uncle sam: when we parted last wednesday night, we had an understanding that everybody would give all the time he could to looking up credit currency. now, i think before we take up that subject, it might be well to recall and review what we've settled among ourselves up to the present time.

first: we learned that gold is our standard of value.

second: we all agreed that our money consisted of our gold coin alone.

third: we agreed that our money, which consists of gold coin, is identical in amount with our gold currency; that they are one and the same thing.

fourth: we found that we had at present a large amount of other currency, consisting of subsidiary coins (including the silver dollar), the united states notes and our bond-secured bank notes.

fifth: we came to the conclusion, however, after our last talk, that neither the united states notes nor the bond-secured bank notes were fit for currency; and, in our quest for the best substitute possible, mr. banker proposed a credit currency currently redeemed in gold coin as the form of currency best suited to our condition. indeed he asserted that it was the only form of currency we should think of.

i have gone over the road we have traveled so far and called attention to all the mile posts so that we should become perfectly familiar with them; for unless there is a complete harmony between our conclusions reached from time to time, our talks will in the end lead us to no practical results.

at our last talk it was decided, you will remember, that both on account of the peril to my credit, and because[pg 63] the united states notes and the bond-secured bank notes were unfit for currency, we should tonight consider credit currency as a substitute.

mr. merchant: uncle sam, i am more than gratified that you have called our attention tonight to just those things we have agreed upon, because unless we keep all these points constantly in mind, we will have trouble in the end in reconciling our views. on the other hand, it has began to dawn on me that possibly what we have always considered beyond our comprehension may after all prove a comparatively simple matter, because i have discovered, since our talks began, that truth here as in all other subjects is simple when we arrive at and comprehend it. our great problem in this connection is to disentangle the great or fundamental truths and make each one stand out in bold relief. so far, i think we have succeeded to a remarkable degree.

mr. manufacturer: we must have done so, for we have not yet struck a single point upon which we have not unanimously agreed. let us hope that we shall be as successful in the future. at present, i must say i am a little dubious about the results of tonight's discussion, for i have run up against a snag or two, which i half fear will stump mr. banker, when he tries to pull them. however, he has been pretty successful so far in holding his own, and he may surprise us tonight.

mr. banker: i have no desire, or hope, of surprising you, but i have perfect confidence in convincing all of you, that there is only one system of currency for us to adopt, or even think of adopting, and that is a pure credit currency.

let us assume that two men, a and b, who are of equal and unquestioned standing in some country town, start in the banking business at the same time.

a begins by taking the deposits of his neighbors, and continues until he has received $100,000, and has loaned the same out to the people of the community. he now[pg 64] owes $100,000 subject to check, and he has $100,000 owing to him, as he has loaned out all his deposits.

b starts a banking business, but upon an entirely different plan, or basis. he takes no deposits in the ordinary way, but if anyone comes to him desiring to borrow, or sell him promissory notes, he will lend his credit, and take all good notes and checks offered him, and in exchange give his own notes in such denominations and form as are suitable for circulation as currency, until he has exchanged $100,000 of his notes for $100,000 of the notes of the same people who have borrowed the $100,000 from the other banker.

now, this is not a strange thing for b to do, because the bankers of scotland did this for one hundred and forty years before they took deposits subject to check.

now, let us return to a and b. as a matter of course, some of these notes of b will be deposited in a's bank, and b will have taken in some of the checks on a's bank. at 10 o'clock each morning a and b meet; a presents b's notes for redemption and b presents checks upon a for redemption, and the one pays the other the difference. sometimes the balance is due to a and sometimes it is due to b. at the end of six months or a year, it will be at a stand off. a has paid b as much as b has paid a.

now, can anyone of you men here tell me what difference there is in the transactions of a and b, except this, that the notes of b amounting to $100,000 payable to bearer on demand are outstanding, while the deposits at a's bank amounting to $100,000 and payable to order are outstanding. those notes of b's amounting to $100,000 are a bank credit currency. they are issued against, or upon b's credit. they pass from person to person, from hand to hand and are currently redeemed every day. while the deposits at a's bank amounting to $100,000 are against a's credit, and the checks against them are redeemed every day. it is perfectly evident that if the capital of a and b combined is ample to meet the business requirements of that town, the form of credit offered by[pg 65] them will also adapt itself to the peculiar needs of each citizen. in other words, on a limited scale, you have a perfect banking system in that country town; bank credit being given to each person in precisely the form he wants it.

