotton and halfdollar-a-bushel wheat.
Mr. H a l l . You spoke of the Louisiana State banking law which
was recognized as one o f the best o f live State banking systems. There
were five that were equally good.
Mr. B l a n c h a r d . I think ours was the best.
Mr. H a l l . Did you ever have in the State o f Louisiana a depre
ciated wild-cat currency?
Mr. B l a n c h a r d . Not a single dollar at any time in onr State. On
•the contrary, the money issued by the Citizens’ Bank o f Louisiana,
which was the principal bank o f issue, was considered by many of the
people o f Louisiana to have been even better than other money of the
time issued by the National Government, and was the class o f money
more generally hoarded. Some o f it turned up after the war.
The C h a i r m a n . Where are your bonds o f the city o f New Orleans
and o f the State o f Louisiana held at this time I A re they held in
your State or in the Eastf
Mr. B l a n c h a r d . About the details o f those matters I am not posted.
I think that a large part of the bonded indebtedness o f our State and
the city o f New Orleans, aggregating about $28,000,000, is held in the
city o f New Orleans. Some are held in New York, and perhaps else
where. W e have no fear that if we get back the State banking sys
tem, which would enable us to use those bonds and deposit them to
secure our currency notes, the bonds, wherever they may be, will not
be used for that purpose.
The C h a i r m a n . They would be appreciated in value T
Mr. B l a n c h a r d . Yes, sir; they would at once go to par and above
par. But 1 do not speak for the holders o f these bonds. I do not
know a man who holds one.
Mr. H a l l (to the chairman): Did not Col. Oates, o f Alabama, in his
address in speaking o f the bonded indebtedness o f Alabama say that
there were $24,000,000 o f State bonds, and that $20,000,000 were held
in the State o f Alabama?
The C h a i r m a n . I think so. (To Mr. Blanchard.) Your object iu the
rehabilitation o f the State banks is to secure a larger amount of paper
money?
Mr. B l a n o h Ar d . Yes, sir; to have our source o f money supply at
home instead o f elsewhere.
The C h a i r m a n . I t does not make any difference where it is if it is
available in your State.
Mr. B l a n c h a r d .* I f it is domiciled in our State, when it goes away
it will return.
The C h a i r m a n . I f you undertake to establish a State banking
system, you would first have to secure bonds o f the State o f Louisiana
or o f the city of New Orleans as a basis for your circulation?
Mr. B l a n c h a r d . Yes, sir.
The C h a i r m a n . I f you buy the bonds with which to start in the
banking business, yon mast put up your own currency, and then issue
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90 per cent o f the market value o f the bonds (which are above par) in
notes?
Mr. B l a n c h a r d . Yes, sir.
The C h a i r m a n . Under the laws o f Louisiana, how much do you
think you would have as a fund for redemption!
Mr. B l a n c h a r d .' The national-bank law requires about one-third,
according to my recollection.
Mr. W a r n k r . I t requires about 25 per cent for redemption.
Mr. B l a n c h a r d . Y ou may be right. •
The C h a i r m a n . I f you were to start a bank, and were to go and
buy bonds, when you got ready to loan money you wonld have 25 per
cent less money than before!
Mr. B l a n c h a r d . W ell?
The C h a i r m a n . Supposing you as an individual must buy these
bonds, and, i f so. must you not put up 25 per ceut of the market price
for the bonds, and then hold 15 per cent as reserve, which would leave
you 25 per cent less money with which to do banking than you had at
first? You have tied up 25 per cent o f your money in organizing.
Mr. B l a n c h a r d . That which is tied up is, I take it, merely the
reserve such as every bank maintains. Anyone going into the bank
ing business must maintain this reserve.
The C h a i r m a n . I f you do not want to buy bonds or start a bank,
and owned bonds o f the city o f New Orleans, or the State o f Louisiana,
can you not take those bonds to any money center o f the United States,
for iustance New York, and get United States currency within 5 per
cent o f the market value, and could you not take that currency home
and use it among your own people?
Mr. B l a n c h a r d . W e have been trying that very system for many
years bnt the result is that with our population in Louisiana almost
' twice what it was in 1860 the showing o f our banks in 1890 as com
pared with 1860 is a bad one. Furthermore----Mr. W a r n e r . Would it not be fairer to say, as compared with the
national-bank system, that under the operation suggested by the chair
man, to start with, i f you bought Louisiana bonds, and got them in
Louisiana, you would be putting in circulation 100 per cent, and then
getting 75 per cent o f circulation, and you would have, instead o f 75
per cent, 175 per cent.
Mr. B l a n c h a r d . That was the answer I was going on to make to
the chairman’s question. I had not quite finished when you took it up.
Mr. H a l l . A s to that question o f the chairman’s, he said he could
take the State o f Louisiana bonds and get currency, and I want to
know i f in the last sixty or ninety days you could take United States
bonds into New York and get currency?
Mr. B l a n c h a r d . From the newspaper reports which I have read I
should think not.
Mr. Cox. How would you go about organizing State banks? You do
it by taking the money and buying State bonds. Do you not do the
same thing when you establish a national bank?
Mr. B l a n c h a r d . Certainly.
Mr. Cox. W hat proportion o f United States bonds are owned in the
South; it is not generally thought to be less than 10 per cent?
Mr. B l a n c h a r d . There is a very small proportion.
The C h a i r m a n . Yon drew a comparison for the purpose of laying
the business troubles o f the people o f the South to the monetary system
at this time.
Mr. B l a n c h a r d . In large part.
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The C h a i r m a n . Can you not accouut for the condition in your S tate
by other causes than that of an insufficient volume of currency; fo r
instance, along the Mississippi River, from Cairo to New Orleans,
which is the cotton belt, are running railroads which discharge their
freight at steamship landings; and is it not a fact that this cotton,
which formerly weut down the river to New Orleans, now is loaded
and goes directly over the railroads and over steamship lines and
never goes to your c ity !
Mr. B l a n c h a r d . A s I heretofore said, to this fact is to be attributed
some portion o f the trouble; bnt, as I said further, 1 do not believe it
would amount to 10 per cent o f it. Perhaps the chairman is not aware
that with regard to cotton receipts New Orleans receives annually manymore bales at this time than she did in I860 or any time prior to 1860.
Mr. Cox. The business o f your city is inoref
Mr. B l a n c h a r d . Yes, sir; the aggregate business iu New Orleans
is larger, but the bank showing was $13,500,000 less in 1890 than it
was in 1860. Since 1860 we have had the present system o f currency.
Prior to 1860, for years, we had the other system— State banks o f issue..
A further answer to the question in reference to railroads taking away
the cotton busiuess o f the city is, while it is true that almost every
town o f importance has its compress, and the cotton is compressed
and shipped from such points by through bills o f lading to the New
England spiuners or to Liverpool, you must remember that prior to
1860, or at that time, we were not receiving at New Orleans auy wheat
for shipment abroad; whereas, since the completion o f the Eads ietties, deepening the South Pass o f the Mississippi Biver and admitting
vessels o f the deepest draft, New Orleans has a very considerable
wheat shipping trade, and when this is taken into consideration, it
makes up in part i f uot in whole this diversion o f a portion o f the trade
in cotton.
Mr. J o h n s o n , of Ohio. Do you not think it is true that a part o f this
can be accounted for by the fact that before 1860 you had in your State
probably the best banking system in the United States, certainly the
best in the South, and that your banking business represented every
Southern State; 1 know that as a family tradition your money was the
best money in Kentucky that came from any part o f the Southf
Mr. B l a n c h a r d . I t went all over the United States.
Mr. J o h n s o n , ot Ohio. Does not that accouut for it; the national
banking system being distributed all over the country you have no
longer a monopoly o f the best banking system?
Mr. B l a n c h a r d . But, prior to the war, there was in Mobile, Ala., a
good banking system, in close proximity to New Orleans. It did its
share of the banking business o f the Southwest. Again, at that time,
what is now the great empire State o f Texas was almost a frontier, aud
did not need much banking.
Mr. W a r n e r . A s a matter o f fact, did not that State have a consti
tutional inhibition against the State banks f
Mr. B l a n c h a r d . I believe so.
Mr. H a l l . A constitutional provision that nothing but gold and sil
ver should be used.
Mr. B l a n c h a r d . W e know that under the operation o f the present

system New York is the financial Rome to which all roads lead. That
is not a good condition o f affairs for us in the far Southwest. W e have
found this out to our cost. I do not believe that the good people o f
any section o f this country want to see the people o f any other section
driven to the wall in a business way. That is what is being done for
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as in the South. It has been going on for twenty years, and is going
from bad to worse. Just as long as the National Government has a
monopoly o f the issuance o f the currency o f the country, just so long
will New York be the money center in the sense that every consider
able moneyed arrangement that bankers, merchants, and capitalists
make will be made there. This is not a healthy condition for us. W e
want our source o f money supply at home, and there is no way on earth
o f having it, except to give us a chance to utilize our State and munic
ipal bonded indebtedness as basis for the issuance.of money by State
banking institutions. I f you give us that, our country will again
become prosperous. There will be more money at low rates o f interest;
there will be enterprises established; and there will be a market for our
lands. Until we attain to a condition o f rising prices in the South and
W est, the lines o f life with us are going to become harder and harder
each year.
Mr. H a u g e n . W hat amouut o f wheat goes fco N e w Orleans now f
Mr. B l a n c h a r d . I have not the figures.
Mr. C o b b , o f Missouri. That is our natural route. W e always ship
' th at way if we can get transportation, but frequently we can not.
Mr. B l a n c h a r d . I will say to my friend from Missouri that when
the Mississippi River is at good boating stage the rates o f transporta
tion to the sea by way o f New Orleans, and to Europe, or any point
abroad, are very much less per bushel on wheat, and the same thing
true o f corn, than it is to the Atlantic seaboard aud to points abroad
from Atlantic ports.
Mr. C o b b , o f Missouri.'It is 5 or 6 cents cheaper. 1 have been in
the business myself.
Mr. B l a n c h a r d . That is a fact which points with certainty to an
increase o f the business of shipment o f wheat to foreign countries by
way o f New Orleans.
Mr. Cox. Have you any figures to show the trade o f New Orleans in
lumber between 1860 and 1890f
Mr; B l a n c h a r d . I have not the figures; but the iucrease in the line
o f business is enormous. Indeed, the lumber business o f the city has
all developed since 1860. W e have in Louisiana and adioining States
the finest body of pine-timber land to be found in the United States
east o f the Sierra Nevada Mountains. W e have in Louisiana the finest
body o f long-leaf pine timber to be found in any State o f the Union.
I t is a wonderful field for development. The end of the lumber indus
try of the Northwest— Wisconsin, Michigan, and Minnesota—is in
sight. I was in that region in 1891 and they toldiine, upon inquiry,
that their timber would all be gone in ten years. I was told that the
best timber land, even then, was worth as much as $50 per acre for the
timber alone. The mill owners o f that section are hedging against the
disappearance o f timber in the Northwest and have made large invest
ments in timber lands in the South. They have acquired large tracts
in my own State and Congressional district. One member o f Congress
from Michigan, with his associates, owns several hundred thousand
acres o f pine-timber land in the district in Louisiana represented by
me. The lumber industry with us is yet in its infancy. Before the
war our timber business was scarcely anything.
Mr. W a r n e r . May I ask you what is the date o f the newspaper
clipping which you have read!
Mr. B l a n c h a r d . It is taken from the Louisiana Review o f Decem
ber, 1890.
Mr. W a r n e r . Is that a regular New Orleans paper f
_ Mr. B l a n c h a r d . Yes, sir; a weekly paper published there for years.
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DO WE WANT HOMEY OR EXCHANGE?

STATEMENT OF MB. THOXAS 0. SHEARMAN, OF HEW YOBK.
The chairman stated that Mr. Thomas G. Shearman, o f New Y o rk ,
being present, the chair o f his own motion would ask the unanimous
consent o f the committee to receive the oral statement o f Mr. Shear
man on the subject o f some proposed amendments to the banking laws,
concerning which Mr. Shearman had expressed an opinion to some o f
the committee privately. Unanimous consent being given, Mr. Shear
man said:
Mr. Chairman and gentlemen o f the Committee, as the chairman
has already stated to you, it w>s not by any suggestion o f my own th at
I address you upon this occasion, although I am very grateful to th e
chairman for his kindness in making the proposition, and to you fo r
yonr courtesy in acceding to it.
I t is the right o f the people to complain. I t is the business o f the
statesmau to devise remedies. It is no more reasonable to demand o f
the people that they shall define the correct remedies for their troubles
than it would be for a physician to demand o f his patients that they
shall dictate his prescriptions. Every real statesman is a physician;
and a professed statesman who waits tor his constituents to tell him
precisely what remedies he shall apply to social ills is no better than a
quack.
Somewhat o f the same criticism applies to all who undertake to lead,
and form public opinion or who sit in judgment upon a popular demand.
Nothing is more absurdly unjust or inappropriate than the haughty
demand, frequently made by critics o f a popular movement, that those
who complain of anything alleged to be wrong in society or govern
ment should themselves frame a bill for its correction. This is not the
duty o f the injured classes, nor is it possible for them to do itr or safe
for society that they should attempt it. On the contrary, few things
are more dangerous to the whole community thau to commit the work
o f legislative reform to the hands o f those who most urgently need it.
I t should always be placed in the charge o f calm and, as nearly as pos
sible, disinterested though sympathetic experts.
Before this stage is reached, however, it being one more o f detail
than o f principle, men who have been trained to the study o f princi
ples should study the case, and determine the real nature o f the evil
complained of, and ascertain, in geueral terms, the remedy which ought
to be applied. They should not, at first, embarrass themselves by
attempting to follow this remedy into all its minute details. It is quite
enough to look into the details sufficiently to be sure that the remedy
will be effective, leaving the rest to be done by experts iu such details.
Let us apply these plain principles to the immensely important ques
tions o f currency and banking, which have at last forced themselves
upon the attention o f the American people, and which can no longer
be evaded or postponed.
TH E DEMAND FOR MONEY.

For more than a quarter o f a century there has been a constantly
recurring demand from vast numbers o f the people for “ more money.’7
Sometimes it has been for the issue o f greenbacks, sometimes for fiat
money, sometimes for unlimited silver. In substance, it is always the
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same; and no sooner is it defeated in one form than it revives in
another. It has been resistedby denunciation, by sarcasm, and by solid
argument; yet it has survived them all, and has extorted from tiuiid
politicians three separate compromises, each tending to bring about
th e disaster which has dually befallen the country from a debased *and
doubted currency.
A popular demaud, so widespread and persistent, is not the mere
insanity or fraud which many advocates o f a sound currency imagine
i t to be. Neither fraud nor insanity can maintain itself so long. There
must be, there is, some real and legitimate want lying underneath any
th in g showing so much vitality. W hat is it !
W H A T DO T H E PE O PLE N E E D !

W e may rest assured that what the people really need is not pre
cisely that which they think they need. I t is as improbable that they
should see, at the first glance, the true remedy for the troubles which
they feel, as it is that a sick child should call for quinine or aconite,
ju s t when it ought to be administered. W e should pay the closest
attention to the people's complaints, but very little to the people’s pre
scriptions.
I t is perfectly easy to understand these complaints and to see what
is the real defect in our financial system, which gives rise to these com
plaints. Leaving out o f account a few eccentric theorists in the cities,
the complaints come exclusively from rural districts, and mainly from
the South and Southwest. Do the farmers and planters really want
money for its own sake! Not at all. They want it solely as a means
o f exchange, and as the only means o f exchange with which they are
acquainted. They have no conception o f any other method o f selling
their crops than in one of two ways: First, by selling for “ cash,” by
which they understand nothing but coin or bills; second, by trading
their produce on credit at some country store. The vast majority are
compelled to use the latter method, and to be content with a credit
entered upon the store books, and settled by the gradual delivery o f
store goods, at prices nominally agreed npon, but practically dictated
by a combination o f petty storekeepers. O f course, all such traffic is
conducted at a great disadvantage to the farmer, who inevitably asks
for credit ai the store, and is thus obliged to accept goods at the mer
chant’s prices, aud to make payment in his own produce, at the mer
chant’s estimate. Tbere may be some chaffering; but iu the end the
farmer is forced to accept the best terms which he can get from one
man for that year. His only remedy, if he thinks himself unfairly
treated, is to trade with another store the next year. A forehanded
former, who can do without credit, sells his produce for cash—real cash.
H e goes home with a thick wad of bank notes or greenbacks in his coat
pocket. But even he finds that the universal demand for such money
occurring at the same time produces a stringency, which depresses the
price o f his produce. He, therefore, would like to see “ more money.”
I t is needless to say that the other class o f producers, who form a vast
majority o f the whole, are fully convinced that they would obtain far
better prices for what they sell, and would pay much lower prices for
what they buy, i f they could be supplied with money, as a medium o f
exchange, instead o f depending upou store trading. The cry for relief,
from the entire agricultural class, is thus practically unanimous; and,
in substance, though not in form, it is well founded. Y et what is it
that they actually want ? Not money, but the best medium o f exchange.
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Contrast the situation o f these classes with that o f business men in
cities and large towns. “ Cash ” in the town, means something entirely
different from “ cash” in the country. No wholesale dealer thinks o f
either paying or receiving any large amount in coin or paper money.
“ Cash,” to his mind means a bauk check. So thoroughly accustomed is
he to this method that it hardly occurs to him that there is any differ
ence between the two methods; and yet the difference is really tremen
dous. He gets every conceivable advantageattending cash transactions,
without inconveniencing anybody or putting any strain upon the finances
o f the country. The wish o f the farmer and planter can not be literally
complied with, except at the cost o f a general financial convulsion.
Indeed, it can uot be complied with at all. I f we could draw every
ounce o f gold and silver from every country under heaven, aud distribute
it ouly among the farmers and planters o f this country at harvest time
it would not suffice to carry through their transactions upon a strictly
“ cash ” basis.
Shall we, then, issue flat money for the same purpose f I t is only
just to the Farmers’ Alliances to say that their brightest men have
fully recognized the fact that a permanent issue o f so much nominal
money would utterly destroy its value, and therefore that the rem
edy would be worse than the disease. I t is precisely for this reason
that they advocate the “ subtreasury” system, under which about
7,(MM),000,000 in paper are to be issued in September and rapidly called
in after October. But we need spend no time in demonstrating that
this plan would lead to precisely the same ruin which it is designed to
avoid.
Once more we ask: “ W hat does the farmer really want!” ' And once
more we answer: “ Not money, but the best means o f exchange.” A n d
what are the best means o f exchange f Clearly, sound, safe banks o f
deposit brought as close to his door as the country store or warehouse,
which now furnishes to him an insufficient and expensive medium o f
exchange.
W H A T IS A B AN K ?

W hat is a bank f The conception which prevailed almost universally
throughout the United States until a very recent period was that a
bank meant neither more nor less than a note-manufacturing machine.
Its great office was to turn out as many bank notes as possible for use
as money passing from hand to hand, and all other services which it
might render were considered as mere incidents of this. The widespread
ruin which was wrought by these note-manufacturiug banks in the
W est and South gave rise to a well-founded dislike o f such banks and
to an ill-founded prejudice against banks generally This prejudice
was intensified in many sections o f our country by the practical work
ing o f the national-banking law, which was used for several years chiefly
' as a note-issuing machine. Although these notes were all punctually
redeemed, yet their issue gave to the banks a very large and unjusti
fiable profit, and the number of such banks being for years strictly
limited, they possessed a monopoly. The monopoly has entirely passed
away, and the profits on note circulation have been reduced to an
extremely small figure, but the prejudice reipains nevertheless.
A genuine bank, however, is not a note-issuing machine at all. Its
business can be connected with issues o f bank notes; but a true bank
ing business consists iu receiving deposits, paying checks, and making
discounts. O f such banks, provided they are well conducted, there
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can not be too many. The true natore o f sucli banks was, so far as the
writer is aware, first fully explaiued by Prof. Bonaiuy Price, in his
lectures on currency and banking, published in 1869. The next correct
statement of the nature o f a bank, and the first which was given by an
American author, is contained in an essay written by Mr. Edward
Atkinson, and published in 1880. The proper office o f a bank is to fur
nish, without the use o f money, facilities by which goods o f all kinds
may be exchanged between the most distant parts o f the country.
Not merely is it not true that a bank is a mere institution for dealing in
money; it is, on the contrary, true that a bank conducted upon sound
principles has for it object the reduction o f the use o f money to the
lowest possible point. I t is no more the proper business o f a real bank
to supply money or to extend the use o f money than it is the business o f
a steam engine to run its governor, or o f a watch to run its balance
wheel. The coin held by a genuine bank is kept as a balance wheel;
or, to adopt another figure, it is the ballast in a ship, indispensable to
steady the ship, but the last thing in the world for the sake o f which a
ship is built or sailed.
TO W H A T E X TE N T IS H O N EY N E C E S S A R Y !

By the use o f bank checks, money can be dispensed with to an enor
mous extent. A ll wholesale dealers understand this, and carry on their
business almost exclusively by means o f checks. I t is universally
admitted that much more than 90 per cent o f all wholesale transactions
are conducted iu this manner. From this fact, the inference has been
drawn that 90 per cent o f the entire business o f the country is thus
conducted without the use o f actual money. But this is vehemently
denied, not ouly by the representatives o f farmers and planters, but
also by some scientific men, o f whom Prof. F. A . W alker may be taken
as a type. In a paper, recently read by him before the American
Economic Association, he asserts that substantially all retail transac
tions are conducted by the use o f literal money, and that these consti
tute a more important share of realtrafficthau wholesale transactions do.
It is said that the conduct of business, without the actual use of
mouey, is confined to the cities and larger towns, while in the smaller
towns and in all villages and rural districts all purchases are and must
always be paid for in literal money. In confirmation o f this view, it
is correctly pointed out that few villages or small towns have banks
of auy kind whatever, and that a vast majority o f the people have no
dealings with banks, other than savings banks.
f a r m e r s ’ b a n k in g

m eth o d s.

W hat are the facts! Speaking with great deference to the judgment
of others, and subject to all correction, but, as the result o f mnch
inquiry and impartial investigation, it seems to the writer an almost
indisputable fact that the bulk o f transactions iu the rural districts,
especially in the South and Southwest, are carried on with even less use
of money than is usual in the great cities o f the North and East.
In the cities and large towns it is quite true that most retail trans
actions are settled by the use o f actual money, bnt in strictly agricul
tural districts and mining regions, which together cover nine-tenths o f
the area o f the United States, it seems to be universally conceded that
very few transactions o f any kind, whether wholesale or retail, are
settled by immediate cash payments. Everybody keeps an account at
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the country store, and everything is done upon credit. Generally speak
ing, a farmer or planter opens a credit at the nearest store, upon the
faith o f which he draws, not money, but plows, tools, seed, provisions,
. clothing, and everything else which he needs. Against this he deposits
no money, but when his crop is gathered he delivers the crop itself to
the storekeeper, or sells it to some traveling agent who pays its price
to the storekeeper. In this manner, it is believed, nine-tenths of the
small farmers conduct their business; and their retail transactions,
quite as much as their wholesale ones, are conducted upon book accounts
without the use o f money. Even farm laborers, it is said, receive by
far the greater part o f their wages in the same way. The farmer
advances to them the things which they want, which he in turn obtains
from the storekeeper; or else he guarantees an account which the
laborer keeps at the store. In one way or another the entire business
o f the agricultural districts, we are assured, centers in the country
stores, and is conducted with lefes literal money than the business of
cities and towns.
That this must be so would seem to follow inevitably from the wellknown fact that tbe great bulk o f money is always to be found in the
cities and towns, and from the never-ending complaints o f the lack of
money in all agricultural districts. Farmers would not complaiu so
bitterly o f the absence o f money if there was in circulation among
them an amount at all corresponding with that which is in circulation
in the cities. The proof seems conclusive that in reality a smaller pro
portion o f business is done upon a cash basis in the country than in the
cities.
I f the facts are as here stated, does it not follow that niue-tenths of
all our commercial transactions, whether in city or country, are con
ducted through banking operations? A re not the small fanners of the
South ami W est actually more dependent upon bankers than are even
the merchants o f the East? True, the storekeepers o f the rural dis
tricts are not called bankers, but names do not change the nature of
things. Their business is as truly a banking business as is that of any
national bank on W all street. But their methods are clumsy and
inconvenient, and their charges are enormous. They maintain a per
manent suspension o f specie payment, and properly enough, because
they never receive actual money on deposit, and therefore never ought
to be asked for it. They unite the business o f banking with the busi
ness of merchandising, and they do not perform either function well or
cheaply.
TH E COST OF FARM ERS’ BANKING.

Inquiry among gentlemen familiar with such matters in the South
leads to the conclusion that the charge o f the country storekeeper for
the banking accommodation which he thus furnishes is never less than
15 per cent, in addition to the ordinary rate o f profit upon his goods.
Indeed, every resident o f southern agricultural districts puts the figure
much higher. Let us, however, leave it at this low rate. Does it not
follow that the Southern and Western farmers lose at the very least
15 per cent o f their whole earnings, simply for want o f good, sound
banks in their midst, doing a strict banking business, and thus enabling
the farmers to buy aud sell for cash, wherever they can do so to the
best advantage!
Incidentally it may be noted that these facts explain the general
clamor against middlemen, which is so common in the West. The
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middlemen, with whom farmers directly deal, make an euormous nomi
nal profit on each transaction, aud the fanners naturally supjjose that
the mnch more wealthy middlemen o f the Eastern cities do likewise.
A s a matter o f fact we know that this is not at all the case, and that
Eastern merchants make far larger aggregate profits out o f a commis
sion o f from 2 to 5 per cent than any country storekeeper can ever
make out o f commissions o f 15, 25, or 30 per cent. The small Western
middleman has to take such large risks and to conduct business on
such an unsafe basis that he is naturally not so well off in the end as
he would be under a system o f small profits, quick returns, and abso
lute security. The whole system is vicious, expensive, and disastrous
alike to the farmers and to the storekeepers.
TH E TR U E REM EDY.

Do not these facts at once account for the farmers’ complaints and
indicate the true remedy f Is not the only real relief to be found in the
extension to every town and village in the land o f safe and sound
banking agencies, with which farmers can do business on precisely the
same terms as New York merchants? Every farmer should learn to
use bank checks instead o f bank notes, precisely as the city merchant
or the village manufacturer does. These checks should pass through
central clearing houses- precisely as they do in New York, Boston, and
Philadelphia. The use o f actual money, whether in coin or paper,
should be reduced to as narrow limits in the country as in the cities.
The Western and Southern farmers and planters should be made to
understand that their prejudices against banks are founded upon an
entire misconception o f the ofBce and purpose of banks, and that, so
far from seeking to reduce the number o f banks, they should insist
upon an enormous extension o f genuine banking facilities as more val
uable to them than all the “ money” o f all the world.
Nor is it only farmers who need to learn this lesson. Even city
dwellers have not made one-fourth o f the. use of banks which ought to
be made aud speedily must be made. A ll payments o f $5 and over
ought to be made in checks. Every man able to keep $50 ahead o f
the world ought to keep a bank account. I f he is married he ought
to open an account in his wife’s name and let her pay for her purchases
in her own checks. The banks do not enjoy such business; many o f
the best banks refuse it; but they must accept and encourage it as a
duty to their country and the best ultimate protection for themselves.
These opinions, although now first published, were privately ex
pressed, long ago to some o f onr leading statesmen. Since that time
the irresistible forces o f natural law have not only illustrated and con
firmed them, but have driven many banks and business men into acting
npon them. The payment o f wages and other debts in small certified
checks is precisely what the writer urged upon both statesmen and
bankers before the panic o f 1893, not as a mere temporary expedient
under panic, but as a permanent relief to our overstrained currency.
It should not merely be adopted during a period o f pressure and strin
gency; it should be made as nearly universal and perpetual as possible.
COIN GOING OUT— BANKS COMING IN .