now, let us go a step further. let a and b unite and incorporate the a-b bank with a paid-up capital of $100,000, each man paying in $50,000 and the bank, so organized, taking over the liabilities.

the one bank could then furnish the people of that community their deposit, or order credit, and their current credit, or currency at exactly the same cost to the bank; for the amount of the reserve will determine the cost of the note credit as well as the book credit. the bank being a country bank will carry a 15 per cent reserve, or $15,000 cash, to protect the deposit of $100,000 subject to check, and also a 15 per cent reserve, or $15,000 cash, to protect the $100,000 of demand notes outstanding. the actual cost to the bank in each case is 6 per cent on the reserve of $15,000 or $900 per annum.

if this bank should be located in the cotton-growing section of the country, and from august until january, the people needed more currency than at any other time of the year to pay for picking and handling the crop, and the customers of the bank came in and drew their checks for $50,000 and asked the bank for currency for that amount, and the bank should, as it ought to be able to do, under such circumstances change its deposit debt of $50,000 to a note debt of $50,000, so that instead of owing $100,000 in deposits, it owed only $50,000 in deposits, and instead of owing only $100,000 in notes, it owed $150,000, would it make any difference whatever to the bank except the trouble of making a few book entries?

in the springtime, probably, the situation would be just the reverse. the notes having served the convenience of the cotton-planters would be returned to the bank by various people, and deposited to the credit of the depositors, so that now the deposits are $150,000, and the notes out[pg 66]standing, or note debts, are only $50,000; the total debt of the bank being precisely the same all the time, $200,000. it has made no difference whatever to the bank, but the customers of the bank, and all the people of that community, have been perfectly accommodated at the smallest possible expense to them. now, if that bank had been compelled to go to some financial centre and buy that $150,000 of currency in the form of united states notes, bond-secured bank notes, or the notes of a central bank, it would have cost the bank at the rate of 6 per cent per annum on $150,000, or $9,000; whereas, it has only cost the bank 6 per cent on the reserves carried to protect the $150,000, at the rate of $15,000 for each $100,000, or six per cent on $22,500. the cost to the bank you will see would be only $1,550, as against $9,000, if compelled to buy the currency, or would result in an actual saving to the bank of $7,450, an item, gentlemen, well worth saving.

mr. merchant: mr. banker, as i understand your contention from the illustration you have just completed, it is this, that there is absolutely no difference whatever, either in principle or in practice, between a bank book credit and a bank note credit, except as a mere matter of bookkeeping. that it is wholly immaterial whether there are 1,000 men walking about the streets of a town, each having a $10 bank note of the local bank in their pockets, or a thousand men walking about with check books from which they can issue 1,000 checks for $10 each. it is wholly a question of having a banking system that will adjust itself every hour of the day, and every day in the year, to the requirements of trade in that town, at the least possible expense to the people.

mr. banker: you comprehend my contention perfectly.

mr. lawyer: i will agree that your plan is structurally perfect to accomplish this purpose; but, before i can concede that the plan is all that can be desired, and all that we must insist upon having, i must know that your plan contemplates the current redemption of these bank notes in gold coin. for, as we have already agreed, our[pg 67] currency must be as good as gold coin, and this can only be demonstrated by daily gold coin redemption.

mr. banker: these bank notes or this credit currency will always be interchangeable with the deposits of the bank of issue, and, like the checks against the bank, will be daily redeemed over the counter of the bank, and also at some clearing house centre. the life of the notes will probably not exceed on the average thirty days. i hold that it is the duty of the bank to supply its customers with exactly that form of credit, either current credit in the form of notes, or book credits subject to check, which their business demands, and that both forms of credit must be kept as good as gold by giving gold if gold is demanded.

mr. lawyer: with this point of current gold redemption covered and settled, i am willing to agree that theoretically you have completely convinced me. now, what have you to offer in support of your theory by the way of any practical illustrations?

mr. banker: i am glad that you have demanded illustration and proof by way of banking experience; but, before taking up the historical evidence in support of my condition, i want to define a credit currency, so that you will have a concrete idea, if i may express myself that way, in your mind.

i define a credit currency as follows: a note issued by a bank against its credit, without depositing united states bonds, or any other kind of security, to guarantee its payment, is bank credit currency.

in speaking of the marvelous prosperity of scotland, macleod used this language in 1860 about the effect of credit currency in scotland, where it has now been in use 217 years.

"all these marvelous results which have raised scotland from the lowest state of barbarism up to her proud position in the space of 170 years are the children of pure credit."

the great achievement of the scotch system of credit[pg 68] notes is exceedingly well stated by mr. charles a. conant in these words:

1. it has provided scotland with an elastic currency adapted to the condition of her industries and adequate in volume to their changing needs.

2. it has enabled the people to carry on numerous commercial and agricultural transactions for which they could not have found the necessary quantity of coin, and has economized the locking up of capital in the precious metal.

3. it has made the use of notes of small denomination familiar and popular, and has taught the people the distinction between bank notes as the representatives of credit, and the precious metals as the measures of value.

4. it has brought into active use the available savings and capital of the country.

5. it has afforded an opportunity for entering upon business to thousands of poor, but honest men, and enabled them to lay the foundation of a comfortable home, and in many cases of a fortune.

6. it has convinced the people so conclusively of the value and safety of the banking currency system that no serious panic has ever lasted beyond a few days, or has ever affected any of the banks, except those which were justly the subject of distrust.

horace white, describing the scotch system, says:

"notes are issued in denominations of five dollars, or one pound, and upwards. they are exchanged daily at the edinburgh clearing house, and settlements are made between banks by drafts on london. the notes remain in circulation on the average eighteen days after issue, the whole circulation being redeemed twenty times each year. noteholders have a prior lien on the assets."

that is, if a bank should fail, the noteholders are paid first, and before anyone else gets anything.

mr. merchant: what is that? did you say that the noteholder had a first lien on the assets of the scotch[pg 69] bank: that is, that the noteholders are paid in full before anyone else gets anything?

mr. banker: yes, sir, and for the very best reasons in the world.

mr. lawyer: certainly, the noteholders should have a first lien upon the assets of the bank issuing them, because bank notes are a public convenience. bank deposits, on the other hand, primarily are a private convenience. it is a matter of public importance that bank notes should flow through the channels of trade, pass from person to person and hand to hand unquestioned by any member of the public, and have ready as well as general acceptance. the man who selects his bank for the purpose of making deposits has time to investigate and decide deliberately which one he will choose. while a man in a transaction must accept the currency of the country offhand. at all events, it is a matter of the greatest public importance that he should do so without hesitation, and yet be protected, be absolutely safe in doing so.

mr. merchant: come to think it over, i believe you are absolutely right. our present bank notes are made a first lien upon the assets of the bank issuing them. we were talking about that the other day over at the bank, and while i had never thought of it before, the cashier of the bank explained the matter fully to me, and gave the same reason for making bank notes a first lien that mr. lawyer has. when i told him that i did not quite understand the thing as he did, he satisfied me completely by using his own bank as an illustration.

he said, you will remember that we were a state bank until about a year ago, when we became a national bank. our capital of $100,000 is all invested in this bank building which we occupy. our deposits were $500,000. we took $100,000 of our deposits and purchased $100,000 of government bonds, which we deposited with the united states government, and received in return $100,000 bank notes which we have put out, or, as we say, put into circulation. now, since we actually took $100,000 of our de[pg 70]posits to buy the bonds with, and then placed the bonds up as collateral, to guarantee the payment of $100,000 of notes, it is perfectly clear that the noteholders will get their money, in case of our failure whether anybody else gets anything or not.

i then asked him this question: suppose, for the sake of the argument, that the $100,000 of the united states government bonds should not sell for $100,000? say they sold for only $75,000, would the noteholders lose the other $25,000, and he replied as follows:

"no, if the bonds should sell for only $75,000, the remaining $25,000 due the noteholders would be taken out of our assets, before any depositor got a cent."

you see, therefore, gentlemen, that our national bank notes are a first lien upon the assets of the banks that issue them, and that they will always be paid in full, before the depositors get anything.

mr. manufacturer: i am very glad this point came up, and has been explained so completely and satisfactorily, because during the week when i was studying up this question of a credit currency, that matter came up, but i found no explanation or reasons given for making the notes a first lien. it seems to me to be a fundamental principle that they should be, and the reasons are the soundest for making them a first lien. the bank note is a tool or instrument of trade for the benefit of the public, and is of general importance, while the bank deposit is a tool or instrument for the benefit of the individuals composing that general public, and primarily of individual importance. the distinction between the two must be very clear to all of you as it is to me.