Nature is driving us forward to this policy, hot merely by the brief
stringency o f 1893, but by the whole recent course o f money. The
failure o f bimetallism is not produced by artificial causes or combina
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tions. The substitution o f gold for a mixed currency is a mighty
advance o f that oceanic tide which is compelling us, whether we will or
no, to adopt the modem methods o f advanced civilization, o f which the
use o f banks, instead o f coin or notes, is one o f the most important and
beneficial. I f bimetallism weiV possible, and if we could keep in circu
lation, side by side, all the gold and silver which America can produce,
allowing none o f it to flow abroad, we should be just as far from giving
relief to our farmers and planters as we are now. W e are putting
upon precious metals two inconsistent tasks—the maintenance of a
standard and the furnishing o f an adequate medium o f exchange.
Whether we want to do so or not we shall be absolutely driven to
give up this hopeless struggle against an evolutionary force as resist
less as the flow o f the Amazon. Gold will, in a very short time, be
kept in bank vaults as a standard and security only. Indeed, that has
practically come to pass already. But the only coin or notes in circu
lation should be o f small denominations, subsidiary to checks, and never
used for any payment exceeding, at the utmost, $10. Certified checks
must aud will be made as familiar to all the people as bank notes.
They must be accepted for railroad and steamboat fares, for store pur
chases, aud for all purposes, except where the most trifling sums are
involved. Then, with this ‘system brought home to the door of every
farmer, at least as near as a telegraph station, the currency problem
will be solved forever. The demand for gold will be reduced to a level
with the supply, and whatever effect that demand may have upon
prices of merchandise will be counteracted.
NO IN F L A T IO N IN BANK CHECKS.

Here we turn aside to meet an anticipated objection which may
proceed from one holding the soundest general views upon currency.
It will be said, “ What is the diiference between the issue'of bank checks
and bank notes, i f checks are to be used on such .a large scale and for
small payments? W ill not such a use o f checks drive gold out of the
country and lead eventually to a suspension o f specie payments as
effectually as wonld a similar issue o f bank notes?”
No, it wonld not. The vice o f the note system is that notes are
intended to remain in circulation for a long time, and wonld not be issued
i f it were believed that they would have to be redeemed the next day,
and therefore they are either issued in such small quantities as to be
insufficient for all the needs of exchange, or else in such large quanti
ties as to lead to a practical suspension o f specie payments, to inflate
prices, drive out gold, and bring about all the ruin which sooner or later
invariably follows an irredeemable currency. Bauk checks, on the
contrary, are not only theoretically redeemable promptly, but must be,
in point o f law, and are, in point o f fact, presented and redeemed with
out more than twenty-four hours’ unnecessary delay. The holder of a
bank check is bound to put it in course o f collection forthwith, under
penalty o f losing all claim against the person who gave it to him in
case the bank should fail, and o f losing all claim against the bank in
case the signer o f the check should draw his funds out o f the bank or
should countermand the check itself. Ninety-nine per centof all checks,
therefore, are presented to the bank for redemption within two days
after they are received by the payee. So long as this continues to be
the law and practice any inflation o f the currency by means o f cheoks
is impossible. O f course this wholesome law must not be relaxed. Cer
tified checks would remain good against the bank, but, i f not presented
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for actual payment, the drawer would be released if the bank failed.
Such checks would, therefore, keep in circulation just long enough to
suit the convenience o f people living in solitary hamlets or isolated
forms; but experience proves that they would not remain out many
days. They could never be used to such an extent or kept floating tor
so long a time as to produce, like bank notes, any dangerous inflation
o f the currency.
The danger o f forgery has been suggested, but the banks would
simply have to prepare their own engraved checks, numbered upon a
system o f their own, instead o f leaving each customer to prepare and
number his own checks. The British banks do this already, and the
advantages o f the system are obvious. Certification would be made by
a finely engraved stamp, forgery of which would be as expensive as the
forgery o f a bank note. Our banks ought to do all this now, without
waiting to be driven to it by further pressure.
W H Y R EM ED Y NOT ADOPTED.

If, then, this universal use of banks is the proper solution o f the
currency question, why is it not at once adopted! Partly for want of
affirmative good legislation, but still more because o f bad legislation
maintained by ignorance o f economic laws. A s the success o f the
whole plan depends upon making banks o f deposit perfectly secure,
provision should be made for more thorough inspection aud greater
publicity o f bank management. Is it impossible to devise some method
by which bank deposits shall be made as safe as national-bank notes!
When this is done the people will accept certified checks all over the
country with as much confidence as they now accept bank notes. W e
need not, however, wait for this, because the credit given to a check is
at most a matter o f a few days.
TA X A TIO N DESTROYS BANKS.

Far more serious is the question o f taxation. So long as the mania
for taxing all personal property is allowed to control it will be impos
sible to maintain a sufficient number o f sound and safe banks in the
rural districts. W ith money worth only 4 per cent on perfectly safe
securities small country banks can not pay taxes o f any kind without
investing in securities which pay a higher rate o f interest, and which,
therefore, are not perfectly safe. Is not the very climax o f absurdity
reached when farmers’ alliances demand, in one breath, the loan of
money to them at 2 per cent and the taxation o f the same money at
2\ per cent! But it is only a little less absurd to tax any uecessary
medium o f exchange, whether jnouey or banks. The profit upon a
simple deposit and discount business is so small, and the expenses o f a
little country bank so heavy in proportion to such profits, that such a
bank, if prudently conducted, can not live under taxation. It is true
that multitudes o f small “ banking concerns” do exist in places where
they are taxed upon capital and even on cash on hand; but few of
them are prudently conducted and all o f them are ingenious in evad
ing taxation.
Unfortunately the constitutions o f so many States insist upon the
taxation o f all kinds o f property that it would be hopeless to attempt
a solution o f the problem through the action o f separate States. Con
gress can be convinced o f the necessities o f the situation with one-tenth
of the effort required to convince the legislatures o f forty-four different
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States. I f Congress can not be persuaded no legislature can be, and
the country must be left to flounder in hopeless embarrassment and
perpetual conflict. The only possible solution o f the great currency
question must be found in the wide extension o f small national banks
or branches o f such banks authorized by Congress and exempted by it
from all taxation.
BRANCH BANKS MORE D ESIRABLE.

While many o f the advantages here contemplated might be secured
by a great multiplication o f small national banks, the whole system
would be vastly more sound and safe by permitting large banks to
establish branches within their respective States. Little, isolated banks
are relatively too expensive in administration to he quite safe; and
they have none o f the advantages which flow from knowledge of the
intended movements o f the larger institutions, the policy o f which must
necessarily have an immense influence upon them. Each little branch
would have all the benefit o f the wide knowledge o f affairs possessed
by the central bank; its credit would always be as good as that of the
parent institution; its management would be subject to supervision
and wise control; its affairs would be constantly inspected by someone
outside o f its direct management yet entirely friendly and anxious for
its success; and its capital, usually small, could be increased to almost
any extent, at an hour’s notice, by calling upon the head office. Such
branch banks, therefore, would command that local confidence which is
essential to success in far greater measure than could a purely local
bank, since they would have all the merits o f such local banks with
the added credit attaching to the central bank. In short, the farinero
and small dealers o f every village, under such a system, could have all
the facilities and all the security now given to the richest merchants in
the largest cities.
T H E REM ED Y ADEQUATE.

The practicability and sufficiency o f the remedy here proposed has
been amply demonstrated by experience. Scotland has only 12 banks,
with over 2,000 branches, extending to every village and receiving
deposits from the poor as well as from all other classes, just as our
savings banks do. The results give universal satisfaction. There is
no currency question iu Scotland. There have been only three or four
bank failures in a century, and all the creditors in each case were paid in
full. Every Scotchman is proud o f his country’s banks, and attributes
to them much o f his country’s prosperity. The amount of bank notes
in circulation is small, and is not aHowed to increase, but the smallest
producer sells his produce for cash, at the highest market price, pay
able in bank checks, and buys what he needs at the lowest market
price payable in the same way.
The same thing is done in many parts o f the United States, and
wherever this is the case nobody outside o f the silver-mining States
ever took much interest in the controversy over bimetallism until it was
forced upon their attention by impending disaster. The wide exten
sion o f a similar banking system is the one thing indispensable for
those sections o f our country in which the want o f currency is a sub
ject o f complaint. Is not this a sufficient remedy! Has any other
practicable remedy ever been proposed ? Can any other adequate rem
edy be proposed!

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225

The following conversation took place between members o f the com
mittee and Mr. Shearman:
Mr. H a l l . D o you believe that the system of taxing out o f exist
ence any institutions by the Government is a wise provision o f law?
Mr. S h e a r m a n . I do not.
Mr. H a l l . Do you think that to destroy a banking system by taxa
tion is a wise provision of-law?
Mr. S h e a r m a n . No, sir; 1 do not.
Mr. H a l l . D o you not believe that, if the tax upon State bank circnlating notes were repealed there would be an increased number o f
banks in the States?
Mr. S h e a r m a n . It would tend to increase the number o f note-manu
facturing institutions. Mere banks of deposit are not taxed by the
Federal Government.
Mr. H a l l . W e have never had any trouble about what you are
pleased to term “ note-manufacturing institutions;” but we have had
trouble with banks o f discount.
Mr. S h e a r m a n . I have seen great trouble caused by note-issuing
banks. I was in business before the war, and I know that the State
of Illinois, for example, was filled with such banks. For instance, the
Bank o f Hamilton, 111., so far from being a bank of deposit and dis
count was nothing more than a blacksmith shop. W e used to get such
bank notes and send them to the places from which they were issued;
and after a long hunt we would find a place where they issued and
redeemed notes, but where there was absolutely no bank, in the proper
sense. The people o f Iowa were robbed, wholesale, by the circulation
of notes o f the Bank o f Florence, in Nebraska, aud similar “ wild cat ”
notes. I think that note-manufacturing institutions are not legitimate
banks. They may be legitimate enough in their way, but that is not
real banking business. W hat I plead for is banks o f deposit and dis
count. The more banks o f issue you have the worse.off you are,
because the tendency o f banks o f issue is to increase the dependence
on mere money, which will never answer the purpose o f exchange
for our enormous modern business.
Mr. H a l l . H a v e you in the State o f New York the same system
which we have in the West, with regard to returning the amount o f
money on hand for taxation ?
Mr. S h e a r m a n . Some people are trying to establish it, but they have
always been defeated and always will be.
Mr. H a l l . I s not a man in the State o f New York required to pay
taxes at present on the money he owns or has on deposit in a bank ?
. Mr. S h e a r m a n . Theoretically; yes; practically, no.
Mr. H a l l . When he avoids it he does it by giving an incorrect
return ?
Mr. S h e a r m a n . He is not called upon to make any return. The
assessor guesses at it, i f he thinks at all about it.
Mr. W a r n e r . He swears it off.
Mr. S h e a r m a n . It is seldom necessary to tell a lie in order to avoid
taxation on money in New York, and men generally do not tell a lie
about it. In New England and the W est it is necessary to lie in order
to escape taxation, and most men do it.
Mr. W a r n e r . W h a t has been the experience under the nationalbank act, which provides in the case of State banks having branches
that those branches may be allowed to continue? I ask for informa
tion, as I am interested in the matter. W ere there State banks with
systems o f branches incorporated in the national-bank system?
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Mr. S h e a r m a n . I f there were any they did not keep the system up.
The ouly State that I know to have had such a system was Indiana,
aud it seems to have been abandoned there.
Mr. W a r n e r . I was about to ask i f the gentleman had any data as
to the reason why it had been done before and why it has gone out o f
use?
Mr. S h e a r m a n . I have no information as to that. I might mention
the case o f a large bank iu the city o f New York, the president o f which
told me that during the recent panic the large banks were carrying all
the others. One o f the worst things about the system was that the
small uptown banks had to be carried by the larger banks downtown.
These larger ones desired to establish branches uptown, which would
have given safety to depositors, whereas the smaller ones did not g ive
safety. But they found that it was absolutely impossible to do it.
Mr. W a r n e r . My question is as to what had been the experience
iu this country, aud whether you could suggest anything which would
bo helpful to us.
Mr. S h e a r m a n . 1 am quite sure that they have died out. The late
Ilugh McCullooli was president o f one.
Mr. C o b b , o f Alabama. In your opinion, is it possible to get the bene
fits o f your system under State laws; or do you confine it to the nationalbanking system ?
Mr. S h e a r m a n . I should be glad to have the States establish good
banking systems i f they w ill; and there is no reason why they should
not, except that nearly all of them, by their absurd tax laws, make it
impossible for houest men to conduct State banks with that degree o f
publicity which is indispensable to safe banking; and the task o f per
suading the people of thirty or forty States would be so difficult that
it would be almost a hopeless undertaking. Therefore Congress must
settle the whole question. The States should not be prohibited from
doing it also i f they will. You can hardly have too many genuine
banks. 1 think that instead o f there being 4,000 national banks, or
7.000 or 8,000 banks o f all kinds, there ought to be, including branches,
40.000 or 50,000 banks in -this country.
Mr. C o b b , o f Alabama. Would they all be banks o f issue?
Mr. S h e a r m a n . I would not have one bank o f issue.
Mr. C o b b , o f Alabama. Where would you get currency?
Mr. S h e a r m a n . Y ou would never be short o f currency.
Mr. C o b b , o f Alabama. I am asking for information: W hat would

be your currency.
Mr. S h e a r m a n . Gold and silver; chiefly silver. M y opinion is that
there can not be any reason why any farmer in this country should
need more than $5 or $10 in actual currency at any one time. When
not traveling I do not. I can not see why $5 per capita outside of the
banks is not enough money for all purposes. Certainly it would i f
people were once educated to the use o f checks. Indeed, I think that
$10 to each family would suffice. There being about 13,000,000 fami
lies, that would be $130,000,000. I f we can establish the universal use
o f bank checks there will be no necessity for more, at the outside, than
$200,000,000 o f currency in actual circulation.
Mr. C o b b , o f Alabama. Where would that come from?
Mr. S h e a r m a n . I t wonld be gold and silver. There are oceans o f
gold and silver for that purpose. I think it would be practically all
silver. The banks would hold $250,000,000 o f gold in their vaults as
security.

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Mr. C o b b , of Alabama. You would have a system of checks that
could be used to take the place of paper currency f
Mr. S h e a r m a n . Certainly, and when you travel yon would travel

with certified checks. The American Express Company already issues
certified checks, which are accepted by hotels and by railroads; and
with this system universally adopted every man would travel with
checks instead o f notes. They would not be kept out as floating cur
rency as bank notes are. A check must be presented within a short
time, and every check would settle itself and pass out o f existence
promptly. A check can not remain out as notes do. Checks rarely
stay out for more than ten days.
Mr. C o b b , of Alabama. Say I have 50 bales of cotton and want to
sell them.
Mr. S h e a r m a n . H ow do you sell them nowf
Mr. C o b b , o f Alabama. I am from Alabama, and I want to sell them

in Alabama. I want to sell them precisely as if I took them to New
Orleans. Under your system, in what do I get paid for that cotton?
Mr. S h e a r m a n . Y ou would get a check on your home bank.

Mr. C o b b , o f Alabama. Suppose I wanted to sell the cotton in Tuskegee?
Mr. S h e a r m a n . Exactly; you would receive a check on your own
bank at Tuskegee.
Mr. C o b b , of Alabama. W hat would I get from that bank?
Mr. S h e a r m a n . You would get credit as a deposit, or the bank would
credit you on its books for the amount, which you could draw out at
any moment by check.
Mr. C o b b , o f Alabama. Suppose I wanted to come to Washington,
would the bank give me a certified check for so many dollars?
Mr. S h e a b m a n . Yes; you could get a check for $5, $10; $50, or
any other moment, and the railway office would take that in payment
for your fere.
Mr. C o b b , of Alabama. There is a class o f persons, as you know, who
would not be willing to receive anything except money, and would not
accept credit in a bank. They want something which they can handle *
or put away.
Mr. S h e a r m a n . I heard o f a farmer who had put away $18,000 in
gold the other day. You do not want to legislate so as to encourage
such lunacy. The people must be educated into sensible habits. I
would like to ask you, do not the farmers now have to be content with
credit at country stores?
Mr. C o b b , of Alabama. Evidently.
Mr. S h e a r m a n . And how much better it would be for them to have

a credit at the agency o f a good bank, with $500,000 or $1,000,000 o f
capital, under the supervision o f the Comptroller o f the Currency. That
is what we have in the cities, and we do not want anything else. W e
will not be bothered with money in our pockets.
Mr. C o b b , o f Alabama. The misfortune with farmers generally is that
they have too much credit. They begin the year by getting advances
from merchants. In the fall a farmer pays the mortgage or obligation
upon his advances, and the merchant gets 15 per cent commission or
more in many cases. I t is more than you have stated it.
Mr. S h e Ar m a n . I was trying to keep within the limit. W ould it
not be better for them to keep au account in bank?
Mr. C o b b , o f Alabama. Considering the selfishness o f the banks,
would not they want to make a profit off the farmer?

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Mr. S h e a r m a n . The competition is so tremendous that they wonld
be glad to get a quarter o f 1 per cent on such transactions.
Mr. Cox. I am interested iu what you say, and I would like you to
explain this to me. A farmer goes to a country merchant and wants to
sell his cotton. W e understand the process in the South by which that
is done, and the only objectionable thing about it is that they really
charge more than you mention. They do so in a great many places.
I f you establish branches o f banks you would undertake to do busi
ness with checks. Suppose Judge Cobb wants to come to Washing
ton, you would give him a certified check, and he would nse that as
money. That check takes the place o f the circulating medium. I t cir
culates as money?
Mr. S h e a r m a n . Tes, sir; but to a very limited extent. But the d if
ference between a check and a note is very great. When a note gets
out it floats and floats, and often it never gets back to the bank for
months or years. Such notes inflate the currency. I f a check were
given out it would return to the bank within a very few days, and it
could not inflate anything. I f a check is not certified it is not binding
on the bank, and unless it is promptly presented to the bank upon
which it is drawn the maker is released, aud, moreover, he may coun
termand the check. So prompt settlement is sure to be made in every
case.
Mr. C o b b , o f Alabama. The value o f that check depends upon the
solvency o f that bank?
Mr. S h e a r m a n . So does the value of the note.

Mr. C o b b , of Alabama. The only difference between the check and
the bill is that the check only floats for a short length o f time, while
the bill floats a long time or any length o f time?
Mr. £ h« a r m a n . Yes, sir; but that is a tremendous difference.
Mr. C o b b , o f Alabama. A s to the money which is absolutely needed
for smaller transactions, such things as are necessary for the house
hold; would they be supplied by gold and silver in the form o f change?
Mr. S h e a r m a n . Yes, sir; so far as very small transactions go; but
‘ there would practically be no difficulty in supplying that demand. I
think silver woilld fully suffice for that purpose. Gold would be kept
in the banks. That is the case now east o f the Rocky Mountains.
There is practically no gold in actual circulation there. W ith regard
to household affairs, the women are learning to make payment in
checks. My wife has kept a bank account for all domestic transactions
for many years, and many other women do so.
Mr. B l a c k . W hat does a man do who has no money?
Mr. S h e a r m a n . I f a man has no wealth he has no credit, except
what his reputation for honesty gives him. In Scotland they have a
way o f providing for such cases. I f a man with no property can g e t
several o f his neighbors who own property to indorse for him he can
get a credit in any bank. They will be men who are worth, say, $5,000
each. I f these men care to carry him, he gets his cash credit in the
bank.
The C h a t r m a n . D o you propose any legislation by which this Bystem
can be carried into force, or is it a suggestion growing.out of custom
which could be resorted to?
Mr. S h e a r m a n . 1 would suggest two points o f legislation which are

indispensable. First, permission to national banks to establish agen
cies, within their own States only, to a number not exceeding one branch
for every $10,000 in capital in excess o f the first $100,000. Thus, a
bank which has a capital o f $500,000 might establish forty branches in
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the same State— one for each $10,000. Second, the capital o f all banks
used in establishing these smaller branches should be exempted from
local taxation to that extent, i f not altogether.
Mr. H a l l . Would nottliat perpetuate the existenceof national banks;
they are going out now.
Mr. S h e a r m a n . The. banks as banks o f issue are going out, but not
the banks themselves. A s banks o f deposit they should be perpetu
ated and multiplied indefinitely.
Mr. H a l l . The matter o f issue is the only thing that goes out. A s
a bank o f deposit and discount it goes ahead.
Mr. S h e a r m a n . Precisely so. Banks in New York care little about
issuing notes. O f those which do issue notes none keep out large
amounts.
Mr. C o b b , o f Alabama. When the Government bonds become due
we will have to find another basis for our national-bank system?
Mr. S h e a r m a n . 1 am not talking about banks o f issue. I care noth
ing about them. I see no occasion for any paper money o f any kind.
Mr. C o b b , o f Alabama. Under the law now we can not establish
national banks as mere banks o f deposit and discount. They are com
pelled to deposit so many bonds iu order to get currency, and when
these bonds become due which they have deposited as a condition pre
cedent to their existence what will be done?
Mr. S h e a r m a n . I should think that State bond's would be just as
good, i f they are above par.
Mr. C o b b , o f Alabama. Would you want additional legislation f
Mr. S h e a r m a n . W e have not yet come to that point. I t would not
be needed now. It may be in a few years.
Mr. B l a c k . I f this sort o f security made national banks good, would
it not make State banks good!
Mr. S h e a r m a n . I think so. But your States would tax good State
banks to death. I am not at -all interested in the question o f issuing
notes, whether by national banks or State banks. I am quite indiffer
ent to that matter. I think in increasing the amount of money we are
seeking relief in the wrong direction. I think the better plan is to
lead all men into the use of deposits and discounts instead o f depend
ing upon what we call money.
Mr. C o b b , o f Alabama. Would you be willing to prepare a bill
embodying your ideas!
Mr. S h e a r m a n . I should be very glad to i f I thought it would receive
fair consiueration. I never«care, however, to .use my time on something
which is to go into the waste-paper basket. I should like the commit
tee to consider it, but, o f course, would not expect any positive assur
ance o f my plan being adopted.
Mr. C o b b , o f Alabama. I am sure it would be considered by us, and
if it were introduced into the House it would come to this committee.
Mr. S h e a r m a n . I f you will consider it I certainly will prepare such
a measure.
Mr. C o b b , o f Alabama. I t would certainly be considered.
Thereupon the committee rose, to meet to-morrow, Tuesday, Octo
ber 17, 1893, at 10 a. m.

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C o m m it t e e

B a n k in g

and

Currency,

Washington, J>. C., Tuesday, October 17,1893.
The committee met at 10 a. m., Hon. William A . Springer in the chair.
Hon. Thomas D. English, o f New Jersey, addressed the committee iu
/behalf o f House bill 3759. H e spoke as follows:
REPEAL OF TAX OK STATE BANK CIRCULATION.

STATEMENT OF HOH. THOMAS D. ENGLISH, A REPRESENTATIVE
IN CONGRESS FBOM THE STATE OF HEW JERSEY.
Mr. Chairman and Gentlemen o f the Committee: In my judgment
the great trouble that we have at the present time in the lack of confi
dence comes outside o f the mere overspeculating and overtrading from
the contraction o f the currency by the national banks. From 1882 to
1892 we lost $185,000,000 o f circulation, and though that was partly sup
plied by the issuance o f silver certificates under the Sherman law, still
there was a deficit. It was an actual deficit by contraction and shrink
age year by year, which led finally to inquiry and then to alarm. The
platform o f one party (I forget now what the platform o f the other was)
advocated the repeal o f the tax ou State banks. A n absolute uncon
ditional repeal o f that tax would, in my judgment, be unwise for sev
eral reasons. The national banks pay a tax o f 1& per cent on their
circulation. There is no reason why State banks should nbt pay the
same tax, as it is a matter o f revenue, and for that reason in this bill
(H. R. 3759) I have a rebate o f 85 per cent. I do not think it is wise
to allow a large amount o f wild cat currency. I think you ought to
prohibit it by taxing it in some other mode, charging the banks which
might issue money without any basis whatever. Though I am_not a
national-bank man, I will say that a good feature o f that law was drawn
from my State in New Jersey. New York and other States followed
the example of New Jersey. W e had a State banking system by which
bonds approved by the financial officers o f the State were deposited as
a basis for our notes.
When I was in the legislature I got a measure through. W e gener
ally adhered to .the banking system o f the State, and occasionally we
passed a special charter for a bank. Occasionally a specially chartered
bank failed and its notes were not worth the price o f the paper on
which they were printed; but there never was an instance in which a
note was lost on account o f the failure of'ou r State banks under the
general law. State banks sometimes failed but the circulation was
always safe. This bill, which was hastily drawn (because I was sick
and had to dictate it), holds a rod over the national banks and keeps
them from shrinking the currency. I treat the national banks fairly.
The State banks should pay the same tax, and should also secure the
public against worthless currency. I do not know how it may strike
the committee, but I think some such bill as that should be passed.
The main underlying principles o f it are sound, and I commend it to
the committee. You can report it in that shape, or substitute other
provisions embodying the principles, aud let it go before the House.
The C h a ir m a n . W h y do you fix 85 per cent of the present tax?
Mr. E n g l is h . Simply because 85 per cent leaves 1& per cent tax, as

it is now on the national banks. The national banks pay 1 per cent
and one-half o f 1 per cent. Deposits have nothing to do with that
matter.
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Mr. W a r n e r . May I ask whether the 10 per cent tax is not payable
every time a note is paid out, and whether it might not be necessary T
Mr. E n g l i s h . There is a 10 per cent tax on notes to prevent their
being paid ont. This.bill entirely abolishes the tax on notes in circu
lation. 1 dictated it after drawing another bill and the phraseology,
perhaps, conld be improved, but the principle remains. There is
another provision in the bill making the Comptroller o f the Currency
the absolute judge. That power has to be put somewhere, just as in
the case o f the rebate on whisky. There must be some officer to have
jurisdiction o f it. I t would not be well to leave it to the State.
Thereupon the committee rose, to meet Friday, October 20,1893, at
10 a. m.

C o m m it t e e o n B a n k i n g a n d C u r r e n c y ,

Washington, J). C., Friday, October 20,.1893.
The committee met at 10 a. m., Hon. William M. Springer in the chair.
Hon. Henry G. Turner, o f Georgia, addressed the committee as follows:
REPEAL OF TAX 0M STATE BANK CIRCULATION.

STATEMENT OF HON. HENRY G. TURNER, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF GEORGIA.
Mr. C h a i r m a n : I have also an engagement this morning with the
Committee on W ays and Means, which will consider a matter o f some
local interest in my State, and I shall therefore be brief in what I have
to say here. I shall assume that the members o f this committee are
entirely familiar with this question. I take it for granted that the gentle
men before me have looked into this matter from the time o f the first deci
sion in the case o f Bristoe and the Commonwealth o f Kentucky, in which
the Supreme Court affirmed the power of the State to authorize State
banks to issue bills or notes, down to the Veazie case (which came up
from the State of Maine) in which it was decided that Congress could
tax indefinitely the circulatiqn o f such banks. O f course these cases
are antipodal m their policy. They mark eras of opinion in this coun
try. In one case the court concedes the power of the States to author
ize State corporations to issue bills, and in the other it in effect declares
that Congress can destroy the power by taxation.
Now, with the question o f public policy which enters into that con
flict o f opinion, and the consequences to the country, I will not deal.
I will come to the question as to whether the removal o f the 10 per
cent tax will flood the country with worthless currency. On that ques
tion there is a difference o f opinion. I have been for many years in
favor o f the removal o f this tax and of allowing the banks o f the States
to resume their old functions. I t is said that “ wildcat ” currency grew
up under that system o f things, and undoubtedly there were banks of
inferior character engaged in the business. But the people o f the
States have learned something by the experience or recent years; and
I see no reason to think that we here in Congress have a monopoly o f
all the wisdom on the subject.
The experiments made under the present national banking system,
which is an approximation, as I understand it, to the system o f the
Bank o f England, has given so much satisfaction that I think the old
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basis o f banking is determine $ and obsolete. 1 do not believe that
any State in the Union would undertake to issue bills on the basis of
three to one o f gold, as was the case in the old days. I do not think
the public would sanction an arrangement o f that sort; and I may
state, as a matter o f fact, tliat in the State o f Georgia, where we had
a healthful banking system on that basis, a recent effort to form a sys
tem in prospect o f this repeal shows that the members o f the general
assembly o f that State having charge o f the movement are seeking to
authorize the issue o f bills by State banks upon State securities, depos
ited for the protection o f their circulation. 1 think municipal bonds,
i f approved, could also be used as a foundation for bank issues. There
can be no question about the security o f the currency issued on such a
basis.
I am giad to say that since this matter has been undergoing discus
sion iu tlie East, we have found perhaps more encouragement from that
section tlian from any other quarter. The men who manage business
concerns where monetary congestion occurs, favor a concession to the
country districts under which the latter can avail themselves o f such
means of credit as they have iu their own midst, and euable them to
have a circulation o f their own.
I was, a few years ago, as my friend Mr. Warner remembers (aud I
believe the chairman o f this committee was also there), at a meeting of
a famous club in the city o f New York where there was a good deal of
discussion on the silver question, and being called out unexpectedly to
myself 1 took occasion to say that where I lived it was not so much a
question o f silver or gold, as it was a question o f anything we could get
in the shape o f money. I suggested to tliose gentlemen who control the
monetary transactions o f the country, that they could help us by aiding
in the repeal o f this prohibitory tax. There was a generous response by
the gentlemen present. That sentiment has grown in the East. It has
extended in the West, I hear. I want to state my firm conviction that,
if you will take off this prohibition from the banking systems in the
States, the resulting currency would be entirely acceptable and satis
factory. One reason for this opinion is, that we have the benefit
o f experience and of the lessons we have learned from the national
banking system, and o f the experiments and experience o f the world in
this field; and another reason is that in order to enable this local cur
rency ‘to circulate, we would have to compete with the very excellent
currency now in circulation. Iu order to float these State-bank bills in
business channels, it will be necesaary-that they shall be as acceptable
as the existing currency.
Mr. H a l l . I would ask you whether there would not be a healthy
competition between the States to keep up their currency to par with ,
any other State currency t
Mr. T u r n e r . Undoubtedly; and, as the question o f the gentleman
from Missouri leads in that direction, I will state further why this com
petition would operate to bring it down to the actual test o f experience.
When merchants and others undertake to make exchanges'they wonld
be compelled to have a currency which will not be at a discount when
they go to remit to New York. In other words, they will be compelled
to have a currency on which the cost o f exchange will not be too great.
It was said by Senator Vance, in a report made to the Senate, that it
would be no objection even i f the State currency was a shade off, or a
little below the other currency, as such discount would tend to keep
these bills at home; but with great respect for him I venture to dis-

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sent from that view. I think money ought to be good everywhere in
the country.
I believe the system ought to have the confidence o f the entire
American people. I believe the States can devise a banking system as
good as that o f the United States. The basis o f national banking now
is narrowing to such an extent as to cause serious fear of contraction.
I t is doomed by the near approach o f the maturity o f their bonds. I
have nothing further to say unless the committee desire to ask me some
questions.
Mr. H a l l . There is an apprehension on the question you last touched,
that is, too great a volume o f currency. I want to know if there can
be too great a volume o f perfectly sound currency whjch will injure
business or trade in any w ay!
Mr. T u r n e r . I think not.
Mr. H a l l . Notthat I believe in $50, $75, or $100 per capita circulation;
but i f the currency is good and there is more in circulation than is nec
essary for business purposes, would not the excess be retired aqd only
that part be kept which is necessary to transact the business o f the
country!
M r. T u r n e r . I think so.
Mr. W a r n e r . W hat would be the effect o f the operations o f the plan

you propose for State bauk currency upon the pressure upon Congress
all the time from different parts o f the country for more money, more
currency, or more fiat money!
Mr. T u r n e r . I am firmly persuaded that it is o f the highest impor
tance for the country that Congress should take its hands off the mone
tary systems o f the people. By restoring to the States their old func
tions in this field we can take currency questions out o f politics, aud
when relieved o f the pressure of this burden we can devote ourselves
more fully to matters rightfully within our jurisdiction. Fiatism would
no more affright the people when Congress assembles.
A good deal o f complaint is made against what is called congestion
o f money in the East, and much o f that complaiut is aimed against
the national banking system. But other causes have contributed to
this result. The wealth o f the East has accumulated from generation
to generation; and it is not only the effect o f inheritances, but it has
grown because that section has prospered more thau other sections,
i f you could revive prosperity throughout the country, that money
would find its way out to the rural regions in some manner; but at
the present time these rural districts are greatly depressed. They do
not afford profitable employment for money, and it piles up idly where
it belongs. This state o f things is largely due to other causes than
the national-bank system.
The C h a ir m a n . There are several bills pending here upon this sub
ject, some o f which provide for the naked repeal o f the 10 per cent
tax, leaving everything thereafter to the States, while others provide
that the tax shall be taken off circulation o f such State banks as will
comply with the provisions o f the act of Congress. One o f those pro
visions is that States shall, in order to secure this exemption, have
their banks adopt substantially the national banking system o f the
United States, and others that bonds shall be deposited for security,
while still others limit that issue by the States to $5 per capita. Is it
your opinion that Congress, i f it takes any action on the subject, should
provide a naked repeal or a repeal with certain conditions, and, i f
with certain conditions, what conditions wonld yon suggest!
Mr. T u r n e r . I had not quite finished what I had intended to say on
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the point I was considering, bat I will answer that in a moment. I f
the State banks could be reinstated with their ancient prerogative, I
think this trouble about the accumulation o f money at certain centers
would in a measure be remedied, because after the active business sea
sons the bills would return to the banks which'issued them, and would
not be stored up in the banks o f New York and Boston. They would
try to find some use for the money. Their efforts to secure an income
during the idle period would tend to fructify and fertilize the regions
which are now so poor. It would have a tendency to correct present
evils and to disseminate the currency ofthe country.
In answer to the question which the chairman has just propounded,
I am myself o f the opinion that there ought to be a clean, unconditional
repeal. I think we can trust this to the States. The Supreme Court
having affirmed the right o f tbe States in that respect, I think Con
gress might afford to do the same thing. W e might safely leave it to
our constituents, who send us here to devise a safe and sound system
under safeguards which would enable them to float their notes; but 1
want to say frankly that, rather than lose the bill, i f there was no
other alternative, I would submit to such supervision as would be con
sistent with the rights o f the States. In other words, I prefer uncon
ditional repeal; but if that can not be obtained, then I would be glad
to have any sort o f currency which would not imply too much distrust
of the States. I am a believer in the entire safety o f State institutions.
Mr. Cox. I can not call to mind a single State which has any bonds
out which are not now at par.
Mr. T u r n e r . Some States have bonds out which are a little less than
par; but it is in cases where the rate o f interest is so low that they do
not pay in competition with bonds pt higher rates. I can illustrate
that by mentioning the bonds o f my own State. W e have bonds bear
ing 3£ per cent and others bearing 4 per cent. Those which bear 4 per
cent interest are higher than those which bear the lower rate, and the
market price is fixed according to their income. W e have some 3£ per
cent Georgia bonds which are quoted at 95, and the 4 per cents are
quoted at 108 or 109.
Mr. Cox. Tbe State of Tennessee has 4 per cent bonds which are at
a premium, and the 3 per cent bonds are not quite at par. I f we put
on a limitation, would it be wise to go farther and provide that these
banks shall be founded and the circulation based upon State bonds) I
know there is some difficulty in it. Some States have no bonds. Mis
sissippi has none, and some other States have a small proportion. I f
it is alone confined to tbe bonds o f the States, would not the circula
tion be just as good as the bonds o f those Statest
Mr. T u r n e r . I have no doubt o f it.
Mr. Cox. D o you think it would be wise for us to undertake to put
any restriction, or to go any further than establishing a basis upon the
circulation ?
Mr. T u r n e r . I do not think I would be disposed to limit the basis
to State bonds alone. • think that in the States there are municipal
bonds o f undoubted integrity. Most States have prohibitions against
the excessive issuance o f bonds by municipal corporations. I t is so in
Georgia, as is suggested by my colleague, Mr. Black. Our municipal
bonds range up with the bonds o f the State.
Mr. Cox. Take State bonds as a basis o f circulation, and municipal
bonds which are equally good; but you will see those bondB are subject
to legislation in each particular State. Now, if Congress undertook to
establish a rule in regard to that, do you not think it would bring
national'authority in conflict at once with the authorities o f the States f
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Mr. T u r n e r . I t depends entirely in what form we put those provi
sions. I do not favor any government supervision. I want to add one
word in regard to the safety aud value of bonds o f municipal institu
tions, and that is that brokers and those who deal in them not only
estimate the public faith which is pledged for their payment, but they
consider also the judicial remedy by mandamus in case o f default. £f
default is made they can go to the courts and enforce payment by
taxation.
The C h a i r m a n . I see from the latest quotations o f State bonds that
Alabama, for instance, has a bonded debt o f $9,200,000, and the bonds
bearing 4 per cent were worth par. Louisiana bonds at 4 per cent are
worth 95J at this time. The Georgia bonds running twenty-live years
bearing 4 per cent are worth 107 to 109.
Mr. T u r n e r . I know that these bonds were quoted the other day at

110

Mr. Cox. You can not buy them at 107.
Mr. T u r n e r . Not now. They could have been bought at that rate a
month ago.
The C h a i r m a n . The date o f this article is the 14th o f this month.
Mr. T u r n e r . These quotations have been made, no doubt, but they
are only an approximation. I know brokers quoted some the other day
in Savannah at 110.
The C h a i r m a n . W hat is the selling price in New York?
Mr. T u r n e r . I t is 109 and a fraction.
Mr. W a r n e r . Would it not be a great advantage to local municipali
ties engaged in the most conservative public improvements which are
now being made through the South and W est if there could be such a
home market afforded for their bonds, as the possibility o f their use as
a basis for currency would promote, and would it not reduce the amount
o f the interest charge o f the people?
Mr. T u r n e r . It would undoubtedly, as was the experience with
United States bonds, add to the value o f these municipal securities, i f
they could be made a basis for banking. I confess that I want to
avoid the possibility o f municipal overissues; and wherever necessary
undoubtedly those securities would have a better market, especially i f
they should have to refund.
Mr. W a r n e r . Would not there be an advantage in another w ay!
H aving bonds held at home as a basis o f currency, their interest would
be paid at home, and would remain there instead o f being sent outside.
Mr. T u r n e r . Such would be the case also in the payment of tlie
bonds. The money wonld be paid at home.

Mr. W a r n e r . I t would keep both the bonds and the currency at
home.
Mr. T u r n e r . Yes; and operate to disseminate money.
Mr. W a r n e r . W e, In. New York, can make more money by dealing
with Southerners when they are doing well.

Mr. T u r n e r . I think that is an enlightened view o f the situation.
The C h a i r m a n . W hat is your observation and knowledge in regard
to whether the bonds o f the State o f Georgia are held inside o f the
State or outside?
Mr. T u r n e r . They are distributed. O f course I have no information
as to the proportion. Some are held in the State and some outside. A
N ew York gentleman, I think, recently bargained for an entire issue o f
Atlanta bonds.
Thereupon the committee rose, to meet Tuesday, October 24, 1893,
at 10 a. m.
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C o m m it t e e

B a n k in g

and

Cu rre n c y,

Tuesday, October 24,1893.
The Committee on Bankiugand Currency met this day at 10 a. m.,
Hon. William M. Springer in the chair.
STATEMENT OF HOH. J. L. McLAUEEST.
Hon. J. L. McLaurin, a Representative from the State o f South Caro
lina, again addressed the committee. *
Mr. Chairman and gentlemen o f the committee: When I was before
yon last you requested o f me information about clearing-house certifi
cates issued by the association in Columbia, S. C. I have a letter from
the president o f the Carolina National Bank, and also a dispatch, which
are as follows:
t
T h e C a r o l in a N a t io n a l B a n k ,

Columbia, S. C., October 7,1893.
Your letter o f the 4th instant, addressed to Mr. John A. Crawford o f this
city, in reference to the clearing-house certificates issued by the Columbia Clearing
House Association, has been referred to this association.
In reply thereto I would answer: First. That the Columbia Clearing House Asso
ciation lias issued to the sis banks o f the city o f Columbia, members o f the associa
tion, clearing-house certificates amounting to $82,000. From the daily reports, how
ever, o f the banks to the association, it appears that there is in actual daily circula
tion about $20,000 o f these certificates. Second. That these certificates have been
issued by the trustees elected by the association to the several banks upon assets
placed in the hands o f the trustees by these banks, which assets consist o f bills
receivable held by the said banks, or bonds or stocks which have been approved by
the association, and the certificates issued npon them never exceed 66} per cent o f
the face value o f such securities. Third. That these certificates are redeemable by
the banks to whom issued on or before the 1st o f January next, and so far as the
association is advised they circulate only in and about the city o f Columbia. W e are
informed that in a few instances these certificates have been taken into other terri
tory, but whenever sent back they have been promptly redeemed.
I have read with pleasure the arguments referred to by yon in the Congressional
Record, aud trust that I have given you the desired information.
Yours, very truly,
D k a r Sir :

W . A. Cla r k ,

President Columbia Clearing House Assooiatiim.
Hon.

J o h n L . M c L a u r in ,

Member o f Congress, Washington,D. C.

C o l u m b i a , S . C.,October 9,1893.
Hon. J. L . M c L a u r i n ,
House o f Representatives, Washington, D. C.:
Certificates issued, eighty-five thousand dollars, payable January 1, 1894. Circu
lates wherever taken.
J. W. B o w d e n .

Now, I desire to say it was not my attention originally to embark
in this matter o f certificates, and I merely got hold o f it as an object
lesson and as an illustration o f what I conceived to be the needs o f
the times, a n d I would now say i f it is the intention o f the commit
tee to take any action to relieve these certificates o f the 10 per cent
tax they ought to do it promptly, because I see by the papers, and
.1 have also letters from the presidents o f these banks there, that the
Revenue Department has already taken steps to enforce the collection
o f the tax and the banks are going into court to resist it on the grounds
o f unconstitutional! ty and illegality and with every legal objection that
they can make, and i f the committee is to take action at all it should
* See proceed in gs o f S ept. 30,1893, p a g e 29.

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be prompt, in order to spare the Government and the banks an extended
litigation on the question.
Mr. W a r n e r . May I ask the gentleman from South Carolina
whether he has examined the bill introduced by Mr. Brawley, No. 3825!
Mr. M c L a u r i n . Yes; I have examined it, and I think it would be
ample to meet the emergency. I think i f that bill was reported at once
and we could get it on the calendar and get it through the House it
would relieve the situation entirely. But I Would say this, gentlemen,
whether the tax is enforced or not, the very threat o f enforcement o f
that tax has rendered the certificates almost inoperative; the banks
are afraid to put them out and the people are afraid to take them, and
it has thrown a cloud of doubt upon them, which is not desirable. I f
we have to pay the tax we would like to know it, and if we are not to
pay the tax we would like to know that; and I think for that reason it
is imj>erative upon the committee to act as promptly as it can.
Mr. W a r n e r . May I ask the gentleman from South Carolina whether
there has been any arrangement made for hearings upon this1matter,
that is the matter introduced by Mr. Brawley, and I would say at least
a h alf a dozen other members of the House, either before or after the
introduction o f the bill, have seen myself and other members o f the
committee, and appreciating what the gentleman has just called to our
attention, that any action to be effective should be prompt, and appre
ciating, perhaps more than the gentleman does, the real difficulty, not
necessarily the final, but the real difficulty o f getting a bill o f this kind
through this committee, and especially through the House, I would like
to ask whether any arrangements have been made for hearings, whether
members in favor o f this are pushing the bill and whether they are to
appear before us!
The C h a i r m a n . I have received no request, except from Mr. Braw
ley, and he assured me he would be here this morning.
Mr. M c L a u r i n . I hope he will, and I would like to do anything in
the world I could to help him along. I wrote to Mr. Livingston, o f
Georgia, a note because the Atlanta people were in the same condition,
I understood, and I ealled to his attention my argument before the
committee and also the bill o f Mr. Brawley, and he tells me he wishes
to cooperate in any way he can.
Mr. C o b b , of Missouri. Would this tax be paid by the holder o f the
certificates or by the clearing house!
M r. M o L a u r i n . The clearing house.
M r. H a l l . M y impression o f that section is that tax has got to be
paid b y somebody every time that clearing-house certificate goes over
the counter.
Mr. M c L a u r i n . W e are ruined in South Carolina i f that is so,

because that is all the money we have there, and I beg you to act
promptly, because it is all the currency we have had there.
The C h a i r m a n . I f it was just one tax it would perhaps be all right,
bnt i f it has to be paid every time it goes over the counter that is a
different thing.
Mr. H a l l . I wish to say this, if the gentleman will pardon me, the
activity with which money circulates, o f course a smaller amount cir
culating actively, for circulating purposes is better than a large amount
v circulating slowly; that is a well settled principle; and these clearing
house certificates were as active as the Irishman’s flea was ever charged
with being, and they circulated through different hands perhaps about
a hundred times. This will affect the very men who were trying to
meet the emergency.
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M r. M c L a u r in . N o w , I called attention to a letter o f Governor T ill
man, in which he said that that was all the money that they had had
for some weeks.
The C h a i r m a n . Section 3412 o f the Revised Statutes is as follows:
Every national banking association, State bank, or State banking association
shall pay a tax o f ten per centum on the amount o f notes o f any person, or o f any
State bank or State banking association, used for circulation and paid out by them.

The words “ and paid out by them ” is the gist o f that,
section, section 3413, is as follows:

The next

Every national banking association, State bank, or banker, or association shall
pay a tax o f ten per centum on the amount o f notes o f any town, city, or municipal
corporation paid out by them.

Mr. W a r n e r . N o w , on page 59 o f the National Banking Laws,
you will find the language <ts follows :*
That every person, firm, association other than national bank associations, and
every corporation, State bank, or State banking association, shall pay a tax o f ten
per centum on the amount o f their own notes used for circulation ana paid out by
them.
That every such person, firm, association, corporation, State bank, or State banking
association, and also every national banking association, shall pay a like tax o f ten
per centum on the amount o f notes o f any person, firm, association other than a
national banking association, or o f any corporation, State bank, or State banking
association, or o f any town, city, municipal corporation used for circulation and paid
ont by them.

That is to say by any such person, firm or association, and that is to
say anybody o^i earth.
M r. M c L a u r i n . Y ou see, gentlemen, we have got to have relief.
•
Mr. B r o s iu s .------ You do not understand that to mean the man who

carries that note, unless he is a banker and does a banking business,
has to pay that ta x i
Mr. W a r n e r . I t says any person other than a national bank shall
pay a like tax o f ten per cent.
Mr. B r o s i u s . That is an unfair construction, I think.
Mr. M c L a u r i n . Now, the impression we got in South Carolina was
that the clearing house association paid the tax.
Mr. B r o s i u s . I t is every person issuing notes and using them as a
banker; not as an individual, but as a banker.
Mr. W a r n e r . It says every person shall pay a tax of 10 per cent;
and in the second section, section 20, it says every person shall pay a
tax upon such notes.
Mr. B r o s i u s . I f he issues them as a banking institution and pays
it out.
Mr. M c L a u r i n . Gentlemen, I would like to say the very fact that
there is such ambiguity in regard to its construction among the mem
bers o f this committee demonstrates the fact that we need some legis
lation, because we had considered only the association was liable for
the tax, and I see there are certainly grounds for the construction
which has been given by the gentleman from New York.
Mr. B l a c k . Have you any suggestion that anybody was contempla
ting that this tax should come out o f the private parties?
M r. M c L a u r i n . N o, sir; we thought it was only against the clearing
house association; but I know this, i f the clearing house association
had to pay it, it would have to come out o f the people who used the
notes. I t was bound to do it in some way.
'S e c tio n 19 and 20 o f the A c t o f F eb. 18,1875; see Supplem ent to R evised Statutes, chap ter 36.
page 133.

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239

o f Indiana. This subject has been touched upon by

the Suprem e Court decision where it was held-----M r. M c L a u r i n . The mere fact o f this ambiguity makes it necessary

for us to have some legislation on the subject. W e have used these
certificates to carry over the panic, and it has done it in a very suc
cessful way. The banks invented the plan and we do not think th e y ,
ought to suffer, and we think that this Congress ought to come to the
rescue o f the people.
STATEMENT OE HOF. L. W. TUBPDT.
Hon. L. W . Turpin, a Representative from the State o f Alabama,
next appeared before the committee in behalf o f the following b ill:
[H . It. 3438. Fifty-th ird Congress, first session.]
A B I L L to allow national banks to loan money on r e d estate.

He it enacted by the Senate and House o f Representative* o f the United States o f America
in Congress assembled, That the seventh subdivision o f section fifty-one hundred and
thirty-six o f the Revised Statutes o f the United States be amended as follow s:
‘ ‘ Seventh. To exercise, by its board o f directors or duly authorized officers or
agents, subject to law, all such incidental powers as B h a ll be necessary to carry on
the business o f banking, by discounting and negotiating promissory notes, drafts,
bills o f exchange, and other evidences o f debt; by receiving deposits; by buying
and selling exchange, coin, and bullion; by loaning money on personal security or
upon the seenrity o f real estate; and by obtaining, issuing, and circulating notes
according to the provisions o f this title.”
S e c . 2. That the second subdivision o f section fifty-one hundred and thirty-seven
o f the Revised Statutes o f the United States be amended as follow s:
“ Second. Such as shall be mortgaged to it in good faith by way o f security for
debts.’’

Mr. Turpin addressed the committee as follows:
Mr. Chairman and gentlemen o f the committee: I did not expect to
make anyappearance before this committee, but inasmuch as the chair
man has invited me----Mr. B r o s i u s . W hat is the number o f that bill !
Mr. T u r p i n . I t is House bill No. 3438. This bill simply repeals
tlia t clause o f the statutes prohibiting the national banks from lending
money upon real estate as collateral security. Now, I came to Con
gress in 1889. I introduced this bill in December o f that year, and
have constantly introduced it every session since. On the 5th day .of
Jnne, 1890,1 went home by the advice of a majority o f the House o f
Representative^; you will remember that was a Republican Congress.
Soon after that, on the 23d day o f June, and after I had been unseated,
m y colleague (Mr. Oates) introduced a similar bill (H. R. No. 135, first ses
sion, Fifty-third Congress), and the Montgomery Advertiser, a leading
daily published at the capital o f our State, has never stopped talking
about that bill and the great merits o f it. I have consulted with a
great many bankers in my State-about this bill and I have not found
a single one with whom I have talked who makes any objectiou to it.
The people want it, and it is but an act o f justice to the farmers o f the
United States that you give it a favorable report, and see that it is en
acted. I live in a very fine agricultural country and it is covered with
mortgages o f Scottish and British syndicates. This money has, as a
rule, been promptly paid, either paid in at different-periods on install
ments, or it is paid when due and demanded at once, and I believe
that a certain amount o f collateral security, first mortgages upon real
estate, is as good as any collateral security a bank can have. I t is not
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an experiment because, as I h ave said, England and Scotland have
been for many years lending money all over the United States in this
way, And are doing it every day.
Mr. B r o s i u s . Bat their banks have notf
Mr. T u r p i n . I t amounts to about the same thing; mortgages on land
are taken by these foreign syndicates, and as a rale the interest and
principal has been promptly met by oar people.
Mr. B r o s i u s . Your citizens lend money on real estate security i f they
have it to loan, do they not?
Mr. T u r p i n . I f our national banks were allowed to loan money on real
Estate I expect we would not pay so much tribute to England as we are
now paying constantly, and paying a tremendous amount, too. I did
not expect when this bill was first introduced to make any talk before
this committee about its merits, but now that oar party is in possession
o f all the branches of the Government I am in hopes this committee
will do all in its power to bring relief to the people: but I had a paper
in which Mr. Marble, who is president o f the National Bank o f Califor
nia—I had it my hand when I was here a few days ago, but in some way
I have mislaid it— takes this position and advocates very strongly. in
this paper prepared by him to be read before one o f the congresses at
the W orld’s Fair. I suppose all you geutlemeu have received it. I do
not know whether you have got it or not, but according to my way o f
thinking, in fact my business sense tells me, it was easily the best o f the
many circulars sent to me 011 this subject. Mr. Marble says it will do
away in a great measure with the prejudice which has so long existed
among the farming classes against the national banks.
Mr. J o h n s o n , o f Indiana. Have you that circular!
Mr. T u r p i n . N o ; as I said before, I have misplaced it, but I will try
to find it, and will get it, i f possible, and present it to the committee.
Mr. Marble says that a mortgage to a certain per cent upon a good farm
or a good home is as easily realized upon atiy day in the year, whether
it is due or not, as any other collateral. Now, that is his position and
opinion about this b iil; and as I have stated he is president o f the Na
tional Bank of California, a very prosperous and substantial institution.
Many such loans have been made in my section o f country; I have bor
rowed a good deal o f money in this way myself. I have borrowed from
the English syndicates and Scotch syndicates, bat their names are so
long that I have forgotten them, and I know that these papers, first
mortgages upon real estate, are deposited as collateral and loans are
negotiated upon them, short loans—many times before they are due—
just like United States bonds, State bonds, or any other kind o f bonds,
because they are absolutely safe. In my section o f country there is
little or no woodland; nearly all o f the land is cultivated, consequently
large loans have'been made, large to the area, I mean; and I do not
now recall but one single instance where a mortgage was foreclosed and
the plantation sold, and the money was realized on that. This bill o f
Mr. Oates, you will observe, is a very different sort o f a bill from mine.
I merely repeal and Mr. Oates goes on to say something about the rate
o f interest.
Not to exceed in any casu that allowed by law, and the taking o f any greater rate
o f interest for the loan or use o f the money, os aforesaid, shall make the mortgage or
other obligations for the repnyment o f such loans null and void.