mr. laboringman: that is just as it should be. the working people should always have a currency as good as gold, something that will not turn to ashes during the night; that cannot deteriorate to the extent of a single cent; for we are all practically compelled to take whatever is in circulation, or comes along, in the way of currency. it should certainly be as good as gold. i don't care how[pg 71] you fix it, but i do insist upon that. i say that it is one of the very first duties of the government to the people; for, of all the ways of doing the laboring masses out of their earnings, and cheating them, a depreciated currency is positively the worst. make your currency redeemable in gold, and so safe that no toiler can lose by holding it any length of time.

mr. manufacturer: i am quite sure that we all agree that not only should the bank notes be currently redeemed in gold coin, but to make them doubly safe, safe beyond any peradventure, they ought also to be a first lien upon the assets of the bank issuing them.

during the week i read somewhere that the scotch banks had been in operation 217 years, and that they did not start the deposit and checking system until they had been in operation for 140 years. during all that time they simply exchanged their notes for the notes of the farmers, the shopkeepers, the manufacturers and anybody who was entitled to credit.

mr. banker: now, if you will allow me, i will produce some further historical evidence.

the greatest financial genius that the united states has produced, and one of the greatest the world has produced, drew the charter of the first united states bank upon which the second was modeled. both of these banks were pure credit currency banks, and were founded upon the very soundest banking principles; but both of them were the victims of political strife and party feud. no man who has ever lived more clearly comprehended the principle of credit than did alexander hamilton.

the highest note issue of the first united states bank was $5,900,000, and deposits were $5,000,000.

the highest note issue of the second united states bank was $23,000,000, and the deposits were $2,600,000.

in 1800, under the inspiration of napoleon bonaparte, undoubtedly as great an economist as soldier, the bank of france was organized, and is the most striking single example in all history of the bank credit currency prin[pg 72]ciple. it has to all intents and purposes always had the right of unlimited note issue, as the limit is always fixed far beyond the requirements of trade. the amount of the notes outstanding are usually ten times as large as the deposits. the notes now exceed $1,000,000,000, while the deposits are only about $100,000,000. in a single week there has been a conversion of $75,000,000 of deposits into notes, and a reconversion of a corresponding amount of notes into deposits.

as a result of the destruction of the second united states bank by a veto of president jackson, there were established in various states of the union banking institutions, largely modeled upon the work of hamilton. these institutions showed remarkable strength and rendered most significant service to those sections of the country where located.

probably the most noted of them all was the state bank of indiana, organized in 1834, which continued its almost matchless career until 1866. it was a pure credit currency bank, marvelously suited to serve the people of indiana, under the conditions in which they lived. its capital was $3,300,000; its maximum of note issue was $5,700,000, always currently redeemed in coin. in 1857, during the crisis when every bank in the state of indiana, and all the banks in new york, except the chemical, closed their doors, the state bank of indiana kept on redeeming its notes in coin. this indiana state bank had thirteen branches. the central office was at indianapolis. hugh mccullough, afterwards one of the wisest secretaries of the treasury we have ever had, was president of the fort wayne branch. he wrote this interesting paragraph:

"fort wayne was three good days' ride from indianapolis, mostly through the woods. for fifteen years i made this journey on horseback, and alone, with thousands of dollars in my saddle bag, without the slightest fear of being robbed. i was well known upon the road, and it was well known that i had money with me, and a good deal of it; and yet, i rode unharmed through the woods, and[pg 73] stopped for the night at the taverns and cabins on the way in perfect safety."

another most signal success of the same credit currency principle was the bank act of louisiana, which was passed in 1842. it was a model, not only for those times, but for these as well. all the banks had to settle their balances every saturday night in coin. in 1860 louisiana, as a result of this law, held more specie than any other state in the union except one. the very day that gen. butler took possession of new orleans, the banks were redeeming their notes in coin.

i might, if it were profitable, describe in detail the bank of the state of ohio; the banks of the state of kentucky; the banks of virginia; the bank of the state of missouri; the bank of the state of iowa. everyone of them were signal successes, and everyone of them models worthy of imitation, and all of them were established and operated successfully as credit currency banks.

but i want particularly to rivet your attention upon the suffolk bank system of new england, which was purely the product of experience, and i may say a perfect development of the law of evolution in banking.