I understand that is the law now and a national bank can not charge
over and above the amount o f interest that is allowed by the States in
which the banks are located, hence there was and is no necessity o f
such a clause in a new b ill; the statutes are plain on this point.
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Mr. J o h n s o n , o f Indiana. The existing law does not make the whole
contract null and void, but this proposed act of-Mr. Oates affects the
whole contract. I do not remember the exact terms o f it.
Mr. T u r p i n . I understand that and am opposed to putting additional
penalties in the bill, or doing anything that would at all intimidate
the banks; make them hesitate to make loans, as this bill allows. 1 do
not want it intricate or cumbersome. This bill simply allows the
national banks to lend money upon real estate. They are not allowed to
do it now; in some instances iii my country I have known third parties
to make a percentage on a man who owned land or city lots by stand
ing between the owner o f the property and the bank, by making per
sonal security for it. I have known that to be done frequently.
The C h a i r m a n . Does it occur to you that the banks might be greatly
embarrassed i f they loaned their deposits on long-time paper, these
deposits being always subject to prompt and immediate payment on the
demand o f the depositors I
Mr. T u r p i n . W ell, I am inclined to think if there is no prohibition
placed upon them some reckless banks might get themselves into some
little trouble; and i f the committee thinks best the bill can be reported
with an amendment prohibiting the banks loaning over a certain per
cent o f their capital stock. I see no good reason to confine the banks
to a certain per cent o f the value o f the property. I take it that few,
very few, banks wonld loan more than 40 or 50 per cent o f the cash
value o f the property. In further answer to that, Mr. Chairman, I
would simply repeat what Mr. Marble says about it— that these papers,
called Southern securities in onr country, can be realized upon any day
m the year, whether they are due or not, as easily as upon any other
collateral.
Mr. W a r n e r . I was about to ask the gentleman whether lie thinks
the same rule would not apply to these as to State bonds and municipal
bonds and other bonds that are now admitted to be good investments
to a certain extent for banks and trust companies ?
Mr. T u r p i n . Yes, sir; I should think so. I do not know but what

there might be some .additional safety in limiting, but I do not believe
the banks would lend any more money on real estate than they could
collect, and they would not put themselves in a position where they
could not realize on these securities any more than upon State bonds)
or any other bonds. M y position is the same as Mr. Marble’s. I believe
these securities—first mortgages upon improved real estate—can be as
easily realized upon any day in the year, whether due or not, as any
other kind, excepting, o f course, United States bonds, which are by law
made a basis o f circulation. I remember asking my colleague, Gen.
Forney, when I first came to Congress, why this prohibition was put
into the statutes, and he said it was in the iuterest o f the landholders;
they had it done. They said they were uneasy about the national
banks, and were afraid that if they did not put something o f the sort
in it would not be long before the banks owned the whole country. I
never beard that view expressed before; but, as a farmer and one o f
the landowners, I may state to my friend that I have no such fears, and
I would rather borrow of our own banks than o f an English or a Scotch
syndicate; aud the very fact o f our paying so much interest as we
have abroad— this constant tribute to foreign countries—has done
more, I think, to bring on this panic than anything that has been men
tioned, except, perhaps, two causes that I will not now discuss— the two
that have been so generally talked about.
940----- 16
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Mr. B r o s i u s . I s uot a very considerable body o f loanable foods
owned by citizens in your section which are available for those who
desire long-time loans without going to the banks! People in my
■country go to the banks for temporary accommodations; they never go
.to the banks for long loans; they get these loanable funds in other
places.
Mr. T u r p i n . W e have a good many individuals who have money to
loan, but our people do not go to them i f they can possibly help it.
Mr. B r o s i u s . W h y not?
Mr. T u r p i n . Simply because they do not want to pay the price— the

high rate o f interest they usually charge.
Mr. C o b b , o f Alabama. Because they do not want to pay 25 per cent
interest?
Mr. B r o s i u s . Does not your State law limit the rate o f interest!
Mr. T u r p i n . Eight per cent is the legal rate for Alabama, but our
people are charged 1 per cent discount, which is equal to about 14 per
«ent.
'Mr. H a l l . I do not believe there is a State ’in the Union, north or
south o f Mason and Dixon’s line, that does not discount above the
legal rate o f interest.
Mr. T u r p i n . N ow , I would like to ask the committee a question.
W hat is the objection to allowing a bank to negotiate a loan upon real
^estate, the best collateral security in the world?
Mr. J o h n s o n , o f Indiana. I t has been claimed that it can not be read
ily realized* upon.'
Mr. T u r p i n . These securities, Mr. Marble says, can be realized upon.
Mr. J o h n s o n , o f Indiana. The ordinary commercial paper is for pay
ment to be made within a short time and can be used quicker and better;
that is the theory that has been generally advanced.
Mr. T u r p i n . I f the banks were allowed to make long or short loans
■upon land they could, say occasionally, when they got in a tight place,
deposit these securities, just the same as bonds are deposited, and bor
row upon them, and when they were flushed redeem them, and all the
while their loans on real estate would be drawing interest, whether
.hypothecated or in their own vaults, and they can afford to do it, for
the legal rate that is allowed by the States is greater than the rate
the banks would have to pay.
Mr. W a r n e r . I agree with my friend from Alabama— and I under
stand he does not propose or contemplate that the bank shall either
actually invest all or nearly all o f its assets in mortgages or it shall
l>e permitted so to do, or that these investments shall take the place o f
any commercial paper which represents short-time loans; but, as I
understand the suggestion, it is simply that mortgages upon real
•estate be put upon the same foundation as other favored securities not
commercial paper.
Mr. T u r p i n . That is the idea, and I anticipate if you enact this law —
that is, repeal it— that there would be hundreds o f banks in the la rg e
cities who would never loan a cent upon real estate.
Mr. W a r n e r . Your idea is not to lessen the amount loaned on com

mercial paper, but simply to allow mortgages to be substituted for
other favored securities!
Mr. T u r p i n . It is simply to allow them to loan upon real estate;
there is nothing compulsory about it.
Mr. J o h n s o n , o f Indiana. And you think the consequences would
be not to lessen the amount o f commercial paper; that the funds
invested in that could not o f necessity be invested in the other!
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Mr. W a r n e r . There are two classes o f investments in the bank—
investments in commercial paper, discounts, which represent what you
might call short-time investments, and other investments on long-time
securities. Now, I understand my friend from Alabama states that if
the loans on mortgages upon real estate be permitted the result o f that
would not be to substitute the mortgages for the short-time paper, but
it would permit the mortgages to be used instead o f a part o f their
long-time investments which they now have.
Mr. J o h n s o n , of Indiana. Now, I want to ask what long-time paper
have they now I W hat other kinds o f security do you allude to;
national bonds!
Mr. T u r p i n . N ow , we do not claim that any mortgage in Alabama
or anywhere else is as good as a United States bond. I hope and want
to see the bonds better than any other securities. But there is an
additional and other security which is good enough besides bonds.,
Mr. C o b b , of Alabama. M y colleague might have added this in his
argument. The other security he has spoken o f is iu daily use among
our banks in Alabama, and it is for this reason the mortgages are gen
erally taken for a small per cent o f the value o f the land, and therefore in
case o f a panic and they are compelled to realize upon the security at once
it can be more readily done upon security upon land than upon anything
else, because the banker goes out and he finds a man who has got money.
Now, there are a mighty few men in our State who have money outside
o f the banks. W e are poor people, but the men who have money are
willing to lend it, not so much upon the prospects o f the amount gained
as upon its absolute security. Now, when one o f these mortgages is
brought to a man who has money, and he sees that the mortgage is but
a small per cent o f the value o f the land, he knows he is secured almost
absolutely, and he is willing to risk his money on that, because he
knows that i f nobody purchases this land he can purchase it under the
mortgage and have a plantation for which he has paid only one-thir^.
of its value. So, even in a time o f a panic, it is security which is worth
as much as any other.
Mr. T u r p i n . I have had that experience. Bight now I should like
to state, and I feel pretty thankful for it, too, I have got on the other
side. I have been on the borrowing side a long time, and it is much
more comfortable not to have it to do. This summer everything Vvas as
tight in Alabama as I have ever seen it, and I invested some money just
exactly that way. A n English syndicate had a mortgage on some
property. The property was good, but the owner, a clever young fel
low, was a spendthrift aud had nothing to pay with, and I paid this
money. He has two years to redeem it in under our State laws, but iu
the meanwhile he has to pay 10 per cent on the money, besides the
legal rate of interest, which is 8 per cent, so that you see it is a good
investmeut to me, whether the laud is redeemed or not; good either
way, for i f he fails to redeem why I have the land.
Mr. J o h n s o n , o f Indiana. Have you read the section ?
M r. W a r n e r . W h a t section!

Mr. J o h n s o n , of Indiana. I t contemplates the direct loan o f money
on mortgage security as you would on discount paper presented.
Mr. T u r p i n . I just simply propose to repeal what is iu the statute
forbidding national banks to lend money on real estate. I believe the
bill is all right although I have not compared it with the first print.
The original was introduced in December, 1889.
Mr. B r o s i u s . The evil you propose to remedy by this legislation I
understand to be that those who have loanable funds to dispose o f on
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long-time loans charge exorbitant rates o f interest, and you want the
banks to be authorized by this legislation to loan their money 011 the
same time and at their rates for the benefit o f the borrowers?
Mr. T u r p i n . And for the beueftt o f the banks, too.
Mr. B r o s i u s . So that the idea is the banks shall loan their money
on mortgages just as individuals do in your State?
Mr. T u r p i n . That is all. Give them the right to accept mortgages
on real estate as collateral security, they will make no such loans unless
they think it will pay them to do so. Give them the authority, and
the ban^s will never make any such loans as long as they can use all
their funds to better advantage.
Mr. B r o s i u s . Now, if the bank loans $25,000 o f its deposits on mort
gages in one year, it has $25,000 less money to put out on commercial
paper ?
Mr. T u r p i n . Certainly, it would have; no doubt of that. But at the
same time that is only temporary. Whenever yon loau $25,000 out o f
the bank you leave $25,000 less, but I claim, as Mr. Marble says, this
$25,000 can be replaced at any time. In other words, it will draw the
interest, for three years, say, and if the bank should need this $25,000
back within three months, or two months, or one<month, then they can
take these papers and borrow money. I f there are any valuable build
ings on the lands they are always required to be insured by these
English syndicates and our banks would no doubt be equally as cau
tious.
Mr. W a r n e r . I think the gentleman from Indiana has misunder
stood a suggestion made by myself. Every bank, so far as I know,
has a certain number o f loug-time investments, sometimes in the shape
of Uuited States bonds, sometimes investments iu the shape o f long
time discounts as distinguished from short-time discounts, and
sometimes they are in one shape and sometimes in another. Now,
as I understand my friend from Alabama, he simply asks that they
be given the right to include among these investments real-estate
mortgages. As a matter o f course favored investments distinguished
from live commercial paper is so much less deducted from com
mercial paper; but I think my friend from Pennsylvania is mis
taken when he assumes that when a bank invests in a mortgage it w ill
take funds for that purpose necessarily from the part o f the funds
which otherwise it would keep alive in commercial paper. On the
contrary, it would buy fewer o f United States bonds, which pay less
interest, and it would invest iu long-time paper, and the only result
would be not to make bankers change their modes o f doing business
so as to tie up the capital, but allow them to use, aud on more advan
tageous terms to themselves, a part o f the capital which iu any case
they would use.
Mr. B r o s i u s . I f my friend will allow me. My object in putting to
Mr. Turpin the plain question was to show clearly that my friend from
New York misunderstood the position o f my friend from Alabama. In
the first place banks do not use their deposits to buy permanent loans;
they do not use their deposits to buy United States bonds or auy other
permanent investments. They may use their capital stock to a limited
extent for such purposes, but they only buy bctads now to the extent
they are required to either by the act of Congress or for the purpose o f
enabling them to issue a circulation. The deposits in a bank are avail
able funds for the accommodation o f the community; they are com
mercial funds and they are used in a commercial way, secured by com
mercial paper, and they are not used in auy other way, and the only
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legitimate manner for any bank, in my judgment, to invest in realestate securities is the way that the national-bank law already permits
them to do, and that is to take it as additional security for previously
contracted debts, and the point I was going to say, though my friend
puts it so smoothly and so nicely “ by using these real-estate mort
gages on the same foundation as other loans,” the fact is there are no
other loans which represent the deposits o f a community, there are
no other. I do not mean to state for one moment that the banks uni
versally through the country are able to use the total amount o f the
deposits upon discounts at M l rates. That is uot the case in our State.
The money goes to the bank and then it goes out to various agencies.
Sometimes our money goes to New York upon temporary interest, upon
call, and all that sort o f thing, but the point I make is, I do uot think
my friend, conversant sis he is with banks, will dispute it that the cur
rent deposits o f a community which go into a national bank are not
used for the pnrpose o f investing in any kind o f long-time loans.
Mr. W a r n e r . The gentlemen is mistaken, and directly and indi
rectly, largely, with the exception o f a very few months in the year,
and to some extent the year around, they are invested in long-time
securities.
M r. B r o s i u s . Nam e them.
Mr. W a r n e r . I mean personal notes for long time, secured by
pledge, say, for example, Central Railroad stock, the loan running at 2
per cent and 3 per cent. There are any number o f firms in N e w Y ork
who have held accounts in banks for the last fifteen years without ever
having them taken up.
Mr. B r o s i u s . In the N e w Y ork banks?
Mr. W a r n e r . I mean the only change being as to the rate o f inter

est. Now, it is simply a matter o f fact that quite a large proportion
o f the deposits in the banks in New York and everywhere else, so far
as I know, during eight or nine months o f the year must be so invested
or else they can not get any interest upon them at all, and they are so
invested. I know in some cases they are whipping the devil around
the stump. I know they take paper where the name is worth nothing,
but they do it on good collateral, and they do it also in a legal way.
Mr. B r o s i u s . I do not dispute that is done to a limited extent.
Mr. T u r p i n . I would like to say just one word more. In my country
I know that New York banks lend tremendous sums o f money on ten
and twelve months’ time; that money is loaned to our banks upon
chattel mortgages—that is, mortgages upon growing crops—on crops
to be planted, and a few old mules and brood mares, which are owned,
frequently, by tenants. This is the kind o f collateral that is taken in
New York, and they lend money upon it for twelve months to our
banks. You take the strongest banks in Alabama, and they lend
money for a year upon cotton receipts, warehonse receipts. You put
your cotton in a warehouse and get a receipt, and you can go to any o f
the banks and borrow all the money you want, and on as long time as
you want it, say twelve or eighteen months.
Mr. C o b b , o f Missouri. Cotton and grain receipts are considered the
very best collateral you can got.
Mr. T u r p i n . I know they are so considered. That is because you

don’t allow your banks to lend upon real estate; if you did, mortgages
on improved lands would be considered the best, particularly if the loan
was a long time loan. I would like to say there is not a statement o f
a banking institution published anywhere but what a part o f the assets

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are real estate, that is, the office and buildings, sometimes amounting
to many thousands o f dollars.
Mr. J o h n s o n , of Indiana. A casual examination o f this bill shows
that it is contemplated that the ordinary loanable funds are to be
allowed to be loaned on real estate security. That being the case, it
would o f necessity come from money which would probably be other
wise used by ordinary securities running a short time, generally issued
by merchants, and which can be readily realized upon in case o f
trouble. A ll parties hold that State banks, under the old system, con
tained a positive prohibition for investment in real estate, and it all
proceeded upon the idea that these funds were not desirable for the
reasoii that in case o f a run upon the bank the mortgage could not be
readily realized upon.
Mr. W a r n e r . I do not want to take up the time o f the committee,
but 1 do not think the gentleman from Alabama insists there shall b e
any special amount loaned on mortgage. I agree entirely with the
gentleman from Indiana, so far as the funds are necessary for current
redemption o f circulation or for supply o f ready money, that commercial
paper----Mr. J o h n s o n , o f Indiaua. There is no limitation in this bill.
Mr. W a r n e r . But the gentleman himself volunteers the suggestion
that a limitation will be entirely proper, and it is upon that assump
tion we are speaking.
Mr. B l a c k , o f Georgia. I f the gentleman will indulge me, I have a
bill on this sxibject. I t is the only bill I have introduced in the House
this year, not because I thought it was the most important thing, how
ever, and I will be glad to submit a few remarks in regard to it.
The C h a i r m a n . Mr. Black desires to submit a few remarks on his
bill, and as I have engagement for a few minutes Mr. Sperry will act
as chairman during my absence. I will return very shortly.
STATEMENT OF HON. J. C. C. BLACK.
Hon J. C. C. Black, a Representative from the State o f Georgia, next
addressed the committee in behalf o f House bill No. 256.
Mr. Chairman and geutlemeu o f the committee, I have introduced
House bill No. 256, which is very short, and reads as follows:
A . B I L L to authorize national ban kin g associationx tu lend money on real estate.

Be it enacted by the Senate and Hou*e o f Hepresentatires o f the United States o f Amer
ica in Congress assembled, That from aud after the passage o f this act any nationalbank association be, and is hereby, authorized to lend money on real-estate security.
Sec . 2. That all laws and parts o f laws in conflict with this act be, and the same
are hereby, repealed.

I t seems to me that some suggestions which have been made against
this general idea are not well founded, for the reason that they seem to
contemplate i f the national bank has this authority it will take all the
money it has on deposit and lend it out for a long time on real-estate
security, which could not be easily realized upon. W ell, I submit we
may leave that As we leave a great many other things to the manage
ment o f those banks. There is not hing compulsory about this. I t does
not say they shall lend money on real est ate, and I do not think there
is anything in the history o f these banks, or o f the gentlemen generally
over the country who have charge o f them, which would justify the
apprehension that they would take all the money they had and loan it
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en real estate. Now, what is the condition under the law as it now
exists? Here we have this system o f banking, upon which tfe are so
much dependent all over the country everywhere, and all the real estate
o f the United States is outlawed so far as borrowing money on it is
concerned from those banks. A man can not go to one o f these banks,
and borrow money on $500,000 worth of real estate; he cannot get
$1,000 on it for ten days or five days or two days or one hour. Now,,
is there any justice in that? Is there any reason for it? Our
agricultural people have to make loans. They go to the cities and
towns and to the factors to borrow money, and those factors will
take their real estate as security and then, using it as a collateral
with their own paper, they will go to the bank and borrow money
themselves, and so the money is dealt out to the people in the coun
try through these middlemen, who, o f course, charge for the troublea rate o f interest sometimes more and sometimes less. Now, I would
not for a moment favor the idea that a. bank should take all o f its funds
and lend it on real estate for a long time or a short time. I recogniee
the fact that perhaps under some circumstances real estate is not so
easily realized upon as bonds or stocks or what are generally known
as commercial securities, but the point I make is that this law is totally
prohibitory upon real'estate; it does not allow the bank to loan any
proportion o f their money on real estate o f any kind. W ell, now, I
repeat the question asked by the gentleman from Alabama, what
objection is there to that? You say, it is liable to abuse. W ell, I sub
mit that is no answer. You say, suppose a bank would take all the
money o f its depositors and lend it out on real estate on long time.
W ell, that is a presumption you are not authorized to make. These
banks are managed by men o f intelligence, men who are, perhaps, justr
as well acquainted with commercial, financial, and business rules as we
are. I repeat the ])oint I make against this law is it is an iron bound
prohibition against lending any money at all upon real estate without
regard to margin, without regard to value, without regard to time, and
without regard to anything, and it puts the real estate o f this country
under our present bank system, as far as these national.banks are con
cerned, under a ban and outlaws it. For instance, we have in the city
where I live in round numbers $15,000,000 worth o f real estate, and a
man can not take that and go to a national bank aud borrow a thousand,
dollars on it. W ell, now, I submit that is going too far.
Mr. J o h n s o n , o f Indiana. Would such a man have trouble borrow
ing that on personal security, a man with that much real estate?
M r. B l a c k , o f Georgia. I said the whole city.
Mr. J o h n s o n , o f Indiana. W ell, take a man with ample real estate;

nobody has any trouble in my State in borrowing money on personal
security who is known to be worth a great deal of real estate; he might
get a friend to indorse for him, and in that way the real estate is in d i
rectly used.
Mr. B l a c k , of Georgia. Perhaps, sometimes that might be the case,,
but oftentimes it would not be the case, and a man does not always care
to go to a friend to get him to indorse his notes, and it does not apply at
all in the country. Here are millions o f dollars’ worth o f agricultural
lands in thit country, and under our present national-bank system we
are not allowed to lend a dollar’s worth o f money upon it.
Mr. J o h n s o n , o f Indiana. According to the statement o f Tom W at
son, you have not got any land down there that is not mortgaged.
W hat have you to say to that? He says there is nothing left to bor
row on.
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Mr. B l a c k , o f Georgia. I would uot like to be bound by all he said.
A good many o f our lands are mortgaged, I have nrt doubt, but there
are many not mortgaged, and i f a man who has an unencumbered piece
o f real estate, offers it, it is not to be presumed that these banks are
going to lend the full value o f it, and are not presumed to take all the
money they have got and lend on real estate so as to leave them in a
position where they could not respond to the reasonable demands o f
their depositors. I think, honestly and sincerely, that this law goes
entirely too far.
Mr. S p e r r y . Allow me to ask this question: Whether or not a ll
the available loanable funds are not loaned upon business paper?
Mr. B l a c k , of Georgia. I did not hear you.
Mr. S p e r r y . I asked whether or not all the available loanable funds
in the national banks in your State are not all loaned on commercial
paper within the terms o f the act?
Mr. B l a c k . I do not know. There is quite a demand down there
for money, and they are lending every dollar, and renewing it and lend
ing it out again. I do not know that there are any long periods when
they have any large amount o f money which is not out; perhaps, some
time during the summer season, the nioney accumulates in bank wlieu
they would like to make good loans.
Mr. S p e r r y . Then they would be liable to loan for a long time on
real estate?
Mr. B l a c k . No, sir; I do not think they would loan it all for a long
time on real estate. I have got more confidence in their management.
Mr. B b o s i u s . You think they would only loan their surplus?
Mr. B l a c k . The point I make is that this law is totally prohibitory;
that you can not loan anything on real estate.
Mr. H a l l . Can not you see a ease where a business man would have

real estate security and nothing else and want to borrow money on it f
Mr. B l a c k . Why, certainly.
Mr. H a l l . And yet he could not get a dollar, unless lie could get a
courtesy extended by having individuals going ou his paper.
Mr. B l a c k . I take it that it is not always easy for a man who is
perfectly solvent and a man o f high financial standing, it is not always
an easy thing, and if it is a practical thing it is not always pleasant
for a man to go and ask a person to indorse, aud I do not think the law
ought to force him to do it.
Mr. C o b b , o f Alabama. Wonld not it have this effect? There is a
complaint throughout tlie country that the natioual banks have failed
to issue the amount o f circulatiou they ought to issue—
Mr. B l a c k . I was just coming to that phase o f the subject. Now,
1 do not believe in our legislation we ought to allow ourselves to be
carried too far by the complaints o f people, the unreasonable com
plaints o f people, but when we can meet the complaints without doing
any harm to anybody I think it is wise legislation to do so. W e all
know there is a very deep-seated and widespread, not only discontent,
but opposition in the public mind, particularly in some sections
o f the country, against national banks. Some o f it may be unrea
sonable; but now look wliat a picture is presented to our rural popula
tion by this system. Before you go into this system you have got to
have United" States bonds, and when you have established a bank
you can take bonds, stock : but the very and only thing these people
have is a thing you say shall not be accepted as security, no
matter what the value.

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M r. C o b b , o f Alabama. You do not get my idea. Tbe complaint is,
they will not issue circulation enough, and the banks say they do not
issue the circulation because it does not pay. Now, would not the ten
dency be to encourage the national banks to put out more circulation
upon the security, aud they could afford to do it on long-time loans?
Mr. B l a c k . I do not understand they refuse to take out circulation
because they could not use the money, bnt I understand they refuse to
do it because they would have to have the bonds to do that, and the
bonds have been at such a price they could not purchase the bonds
and use the money at anything like a profit. I do not suppose the
banks will lend too large an amount o f their money on real estate, but
I think they can be safely trusted to lend some o f their money at some
time and to some extent on it; and then what I was going to suggest is
this, that there is a very widespread and deep-seated opposition to these
national banks, partly, it may be, from prejudice and unreasonable
ness. I am perfectly frailly to admit that; but when you can remedy a
difficulty o f that kind without doing anybody any harm, without doing
the banks any harm and certainly rendering some service to the peo
ple, there appears to be no reasonable objection to removing this ironbound restriction and leaving the question as to wlieu and how and
what amount, and upon what value, and for what time they are to lend
the money on real estate to the management o f the national bauks,
which I think have shown themselves in the past altogether capable
o f taking care o f this question.
M r. I I a l l . I want to ask one question, and that is this: I am struck
with the force o f one point you make, and that is the point o f the
outlawry o f real estate as security. Is there any provision in the
national-bank law which you know o f which limits the time for making
loans on commercial paper or ordinary security?
M r. B l a c k . None o f which I know.
Mr. H a l l . Then it was not necessary in tbe creation o f the nationalbank law that national bankers should be told that they should not
lend on personal security over and above a certain time, but that was
left wide open!
M r. B l a c k . Yes.
Mr. H a l l . W hy should not the same rule apply to this?
M r. B l a c k . I do not see any reason.
Mr. J o h n s o n , o f Indiana. W hy should not the same rule apply to

any restriction which is now placed upon the national banks ? W hy not
leave it to their judgment and discretion----Mr. H a l l . The gentlemen tries to answer a specific charge by a
general sweeping allegation, and that is not. the way to meet the point.
The point is, that there are millions and billions o f dollars’ worth o f real
estate in the country which are virtually outlawed, as he makes the
point.
Mr. B l a c k . I would suggest, too, which might meet another objec
tion— I understand the time it takes to realize on real estate, and I am
not prepared to speak about the law in other States, but they may be
like ours— this is the law in our State: You can take real estate as secur
ity for indebtedness, and a deed is a very common form o f transferring
the title, and you can provide in that deed for the sale o f the property
without the slow process o f foreclosure, and you can put it up and sell
it at once.
Mr. B r o s i u s . But you have to get judgment ?
Mr. B l a c k . N o, sir; you do not have to get judgment.

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Mr. S p e r r y . I t is like a trustee’s sale?
Mr. B l a c k . Yes, sir.
Mr. B r o s i u s . Suppose the mortgagee alleges the money has been
paid; how do you determine the question?
Mr. B l a c k . I f he alleges the money is paid ? Suppose you have got
United States bonds as collateral and he alleges the money is paid?
Mr. B r o s iu s . There must be some means o f determining the ques
tion.
Mr. B l a c k . Then the same objection would apply to the bond as well
as to the real estate.

C o m m it t e e o n B a n k i n g a n d C u r r e n c y ,

Tuesday, October 24,1893.
The committee met at 10 a. m., Hon. William M. Springer in thechair.
The C h a i r m a n . Gen. Meyer will address us upon the monetary sys
tem which prevails among the cotton and sugar planters o f the South.
PLANTING AND MOVING CROPS IN THE SOUTH.

STATEMENT OF HON. ADOLPH METES.
Hon. A d o l p h M e y e r , a Representative from the State o f Louisiana,
addressed the committee.
The C h a i r m a n . W hat is your business in Louisiana'?
Mr. M e y e r . I am a planter, engaged in the cultivation o f sugar and
cotton.
The C h a i r m a n . You have had considerable experience in commer

cial transactions in regard to those two products, I presume?
Mr. M e y e r . Yes, sir.

The C h a i r m a n . W ill you please explain to the committee the proc
ess by which the planting and marketing of the sugar crop iu the South
is carried on at this time, and has been for years past?
Mr. M e y e r . The process is changing and lias changed in the past
two or three years materially. Ten, fifteen, and- twenty years ago it was
almost the universal practice o f the planters to make tlieir loans in the
reat ports o f the South—New Orleans, Norfolk, Savannah, and
harleston. A s Mr. Cobb, o f Alabama, has just stated, after the war
the country was prostrated and agriculturists had to start from the
foundation; they had nothing but land, and consequently they were
dependent for capital to cultivate the crops and move them upon the
money centers o f the country. The capital o f the South, as we know,
was almost destroyed, and our merchants at the centers were dependent
in a very large degree for money accommodations upon New York and
the commercial centers of the Nortli aud East. In those days it was
the practice o f the planter to go to the capitalists o f New Orleans or
Charleston or Savannah and make loans from the commission mer
chants, and the men who were cotton planters, especially the large ones,
would borrow money for the purpose o f making a crop.
The small planters o f the South who were not known in the commer
cial centers made their arrangements in a somewhat similar way, but
in lesser degree, with the merchants who did business in the country
places, who in turn made their arrangements with the banks and cotton
factors and commission merchants o f the large cities. That system of