mr. merchant: my recollection is that the suffolk system covered all the six new england states, and that there were then over 500 banks in the system, with capital varying all the way from $25,000 to $700,000 each. two other facts must be kept constantly in mind in this connection; they are these: 1st, the combined authorized note issue of these 500 banks was $131,000,000, absolutely unlimited to all intents and purposes; 2d, there was then no means of communication or transportation except the stage lines and horseback mail carriers. there were no telephones in those days, nor telegraph lines, nor even railroads.

mr. banker: i am more than pleased, mr. merchant, that you have brought out these points, before i proceeded to explain what actually happened in the course of the development of what i regard as the most marvel[pg 74]ous exhibition the world has yet furnished us with, what in principle was practically a perfect banking system, and what was in practice as nearly perfect as any human institution could be under the circumstances.

mr. manufacturer: well, mr. banker, that is unqualified, literally unmeasured praise. if we ever had so good a banking system actually in operation in this country, i don't see why we did not have sense enough to keep it. i hope you will be good enough to tell us why we lost it.

mr. banker: that is a very important and most pertinent question, and certainly most natural that you should ask it. i should have covered that point before, but it will do just as well now.

uncle sam, you will remember that when you passed the national bank act in order to get the advantage of all the bank note circulation and so increase the sale of united states bonds, you put a tax of 10 per cent on all bank notes for the purpose of preventing any bank from issuing them, except national banks. the result was that you killed the state bank of indiana and all the other banks to which i have referred, which were then issuing notes in the united states, including the 500 banks in the suffolk system.

mr. manufacturer: i ought to say right here, before you go on, that the 10 per cent tax on bank note issues, while doing a world of harm, precisely as you say, did some good, too, because it prevented a lot of banks that were not properly organized, and were not compelled to redeem their notes in coin, from issuing a good deal of worthless paper, or comparatively worthless paper. it is usually known as "red dog," or "blue pup," or some other kind of dog paper.

there are two things that resulted from the national bank act that i think should not be overlooked, though the act may have proved an economic failure. it gave us a uniform currency throughout the country, and it was of equal value everywhere, passing without charge,[pg 75] and at no time worth less than the credit of the government, or the current value of the united states note.

therefore, if we are wise enough to take advantage of these two important results, our experience will not be wholly in vain. that is, we want a uniform currency throughout the country, in all the different states, passing in at every bank window, at face value, without charge, and unquestioned by anybody, because currently redeemed in gold coin everywhere.

mr. banker: these interruptions have been splendid and i thank you for them. you fellows have undoubtedly been studying up on this question, as we used to say at school, "you've been cramming up."

now, returning to the suffolk system, i want to assert there is not a question that can be asked by anyone, nor a point that can be made by anyone in favor of a banking system, that the suffolk system does not answer and illustrate and exemplify.

let me outline the situation:

1. it covered six different states.

2. it covered a large territory.

3. the facilities for communication were bad. some parts of new england were as far from boston then as san francisco is now.

4. there were 500 individual, independent banks.

5. there was no branch banking.

6. the permissive note issue to all intents and purposes was unlimited. the possible amount of issue was $131,000,000, but the maximum amount of notes out at any time did not reach 50 per cent of this total, while the average amount did not exceed 33 per cent of it.

7. the bank notes of the suffolk system were universally accepted at par throughout new england.

8. they were redeemed every day at boston, in coin by the suffolk bank.

9. they were accepted in all commercial centers of the west, buffalo, cincinnati, chicago, milwaukee and[pg 76] st. louis at a premium of from 1 to 5 per cent, because redeemed at boston in coin.

the suffolk bank was the clearing house for all the bank notes of new england, and they were accepted at par, and redeemed in coin if demanded.

horace white says:

"it was the underlying principle of the suffolk bank system that any bank issuing circulation should keep itself at all times in a condition to be able to redeem it; that it should measure the amount by its ability so to do; and that the exercise at any time of the right to demand specie of a bank for its bills was something of which the issuing bank had no right to complain....

"under the suffolk system of bank note redemption specie was seldom asked for, but it was always paid when demanded; the metallic reserve was the touchstone of the whole business."

the following is mr. white's description of the operation of the bank:

"in 1824 two clerks could do all the work. in 1855 seventy were required, and the redemptions reached $400,000,000 per year. as the circulation of the new england banks at that time was about $40,000,000, the whole amount was redeemed ten times each year, or about once in five weeks.

"any person engaged in a legitimate trade in any part of new england could exchange his promissory note, running 60 or 90 days, for the notes of a bank with which he could pay the wages of his employees, or buy the materials for his industry in any part of the united states or canada. the notes would remain in circulation about five weeks, and then find their way to the suffolk bank, where they were offset by the notes of other banks which took their rise in the same way. the man whose promissory note the bank had discounted, and by means of which it had put its own notes in circulation, had meanwhile sold his products. if he had sold them in boston, his draft on the boston merchant would[pg 77] pay his note at the local bank, and this would enable the latter to keep its balance good at the suffolk. if he had sold them in new york or chicago, he would get his pay in a draft on boston, which would answer the same end. if he had sold them at home, and had received new england bank notes in exchange for them, the local bank could use these to keep its balance good at the suffolk. new england trade was carried on by an endless chain of offsets and book balances at the suffolk bank. the security for the notes consisted of the bank's assets, and the banker's moral character and business sagacity. both notes and deposits rested upon the same security that deposits rest upon now, and the volume of both was determined by the wants of trade."

the interplay of bank book credit and bank note credit under the suffolk system in the panic of 1857 is nowhere equaled in the history of banking; and that demonstration of the perfect adaptability of bank credit to the most sensitive, and at the same time the most extreme situation that can possibly arise, leaves no question unanswered as to its fitness under all circumstances to meet the requirements of the people.

a year before the panic, the note issue stood at $50,000,000, and the deposits were $32,000,000. as a result of the panic, there was an exigent demand for currency, and the note issue rose from $50,000,000 to $56,000,000, and the deposits fell at the same time from $32,000,000 to $25,000,000, showing a conversion of about $6,000,000 of book credits into note credits, or of deposits into currency.

a year afterwards, when this exigent demand for currency had subsided, and the reaction had set in, the notes fell from $56,000,000 to $35,000,000, and the deposits increased from $35,000,000 to $46,000,000. in other words, $21,000,000 of notes were deposited and took the form of deposits, subject to check.

i do not need to state the fact, except for the purpose of calling your attention to it, that this currency did not[pg 78] cost the people of new england any more than deposits; for the two were constantly changing places with each other, strictly in accordance with the needs of trade.

mr. merchant: mr. banker, i think we are all under the very greatest obligation to you for this elaborate explanation. this splendid illustration, yes, absolute demonstration of the perfect adaptation of bank credit to our currency needs. i want to compliment you upon another thing, and that is, your position that it is the bank's business to make provision for coin redemption. what do we have our banks for except to furnish us credit in just the form we need it to carry on our business, and to keep that credit, in whatever form it takes, just as good as gold. that is the natural business of a bank. i never caught on to that fact before, and therefore could not appreciate it.

mr. manufacturer: mr. banker, i have been greatly interested. now, if that plan worked so perfectly in new england, i cannot see for the life of me, why every other section of the country cannot work out the same system. if the new englander could coin currency out of bank credit, based on codfish and cloth, why cannot the western man coin currency out of bank credit, based on cattle, cotton and corn?

the crux of the whole matter, the very heart of the thing, the vital part is, that the bank be ready to redeem its notes in gold. why shouldn't it, that's the question?

mr. banker: well, it should, that is the answer to your question, and the bankers around every natural financial center in the united states should get together, and form just what those 500 bankers had in new england before the war, a perfect banking system of their own.

mr. merchant: mr. manufacturer, that's sound and looks mighty good to me. do you see any objection to it, any flaw in it?

mr. manufacturer: no, i do not, except to persuade the people, as mr. banker has persuaded and con[pg 79]verted us. of course we will be up against some legal difficulties, won't we, mr. lawyer?

mr. lawyer: i imagine that we shall have no serious difficulties about the legal questions involved, if we can persuade congress. you see we are up against congress and for about every thought the average congressman has concerning a question of this kind, he has several about how he is going to get back into congress at the next election; that's the real difficulty.

uncle sam: well, we'll see about that when we get this worked out, and we'll put it up to them before election, and find out where they stand. they must study this question just as we have, and if they can't show us a better way, they will have to come over, or they won't get over, that is all there is about that.

mr. banker: well, gentlemen, when it comes to putting up an argument to the congressman, we will shove the canadian currency system under his nose, and keep it there until he gives in.