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251

business continued quite a number of years. In recent years, however,
owing to the accumulations o f money in the country districts, there
were a great many banks established in the little towns, which began
the practice of loaning out their money to planters in the neighborhood
and to local merchants, and now this system prevails in a much greater
degree than before, and it seems to me to be progressing very well and
very largely to the advautage o f the producer aud planter.
Mr. J o h n s o n , o f Indiana. W hat tin d o f banks, State or national!
M r. M e y e r . Mainly national bauks; sometimes State banks. Nearly
all the banks in my State established have been national banks. I
think it seems, even in the country, where a certain idea prevails that
the national banks are inimical to the interest o f the small planter, there
is a greater degree o f confidence in the national banks than in State
banks, or banks not under the national system, mostly because the
impression seems to be that the National Government affords greater
protection than the State banks or a corporation under the laws o f the
State. There seems to be a greater sense o f security. I think,however,
under a system o f banks such as we had in my state in ante helium
days (and the same is true of other States, I presume) the feeling that
national banks are safer than others iu which to deposit their mpney
would disappear.
M r. J o h n s o n , o f Indiana. Tou had an unusually good system o f
ban ks in Louisiana?
M r. M e y e r . Wehadan admirable system. The national-bank system
has been based, I believe, to a large degree upon the system we had in
Louisiana. I remember the notes o f the Louisina banks commanded a
premium over gold in 1860, because they were so secure and much more
convenient to carry than gold.
Now, the system o f marketing the crops is changing, especially the
cotton crops. In former years the planter was obliged to borrow his
money from a commission merchant, which was subject, o f course, to
onerous charges. The merchant who would advance the money to the
planter took considerable risk, and to compensate him for that risk, he
had to make high charges. For instance, at the very time the merchant
advanced the money to the planter the first charge was 2£ per ceut for
advancing that money. H e might advance him, say $10,000, for six
months, and wonld then be charging 2 £ per cent commission for advanc
ing. That would be $250 for six mouths, which is practically 5, per
cent per annum. Then he charged the regular rate o f interest in addi
tion, which in the State of Louisiana is 8 per cent per annum. The
legal rate by contract is 8 per cent.
O f course he would charge him other commissions and make the con
dition that all his supplies should be bought from him, upon which an
additional commission could be charged, and in tlie end it would amount
to a very heavy percentage. The merchant justified himself, and cor
rectly so, iu my opinion, for these heavy charges by the fact he took a
very heavy risk every year. He incurred a very considerable loss,
because while the planter paid a very high rate o f interest he at same
time took great risk with his labor. He had to furnish his laborers
with everything they consumed, with their clothing, and their food, and
their mules and supplies o f every kind, and until very recently the
planter had to purchase all o f the grain, oats, com, flour, etc., from the
West; the rates o f insurance were high and the transportation was
costly, and in the end almost all the surplus and very often a great
portion o f the principal was consumed, and the merchant found him
self in a condition that the planter could not pay him. I think that
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accounts to a very great extent for the high rates o f interest that have
been paid to banks in the South, and we might naturally suppose the
money lender would have grown rich by receiving such high rates of
interest, and that that which would impoverish the planter would enrich
the man who loaned the money, but such has not been the fact.
The country merchants o f the South who advanced to the small
planter and the cotton factors o f the ports, who in turn advanced to the
merchants who advanced to the small planter, with rare exceptions
have not been prosperous because o f the risk o f the business and the
uncertainty o f tbe crops. Another reason is in recent years the gradual
decline in the j»rice o f the cotton crop. I t seems likely, however, that
it will be safer in the future for this reason, aud the reason I am about
to state will furnish one argument in favor o f what has been so much
condemned in what is called “ the future system,” the dealing in futures.
Now, o f course, there are a great many objections to certain features of
the practice o f dealing in futures, not to the principle, but to the prac
tice. I t is utilized by a great many people for the purpose o f gambling,
simply to speculate iu cotton and other products, just as many will bet
on the horse race or stocks, but recently the future system has been of
gi'ea^t benefit to the Southern cotton-planter. And it has been for this
reason:
Formerly planters were obliged to send all tljeir products to the great
ports for sale, involving heavy charges o f commission and brokerage;
under the future system there has been inaugurated what is called
“ free on board sales.” For instance, a cotton buyer can go to the little
towns and can make contracts for the purchase o f 100 or 500 bales of
cotton, as the case maybe, andean arrange to have it shipped through.
He knows at what price he can buy it, and by selling in Liverpool or
iu New York or New Orleans, against that purchase he can absolutely
assure himself o f a commission if not o f a profit. Now, there are many
men who have no capital. O f course, in the case o f a man with capital
they might do that kind o f business and take some chances, but men
without capital can now do that and can afford to do it cheaper and
pay better prices for the staple. The less the cost to the man who trans
ports or deals in cottou the higher price can he afford to pay to the
producer, and in view o f the great competition which exists, there are
a great many new men entering the; field every purchaser will naturally
buy as much as he can. The greater the volume o f his purchase the
better he can afford to take a lesser profit.
Mr. B r o s i u s . That is to say, if he only has the purchase on hand and
the market goes one way he may lose, but if he has the purchase on
hand and sells, and the market goes that way, he makes f
Mr. M e y e r . H e deals on what is claimed to be-an absolute certainty.
He will pay, for instance, 8 cents a pound for cotton in a country
town. H e will see what the markets are in New York, Liverpool, New
Orleans, and in Bremen, Havre, ctc. He makes his calculation and can
conclude with almost mathematical certainty by selling in New York,
for a certain delivery in New York, how he can make his commission.
Mr. J o h n s o n , o f Indiana. That is a system involving the actual
receiving aud delivering the goods t
Mr. M e y e r . Certainly. H e never delivers that particular cotton;
he does not calculate to do that.
•
Mr. B r o s i u s . That second contract which saves him on the first is

pure gambling?
Mr. M e y e r . N o.
Mr. B r o s iu s . But he never expects to deliver anything.
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M r. M e y e r . He expects to deliver the 500 bales which he has pur
chased in some form.
Mr. B r o s i u s . Then he makes his commission?
M r. M e y e r . Yes, sir; and the moment he delivers the 500 bales o f
cotton which he has purchased, if he is a legitimate operator, he closes
out the contract he may have sold. Now, that contract is purchased
by somebody else who wants it, but the man who purchases that does not
expect to get the identical cotton which this man gets.
M r. W a r n e r . I t is the general warehouse theory!
M r. M e y e r . A man may not be able to use the grade o f cotton which
is absolutely furnished by the one who sells it, but he uses some other
grade that is delivered to him by the veudor; therefore he makes a
transaction which is legitimate aud is based upon the actual need o f
the article.
M r. W a r n e r . I s not there such a permanent relation between the
price o f the different grades o f cotton that practically the purchase o f
one gra d e and the sale o f another is capable o f being calculated ju st as
closely as though he waited and took the identical cotton in order to
fill the contract made?
M r . M e y e r . Yes, sir. There is such a constant demand for the dif
ferent grades o f cotton— for middling, low middling, aud good ordinary,
some mills using one grade and some wanting others— and the prices of
the various grades are well established and so well fixed by the demand
and suj>ply from day to day, that one who buys cotton, although he rn^y
not b u y the grade he wants to deliver the mill, can make his calcula
tions with almost certainty how he will come out on his transaction.
M r. B r o s i u s . But i f he sells one grade o f cotton and can not fill

that contract it is no contract?
M r. M e y e r . But he sells different grades.
M r. B r o s iu s . Take the first step, he has to purchase the actual cot
ton. In order to cover that he sells not that cotton, but cotton o f a
certain grade, at a certain price. Now you say the purchaser o f that
cotton may not get that particular cottofi, but lie may get some other
cotton, the' kind he wants. Now, having such cotton o f a certain grade
at a certain price, to get a commission on the basis o f such a price,
could you fulfil] it by the delivery of cotton o f another grade I
Mr. M e y e r . Not i f he stipulated specifically another grade, but
usually cotton buyers have numerous constituents who would be best
supplied by an average line. He would have some who would want
middling, and some who would waut low middling, and others who
would desire other grades.
The C h a i r m a n . Permit the chair to suggest that this discussion is
wandering a little from its line.
M r. M e y e r . I was about to say that 1 did not intend to go into this
question o f futures.
The C h a i r m a n . The chair desires to ask you o f another matter in
regard to a statement you were making before following the discussion
upon these other points—that is to say, about what would the amount
o f interest or commissions aggregate which the cotton and sugar
planters are now compelled to pay under tjie system which is now in
operation in the South on their products before they are marketed,
including interest on actual advances and percentage on supplies fur
nished ?
M r. M e y e r . By reason o f the increase in the number o f banks in
the South, especially in my State (I am not so well versed as to other
States, but I think it has operated iu other States as well), the rate o f
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interest has been materially diminished and the planters and producers
who in former years were obliged to pay an onerous rate o f interest
and commission charges, to which I referred in my opening remarks,
now find no difficulty in getting all the money they require from the
local banks at about 8 per ceut, and in some iustances at less. Of
course I refer to a class o f planters who are known to be reliable and
trustworthy.
The C h a i r m a n . Can they secure these loans by deposit o f a chattel
mortgage on the growing crop !
M r. M e y e r . Yes, sir; in most cases they can. W h e re they are
known to be reliable plauters by depositing a lien on crop; in my State
the man who advances either money or supplies .to the farmers has by
virtue o f law a lien upon that crop.
The C h a i r m a n . Over the landlord— does it take priority over the

ren t!
Mr. M e y e r . N o ; it does not give priority over rent. The landlord
has the first lien, and the man who advances the money or supplies
has the next lien. In many cases where the laudlord is anxious to
promote the cultivation o f his land he will yield his privilege to the fur
nisher o f the supplies or, mouey, because land is very plentiful and
money until recently very scarce. I t is generally to the interest ofthe
landowners that the tenant should secure what was necessary to cul
tivate the land.
The C h a i r m a n . W hat do you mean by recently!
Mr. M e y e r . In the past three or four years.
The C h a i r m a n . D o you mean to say during the past three or four

years, not including the times o f the recent depression, but through
the past three or four years generally, your local baukers have been
able to obtain and furnish advances when good collateral was offered
in any amount to handle and mature their crops?
M r. M e y e r . T o auy amount consistent with prudent business aud
prudent banking.
The C h a i r m a n . There has been no scarcity, then, so far as getting

loans is concerned ?
* .
Mr. M e y e r . I think not. The establishing o f banks in the smaller
towns o f the country has drawn also into its vaults and into circula
tion a considerable amount o f money which formerly was hidden, and
while it is a fact that capital has not accumulated rapidly in the South,
still a great many people have saved. Formerly there was some
distrust, at all eveuts there was not much confidence in banking insti
tutions, but these banks having been established in the smaller towns,
the small planters coming to the towns aud knowing the president,
cashier, and directors end seeing for themselves and beiug able to
judge for themselves somewhat o f the character o f the men who have
their funds in hand have been inspired with a degree o f confidence
and a more favorable feeling in regard to banks than existed before.
The C h a i r m a n . D o not a considerable number of the colored men
use the facilities o f banks and make deposits in them o f their earnings!
Mr. M e y e r . 1 do not believe the colored people care much for banks.

They generally keep what money they have at home, and most o f them
are uot very thrifty. They do not save anythiug aud do not put any
thing in bank. They generally leave their surplus at some country
store and draw it out as they desire. Y e t there are some who deposit
in bank, and 1 think the tendency to do that is increasing. The colored
people have not been very saving, and I regard that as a great disad
vantage. I tiling the colored labor in the Southern States, and for
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their peculiar regions, is probably the best labor we can find. I have
tried all kinds, Chinese, white labor, and Italian labor, but I think the
colored labor is certainly the best we can find, and i f they were only
th rifty and took an interest in establishing communities such as the
white laborers do, 1 should regard them as almost perfect for that
section.
T h e C h a i r m a n . Do you employ any considerable number o f laborers
on your plantation?
M r . M e y e r . Yes, sir.
T h e C h a i r m a n . How do you pay them—in orders on a store, or cash,

or how do you settle with themf
M r. M e y e r . On a sugar plantation the practice is to pay them every
tw o weftks in money. In order to facilitate matters most planters have
stores on their plantation, and i f they have not any on their plantation
there are neighboring stores to which the laborers can go and buy
goods and by paying his ticket purchase whatever he wishes. For
instance, at the end o f each day the laborer receives a ticket for what
ever his day’s work demands, that is, the amount agreed to be paid
him, and i f he holds that ticket two weeks he can go to the planter or
the store and get his money. I f in the meantime he desires he can go
to the planter’s store or the neighboring store and purchase’ what he
wants in the same way as though his ticket were money, but in order
to get the actual amount stipulated in cash he has to wait until the
regular pay day and receive his money.
The C h a i r m a n . He gets a ticket every night f
M r. M e y e r . Yes, sir; that is, on well-regulated plantations.
The C h a i r m a n . In what kind o f shape is that ticket?
Mr. M e y e r . It is a little card o f pasteboard with the amount due

printed upon it and the signature o f the manager or plauter.
Mr. H a l l . Y ou do not think they are liable to the 10 per cent ta x !
M r. M e y e r . N o ; it does not usually circulate very far, but it gen
erally goes at tbe nearest place.
The C h a i r m a n . A re these tickets generally in common use in the

South, or only iu Louisiana?
Mr. M e y e r . I think they are generally in use. They afford such
facility that I think they would be used on all well-regulated plan
tations. Ou a 'cotton plantation the system o f labor is somewhat
different. In my State a great many planters work with their laborers
ou shares, and under that system, o f course, these tickets are not
required. For instance, a planter will contract with his laborers at the
beginning o f the season. H e will furnish them with mules and stock
of all kinds for half o f what the laborer produces, and under that system
at the end o f the year when the crop is sold they make a settlement,
charging what has been furnished, and if there is a residue the laborer
gets it.
Mr. B r o s i u s . In that case, who sells the crop and gets the money?
Mr. M e y e r . In some instances the planter sells the crop and in other
instances the crop is divided at the gin house bale for bale, and the
laborer takes his share, takes it to the nearest point and sells it or
ships it, and the planter does as he chooses,
Mr. B r o s i u s . Are there any cases where the planters trust to the
tenant to sell the product and get the money?
Mr. M e y e r . N ot to my knowledge, but there may be some cases.
There is no valid reason why he should, because it is easy to divide the
crop at the ginhouse. I think the general practice is to give the
laborer the cotton and divide it bale for bale. The negro laborers
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being rather suspicions, they may think, no matter how fairly th ey
are treated, some advautage may be taken, and it produces more sat
isfaction to divide it bale for bale.
The C h a i r m a n . H ow does the planter make advances to the la b o re r
for that portion o f the supplies necessary to produce the crop!
Mr. M e y e r . The general preference on the part o f a laborer is to g e t

his supplies in bulk. For instance, he wants a barrel o f pork at a
stipulated period, say once a month, depending upon the size o f liijj
family, and the planter charges him with the price o f those supplies.
I f it is a plantation o f any magnitude it is usually from the store, aud
i f it is a small plantation it is usually from a storehouse where th ey
keep those things, but iu most cases the laborers prefer and do make
arrangement with the storekeepers at the nearest country town. T hat
relieves the planters of the risk generally and they prefer that system.
The planter would prefer his laborers should go and make their con
tracts with the country merchants to get their supplies, and if there
was auy deficit, instead o f the loss falling upon the planter, as it often
does, it falls on the country merchant.
The C h a i r m a n . H ow much does the planter agree to furnish per
bale or per acre to the laborer in the way of supplies in addition to the
use o f the* land?
Mr. M e y e r . That is controlled by many conditions. It depends
upon the circumstances altogether. A s a general rule the merchant
in the cities who advances thinks he would be safe to advance on the
basis o f about $ 10 per bale; that is to say, i f a planter who expected
to make 100 bales would apply for $1 ,000, o f advances, usually the
merchant would regard that as rather a safe undertaking. That
is up to the time the crop is shipped. A fter the crop is ready for ship
ment o f course the planter requires additional advances for picking
the crop, moving it to market, aud incidental expenses, which always
occur on a plantation; but what the country merchants advance I am
unable to say, although they generally measure their advances by what
they conceive to be the prospects of a crop. Heretofore they have been
very liberal, aud that accounts for the fact that they have not been
very prosperous. They charge high rates o f interest and they no doubt
charge high profits on the goods they sell, but they meet with a good
many losses by reason o f failure of crops.
The C h a i r m a n . D o we understand you to say the planters w ill fu r
nish the land and the stock— that is, the machinery and animals neces
sary to produce the crop, and board o f the hands— for one-half o f the
crop?
Mr. M e y e r . H e furnishes the board, but----The C h a i r m a n . He charges them" with that?
Mr. M e y e r . He charges them with the board. Iu the neighborhood

where I have been planting it has been the general custom that the
planter would furnish the land nnd the team and feed the stock at his
own cost, and pay all taxes, all general improvements on the planta
tion, and he would charge the laborer only with those supplies which
he furnished for his use.
Mr. B r o s i u s . And the laborer boards himself!
Mr. M e y e r . Yes. sir; it is really at the risk o f the planter.
Mr. B r o s i u s . But the planter supplies the laborer with the food?
Mr. M e y e r . Yes, and he charges it back to the lstborer and takes it
out of the proceeds o f the crop.
The C h a i r m a n . The planter furnishes feed for his own animals?
Mr. M e y e r . Y es, sir.
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Mr. C o b b , of Alabama. The planter furnishes the land, the mules,
and feeds the mules, and the laborer furnishes the labor and feeds the
laborer?
M r. M e y e r . In most cases, on all well-regulated cotton plantations
th ey raise corn aud stipulate usually, although I have known many
exceptions, the corn produced should go to the planter for the purpose
o f feeding his stock the succeeding year. In many cases the laborers
claim they should have half o f the corn, and it is sometimes conceded.
I n localities where labor is very scarce aud is badly wanted the planter
m a y concede that, but as a general rule they require the corn to remain
o n the plantation.
Mr. B r o s i u s . W hat does the laborer get then ?
M r. M e y e r . He gets feed for this stock which he uses.
Thereupon the committee rose, to meet at 10 a.m. Wednesday, Octo
b e r 25, 1893.

C o m m ittee on B a n k in g a n d C u r r e n c y ,

Washington D. V., Wednesday, October 25,1893.
The committee met to-day at 10 a. m., Hon. William M. Springer in
th e chair. Hon. William H. Brawley, o f South Carolina, addressed the
committee.
STATEMENTS OF HON. WILLIAM H. BRAWLEY AND HON. JOHN L.
McLAUBDT, REPRESENTATIVES IN CONGRESS FROM THE STATE
OF SOUTH CAROLINA.
Mr. B r a w l e y . Mr. Chairman and gentlemen of the committee, I am
here simply to ask you to make a favorable report upon the bill which I
introduced, and which is before your committee, to remit the 10 per
cent tax upon those clearing-house certificates, notes, etc., issued dur
in g the late temporary financial stringency.
The C h a i r m a n . I will state that the number o f Mr. Brawley’s bill is
H . R. 3825, and is as follows:
A

B I L L to sanpend the operation o f tlie la w s imposing a ta x o f 10 per renttun npon notee i » u e d
du rin g the puriod therein mentioned.

Whereas certain banking associations, individuals and corporations, for the pur
pose o f relieving the financial stringency which has prevailed in all parts or the
country during the last few months, have issued what have been denominated clear
ing-house certificates and other notes and forms o f indebtedness which were designed
and intended to provide temporary relief for evils caused by a dearth o f currency
and which in many canes have been effectual to prevent greater calamities; and
Whereas it has been claimed that such certificates and uoteB are subject to the tax
imposed by law upon all notes other than national-bank notes: Therefore,
Be i< enacted by the Senate and Houneof Representatives o f the United States o f America
in Congress assembled, That the operation o f sections thirty-four hundred and twelve
and thirty-four hnndred and thirteen o f the Revised Statutes o f the United States,
and sections nineteen, twenty, and twenty-one o f the act approved February eighth,
eighteen hundred and seventy-five, and o f all other sections o f said Revised Stat
utes, and all acts and parts o f acts imposing a penalty o f ten per centum on the
amount o f notes o f any person or o f any bank or banking association used for cir
culation be, and the same hereby in, suspended, and nothing therein contained shall
b e bo construed as to impose any tax upon any certificates or notes which may have
been issued during the period between August first, eighteen hundred and ninetythree, and October fifteenth, eighteen hnndred and nine-three, and no such tax shall
be collected.

940—

17
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Mr. B r a w l e y (continuing). My colleague, Mr. McLaurin, has
already presented to the committee 011 previous occasions certain facts
connected with the issue o f those notes iu our section o f the country;
and it seems that there arose there a condition which made it neces
sary for 1 he banks to do something to relieve the stringency. I imagine
that those certificates will be retired probably at an early day—at least
that is the information which I have. I think that the Government of
the United States ought either to provide laws of its own for such elas
ticity in our currency system as would meet exigencies like these, or
else it ought to take its hands off and let the people take care of them
selves. The people in several towns in my State did devise some means
for relieving the stress to which they were subjected by the locking up
o f the currency in all parts o f the country, and their attempt did give
great relief to our people. So far as 1 know and believe, nobody has
suffered from the issue o f those notes which are called clearing-house
certificates. Those certificates, so far as I have seen them, were really,
in the shape o f bank notes.
M r . H a l l . H a v e y o u ex a m in ed section s 19 an d 20 o f th e nationalb a n k la w , fou n d on p a g e 59-----The C h a i r m a n , (interposing). It is mentioned in his bill.
Mr. H a l l , (continuing). W ith regard to the amount o f tax that

would be levied by the Government? A s to these two sections, some
.members hold one position, that these clearing-house certificates would
have to be used; while other members maintain that the law has refer
ence to tbe banks which issued them originally. Have you examined
that ?
Mr. B r a w l e y . I have not. Mr. McLaurin asked me to do so, but
I was engaged iu other matters and did not have an opportunity. I
have not read the law so as to come to any conclusion ou that sub
ject.
Mr. J o h n s o n , o f Indiana. Who drew this b ill!
Mr. B r a w l e y . I did, but rather hurriedly.
Mr. J o h n s o n , o f Indiana, It is intended to have operation only as
to such certificates issued between certain dates?
Mr. B r a w l e y . Yes, sir; that was the intent. I understood that
there were several bills which related to the general subject o f repeal
ing the act imposing that tax. I did not know what would be the fate
o f this bill, and it seems to me that a bill remitting the tax on those
certificates which were issued during the last three months would be
unobjectionable, even i f you should not conclude that it would be wise
to repeal the law altogether.
Mr. B r o s i u s . Have you any information at hand which will enable
you to advise the committee as to the approximate amount of certifi
cates o f that character issued during the interval mentioned, and about
how many banks issued them?
Mr. M gL a u r in . There were about $82,500 o f those certificates in
South Carolina, which were to be remitted on' or before the 1st of Jan
uary uext.
Mr. B r o s iu s . How many banks issued them?
Mr. M c L a u r i n . I think there were five.
Mr. B r o s i u s . W ere they State banks?
Mr. M c L a u r i n . The banks formed an association called the Colum
bia Clearing-House.
Mr. H a l l . W ere those State or national banks?
Mr. M cL a u r in . They were national banks and State banks. All the

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Columbia banks were in it. They formed a clearing-house association
and appointed trustees with whom deposits were made.
M r. B r o s i u s . Y ou are not asking relief for national b an k s!
M r. M c L a u r i n . They were all in the association.
Mr. BROsrus. Is there any objection to a national bank issuing cer

tificates o f that kind!
M r. M c L a u r i n . They were issued by the Columbia Clearing-House
Association under a charter from the State of South Carolina.
The C h a i r m a n . A national bank would be responsible i f it paid out
any o f those certificates!
Mr. B r a w l e y . There are two national banks in Columbia and I
think three State banks which are interested. They united to form
this clearing-house association and issued these notes to relieve the
people there.
M r. B l a c k . W ere such certificates issued in Charleston or anywhere
else in South Carolina, except Columbia!
Mr. M c L a u r i n . Only in Columbia. They were circulated to a cer
tain extent over most o f the State. I know there were some used in my
own section, and I am over 100 miles from Columbia.
M r. H a l l . Is there anything to prevent-the provisions o f your bill
being put into a bill to repeal the tax on State banks!
Mr. B r a w l e y . I think not. I think any general bill that might be
passed could with propriety include the section remitting the tax which
has already been incurred.
Mr. J o h n s o n o f Indiana. Would it not be better to prescribe that
the tax should be remitted upon such issue!
Mr. B r o s i u s . Has any effort been made to enforce the provisions o f
the national banking act against the issuers o f those certificates!
Mr. B r a w l e y . 1 understand that the collector o f internal revenue,
under directions from the Department here* has requested these banks
to report the amount o f these issues.
M r. B r o s i u s . But no assessment has been made upon these ban ks!
M r. B r a w l e y . Not yet, so far as I know.
Mi. B r o s iu s . There has been no judicial construction on the act

relating to this particular matter?
Mr. B r a w l e y . Not yet. I apprehend, though, that it is something
that will hang over them.
Mr. J o h n s o n o f Indiana. It will be resisted, o f course, if the act is
not passed?
Mr. B r a w l e y . Yes, sir; unless something is done to relieve them o f
the penalty.
The C h a i r m a n . Repeat what you said as to whether the Treasury
Department had taken measures to collect this tax.
Mr. B r a w l e y . I understand that the collector o f internal revenue
has been instructed to obtain information which would be necessary in
order to enforce the collection o f the tax. I have not heard that there
is any desire on the part o f the Treasury Department to enforce the
tax; but I know that the collector o f internal revenue has made
inquiries as to the amount of these certificates which have been issued,
and the impression prevails that the tax, or penalty, will be enforced.
The C h a i r m a n . W hat is your information as to whether any certifi
cates of this kind have been issued by clearing-house associations in
other States, or in other parts o f South Carolina?
Mr. B r a w l e y . I have no information on that subject. ,My impres
sion is that clearing-house certificates were issued by the New York

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Clearing House Association, but they were somewhat different in form.
The C h a i r m a n . Did those New York clearing house certificates pass
outside o f the members of the association in payment o f debts!
Mr. B r a w l e y . I have heard tbat they did not; but I do not know.
M y only knowledge on the subject arises from this: That one o f the
banks in Charleston, which is a United States depository, was called
upon to pay at the end o f each month to the Assistant Treasurer in
New York, as was the habit, the balances which were found against
the bank, aud the bank sent to the Assistant Treasurer in New York,
in payment o f that balance, a check upon the National Park Bank.
The Assistant Treasurer refused to receive that check on the ground
that the National Park Bank would pay that check iu clearing-house
certificates, while the Assistant Treasurer had withdrawn from theclearing-house in New York; thereby subjecting our local bank iu Charles
ton to some inconvenience and delay, and necessitating currency in
order to liquidate its balances. That is the only personal kuowledge I
have.
Mr. B r o s i u s . Did those certificates pass as currency among the
people!
Mr. B r a w l e y . I understood they passed in Columbia. None of
them have passed in my part o f the State.
M r. B r o s i u s . Y ou never have seen any in circulation!

Mr. B r a w l e y . I never have.
M r. M c L a u r i n . I have.
Mr. B r o s iu s (to Mr. McLaurin). Can you say, from any information
you have, whether their circulation was general or to only a limited ex

tent.
Mr. M c L a u r i n . The circulation is general. I f you get the copy of
the remarks I made before this committee, you will see all the informa
tion. I have a letter from*Governor Tillman which shows it. I have
noticed in the Columbia Register that the colle ’-tor o f internal revenue
had made inquiries as to the amount o f these notes in circulation, and
had given the banks notice that they would be required to pay the 10
per cent tax. I also notice in the Post that there is an association of
grain-elevator men in the W est who had received a similar notice, and
that they were making efforts to test the legality o f the claim exactly
as our association is doing in South Carolina.
Mr. H a u g e n . On what grounds!

Mr. M c L a u r i n . That it was not in the purview o f sections 19 and
20 o f the national-bank act.* The Columbia banks intend making that
claim also.
Mr. B r o s i u s . Y ou have no knowledge o f any assessments having
been m ade!

Mr. M c L a u r in . No sir; except that you can understand that the
revenue department o f the Government making a claim o f that kind
will paralyze the life o f those certificates. I t will put them under a
cloud. Persons will be afraid to take them, and banks will be afraid
o f them also.
Mr. B l a c k . A re they being issued now!
M r. M c L a u r i n . N o sir; the issuance o f them was stopped after that
notification.
M r. B l a c k . A r e they in circulation n o w !
Mr. M c L a u r i n . They were in circulation to some extent injthe early
* A c t o f F e b . 8, 1875* S u p plem en t t o R e v is e d S tatu tes, ch a p ter 36, p a ge 133.

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part o f the present month. 1 think the action o f the Treasury Depart
ment has caused the banks to withdraw as many as they could. The
president o f the Carolina National Bank, Mr. Clark, writes to me that
they will have them all out o f circulation very soon. In Governor T ill
man’s letter, he said that at that time it was about all the currency they
had to use.
The C h a i r m a n (to Mr. Brawley). Have you anything further to say!
Mr. B r a w l e y . I do not know that I have, except td say that, with
out expressing a lega^ opinion, it looks to uie as if there was imminent
danger o f those banks being subjected to this penalty. Those certifi
cates were issued really in the public interest to relieve the imminent
necessity, and I thought it was a proper case for the Government to
remit the penalty, assuming that these notes were obnoxious to the
law. I am inclined to believe they are.
The C h a i r m a n . Have you any suggestion to make as to the desira
bility o f prompt action upon the subject !
Mr. B r a w l e y . I think that the necessity has probably passed for
issuing these certificates. 1 imagine that none are now being issued;
but it would be a great relief to the banks and the people who may be
interested in them to have some actiou taken so that it can be decided
whether or not the penalty is to be attached.
Mr. B r o s i u s . N o injury can come to the issuers nil til an assessment
is actually made.
Mr. B r a w l e y . O f course not; but this penalty is hanging over
them.
Mr. B r o s i u s . T o remove it would satisfy their curiosity, but I am
speaking o f any actual injury to these issuers. Until an effort is made
ou the part o f the Government to collect the tax, the issuers are not
injured!
M r . B r a w l e y . A n effort is b e in g m a d e n o w .
M r . W a r n e r . I s it not a fact that no bank

would be justified in
paying a dividend while this liability hangs over them!
Mr. B r a w l e y . I think not.
Mr. W a r n e r . A stockholder thus affected might enjoin a bank
from paying a dividend.
M r. B

r a w le y

. I s h o u ld th in k so.

Mr. J o h n s o n , o f Indiana. Has any member o f the committee con
sulted with the Commissioner o f Internal Revenue with respect to this
matter----The C h a i r m a n . I have not. (No response Irom other members.)
M r . J o h n s o n , of Indiana (continuing). A s to what action he will
take and as to the feasibility o f a bill o f this kind i
The C h a i r m a n . I suppose Mr. Brawley has information.
Mr. B r a w l e y . I presume that the collector is acting under instruc
tions from the Department.
Mr. B r o s i u s . You say you are not aware o f any demand having
been made to pay this tax. A ll you have stated in the way o f informa
tion is that the collector has requested certain issuers o f these certifi
cates to furnish him information as to the amount that is in circulation.
Mr. B r a w l e y . W ith the view o f imposing the ta x !
M r . B r o s i u s . Is th a t y o u r in fe re n c e !
Mr. B r a w l e y . Yes, sir; otherwise it Would be futile.
Mr. B r o s i u s . And you have no definite information on that point!
Mr. B r a w l e y . N o , sir. I t seems to me almost certain that the pen
alty will be imposed. I do not see that there is any power any where

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to relieve the banks. The Commissioner o f Internal Revenue could not
remit the tax, uor forbear to collect it.
Mr. B r o s i u s . He can submit the question to the law department o f
the Government for a construction o f the law. That would be his duty
in the premises, and you do not know that he has done so, and you do
not know that the Department has given any opinion upon the subject*
or put any construction upon the act. You are not aware o f anything
o f the kiudf
Mr. B r a w l e y . I am not. Have you any doubt as to what construc
tion would be put upon i t !
Mr. B r o s i u s . The only thing, therefore, upon which you can pro
ceed is your general impression that such a taxation will be imposed?
Mr. B r a w l e y . Yes, sir; amounting in my own mind to a certainty.
Mr. H a u g e n . In answering Mr. Brosius, you asked whether he had
any doubt as to what construction would be put upon it. Is it a fact
that these people have taken steps to test it?
Mr. B r a w l e y . Yes, sir; they seem to have some doubts.
Mr. J o h n s o n , o f Indiana (to Mr. Warner). W hat was the amount
o f the clearing-house certificates issued in New York?
Mr. W a r n e r . $41,000,000. I may say that wbile as a member o f
this committee I shall promptly vote for a favorable report on this bill
with whatever amendments may be necessary to make it plain and
effective, yet, so far as it concerns the New York clearing-house cer
tificates, I never have had the slightest apprehension that any tax
would ever be collected upon them. The conviction at New York, in
which I join, is so strong (although some may doubt) that under prose
cution we should be able to show that they did not come within such
construction o f the law as is necessary to subject them to the penalty,
and therefore my constituents have 110 request whatever to make in
the premises. I do believe it is simply an outrage that the Govern
ment, having refused to supply the people with currency, not merely
put penalties upon national banks for supplying it in order to save
themselves from utter destruction, but, the people have gone farther and
utilized their business credit, the Government should take advantage o f
thelawandimposepenaltiesfortheir doing it. Sofaras tbe othermatter
is concerned, the question as to whether any officer should impose a
penalty, it seems to me that that is aliunde. The ordinary procedure is
for the collector to go and collect the tax, and not ask whether or not he
shall collect the tax. He must collect it.
Mr. J o h n s o n , o f Indiana. Your answer is quite extensive. I only
asked for information, and I did not suppose you would speak at such
length.
Mr. B r a w l e y . I should say that my immediate constituency are not
interested in this matter, nor is Mr. McLaurin’s, but the banks o f
Columbia issued these certificates under stress o f great necessity, and
we want to relieve them of such penalty. I am mucb obliged to the
committee for its kind attention.
Thereupon, the committee rose, to meet Friday, October 27, 1893,
at 1 1 a. m.