mr. merchant: are the canadians using this credit currency system?

mr. banker: that's what they are. they started by copying the massachusetts bank act, as it existed before the war, and have gone on making some changes from time to time since. the banks are authorized to issue regularly an amount of currency equal to their capital. the amount of capital has not been increased in proportion to their business, because there are only a few banks there now, 27 in all, with about 2,000 branches.

here is a chart i had prepared to show you, because it illustrates so perfectly how the currency expands and contracts every fall. you see that in the month of october every year they have an increase of about $3.80 per capita over the minimum amount, and that just as soon as the crops are disposed of, the currency again takes the form of a deposit.

[pg 80]

pic

this diagram demonstrates that the canadian bank notes adapt themselves every year, every month, every day, with unvarying precision, to the ever changing demands of trade.

[pg 81]

total circulation of the chartered banks of canada for each month of 1912 to nov. 30th.

january $88,065,521

february 88,920,598

march 95,918,404

april 95,145,371

may 93,819,333

june 102,011,848

july 95,827,534

august 101,501,270

september 104,334,287

october 110,696,877

november 115,473,098

maximum issue 115,473,098

minimum issue 88,065,521

—————

amount of expansion $27,407,577

population of canada 7,204,838

per capita expansion $3.80

same expansion in the united states would amount to $380,000,000

under present conditions we do not have any note expansion whatever. not one single dollar. every "fall" we have a tragedy, because we are compelled to use our reserve money to meet the increased demands for currency.

the above figures correspond in their expansion and contraction with the figures for many years previous, with one significant change in the date of maximum circulation, which has changed with the later farm demands due to the tremendous development in the great north-western territory. no stronger proof could be added to the marvelous way in which this bank credit currency automatically adjusts itself to any and every condition as it arises.

[pg 82]

this currency goes to the clearing house every day, precisely as the checks and drafts do, for redemption. and in those cities where there are no clearing houses, the banks present the notes they take in, to each other, and the notes are redeemed every day by the respective banks issuing them.

mr. merchant: gentlemen, isn't it marvelous how that currency adapts itself to the demands of the canadian crop moving period? why, if we had such a system working here, you would have an increase of currency every fall exactly equal to our demands, probably $300,000,000. i have heard the amount variously estimated from $200,000,000 to $300,000,000. at all events, this principle would give us exactly the amount needed to meet the demands of trade.

mr. banker: that is precisely what would happen, and there would be no shipping currency to and fro, backward and forward from new york to chicago and st. louis, and then from these cities to a thousand other points; and then when the crops had been moved the currency must be shipped from the thousand points to st. louis and chicago and then on again to new york. the banks in every locality would create their own currency according to their respective needs, and at a cost of about one-fifth of what it costs them today.

as the matter now stands, gentlemen, if i want $10,000 currency i bundle up $12,000 or $15,000 of my commercial paper, and take it to my correspondent, and get the currency by giving my bank's note, and leaving the $12,000 or $15,000 of paper as collateral. now, if you should ask my correspondent upon what he had loaned me $10,000 he would say, "my bank's credit and the commercial paper i left with him." but, gentlemen, why could i not issue $10,000 of my bank notes against my bank credit, and keep the $12,000 or $15,000 of commercial paper? certainly if my bank's credit and the commercial paper were good enough for my correspondent bank to let me have $10,000 upon, they ought to be[pg 83] good enough to issue my own notes upon. the present situation is simply absurd and most troublesome, as well as most expensive.

mr. manufacturer: i agree with you, it certainly is. i was talking the other day with a congressman about the canadian currency system, and he said, "yes, it works fine up there, but they have a branch banking system up there, and only 27 banks." well, i said, it works just as well in france with one bank. it has been working in scotland just as well with 12 banks for 217 years. it worked in indiana with one bank and 17 branches. it was just as efficient and successful in louisiana under a general bank act, where several banks were incorporated. and it worked in new england under the suffolk system with 500 individual independent banks—why won't it work here? all he could say was, "well, i don't know."

uncle sam: pinhead. didn't know the difference between a principle and a fact, and he didn't even know the fact.

now, boys, i am completely satisfied and if any one here is not, let him speak up, or forever hold his peace. i believe you must all be satisfied.

you must all be on time next wednesday night so that we will not have to wait as we did tonight.

good night.