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Com

m it t e e

a n k in g

and

Cur

rency

Friday, November 3, 1893.
T h e Committee on Banking aud Currency met this day at 10 a. m.,
H o n . William M. Springer in the chair.
T he C h a i r m a n . Mr. Gresham, o f Texas, is now present, and will
address the committee.
STATEMENT OF HON. W A IT E R GRESHAM.
A

f l e x ib l e

currency

founded

b u l l io n

Mr. G r e s h a m . Mr. Chairman and gentlemen o f tbe committee: I
have no bill to analyze nor have I a prepared speech to deliver before
y o u ; therefore I will be glad for any gentleman who does not agree with
any statement I may make, or the conclusions to which I arrive, to
question me in regard thereto.
Mr. B r o s i u s . W hat is your bill ?
Mr. G r e s h a m . A s I have stated, I have no bill. 1 recognize the
fact that in a sparsely settled agricultural section, like the State I have
the honor in part to represent, more money is required to transact a
given amount o f business than is required for a like amount in a smaller
and more densely populated country. The reason for this is that where
you have a large population, with adequate banking facilities, your
people become accustomed to using checks, and 95 per cent o f your
business passes through the clearing houses, or is transacted by the
H8B o f checks upon banks; hence, the actual volume o f money required
foi the purposes o f your trade is not a measure by which you should
measure our wants. In our State, which is four or five times as large
as any other State in the Union, we have but about $28,000,000 invested
in banking institutions, and our banks are, in some instances, from
10 to 100 miles apart. The character o f laborers we have are not accus
tomed to handling checks, and, i f they were, the facilities for cashing
them are so insufficient that we are compelled to transact a large per
cent o f our business with cash; hence it is that our people are so clamor
ous for more money, bnt they want a dollar that is worth a dollar the
•world over.
Mr. Chairman, 1 believe tlie duty incumbent upon this committee of
formulating a system under which an adequate supply o f currency can
be had to transact, as economically as possible, the business o f the
whole country is o f more importance to our people and will be watched
by them with more interest than any measure that will come before
this Congress. I am in favor, first, o f the repeal of the tax upon the
circulation ot State bank notes, and, second, o f the remodeling ofthe
national-banking system. Our State constitution prohibits the incor
poration o f any company with banking or discounting privileges, but
even if this inhibition should be removed, our State and municipal
securities could not be utilized as a basis for State banking, as pro
posed by some gentlemen who have introduced measures that are now
ending before you. Our State has a bonded debt o f a little less than
4,000,000, over $3,000,000 o f which is to-day held in the vaults o f our
treasury to the credit o f our school fund, and the last purchase o f State
bonds made by our State was at the price o f 140. This school fund,
which now has in the treasury over $25,000,000 in interest-bearing
securities, and is increasing at the rate of about $2,000,000 per annum,
absorbs all o f the best municipal securities in our State as fast as they

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are issued. From this you will see that in Texas there is very little
probability o f our being able to create a banking system based upon the
class o f securities which are mentioned in the bills now before you.
Mr. H a l l . H o w about the municipal bondsT Have you municipal
bondsf
Mr. G r e s h a m . W e have, but our constitution limits the amount of
municipal bonds that can be issued, and nearly all are taken up by the
State as trustee, with her common-school, university, and asylum ftrads.
Mr. H a l l . You have the largest school fund o f any State in tiie
Union t
Mr. G r e s h a m . Yes; yet we tax 20 cents on the $100 on $800,000,000
o f values to carry on the public schools in addition to the amount tha;
we receive annually in interest on this $25,000,000.
The C h a i r m a n . This results from the fact that by the terms o f tht
admission o f Texas into the Union public lands belonged to the Statt
and not the United States?
Mr. G r e s h a m . Yes; Texas in the articles o f annexation reserved her
public lands. - I am iu favor o f the unconditional repeal o f thetaxupoi
State banks. I see it stated, and I have heard it asserted before this
committee, that i f we repeal that tax the country will be Hooded with
wildcat institutions, and some gentlemen have stated that they were
afraid to trust the State legislatures. 1 do not think we need hare
apprehensions upon that score, because whenever we throw the resporsibility o f supi>lying, partially even, the currency for the wants »f
commerce upon any State its legislature will make as conservative
laws, and I dare say as intelligent ones, as Congress will make. B it
there is another reason: The facilities for getting information as to tie
business standing o f corporations are so perfect that if any State wis
to pass a law under wliicli “ wildcat banks” could be incorporated, and
such an institution was so incorporated, the business interests of tke
whole country would know it in twenty-four hours, aud its “ shinplasters” could not circulate in its own county ; so 1 think there is no basis
for that objection. The business interests o f the country will regulate
and take care o f such matters if you will take off the tax.
A N A T IO N A L -B A N K SYSTEM .

1 am also iu favor, Mr. Chairman, o f a national-bank system. I rec
ognize the fact that we must inaugurate a policy in this country by
which its commerce must extend beyond our own borders. For reasons
uot necessary to mention here the surplus capital and the energies
of the American people have for the last thirty years been turned into
two channels. One is the building o f manufactories and the other in
the construction o f railroads. The productive capacity o f the manu
facturing establishments in this country now far exceeds the home
demand for consumption, and the building o f about 70,000 miles
o f railroad west o f the Mississippi River over the richest and most pro
ductive section o f this continent has about exhausted the territory for
profitable railroad building except as feeders to the great- trunk lines.
This country, which has been opened by railroads within a genera
tion, is inhabited by 15,000,(*00 o f the most energetic, self-reliant, and
industrious people the world ever saw, and though not more than 10
per cent o f its natural resources are developed, yet it to day produces
all your surplus cereals, your surplus hog products, and your surplos
beef products. My own State, which produces to-day one-third o f the
cotton raised in this country, can easily produce as much cotton as is
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now produced in the whole United States. W e have a large area o f
as fine wheat lands as there are on this continent, which are just begin
ning to be cultivated. Five years ago we imported about 12,000,000
bushels o f wheat in manufactured products. To-day we make more
than 50 per cent o f the wheat we consume.
Now sir, what is to be done with these surplus manufactured and
agricultural products. W e must find a market abroad; we are com
pelled to do it. W e expect to accomplish this result by reducing the
tariff and removing restrictions from American shipping, but then in
order to facilitate and control our commerce we should have a nationalbanking system that will provide a currency that will be recognized
the world over, and its exchange accepted wherever offered. Let me
give an illustration o f how our business is now done. There is a com
pany organized in my city, Galveston, that has invested a large amount
of Itaoney in Nicarauga in the raising o f bananas, cocoannts, and other
tropical fruits, yet the money used in raisiug and shipping these fruits
is paid in London exchange and the products brought to our port
under a foreign fiag and in a foreign ship. The coffee we import from
Bio is paid for and handled in the same way.
Our national-banking system was created for two purposes: First,
to create a market for the bonds o f this country when it was in the
throes o f a revolution, and, second, to establish a currency that was
stable and would circulate in all sections of the country at its par value.
Both o f those pnrposes were accomplished, and just so long as the price
of the Government bonds, bearing a high rate o f interest, was such aa
to enable the banks to make money by issuing currency they issued it,
and there was no trouble in this country for tlie lack of a circulating
medium, but when the Government reduced the interest upon its bonds
and the premium on them went up so high that the bank, after paying
the Government tax uj>on its currency, would have to lose, to the extent
it invested, its capital in Federal bonds as the basis for issuing currency,
many o f them refused to take out the amount o f currency allowed uuder
the law, thus contracting the volume of the money medium o f the country.
Mr. H a l l . They are not required to take out this money.
M r . G r e s h a m . N o ; aud the result is, that not being able to make a
profit on the currency in the great money centers, they are not taking
it out. The only reason the banks in the South and W est take out a
larger proportion o f currency is because the high rate o f interest they
receive enables them to make a profit upon it, notwithstanding the
high price they pay therefor.
Mr. H a l l . For fear you will not get back to that particular point, I
would like to ask you one question. Do you believe i f this State cur
rency o f which you speak is circulated in the States, and perform the
office o f interstate commerce, that that currency ought to be gotten up
in such a way as wonld make it perfectly safe and reliable in every other
State o f the Union I
Mr. G r e s h a m . I do not think that can be done. My own view about
that matter is that the Constitution o f the United States never contem
plated that with the internal relations o f the States the Federal Gov
ernment should have anything to do; but, conceding you have the con
stitutional right, I do not think it is policy for the General Government
to iu any way attempt to regulate State banks. I believe if you will
leave the States independent to act as they may think best that the
business sense and the commercial interests o f the country will regulate
their acts better thin Congress can.

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Mr. H a l l . Y o u did not catch my idea about it. I f you want this
currency you want a currency that would circulate in all the States o f
the Union?
Mr. G r e s h a m . I would have no objection to its so circulating; but I
do not believe in any State system hampered by Federal legislation.
Let us have a national-banking system supplemented by State banks.
I do not believe that the State currency would circulate much beyond
the confines o f the State where it was issued, and tbat whenever it was
forced, through the channels o f trade, to the great commercial centers
of New York, Chicago, St. Louis, Boston, Baltimore, Philadelphia, aud
other places it would as soon as possible go back to the State from
which it came.
Mr. W a r n e r . You regard that as a good thing and not as a bad
thing!
Mr. G r e s h a m . Yes, sir.
*
Mr. Cox. Along on that line, i f it will not interrupt you, in regard
to these State bank bills, when they go out and return to the home
banks what will be done with them!
W ill they be returned 'fo r
redemption! And if they come back for redemption they have to b e
redeemed in coin or legal-tender mouey. Now, how is that going to
work as far as the State banks are concerned ?
Mr. G r e s h a m . I would leave the question as to whether they should
be redeemed, and the terms of redemption, entirely with the State
legislatures. I do not believe that Cougress or a State legislature
should put it iu the power o f a corporation to contract or expand its
currency without limits.
Mr. Cox. I agree with you entirely; but the difficulty in my mind
lies in this point. I f these State bank bills are returned back to the
home bank, as you suggest, and in all probability they will, and they
go back to the home bank, now what is going to become o f them when
they get back to the home bank; are they to be redeemedf
Mr. G r e s h a m . I f they are presented for redemption they can be.
Mr. Cox. Then necessarily they must be redeemed in coin or legaltender money.
M r. G r e s h a m . Yes, sir.
Mr. Cox. So then, when you redeem, which is part o f the process we
are suggesting now, it would be to substitute legal tender money in
place of these and retire them f
Mr. G r e s h a m . My idea is, that the State banks should always be
able to redeem its notes in legal-tender, money and to reissue its notes
whenever its financial status and the conditions o f trade require it,
and that these banks, under proper State regulations will not flood the
country with a redundant currency.
Mr. Cox. One more word and then I am through. I understand your
idea is that these bank bills must be as good as legal-tender money or
any other money in order to float them; you can not get them out unless
they are that way. I agree with you entirely that they will be sup
pressed unless they are as good as other money; then there can be no
motive----■
M r . G r e s h a m . In w h a t !
Mr. Cox. Being returned to the bank for redemption ?
Mr. G r e s h a m . N o sir; but I think the tendency would be for State
bank notes to return to the State from which they were issued. They
would not be redeemed, or i f they were, would be reissued and kept in
circulation as long as the bank could make a profit on them and they

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267

were needed in the channels o f trade. They would be as nationalbauk notes are to-day. A s long as they are needed by the business of
the country and the people know they can and will be redeemed on
demand, they continue to circulate and are not presented for redemption.
Mr. W a r n e r . May I ask the gentleman from Texas whether, if
there be comparative freedom to issue money which can be taken out
b y the banks in localities, the result would not be the banks in each
locality in order to keep the land free about them for the circulation of
th eir own notes which they could themselves put out at a protit, would
n o t return the notes o f other banks as fast as possible for redemption t
Mr. G r e s h a m . Certainly.
Mr. W a r n e r . And that without reference to the worth o f the money
b u t in order to issue for themselves?
Mr. G r e s h a m . That is exactly what they do in Canada to-day.
Gentlemen, I now come to my idea o f a national-banking system. I
d id not intend to dwell so long on State banks, but I am glad you
h ave questioned me in relation thereto. A s 1 said I have no bill pre
pared, but I want Congress to devise some plan that will furnish relief
t o the people o f my section o f the country. A s I stated a little while
ago the national-banking system accomplished two purposes. It made
a market for the bonds and it supplied the country with a safe and
uniform currency that circulated at par over the entire country.
The national character o f this currency has become interwoven into
our system o f business, and I do not believe that we can or ought to
eliminate it. The people o f this country to-day would not, in my opin
ion, be willing to part with it. It has shown its value and utility as a
circulating medium worth par the world over that no other currency
that we have ever tried in this country has possessed, and I do not
believe that the people will part with the idea. Now, I know I am
touching upon a point here which has divided the political parties o f
this country and in the older countries has caused the business men to
shrink from it, and that is the right o f the Government to interfere
with banking in any shape whatever. I believe that the United States
and Russia, and possibly one other country, are the only governments
in the civilized world that issne the currency direct to the banks.
'
In Germany, France, Sweden, Austria-Hungary, and England the
government creates a banking corporation with prescribed powers for
issuing notes to circulate as money under certain restrictions and
limitations. ifow, i f this country is to adopt a similar system, that is,
create a Federal bank, with power to issue currency upon securities
held b y it, under terms to be prescribed by law, then our present law
would not even form a basis for such a system. I do not believe such
a change can or should be made, or that it would meet the wants o f a
large and rapidly developing country like ours, however well it may
work iu England, Germany, and other small bnt thickly settled
countries. Believing it best to amend and perfect our present banking
system so as to meet the wants of this country, the question is, How
can this be accomplished? I think it can be done by amending the
present law in the following particulars:
First. By broadening and extending the class o f securities to be
deposited with the Government as a basis for it to issue currency to
the banks; and, second, by prescribing an elastic provision under
which the banks can obtain more currency whenever the wants o f
trade demand it.

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BROADENING AND EXTENDING THE CLASS OF SECURITIES.

W h e n e v e r a c o rp o ra tio n is o rg a n iz e d w it h t h e re q u is it e am o u n t o f cap
it a l, it s h o u ld in v e s t, s a y , o n e -h a lf o f its c a p it a l in o n e o r m ore o f the
fo llo w in g s e c u r it ie s :

(1) United States bonds at their par value;
(2) United States legal tender coin;
(3) Gold and silver bullion at its market value; and deposit the same
in the United States Treasury and receive therefor an equal amount in
United States legal-tender Treasury notes, which should not be allowed
to be retired except upon the surrender o f the bank’s charter. As to
the exact percentage o f tbe bank’s capital that should be required to
be thus invested and deposited I am not now prepared to state, but
am inclined to think 50 per cent larger than necessary, but for the
argument will take that percentage.
A company organized with a cash capital o f $100,000 invests $50,000
o f it in United States bonds, in United States legal-tender coin, and
in gold and silver bullion, or either o f them, and deposits the same in
the United States Treasury and receives therefor Treasury notes in
amount equal to the face of tlie bonds and coin and to the market
value of the bullion, the Government to be protected against'the fell
in value of the bullion in the same way it is now protected against the
fall in the market value o f bonds. Similar securities to those here
mentioned as the basis for a banking system are used for that purpose
in Sweden, aud bullion is used as security to the Government in Canada
for notes issued by it to the banks.
W hile the issue o f Treasury notes upon legal-tender coin would not
increase the volume o f currency, yet their substitution for coin wonld
save the abrasion and a large per cent o f the expense incident to
handling and transporting such money from one section o f the country
to another. They would also be much more convenient for and popular
with the people than gold or silver coin.
AN ELASTIC CURRENCY.

The greatest defect in our national system o f banking is its want of
elasticity, the effect o f which is, at certain seasons o f the year when a
large amount o f currency is required to move the crftps, to cause a
money stringency in all sections o f the country, but particularly in the
W est and South.
I f for any cause the banks in the money centers o f the country are
unable or unwilling to supply the demand, then the banks in the agri
cultural sections, in order to get money to move the crops, are com
pelled to call in their loans, to pay which the debtor classes have to
sacrifice their property or pay a much higher rate o f interest, and are
frequently unable to meet their obligations at any price. In order that
the country might at all times have a sufficient amount* o f currency to
meet the demands o f commerce each bank should have the right to
receive from the Treasury an additional amount o f legal-tender Treasury
notes, not to exceed the amount issued to it when it was incorporated,
the amouut o f notes received by it in no instance to exceed the amount
o f its unimpaired cash capital. For the use of this “ additional cur
rency” the bank receiving it should pay into the Treasury interest at
the rate of from 4 to 10 per cent per annum for the time it is kept in
circulation.
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T h e Government, to secure itself against loss that it might sustain
b y reason o f the issue o f this “ additional currency,” should create a
redem ption fund to consist o f the interest collected on the “ additional
cu rren cy” and the money received from an annual tax upon the Treasury
n otes in circulation—as the banks are now taxed—until such redemp
tio n fund shall equal, say 8 per cent o f the Treasury notes outstanding;
th eu the tax to cease. The Government should also have a first lien,
in ca se o f failure, upon all the assets of the bank.
T o illustrate as before: The bank with a cash capital o f $100,000
cou ld, in addition to the $50,000 issued to it on its securities deposited
in t h e Treasury, receive an additional amount in currency not to exceed
$50,000, for which it must pay interest at the rate o f from 4 per cent
to 1 0 per cent per annum for the time it keeps snch “ additional
cu rren cy” out. The result would be that as soon as the demand for
th is “ additional currency” ceased and the bank could not make a profit
b y keeping it in circulation, it would surrender it to the Treasury for
cancellation and stop its interest.
T h ese suggestions for an elastic currency are almost identical with
th e provisions o f the Canadian banking system, while the tax upon
th e “ additional currency” was suggested by a similar provision in the
G erm an law.
M r. J o h n s o n , o f Indiana. How about the interest that the banks
w ou ld charge their customers! O f course they would have to lend it
a t rates over the- amount you tax them extra. Would not that make
th e people pay a higher rate of interest!
M r. G r e s h a m . I do not think it would. Assuming the amount of
cap ital invested in national banks to be $700,000,000, this system would
com pel the banks to take out $350,000,000 o f currency, which would
b e over $150,000,000 more than they now have outstanding. Again,
whenever the business o f the country required more money than the
banks had in circulation, the banks could, by paying interest, take out
“ additional currency” to the extent o f $350,000,000 more. This would,
1 think, have a tendency to lower rather than raise the rate of interest.
M r. Cox. Just there, right on that line----M r . J o h n s o n , o f Indiana. I was simply speaking o f the interest
which the customers pay the banks.
Mr. G r e s h a m . I w i l l com e to th a t in a m in ute.
.
Mr. Cox. I understand your theory there. Suppose the Government
issues these notes; your idea is that the Government should issue them !
Mr. G r e s h a m . Yes, sir; I think it would be better; you would have
to change the whole system i f you did not do it.
Mr. Cox. I understand that. Do you mean to convey the idea that
the Government is to be liable for these extra notes issued, which you
call additional currency!
Mr. G r e s h a m . I would make the Government absolutely liable.
Now, I want to answer Mr. Johnson’s objection that the tendency would
be to make the interest too high.
Mr. J o h n s o n , o f Indiana. I did not put it as an objection; it was
simply a query.
Mr. G r e s h a m . W ell, I want to answer that question. In certain
seasons o f the year the banks in the great commercial centers o f this
country—even now—become full o f money and they find it difficult to
lend at a good rate o f interest. When such conditions arise under the
proposed system, these banks would rediscount the paper held by the
banks in the South and W est at a less rate than those banks could
obtain additional currency from the Treasury. The effect o f this would
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be to lower the sate o f interest our banks would have to pay and
thereby enable them to let our people have money at a cheaper rate.
Mr. J o h n s o n , o f Indiana. That might make the interest low in a
section o f the country where money was congested, but how would it
out in the sparsely settled communities?Mr. G r e s h a m . Those banks could go to the Treasury and obtain “ ad
ditional currency” to the extent o f 50 per cent o f their capital upon the
terms I have stated. When money becomes cheap in the East and
other money centers o f the world they will go to our country and, if we
have the right kind o f security, possibly let us have money a little
cheaper than our banks could get it under the provisions o f the proposed bill.
Mr. J o h n s o n , o f Indiana. Is that relying upon foreign money?
Mr. G r e s h a m . I t is relying upon money from all quarters of the
globe.
Mr. W a r n e r . May I not ask the gentleman from Texas, is it not also
a fact, no matter what the condition might be, upon the issue of an
additional currency to meet a financial stringency, so long as these con
ditions are possible to be complied with, that the result will be in any
case to make the interest o f money less than i f that supply, no matter
how inadequate, were not there?
Mr. G r e s h a m . That is true.
Mr. J o h n s o n , of Indiana. Would not the consciousness, on the part
o f those whom you think would take out this extra amount o f money ot
which you speak, that the congested money centers would do precisely
as you say, underbid them in regard to interest, prevent first-class
bankers from taking that money out?
Mr. G r e s h a m . Even then the country would be benefited by getting
a lower rate of interest.
Mr. J o h n s o n , o f Indiana. I t might prevent the application for this
additional money?
Mr. G r e s h a m . Suppose it did; the additional money is to meet an
emergency. I f the wants of trade do not demand it, it will not be taken
out.
Mr. B r o s i u s . Ton propose to meet an elastic demand by an elastic
supply?
Mr. G r e s h a m . That is the idea.
Mr. B r o s i u s . Well, now, I infer at all times the demand for money
has been o f that character, elastic; that there is more demand iu some
seasons than m others.
Mr. G r e s h a m . And in some countries more than others.
Mr. B r o s i u s . And under our national-banking system there has
been some degree o f elasticity— that is to say, the banks could take oat
more or less?
Mr. G r e s h a m . They had to buy Government bonds and pay for them,
and then receive only 90 per cent o f their face value in currency.
Mr. B r o s i u s . W ell, having the Government bonds, they have not
in the past exhausted their right to take out currency. I want to direct
your attention to this condition o f things which has struck me as being
a little singular. Banks will not always meet an elastic demand when
they have in their own hand the control of elastic appliances to do so.
A short time ago, when we were very much in need o f currency, it was
supposed that the national banks o f this country were short of their
legal issue under the bonds already deposited, $7,000,000, right in the
midst o f a season when the demand really reached the very summit,
yet that elastic appliance already provided for by our national-bank
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law was not applied by the national batiks. Now, will it be under your
system?
Mr. G r e s h a m . A s a general rule the banks, a s long as they could
make a profit on the currency, they took it oat; particularly was that
the case in the W est and South, where the rates of interest are higher
than in the money centers. I f you adopt the plan suggested the banks
w ill have the power to get the “ additional currency,” whenever it is
needed, direct from the Treasury, and to that extent will be independ
ent o f the banks.in the great money centers. W e can pass no law
that will make the banks o f the South and W est absolutely independ
ent, for we have not accumulated capital sufficient to transact the
business or supply the wants o f our country, and must look to the
accumulated wealth o f the East for our money supply.
Mr. B r o s i u s . I wish to direct your attention to another point. Is
there any measure or. any scheme which is p rop osed — and I recognize
a great deal o f merit in what you state— to enable the banks to take
advantage o f their right to increase that circulation in certain seasons
o f the year, and not to make that increase in seasons when that tends
to unduly increase the circulation.
Mr. G r e s h a m . I think the best answer I can make to that proposi
tion, in addition to what I have already stated, is that in Canada where
a similar provision has existed for some time the banks have never issued
a surplus o f currency or experienced a money stringency like those we
so frequently have in this country. Under the limitations and restric
tions proposed I think we can safely leave this matter to the business
sagacity and conservatism o f the banks.
Mr. B r o s i u s . The Canadian system seems to work very well in some
respects. The English system is absolutely restricted, and they have
had to suspend the operation o f the act three times since 1844 to get
currency. Now, some o f the money philosophers o f this country, have
been trying to deduce a scheme by which a system will be flexible and
elastic in a way such as you propose, and to have this elasticity avail
able at the time when it is needed without making it available at a time
when it is not needed.
Mr. G r e s h a m . That is the whole problem and is attempted to be
solved in the manner proposed. Now, England recognizes the fact that
sometimes----Mr. B r o s i u s . I b e g your pardon.
Mr. G r e s h a m . She wants an elastic currency.
Mr. B r o s i u s . Oh, yes^ she recognizes she needs it.
Mr. G r e s h a m . She recognizes she needs it and on three different
occasions she has had to give assistance to her bank, but the condi
tions in a small country like England, where there is so much capital,
are very different from what they are in a new country like ours. In the
W est where our people have built up the country by their energy and
on borrowed capital the English banking system would not meet our
wants.
Mr. J o h n s o n , o f Indiana. Speaking abont the matter o f which I
spoke to you a minute ago, I want to see i f I have your idea o f it.
Mr. G r e s h a m . Certainly.
Mr. J o h n s o n , o f Indiana. Taking an agricultural country, where
they raise cereals in order to market crops at certain seasons, you say
there is an unusual demand for money at that time. Now; is it your
proposition that the banks may increase their circulation in the way
you have stated, and that while this increased circulation is taken out
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M r . G r e s h a m . T o a re d e m p tio n fu n d .
Mr. J o h n s o n , o f Indiana. It does not make

any difference; they pay
the tax and they do notget it. Now, bankers will not lend money unless
they can make a profit. O f course, they have to charge enough to reim
burse them for this tax imposed besides charging for loauing that
money!
Mr. G r e s h a m . Yes, sir.
Mr. J o h n s o n , o f Indiana. Do I understand you think the congested
or surplus capital at that time in the great money centers, which does
not seek to enlarge itself by taking out an additional circulation, that
such banks would enter in competition with the money taken out and
cut down the rate of interest!
Mr. G r e s h a m . Yes, sir; I think they would.
Mr. J o h n s o n , o f Indiana. And not keep it beyond a point at which
a profit will be made after paying the tax ?
Mr. G r e s h a m . Yes, sir.
Mr. J o h n s o n , o f Indiana. You think that-would decrease the
interest from what is now paid!
M r. G

resham

. I th in k so.

Mr. W a r n e r . A s the gentleman has referred to the Canadian system,
as well as the German system, may I not ask, further, is it not a fact, in
the preparation o f the question I am about to ask, that the Canadian
system permits an issue of from 75 to 100 per cent o f the capital, bat,
as a matter o f fact, the issue rarely rises above 50 per cent, and that, as
an actual fact, the elastic currency runs about 16 to 20 per cent. Now,
what I was about to ask you is this: the Canadian system having
demonstrated that far below the margin o f safety suggested by the
gentleman there is still a field for two or three times the amount of
elasticity that is found by experience to be needed. Now, I want to
• •ask, further, whether there would be any objection, instead o f imposing
this 4 or 5 per cent tax, to simply put on a graduated excess tax, yon
might so call it, so that there should be no tightening without a supply
for any length o f time, but a gradual increase o f tightness as that sup
ply was increased!
Mr. G r e s h a m . I see the point ypu make, and I would have no objec
tion to it. I failed to state in regard to the redemption fund that
while Canada limits this to 5 per cent o f the bank’s capital, I would limit
it here to 8 per cent o f the currency issued by the Government to the
banks, because the experience o f the national banks in the last twentyfive years has demonstrated, I believe, that one-tenth o f 1 per cent tax
upon all the circulating notes issued by the national banks would pay the
notes o f the failing banks. Therefore, I think, a redemption fond equal
to 8 per cent o f the currency would be ample to protect the Government.
Mr. W a r n e r . Y o u would regard it as a gain and not a detriment to
make the'tax a graduated one!
Mr. G r e s h a m . Yes; Ithinkso. Mr. Chairman, there is one other feat
ure I would suggest, which has worked in Sweden, it seems admirably,
and for forty-two years they have had no bank failures there, and that
is whenever a bank examiner ascertains that the capital o f any bank
has been impaired to the extent o f 10 per cent it shall be required,
within thirty days, to make its capital good or the Government will
take charge o f it.
Mr. B r o s i u s . Have not we something o f that kind under our pres
ent banking law !
Mr. G r e s h a m . I do not think it is 10 per cent.

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M r. B r o s i u s . I d o n o t k n o w a b o u t th e p e r cent. I d o 'not re c o lle c t
it s p e cifically , o n ly iu a g e n e ra l w a y .
M r. J o h n s o n , o f Indiana. You were speaking o f your State as being

a sparsely settled community and there being a great deal o f demand for
money at a certain time, and spoke about the impossibility o f using
checks, but that everything was done 011 a cash basis?
Mr. G r e s h a m . In some sections o f my State a large per cent o f the
business has to be transacted with cash.
Mr. J o h n s o n , of Indiana. How would you remedy that defect and
get money out in those sparsely settled sections! O f course there must
be something to give for that money so that you can get it there.
Mr. G r e s h a m . In our State, as it is generally in the South and
West, the people are in debt. W e have a new country and have not
had time, in the nature o f things, however great our natural resources
are, to accumulate much capital. The minute you furnish facilities for
the transaction o f business, capitalists seeing the great possibilities in
our country for profit will invest their money with us. in my State in
18891 think we only had but $15,000,000 of banking capital and nearly
all invested in the national banks. In eighteen months thereafter it
had increased 50 per cent. Where did that money come from f Who
were the owners o f that national-bank stock? O f course the bulk o f
it is owned by our people, but a large per cent is owned by the people of
the East who have confidence in the integrity o f the managers o f these
banks and in the ability and integrity o f our people to meet their
obligations.
Mr. J o h n s o n , of Indiaua. They would hardly establish them in a
community unless there was some demand, unless there was money to
be loaned, unless there were discounts?
Mr. G r e s h a m . In my State I .know that money has been so tight
that frequently the people have had to pay 2 per ceut a month for its
use. G ive us a good banking system and this would never occur.
Mr. J o h n s o n , o f Indiana. To what do you attribute it?
Mr. G r e s h a m . I 11 the first place because the field is so great for
speculation they can sometimes afford to pay it for a*short time.
Mr. J o h n s o n , o f Indiana. W as it not because you did not have the
things on hand to give for the money!
Mr. G r e s h a m . O f course in a new country we have not the kind
of collaterals that banks usually take. But with a good banking
system money would come into our State and the rates o f interest would
fall. The legal rate o f interest iu our State for the last two years has
been reduced to 6 per cent.
Mr. J o h n s o n , o f Indiana. Is it not a fact that there has always
been a scarcity o f money in a sparsely settled country?
Mr. G r e s h a m . O f course.
Mr. J o h n s o n , o f Indiana. And can any system be devised that
will obviate it !
Mr. G r e s h a m . I think if you will give us a good banking system,
capital will seek through the banks investments in our State. O f
course, you can not by legislation give us plenty o f money, but if you
will give us the facilities for handling our business, we can find capital
that will help us until we can accumulate it.
Mr. B r o s i u s . Does it not strike you it would be natural for the
.business people o f Texas to provide themselves with the facilities to
transact their business ! Suppose the Government o f the (Jnited States
would rain down a shower o f greenbacks on your soil to-day----Mr. G r e s h a m . W e d o n o t w a n t th a t.
940----- 18
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Mr. B r o s i u s . W hat would become o f that? Would it stay there?
Mr. G r e s h a m . No, sir; it would gravitate back to tbe money cen
ters o f tbe world.
Mr. B r o s i u s . Just the same as the water which falls goes to a river
or tbe ocean?
Mr. G r e s h a m . I t would go just where we owe it. W e do not ask,
gentlemen, the people o f Texas do not want, anything1 but a sonnd
dollar, but they want facilities to handle their business so they can
save a part o f that dollar.
Mr. B r o s i u s . Did I understand you to say that your constitution
prohibited you from banking?
Mr. G r e s h a m . Yes, sir.
Mr. B r o s i u s . You said awhile ago, I do not know whether yon
meant to say it or not, that it prohibited any corporation from doing a
discount or banking business?
Mr. G r e s h a m . I t does. I t prohibits the creation o f any corpora
tion with banking or discounting privileges.
Mr. B r o s i u s . Do you not have banks there?
Mr. G r e s h a m . Yes; they are nearly all national banks.
M r. B r o s i u s . D o y o u n ot h a v e a n y S tate b an k s?
Mr. G r e s h a m . W e have a few State banks incorporated

between
1869 and 1874. This inhibition was put in our constitution in 1845,
and it has been there ever since except during the interval between
1869 and 1874.
Mr. B r o s i u s . And you have no State banks?
M r . G r e s h a m . N o n e , e x c e p t a s I h a v e s ta te d .
Mr. B r o s i u s . But you had no private banking institutions!
M r . G r e s h a m . N o , sir.
Mr. J o h n s o n , o f Indiana. I want to get at one matter we were talk

ing about. Suppose money was flooded in this country, how would it
obviate the difficulty which you now have in these thinly settled
agricultural Mistricts ?
M r. G r e s h a m . T o get banks?
Mr. J o h n s o n , o f Indiana. No, to get money.
Mr. G r e s h a m . I think i f you would give us a

good banking system
moneyed men would establish banks in every section of tbe country
where the wants o f commerce required it, and in that way we would get
relief.
Mr. J o h n s o n , o f Indiana. W hat I am trying to get at is a remedy
for this scarcity o f money in certain seasons o f the year in your agricul
tural sections.
Mr. G r e s h a m . Whenever you make it to the interest o f the people
in the East who have money to invest it with us they will do it.
Mr. J o h n s o n , o f Indiana. How will mouey become more plentiful by
that fact?
M r . G r e s h a m . Y o u g i v e th e p e o p le th e fa c ilitie s to h a n d le what
th e y h a v e , th e ric h e s th e y h a v e a lr e a d y a c c u m u la te d , a n d th e y with
th e a id o f c a p it a l fro m a b r o a d w i l l m a k e m o n ey .
Mr. J o h n s o n , o f Indiana. They put their money, o f course, wherever

they can get the best returns. I f they can get it in my section they
will go there and put their money, and i f they can get it in your section
they will go there and put their money, o f course.
,
Mr. G r e s h a m . O f course they will, and in that Western country,
where the facilities are so great for money making on account of its
natural resources, we pay more for the use of money than they do or
can afford to do in older and less productive sections o f our country.
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I f I liad the time I would like to discuss the national-bank system
with branch banks, not only as it would affect the needs o f this country
but also its utility in developing and building up our foreign com
merce.
The C h a i r m a n . You can add that to your remarks if you desire.
Mr. B r o s i u s . I would be glad i f you would say what you have to say
now, and let the reporter take it down.
Mr. G r e s h a m . I t is a question involving too much to be discussed
within the time the committee could now give me.
The C h a i r m a n . The gentleman has the privilege o f extending his
remarks i f he wishes.
STATEMENT OF HON. GEOEGE W. COOPEE.
Hon. G e o r g e W . C o o p e r , a Representative from the State o f Indi
ana, next addressed the committee iu behalf o f the following b ill:
A B IL L to subject to State taxation national-bank notes and United States Treasury notes.

Be it enacted by the Senate and House o f Representatives o f the United States o f Amerioa
in Congress assembled, That all circulating notes o f national-banking associations and
all United States legal-tender notes and all other notes and certificates o f the United
States payable on demand and circulating as cnrrency shall not be exempt from tax
ation under the authority o f any State or Territory: Provided, That any such taxa
tion shall be exercised in the same manner and at the same rate that any such State
or Territory shall tax other money within its jurisdiction.
S e c . 2. T h a t th e p ro visio n s o f th is a c t sh a ll n o t b e d eem ed o r h eld t o ch a n ge
e x is tin g la w s in resp ect o f th e ta x a tio n o f n a tion a l-b a n k in g associations.

Mr. C o o per said: Mr. Chairman and gentlemen o f the committee, I
beg leave to call your attention to a bill which I have introduced, the
provisions o f which authorize the States and Territories to tax the cir
culating notes o f national banks, the legal tender Treasury notes,- com
monly called greenbacks, and all other notes and certificates payable
on demand and circulating as money.
The C h a i r m a n . This is House bill 4326.
Mr. C o o p e r . Yes, sir; Mr. Chairman, we are in this singular situa
tion : The Government o f the U uited States has in circulation very
many different kinds o f money, in fact our financial system, if it may
be called a system, is a piece o f patchwork, the result of experiment,
necessity, aud compromise. W e have gold, silver, nickel, and copper,
greenbacks, natioual bank notes, gold certificates, silver certificates,
Treasury notes, currency certificates, aud perhaps other kinds which I
can not now name. In most o f the States and Territories efforts are
made to tax money as other personal property is taxed, but owing to
existing laws great difficulty is experienced in subjecting this class o f
property to its fair share o f the burdens o f taxation. A ll obligations
o f the Government, including those which circulate as money, are by
law exempt from local taxation. There is, therefore, a temptation
offered to all such as are in search o f methods to avoid taxation to
convert other property and money into these forms about the time
when property is to be listed for taxation.
A n d I am sorry to say there is also not only the temptation, but a
disposition to report property and money as being held in forms exempt
by law, when in fact it is not so held. So much is this done and so
widespread is the evil that it has furnished the subject for litigation
in the courts o f many o f the States, and in the Supreme Court here.
It has b£en repeatedly denounced in political platforms and so far as 1
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know defended no where. In fact this condition seems to be the result
more of oversight than o f any purpose, and why it has continued so
long it is impossible to tell. .
Mr. B r o s i u s . You •advance the argument as oue reason for taxing
one thing is that you tax another; then why should you not tax the
United States bonds?
Mr. C o o p e r . W ell, that is an entirely different proposition. I do
not say that I should not favor the taxation o f bonds, but there is some
reason why that might be inexpedient, while I can see none whatever
against taxing the currency. Bonds must be negotiated subject to
whatever burdens they may bear; if we subject them to local taxation
the Government would be obliged to pay a higher rate o f interest and
in the end the result would be the same.
The C h a i r m a n . W hat is the average rate o f State, county, and
municipal tax in the county in which you live?
Mr. C o o p e r . Well, that varies somewhat in the counties and town
ships, but I should say $1.50 for State and county and $1 for the city.
The C h a i r m a n . That is $2.50.
Mr. C o o p e r . Two and a half per cent.
T h e C h a i r m a n . Y o u b e lie v e th a t g r e e n b a c k s c ir c u la t in g as money
s h o u ld b e s u b je c t to th is t a x o f t w o a n d a h a l f p e r c e n t; is it your
o p in io n t h a t g r e e n b a c k s w o u ld c irc u la te a m o n g y o u r p e o p le i f th ey were
s u b je c t to a t a x o f t w o a u d a h a l f p e r c e n t f
Mr. C o o p e r . Gold and silver circulate. I do not mean to impose

any special burden upon this class of currency, but siftiply put it on an
equal footing with all the other.
The C h a i r m a n . Silver certificates are not taxable, are they!
Mr. C o o p e r . Yes, sir, I presume so. There might be a question in
regard to Treasury notes issued for the purchase o f bullion under the
law o f 1890; there might be some question as to that, but silver cer
tificates circulating areas taxable as silver would be. They are nothing
but certificates o f deposit.
The C h a i r m a n . I s there no daugcr o f the States taxing the G ov
ernment issues out o f existence, if permitted!
Mr. C o o p e r . The proposition I make is that they be taxed as other
money and to no greater extent.
Mr. S p e r r y . Would you refer to the statutes in which they are
exempt from taxation !
Mr. C o o p e r . Yes, sir—section 3701 o f the Revised Statutes reads
as follows:
S e c t i o n 3701. A ll stocks, bonds, Treasury notes, aud other obligations of the
United States, shall be exempt from taxation by or under State or municipal or
local authority.

The C h a i r m a n . They are Government securities!
Mr. C o o p e r . Yes, sir; they are obligations o f the United States.
The C h a i r m a n . Then they are not taxable by the decision of the
Supreme Court of the United States!
Mr. C o o p e r . N o , sir; I think this question was first decided in a
case brought by the bank o f New York and reported in 7 Wallace
United States Supreme Court Reports. I f you w ill look at that case
you will find that while the court held that under the law these obli
gations were exempt, the court was also clearly o f the opinion that
there was no good reason for the exemption and that it was within the
power o f Congress to render them subject to local taxation. Gentle
men, i f you will look at some o f these decisions you will see. to what
extremes men have gone in their efforts to avoid taxation by means of
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this condition o f our laws. Take for instance tlie case o f Mitchell vs.
Board o f Commissioners' o f Leavenworth County, Kans., reported in
91 United States Supreme Court Reports. The facts in that case were
as follows (p. 206):
This case presents the following facts: Mitchell, plaintiff, kept his account with
On the 28th o f t ebruary, 1870, he had a balance
to his credit o f $19,350 in current funds, for which he that day gave his check, pay
able to himself in United States notes. They were paid to him. He immediately
inclosed them in a B e a le d package and placed them for safe-keeping in the vault o f
the bank. On the 3d o f March ne withdrew his package and deposited the notes to
his credit. This was done for the sole purpose o f escaping taxation npon his money
on deposit.

a banking firm in Leavenworth.

It is true that this particular tax dodger did uot succeed, but it was
because he had mistaken his remedy and goue into a court o f equity
instead o f resorting to his legal remedy. While he failed, thousands
every year succeed.
There is a case reported in the 59th Iudiana; the case o f Ogden,
treasurer, vs. W alker (page 460), in which the following state o f facts
is presented:
I t appears by the complaint that the plaintiff owned and had in his possession on
tbe 1st day o f April, 1873, $5,681 in greenbacks. When the assessor called upon him
he furnished a fall and true list o f his personal property, which was duly appraised
by the assessor at $943. The assessor then called npon him for the amount o f money
on hand on April 1, to which he replied that he had no money on that day except
greenbacks, which he was not, in his opinion, required to list

This gentlemen was more fortunate and succeeded in avoiding the
tax. I need not multiply these cases because this practice is so com
mon that it has not escaped the observation o f any whose attention
has been directed to the subject.
Perhaps the most common and uniform use o f this advantage is
taken by the banks. Their opportunities for doing so are superior to
all others, they handle all o f the currency and it is very easy to cull
out and lay aside that class of money which will enable them to avoid
taxation. Let me also call your attention to the fact that the banks
are using these notes more and more to make up the sum o f their law
ful reserves. In the last annual report o f the Comptroller o f the Cur
rency on pages 164,165, you will find a statement showing a classifica
tion o f the reserve held by all the banks o f the States and Territories
and also o f the reserve cities. This statement shows that these banks
are carrying in their vaults as a part o f the reserve required o f them
by law about $100,000,000 in legal tender.
A t the date of the last call, which was September 30,1892, the sum
held by all the banks was $104,267,945. It will also be seen i f glanc
ing down the column by years how this kind of money has grown in
favor as a reserve fund. For instance iu 1886, the first year given
here, the sum was $62,812,322, from which amount it has gradually
increased to over one hundred millions. Here then you see is $100,000,000 exempt from local taxation in the hands of the banks alone, but
I have no doubt whatever that this amount, by one and another device,
is greatly increased about the time at which property must be listed
for taxation. I have been told that this money is shifted from State to
State, for the dates at which property is listed for taxation differ in
the States. In Ohio the date is the second Monday in A p ril; in Indiana
the first day in A p ril; in Illinois the first day o f May. Here you can
see how it is possible for this money to be used in three States. You
may suppose it will not be done; you may think it even incredible that
it is done, but I show you that it is possible, and I assure you that I
have heard o f its being done. I t ought not to be possible.
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But, gentlemen, it is even worse thau this; yon will see by the
language o f the bill that national-bank notes are also included. And
right here 1 ought to say that this bill is not original with me. It was
introduced precisely in this form by Senator George, o f Mississippi,
both in the Fifty-first aud Fifty-second Congresses. However, 'exSenator McDonald, o f Indiana, I believe, was the first to introduce the
bill; this was in the Forty-sixth Congress. But I was going to say
that the supreme court o f Mississippi has decided that national-bank
notes are also exempt from taxation. This decision is based upon the
language o f the statutes defining “ Obligations o f the United States,9
which reads as follows:
S e c . 5413. The wonlB “ obligations or other security o f jthe I ’nited States” shall
beheld to mean all bonds, certificates o f indebtedness, national bank, currency,
coupons, United Status nottjs, Treasury notes, fractional notes, etc.

The lauguage o f this decision on this point will be found on page 454
o f the 52d Mississippi lieports, and is as follows:
2.
The national bank notes issued by the national banking associations, under
the authority o f Congress, are also obligations o f the National Government, the
only difference between them and the legal tender notes being that the Government
is primarily liable for the latter, and secondarily liable for the former, upon the
failure or default o f the national bank issuing the notes/. Acts o f February 25,1863,
March, 3, 1863, Jnue 3, 1864, and June 30, 1864.

I do not think this case is followed by any o f the courts elsewhere,
but it serves to show how uncertain and ill-defined the law is upon this
important subject. Then, too, as has been suggested, here now come
the new Treasury notes issued under the Shermau law, and the gold
and silver certificates; these all raise the question and offer the tempta
tion. Now, gentlemen, ought we not in justice to all the people either
make all o f this money subject to taxation or relieve it all.
AS TO TH E POW ER.

I have been asked whether we have the power to render this property
taxable. I have already said that the Supreme Court, 7th Wallace,
clearly indicated that we had the power; in fact, I think the court
strongly intimates that we ought to do so. I quote from that decision
on page 30:
But it was insisted that they [speaking o f the greenbacks] were issued as money;
that their controlling quality was that o f money, and that, therefore, they were
subject to taxation in the same manner, and to tlie same extent, as coin issued under
like authority. And there is certainly much force in the argument. It is clearthat
these notes were intended to circulate as money, find, with the national bank notes,
to constitute the credit currency o f the country. Nor is it easy to see that the taxa
tion o f these notes, used ;is money, and held by individual owners, can control or
embarrass the power o f the Government in issuing them for circulation, more than
like taxation embarrasses its power in coining and issuing gold and silver money
for circulation. * * *
And we think it clearly within the discretion o f Congress to determine whether,
in view o f all the circ-nmstances attending the issue o f the notes, their usefulness,
as a means o f carrying on the Government, would be enhanced by exemption from
taxation.

In discussing this question, in his work on taxation, Judge Cooley,
on page 84, says:
But the sovereignty, in whose interest the exemption exists, is fully protected if
it controls in respect to taxation; and it may, in its discretion, permit its own
agencies or its own property to be taxed by the other, under limitations prescribed
by itself, as the Federal Government has permitted the States to tax the national
banks as they tax other moneyed corporations within their jurisdiction.

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W IL L IT CONTRACT TH E ' CU RRENCY ?

Your chairman asks me whether subjecting these notes to taxation
will not-drive them out o f circulation! I think, on the contrary, it will
dri-ve them into circulation. There are $346,000,000 in greenbacks.
Where are they! Who sees one? I t can hardly be said that they are
in circulation at all; instead o f being the money o f the people, as it
once was, it is hoarded by the banks and hidden by the miser, and
clearly, it seems to me, because o f its exemption from taxation. You
can not get silver to circulate; the banks won’t take it; they prefer
greenbacks and other Government obligations, plaiuly because they
are exempt from taxation while silver is not. Do we not all know that,
when auy special value attaches to one kind o f money, it immediately
disappears? I t is so in this case. I f we pass this bill, we will drive
this money from its hiding and put it in motion.
Now, gentlemen, in conclusion let me say that in each o f our State
constitutions we have some provision which requires taxation to be
uniform and equal. W hy, in Indiana our legislature at one time
passed a law exempting to widows a certain sum from taxation, and
the supreme court decided it unconstitutional.
she were a banker
and had it in greenbacks she might be exempt; i f she were poor
and her property only a home to shelter the orphans, it could not
escape taxation. There is no more reason why one kind o f money
should be exempt from taxation where it all passes at par than there is
for exempting any o$her species o f property. You might as well
exempt a white horse or a red cow. While you gentlemen are now
investigating these subjects with a view to reforming our currency sys
tem, I hope you will not overlook this much-needed reform. W e ought
either to make all the money taxable or relieve it all, for I do not
exaggerate when I say that the present condition is a most fruitful
source ot fraud, injustice, and crime.
This is all I desire to say, gentlemen, and I thank you for your kind
attention.
The committee thereupon rose to meet on Tuesday next, if Congress
is in session; and i f not, to meet on the first Tuesday in December.
STATEMENT OF HON. JOSEPH H WALKER, REPRESENTATIVE IN
CONGRESS FROM THE STATE OF MASSACHUSETTS.
On December 8,1893, on motion o f Mr. Warner, Mr. W alker was
given the privilege o f subinittiug to the Committee any remarks npon
his currency bill, and o f having them printed with the hearings o f the
Committee.
Mr. W alker submitted the following:
Mr. C h a i r m a n a n d G e n t l e m e n o f t h e C o m m i t t e e : The impor
tance o f the work which devolves primarily upon us and upon the
present Congress, in composing the finances o f the country after thirty
years o f empirical practice, is impossible o f realization to anyone who
has not made a careful and exhaustive study of present conditions in
order to comprehend the chaotic condition of our finances as compared
with the symmetry and strength of the financial systems o f other firstclass powers.
A strong and well-knit financial system, one that can safely stand
the shock o f war or civil commotion, is o f the very first importance.

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In fact, it ranks before an army or a navy, in international importance,
as it does to domestic prosperity. To day, as always, the sinews of
war is money. Not gold or silver. Their day as munitions o f war, has
departed, never to return. A financial system that enables a nation to
avail itself of its utmost resources in time o f war without oppression to
asingle/city or town, or even a single citizen, but distributes its burden
with the gentle pressure o f the air over every man o f its millions of
people, even over many years of its generations, makes a nation invin
cible, not only in creating an army aud a navy, but in sustaining and
handling them. From military considerations are we bidden to do oar
work diligently and well.
W e have recently entered most brilliantly upon the development of a
navy commensurate with our greatness in speed, j*>wer, and evolution.
For a republic whose geographical position is almost unassailable
and which has an impregnable fortress in the heart o f each one of
sixty-five millions o f people, our army is'ideal.
Upon us is devolved the duty o f fashioning a financial system that
will allow every nerve and sinew o f this people to be made effective,
without loss or hindrance to industrial progress in time o f peace, and
also to converge them at one time and place and without loss or shock
to tlie people iu their daily avocations, in time of war.
For want o f such a financial system, when the late civil war broke
out, our debt was piled up to half as much again to double its normal
size. Should we enter to-day upon a foreign war of large dimensions,
our finaucial experience would be scarcely less disastrous.
Our experience with a most abnudant but' not flexible currency
has been most bitter in time o f peace. A hundredfold more bitter
would it be in time o f war, even if it did not utterly break down But
I am not alone in this opinion when I say to you if a great war should
be entered upon, it would break down utterly and irreparably. It
would be a repetition upon a more gigantic scale o f our financial expe
rience o f 1861.
INAD EQ U ACY OF TH E PRESEN T B AN K IN G SYSTEM.

A banking system that will not run smoothly and successfully under
the most adverse circumstances is a banking system not worth talking
about. A banking system that does not provide for spece payments
and for the suspension o f specie payments, a banking system that will
not run smoothly during the most gigantic foreign war or intense civil
commotion and civil strife, is not worthy o f our attention. Our present
system not only will break down in the conditions named, but it has
not run economically aud safely iu normal conditions. It never has
maintained specie payments, in and o f itself, by its own working, for
a day, since it was inaugurated. W hile seeming to do so, its safety
has really been secured by the voluntary action of our banks outside
the law and at great peril and at unreasonable expense and risk to
the people, caused wholly by the position in which the Government is
placed with reference to our currency. This was abundantly proved
in the finaucial crisis just ended, as it has been in every preceding
• monetary disturbance. Our abounding national strength and vigor
has made us blind to defects which would have given pause to a less
virile people.
I can not fully describe the perjls o f the situation in the time allotted
me; neither can I fully present the advantages o f a banking system

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such as is developed in the bill H. R. 171, which I had the honor o f
drafting and in advocacy of which I now address yon.
T E X T OF B IL L H. B.

171.

A BILL to secure totbe people the advantages accruing from tlie isBue of circulating promiR-sory nctes
by banks, to increase the volume of snch notes, and to supervise and oontrol banks by officers of
the United States.

B e it enacted by the Senate and House o f Bepreientatires o f the United Stales o f America
i* Congress assembled, That national bunking associations organized for the trans
action o f business under this act shall be subject to existing law excepting as is
hereinafter provided.
Sec . 2. That any bank incorporated by special law, or auy banking institution
organized under a genera) law o f any State, may become a national banking associ
ation under this act by the name prescribed in its organization certificate; and in
snch case the articles o f association and the organization certificate may be executed
by a m ajority o f the directors o f the bank or banking association; and the certificate
shall declare that the owners o f two-thirds o f the capital stock have authorized the
directors to make •such certificate and to change and convert the bank or banking
institution into a national banking association. A majoritv o f the directors, after
executing the articles o f association and organization certificate, shall have power
to execute all other papers, and to do whatever may be required to make the organ
ization perfect and complete nnder this act. A majority o f the board o f directors o f
each association organized under this act, and not less than three in number, shall
be o f persons who perforin no other regular service for the association. Any bank
ing association organized and doing business under existing law o f the United States
by g ivin g notice to the Comptroller o f the Currency o f its aesiresoto do, may organze nnder this act, with the approval of the Comptroller o f the Currency.
Sec . 3. That every association organized nnder this act, before it shall be author
ized to commence a banking business, shall deliver to the Treasury o f the United
8tates, United States legal-tender notes, or coin, or coin and bullion certificates, or
mixed, as provided in section four, in amounts as follow s:
First. Every association having a capital not exceeding two hundred and fifty
thousand dollars, an amount equal to not less than one-tenth o f the capital stock.
Second. Every association having a capital in excess o f two hundred and fifty
thousand dollars, an amount not less than twenty-five thousand dollars. The notes
issued in blank under section four shall never be less than fifty per centum o f all the
promissory currency notes issued to the association.
S e c . 4. That, upon a delivery o f coin, coin or bullion certificates, or United States
legal-tender notes, or mixed, to the Treasurer, the association making the same shall
be entitled to receive from the Comptroller o f the Currency promissory currency
notes o f different denominations, in blank, registered and countersigned as provided
by existing law, equal iu amonnt to the coin, coin arid bullion certificates, and
United States legal-tender notes delivered; but at no time shall the total amonnt o f
all currency notes supplied to and issued by any association nnder this section and
section five exceed the amonnt o f its capital stock at such time actually paid in.
The law fu l description o f notes issued nnder this section shall be “ greenbacks.”
S e c . 5. Thai the Comptroller o f the Currency may issue, in blank, to any associa
tion, and the association may issue, promissory currency notes o f different denomi
nations, as provided in section nine, in addition to the promissory currency notes
described in section fonr, not to exceed in amount a sum equal to the sum o f its
reserve held during the first year o f its corporate existence. Thereafter he may
issne to any association the notes described in this section to the amount o f the
average reserve held by that association during any six consecutive months o f the
previous year ana recall the same from any association at any time in order to reduce
the volume o f snch notes held by any association to the amount o f the reserve
averaged to be held during any six consecutive months o f the previous year. The
amount to be issued to or retained by any association under this section sHall be
annually or oftener, at his discretion, ascertained and determined by the Comptroller
o f the Currency. The promissory currency notes provided for by this section shall
have printed on them a different affirmation from those described in section four.
The lawful name and description o f notes issued under this section shall be “ reserve
notes:’’ Provided, That the notes issued in blank in compliance with this section
shall never be more than fifty per centum o f all the promissory currency notes issued
in blank to the association.
Se c . 6. That the Treasurer shall forthwith redeem and destroy existing United
States legal-tender notes issued nnder acts passed before July first, eighteeuTiundred
and ninety, in such manner as he may deem proper, equal iu amount to ninety per
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centum o f tlie aggregate ol'tbe coiu, coin certificates, and United States legal-tender
notes received for promissory currency notes, in blank, issued under section four,
and the Treasurer shall set aside ten per centum o f such aggregate paid in for the
redemption fnnd, as deseribed-in section fourteen.
Sec . 7. That when tlierfe shall lie no more in amount o f the legal-tender notes
described in section six outstanding, then the amount o f tbe reserve fnnd then held
by the Treasurer under existing law for the redemption o f such notes, the reserve
fnnd so held shall then be set aside and used only to redeem and cancel snch notes,
and from that date so much o f all acts and parts o f acts as authorize, require, or per
m it the issue or reissue o f snch legal-tender notes shall have no force or validity,
and thereafter such notes shall nob be held in the cash reserve fund o f any national
banking association. Upon the execution o f the preceding provisions o f this section,
the provisions o f section six concerning legal-tender notes issued under acts passed
before July first, eighteen hundred and ninety, shall apply to Treasury notes issued
under the act o f July fourteenth, eighteen hundred and ninety, so long as snrh notes
are paid into the Treasn.y or presented for redemption. Thereafter the ninety per
centum shall be covered into the Treasury as a miscellaneous receipt.
Sec . 8. That i f any banking association organized underthis act neglects or refuses
to tnke aud issue currency notes, as provided for iu section four, to tlie amount aver
aged to be taken and issued by three-fifths o f all national banking associations
organized under this act o f like or nearly like capital and deports, and doing the
same or nearly the same class o f banking business done by snch banking associations
when directeii so to do by the Comptroller o f the Currency upon a notice issncd by
the Comptroller o f the Currency and approved by the Secretary o f the Treasury, and
fails to take the currency circulating notes directeii to be taken by said officers for
the period o f three months, it shall be liable to and shall pay into the TreasiiTy of
the United States a duty equivalent to twelve per oentum per annum upon the face
value o f the notes it is directed to take and fails to take so long as the failure con
tinues. The Comptroller*of the Currency may classify and reclassify or group
together, in whole or in part, at any time he may deem proper, banks organized under
this act, for the purpose o f executing the provisions ol this section, ana the decision
o f the Comptroller as to what class or group any particular bank belongs in shall be
final, when approved in writing by the Secretary o f the Treasury, until snch time
as the bank shall be placed in a different class or group by tbe Comptroller of the
Currency.
The Comptroller may issue to any association organized under this act notes
described in section fonr to any amount approved o f in writing by the Secretary of
the Treasury, in addition to the amount described in section four, provided the
association apply ing for snch additional notes shall deposit with the Secretary of the
Treasury, bonds in kind and amount acceptable to the Secretary o f the Treasury, as
security for such notes, and shall pay such rate o f interest per annum on such notes
so issued as is required by law to be paid ou loans when no rate o f interest is fixed
in the obligation by tbe State in which the bank is located. Snch interest on such
notes to be paid at such time and iu such uianner as the Secretary o f the Treasury
may determine.
•
Any association depositing bonds and receiving currency notes secured thereby as
herein provided may withdraw such bonds so depositod after ninety days from the
date o f such deposit upon paying the accumulated interest on the notes issued upon
the deposits o f such bonds up to the date o f their withdrawal, and in addition to
snch interest shall deposit with the Comptroller lawful money or circulating prom
issory notes issued to associations under section four o f this act, or mixed, to an
amount equal to the circulating notes issued to the association for which tht; bonds
were deposited for security, but no more than ninety per centum on the par value of
any bond shall be issued in currency notes o f section four and no more than live per
centum o f the notes issued to any other association under section four o f this act
shall be accepted as a deposit for the redemption o f such bonds and the cancellation
o f snch notes. The circulating notes so deposited shnll be immediately put in
redemption and the lawful money received for them shall be kept as a special fund
with which to redeem and destroy the amount o f Buch uotes as are described in sec
tion fonr aud issued to the association under this section o f this act, and such notes
shall be destroyed equal in amount to the notes issued to the association in excess
o f those issued to it under section four o f this act.
Skc. 9. That in order to furnish suitable promissory currency notes for circulation
as money, under sections fonr and five, the Comptroller o f the Currency, under the
direction o f the Secretary o f the Treasury, shall furnish snch notes, in blank, to
banking associations entitled to receive them, and every provision o f this act shall
apply equally to the promissory currency notes issued under sections four and fire:
Provided, however. That notes issued under section five shall not be cotinted in any
reserve fund; and the notes issued under section five shall be finally redeemed and

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paid as provided in section seventeen; and notes issued under section four shall be
finally redeemed and paid as provided in section thirteen.
S e c . 10. That the ‘ cashier o f any association, with tbe approval o f the board o f
directors in writing properly certified to the Comptroller, ana with the approval o f
the Comptroller, may appoint a deputy to affix the cashier’s signature to the circu
lating notes issued to the association, but such deputy shall not be a'regu lar
employee o f the bank.
S e c . 11. That any association, upon giving to the Comptroller o f the Currency
six months' notice o f its intention so to do, may, at the expiration o f that period,
surrender its promissory currency notes, or any part o f them, issued under section
four, in excess o f the amount it is required to take, and receive coin, or coin or
bullion certificates, or mixed, therefor. Any association, upon giving to the Comp
troller o f the Currency one year’s notice o f its intention so to do, may close up its
business, and, dissolving its organization, may surrender such promissory currency
notes and receive coin or coin or bullion certificates or mixed there'or from the
Treasurer o f the United States upon surrendering the same to the Comptroller, and
upon lik e notice in like manner any association which reduces its capital stock may
deposit a like proportion o f such promissory cnrreucy notes iu excess o f the amount
it is required to have in section three o f this act, and receive coin or coin or bullion
certificates or mixed therefor, and the Treasurer o f the United States is hereby
authorized and directed to pay the cnrrency promissory notes herein described as
they are presented, out o f any moneys in the Treasury not otherwise appropriated,
and the Treasurer shall' forthwith destroy the same in the manner prescribed by la w ;
and any association may reduce its promissory currency notes issued to it under
section five o f this act by surrendering them for destruction to the Treasurer o f the
United States, and the Treasurer shall destroy the notes ro surrendered in the
manner prescribed by law. The liability o f any association for notes issned under
section live shall neither be canceled nor reduced in any other manner: Provided,
however, That the doing by an association or others o f any one o f the things pro
vided for in this section mnst be with the approval and permission o f the Comp
troller o f the Currency.
Sec . 12. That any association, at any time within two years next previous to the
date o f the expiration o f its original or extended corporate existence under this act,
and w ith the approval o f the Comptroller o f the Currency, may, by amending its
articles o f association, extend its period o f succession for a term fixed by the
Comptroller o f not more than thirty years from the expiration o f the period o f suc
cession named in the articles o f association, and shall have succession for snch
extended period. But such amended articles o f association shall not be valid until
the Comptroller shall have given to the associatiou a certificate o f approval thereof.
Every association organized under this act shall have tbe right to extend its cor
porate existence for a further period or periods, so that its whole life under this act
shall not be less than thirty years, imd all certificates o f authority sliall be so
issued by the Comptroller o f the Currency as to expire as nearly equal in number
and amount o f capital as is practicable in each year o f a period o f thirty years.
Sec. 13. That upou the expiration o f the corporate term o f any association organ
ized under this act and its corporate existence not extended by the Comptroller o f
the Currency, or upon the voluntary surrender o f its cnrrency notes, or upon the
insolvency o f an association, or by the order or with the consent o f the Comptroller,
approved by the Secretary o f the Treasury, the Treasurer shall redeem the promis
sory currency notes issued to the association under the provisions o f section four o f
this act. In redeeming the promissory cnrrency notes issued under section four o f
this act he shall do so in coin o f the same intrinsic value as the nominal value o f the
money deposited by the association for the issue o f the notes in blank upon the date
ofsach deposit.
.
S e c . 14. That the Treasurer shall at all times keep and have on deposit in the
Treasury o f the United States iu coin, or coin and bullion certificates, for the redemp
tion fund o f each association, the ten per centum provided in section six, to be held
and used for tbe cnrrent redemption o f both kinds o f its promissory currency notes;
and when the currency notes o f any association organized under this act, assorted or
unassorted, shall be presented for such redemption to the Treasurer o f the United
States, in sums o f five hundred dollars, or any multiple thereof, the same shall be
forthwith redeemed. The right to confer the dntios and responsibilities o f executing
the provisions o f this section, and o f other sections or parts o f sections o f this act
relating to the redemption fund provided for in section six, upon reserve banks, under
such regulations as he may deem safe and proper, and to deposit the redemption fund
or funds provided for in section six in such banks, taking ample security therefor, is
hereby conferred npon the Treasurer o f the United States, with the approval o f the
Secretary o f the Treasury; bnt any snch deposit shall not be counted as a part o f
the reserve o f such bank. The Secretary o f the, Treasury shall publish in one o f the
three papers having the largest circulation in business circles in New York City a list o f
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thesecurities and the amonnt o f each kind accepted by him to secure anv and all
deposits made in any bank.
s e c . 15. That to enable the Treasurer o f the United States to fand the circulating
promissory notes issued under section four, the redemption o f which by liim is pro
vided for in this act, and to enable him to execute the provisions o f section seven*
teen, the Secretary o f the Treasury is hereby authorized to issue ou the credit of
the United States coupon bonds or registered bonds, redeemable at the pleasure of
the United States after two years, and payable ten years from date, and bearing inter
est at tbe rate o f four per centum per annum, payable semiannually; and the bonds
herein authorized shall be o f such denominations, not less than one hundred dollars,
as may be determined upon by the Secretary o f the Treasury, and the Secretary
o f the Treasury may dispose o f such bonds at auy time, at the market value thereof,
for ooin, or coin or bullion certificates or mixed.
Sec . 16. That any association designated by the Secretary o f the Treasury as a
depositary o f public money may be required by the Secretary to keep ou hand on
account o f such deposits such reserve fuud as he may deem expedient; but snch
deposits by the Secretary shall not be coanted in computing the reserve required
nnder existing law.
Sec. 17. That whenever, in the opinion o f the Comptroller o f the Currency, the
complete redemption and retirement o f all promissory currency notes issued to and
by any association is then necessary for the protection o f the holders o f such notes,
the Comptroller may take possession o f all the assets o f such association and pro
ceed to create a fuud ample for the redemption o f such notes by first setting aside
for such fund all the currency notes issued to associations under section four and
all the coin or coin and bullion certificates held by the association. The Comp
troller shall set aside and cover into such fnnd all or so much o f all the assets o f the
association as shall be necessary to make up such fund to redeem snch notes, and
the Comptroller, after completing a fnnd sufficient for the complete redemption and
retirement o f such notes, and not before, shall deliver the remaining assets to the
association; and the Treasurer'of the United States shall use the fund created as
above for the final redemption and the retirement o f tbe promissory currency notes
issued to the association under section five o f this act; ana the balance o f said fund
so created over and above the amount reqnired for the final redemption and destruc
tion o f snch notes, i f there be any, shall be paid to the association from which it
wafc taken. In doing the things provided -in this section the Comptroller is hereby
authorized to sell aay part o f the property o f the association or to pledge the*whole
or any part o f the property or assets o f the association at any time as security for
any loan he may elect to make in order to create the fund herein mentioned. If,
after complying with the preceding requirements o f this section, there is not a
sufficient sum to redeem all the currency notes issued to the association nnder sec
tion five o f this act, the Secretary o f the Treasury is hereby authorized and directed
to at any time make up the deficiency in the fund necessary to finally redeem and
cancel such notes out o f any moneys in the Treasury not otherwise appropriated,
and from the proceeds o f the sale o f bonds iu like manner as provided in the case
o f currency notes issued under section four and surrendered to the Treasurer nnder
section eleven o f this act: Provided, howerer, That the accounts kept by the Treas
urer o f the United States, o f the moneys received by him under section nineteen o f
this act, show at the time o f making up such deficiency that the money so received
exceeds the moucy before paid out by him in the redemption o f snch notes by a sum
equal to or larger than the sum necessary to make up the sum needed in the case,
and not otherwise.
Sf.c . 18. That each association shall increase its Teserve ou account o f its issue o f
circulating notes issued to and by it under section five o f this act the same percent
age it would be reqnired by law to increase its reserve were its deposits increased
by a sum equal to the sum o f snch notes in circulation, all o f which increase o f its
reserve may be in balances dne the association from approved reserve agenta. The
cash reserve required by law to be kept may be iu coin, or in coin certificates, or in
promissory currency notea issued under section four o f this aot, or mixed; but when
the daily total reserve o f an association averages less for auy month than the
amount required to be kept by it at all times by existing law it shall pay'into the
Treasury o f the United States a duty for that month equivalent to interest, at the
rate fixed by law in the State where the association is located, on the amount o f
average deficiency in such reserve for that month; and every association organized
under this act shall pay into the Treasury o f the United States a duty on that part
o f its average daily cash reserve required by law that is averaged to be kept, in any
month, iu notes issued to banking associations under section four o f this act, at the
rate o f two per centum per annum; and whenever any association fails to pay in
coin or coin certificates on demand the promissory currency notes signed and issued
b y it such association shall pay an additional duty at the rate o f four per centum
per annum on the whole amount o f the sura o f the lawful reserve it is required at

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all times to have on hand until such payment is resumed. Not less than fifty per
centnm o f the coin and coin or bullion certificate reserve provided for in this act
shall be in gold coin or gold certificates, and fifty per cqntnm may be in silver coin
or silver certificates, and any excess o f silver com and silver certificates over gold
coin and gold certificates shall be connted as though they were promissory currency
notes issued under section four o f this act. Nothing in this section and no action
taken by any association under this act shall bar any action taken or proposed to be
taken by the Comptroller under section seventeen o f this act.
Sk c . 19. That in addition to all other taxes or dnties provided for in this act each
association organized under this act shall pay into the Treasury o f the United
States a tax equivalent to one-tenth o f one per centum per annum on the average
amount o f currency notes issued to and rctaiued by it under section five o f this act,
fo r the purpose o f anticipating the redemption and destruction in certain cases o f
the currency promissory notes issued to associations under section five o f this act.
The Treasurer o f the United States shall keep an account o f all moneys paid into tbe
Treasury under this section and all moneys paid out o f the Treasury on account o f
the redemption o f such notes.
In order to create an obligation to guarantee at certain times certain individual
deposits in associations organized under this net and to provide against loss to the
U nited States Treasury in making such guarantee, each association organized under
this act shall pay into the Treasury o f the United States as a miscellaneous receipt
a tax equivalent to one one-hundredth o f one per centum per annum on its average
individual deposits until snch time as tlie aggregate, o f such taxes paid into the
United States Treasury by such association exceeds in amount the sum o f one
m illion o f dollars, and such taxes shall cease at such time as the Secretary o f the
Treasury shall determine and before suoh aggregate amount o f taxes paid reaches
the sum o f one million five hundred thousand dollars. The taxes imposed in this
Bection shall in any case be paid by each bank organized under this act when
directed so to do by the Comptroller o f the Currency until such time as tbe aggre
gate o f all the taxes'paid by it approximates its fair proportion o f the aggregate
o f a ll such taxes paid by all the associations organized under this act. The
approximate to be measured and determined by the Comptroller by the average
individual deposits o f the association as compared to the average aggregate indi
vidual deposits o f all the associations organized under this act. Whenever the
aggregate o f all the taxes collected under this section o f this act does not exceed
tne aggregate o f all sums paid out J>y the Treasurer on account o f the guarantee o f
certain individual deposits herein provided for by the sum o f one million dollars,
the Comptroller o f the Currency is hereby authorized and directed to reimpose such
taxes upon each association to make good the guarantee fund herein created, and
each association shall pay such taxes for such time as the Comptroller shall direct
and fo r such time as w ill make the aggregate o f all the taxes paid by each associa
tion under this section, as compared to the aggregate o f the taxes paid by all thg
associations nndnr this section, approximate proportionately to its average indi
vidual deposits as compared with the average aggregate individual deposits o f all
the associations organized under this act: Prorided, however, That no association shall
be liable to pay any tax, and no tax shall be levied upon it under this section when
the proportion o f the sum o f all taxes then in the Treasury that it has paid in equals
the sum o f one-tenth o f one per centum on its average individual deposits for the last
preceding five years.
Each association shall be entitled to receive, and the Treasurer o f the United
States is^ hereby authorized and directed to pay to each association, out o f any
moneys in the Treasnry not otherwise appropriated, and at, such time and in such
manner as the Secretary o f the Treasnry shall determine, interest on the remainder
o f the aggregate sum o f all the moneys it has paid into the Treasury o f the United
States nnder this section and then therein at the rate o f four per cent um per annum:
Provided, however, That in ascertainiug the remainder o f the sum paid into the Treas
nry by any association that is then therein there shall be deducted from the aggre
gate each association has paid in under this section its equitable and proportionate
part o f all sums paid out o f the. Treasnry under this section.
When, in the opinion o f the Comptroller o f the Currency, an exceptioual financial
condition exists or is impending that threatens the paralysis o f business and the
stopping o f industries to the great injnry o f the people, by crippling or temporarily
destroying the nsefulness o f all banking associations in the country by threatening
the withdrawal o f deposits from conservatively-managed and clearly solvent bank
ing associations because o f abnormal conditions o f unreasonable fear which is man
ifesting itself, the Comptroller o f the Currency is hereby authorized and directed,
with tne approval o f the Secretary o f the Treasnry, to issue an order o f guaranty by
the United States, and to guarantee for ninety days certain iudividual deposits in
all or any one o f the banking associations organized nnder this act, which order
may be twice extended for the same or a shorter period, bnt in no case shall such
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order be extended to cover more than eight consecutive months: 1‘roridtd, ltd*ever,
That such order o f guarantee shall include only individual deposits in associations
organized under this act, but in no case Bhall such order o f guarantee lie held to
include sums due Irom insolvent institutions to public or private banking associa
tions or banking firms o f any kind or the deposits o f any officer, director, or employee
o f any banking institution whatever, or to any stockholder holding stock at the par
value o f two thousand dollars or more in any corporate or private banking institu
tion whatever, nor to individual deposits niude for a definite time. The Treasurer
o f the United States, upon the order o f the Comptroller, approved by the Secretary
o f the Treasury, in hereby authorized and directed to pay to any depositor in such
manner as he shall determine any sums due such depositor because o f the making
and issuing o f any order o f guarantee described in this section, iu the same manner
as is provided in sections thirteen and fifteen in the case o f the redemption o f notes
issued under section four. No order o f guarantee herein mentioned shall operate to
change or abolish in any manner any liability or obligation imposed by law on any
hanking association or upon any officer, director, stockholder, or employee o f any
hanking assoeiation whatever, or o f any other person. The liability o f the Treas
urer o f the United States on account o f any order o f guaranty that may issue under
this section concerning any deposits in any association that may be affected by any
act done under this section shall not be increased because o f any losses to any indi
vidual or any association caused by any fraudulent act committed by any person
employed by or connected with any assoeiation that fails to promptly pay its depos
itors because o f insolvency during any period covered by any order o f guaranty
issued under this section.
Sec . 20. That the Comptroller may at all times know the condition o f each bank,
and what duty is dne and collectible from it, each bank shall make such record at
the close o f each day as the Comptroller shall request, in a book kept for that pur
pose, which record shall show the total amount o f its outstanding promissory cur
rency notes issued to it under section five o f this act, and its total deposit account,
and its total reserve account, as shown by its books at the close o f each business
day, and o f what the reserve consisted, which daily record o f deposits, reserve, and
currency notes, and other matter requested by tbe Comptroller, shall be made up
for each month, and a copy or report thereof transmitted to the Comptroller o f the
Currency on or before the tenth day o f the followiug month; and the duty upon the
averages o f the kinds o f money whioh made up the reserve during that month, and
all taxes aud duties imposed by this act, shall be collected semiannually on the
first day o f April and the first day o f October in each year. The records and reports
provided for m this section, and any other facts and data he may request, shall he
m such form as the Comptroller shall direct.
Skc. 21. That before making the record for the day, as provided in section twenty
or required by the Comptroller, every transaction o f that day pertaining thereto
shall be duly entered in the books o f the bank. A ll moneys hereafter received from
the duty or taxes collected from banking associations over and above the cost to the
Government o f maintaining the bureau o f the currency shall be covered into the
Treasury as a miscellaneous receipt.
S e c . 22. That there is hereby created the office o f natioual-hank examiner in cjiief,
who shall be appointed by and be under the direction o f the Comptroller o f the Cur
rency, and shall be paid the sum o f three thousand dollars per annum, in addition
to the necessary expenses incurred by him in traveling. The examiner in chief shall,
under such direction, supervise aud direct all other bank examiners, and be paid
out o f the appropriations lor the bureau o f the currency. The national-bank exam
iners shall be held to be employes in the office o f the Comptroller o f tbe "Currency
when examining associations organized under this act, and their fees shall be paid
ont o f the appropriation for the bureau o f the currency.
S f.c . 23. T h a t d ivid en d s to shareholders s h a ll be p a y a b le b y any a ssoeiation orga n
ize d u n d er th is a c t sem ian n u ally ou such d a y as th e C o m p tro lle r s h a ll a p p ro ve .
S k c . 24. T h a t a ll cu rren cy p rom issory notes re c e iv e d b y an y association s h a ll be
c a re fu lly assorted, and o f those issned tinder section s fo u r and fiv e o f th is a c t that
are p a id ou t b y it, those issued under sectio n fo u r sh a ll b e first p a id ont, e x c e p tin g
as p ro v id e d iu section eig h te en , and th en th ose issued to o th er association s under
sectio n liv e , and, la s tly , those issued un der section fiv e to th e association h o ld in g
them .
S e c . 25. That there is hereby constituted and appointed a board o f advisors, of

experts, to the Comptroller o f the Currency upou changes desirable in and methods
o f executing existing law concerning banking, over which board the Comptroller
o f the Currency shall preside. The president o f the chief redemption bank in the
five chief redemption cities in the country, or such substitute for any one o f the
officers named as he shall from time to time appoint, shall constitute the board,
which board o f advisors shall meet once a year, or oftener i f the Comptroller o f the
Currency or a majority o f the board so determines, and at such a time and place as

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the Comptroller shall appoint. The recommendations o f such board, or a synopsis
thereof, shall be extended in the records o f the board, and the decision o f the Sec
retary o f the Treasury from time to time as to what person or persons are entitled
to act tinder this section shall be final.
Skc. 26. That every president, director, cashier, teller, clerk, or agent o f any bank
in g association organized under any law o f the United States, or any other person
who embezzles, abstracts, or willfully misapplies any o f the moneys, funds, cred
its, o r other assets o f any snch banking'association, or who, without authority from
the directors, issues or puts in circulation any o f the notes o f the association, or
who, without such authority, issues or puts forth any certificate o f deposit, draws
any order or bill o f exchange, makes any acceptance, assigns any note, bond, draft,
b ill o f exchange, mortgage, judgment, or decree, or, without authority so to do,
issues or transfers any paper which, were it authorized by the association, would
make the association liable for anything o f value, or who willfully omit« from any
book, record, or account o t any other paper any item or entry that is material to the
‘ accuracy o f them, or any one o f them, or customary or required to be entered or
made in such book, record, acconut, or paper, in order to make them or any one o f
them a reasonably accurate showing o f tne facts the book, record, account, or paper
was made or kept to show, or that it was customary to.include in them or any one
o f them in order to show the facts which the book, record, account, or paper was
nominally or really made or kept to exhibit, with or without intent, in either case,
to injure, defraud, or deceive the association or any other company, body politic or
corporate, or any individual person, or to deceive any officer o f tne association, or
any agent appointed to examine the affairs o f any such association, or any other per
son, o r who abstracts or w illfully destroys any book, paper, record, or statement o f
original entry o f the association, or any book, record, statement, or account, or any
part o f any one o f them, and made up directly or indirectly from any book, paper, or
record, or who w illfully conceals or fails to immediately report any violations o f the
provisions o f this section that he has knowledge o f to the officers o f the baak and
to th e board o f directors, and also to the examiner when officially examining the
books, accounts, securities, or papers o f the association, or when requested by any
officeT, director, or examiner to do so, or fails to report any omission by any person
from or any incorrect entry o f any item in any book, record, or account o f the
association which belonged therein by custom or by direction o f the proper officer,
or who w illfu lly conceals or fails to call the attention o f the person officially exam
in in g the bank to any violation o f the provisions o f this act or order o f the Comp
tro ller o f the Currency by any director, officer, or employee o f the association or
other person, when requested to do so b'y the person officially examining the bank,
and every person who w illfu lly aids or abets in any way in any violation o f the pro
visions o f this section, shall be deemed guilty o f a misdemeanor and shall be impris
oned not more than ten years or pay a fine o f not more than ten thousand dollars, or
b o th ; the condition o f the account with <he bank o f the maker o f a certified check
shall be presumed to have been known to the officer at the time he certified the
same, in the absence o f proof to the contrary, and that it was not the official duty of
any officer, director, employee, examiner, or any other person to do or not to do any
one o f the acts or things herein specified shall not be pleaded in any action com
menced or prosecuted against any one o f them.
A copy o f so much o f the provisions o f this act as the Comptroller shall deem
applicable or pertinent in the case may, at his disoretion, be served by the bank
examiner who is making, or is nbout to make, an official examination o f the associa
tion upon such officers, directors, and employees o f the association as the Comptrol
ler shall designate at the time o f or just previous to each examination.
And i f any bank examiner w illfully misrepresents the true condition o f any asso
ciation examined by him, or makes any error resulting from gross negligence on his
part, or i f the examiner fails to exercise due care in his examination o f the condition
o f a bank, or w illfully fails to observe the methods or rules prescribed by the Comp
troller o f the Currency, and loss does or does not result therefrom, he shall be deemed
g u ilty o f w illfully misrepresenting the condition o f the association for the purposes
o f this act.
The first business transacted at the first meeting o f the board o f directors o f each
association in each month shall be to hear and to enter upon the records o f the board
o f directors a statement from the cashier or other proper officer o f the association o f
the liabilities o f each officer and director o f the association to the association in the
follow ing order, that is to say:
First, as maker o f any paper, sole, or as an officer or director o f any corporation,
or o f a corporation o f which he is a director or officer.
Second, as indorser o f any paper.
Third, as surety for any loan or other obligation to the association.
Fourth, as to the amount and market value o f any collateral the association holds
to secure any liability to the association by any one o f them.

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I f at any time the board o f directors o f any association fails to meet for a period
o f thirty consecutive days the record provided for in this B e c tio n shall be made by
the ciibhier, or such employee as he may designate in the record book o f the board
o f directors, and a transcript thereof shall be sent to each member o f sncli board
o f directors and to the Comptroller o f the Currency.
S e c . 27. That all existing laws affecting national banking associations and prom
issory currency notes issued by them shall apply to those organized under this act
and to promissory currency notes issned under it which are not inconsistent with
the provisions thereof j but this act shall not be held to affect any national banking
association not organized nnder it, excepting as to section twenty-six o f this act
and as to a national-bank examiner in chief, as provided in section twenty-tiro of
this act.

In addition to the remarks I now submit, I respectfully refer the
committee to an address delivered by me before the Boston Associa
tion o f Bank Presidents, on November 14, 1892, and also to one deliv
ered before the Department o f Commerce and Finance o f the World’s
Congress, in Chicago, o.n June 21,1893, aud which I make apart of this
argumeut for the bill H. R. 171. That bill is drawn to accomplish
the following things:
SCHEME DEVELOPED IN B IL L H. R.

171.

(1) To completely relieve the United States Government from any
responsibility for the “ current mlemption” of any circulating Government»or bank currency notes whatever, and thereby relieve it of all
expense and risk o f maintaining any coin redemption fund or coin
measure of value, the risk and expense o f both to be devolved upon
banks by the operation of the bill. (See sections 4 and 6 of H. B. 171.)
(2 ) The bill is so drawn as to cause each and every bank to assume
proportionately the current redemption o f a new greenback and prac
tical destruction o f the “ fiat money” legal tender note in its present
form, the banks to accept a new good money greenback in place of the
present one and be responsible only for its “ current redemption,” the
United States Government to be responsible for its final redemption.
(Secs. G, 7.)
(3) It provides that the United* S

Full text of Hearings Before the Committee on Banking and Currency, Fifty-Third Congress, First and Second Session (1893-1894)

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