THE CHICAGO 'BAJtlCE'R
Founded in 1898
Volume xxv	CHICAGO, JULY 4, 1908	Number !
Currency and Financial Methods at Home and Abroad
people to-day than that of the government, on the one hand, in its attitude towards issuing money, and, on the other hand, that of the banks and the issue of currency. And yet this very question of money and currency has been settled by all your neighbors, even by Russia and Japan. There is no doubt as to the government possessing the function of coining money. Our constitution provides for that, very properly, and Congress has, finally by the act of 1900, given us the same money that our neighbors use, namely-gold. But since money has now become the basis of credit, and banks are furnishing credit, we have the question on our hands of a proper form of credit or elastic currency. Our confusion comes largely from the awkward position of our government in putting out not only money, a true government function, but also issuing credit, a true bank function. Thus under our peculiar system of national bank notes guaranteed by the government and the greenbacks likewise guaranteed, we have a form of credit currency which has created a government liability of over a billion dollars. While it may look good to us, it weakens our credit with the world.
This matter will be made clearer, I trust, if we will look for a moment at the methods of our neighbors in dealing with their currency problems.
A. England.
England has a system that somewhat resembles our own, but with some marked differences. The following are the chief points of interest to us:
1.	. England has no medieval "strong box" for hoarding the government funds, known to ns familiarly as the treasury and subtreasury system. Government moneys are all handled by the Bank of England, a private institution, leaving the money free for ordinary' banking purposes.
2.	The Bank of England was chartered in 1604, with no requirements as to coin reserves. For a hundred and fifty years easy methods of inflation of note issues prevailed. By the famous bank act of 1844, still in force, the bank was put on a basis somewhat like our national banks. A note issue limit was fixed of $70,000,-000, based substantially on government bonds, this limit is now $90,875,000. Beyond this the bank can issue only on the gold in its vaults. England went on the gold basis in 1816, the first country of the world to take the step consciously.
3.	Other English banks may issue to the extent of $40,000,000.
4.	That makes a total uncovered issue in England of about $130,000,000. of which $90,-000,000, or three-fourths is of the great central bank.
5.	The central bank controls the rate of discount, and hence the movement of gold.
6.	Critics have said that the best thing about this act is that is can be suspended. It was suspended in the great crises of 1847, 1857, and 1866, and notes issued above the limit. Parlia-
Prof. James E. Boyle, University of North Dakota, Grand Forks, at Bismarck Convention
versal go-between and a convenient measurer or namer of value.
3.	Credit.—But we have found barter in these days almost impossible, and have found money likewise undesirable in many of our exchanges. In other words, we have come to use credit in 90 per cent or 95 per cent of our transactions. And what then is credit ? It is a promise to pav monev. And money is a go-between in indirect barter. So we have our present system. Credit being a promise to pav money, in fact an unconditioned contract to pav money, it can be preserved in its integrity only by paying money.
4.	Bimetallism.—Whatever theory we hold in regard to bimetallism or monometallism, our standard to-day is gold. "Gold is the test of solvency in the world’s markets." Whether the world will one day go on the bimetallism basis, or should go on this basis, is of course a very debatable question. We must accommodate ourselves to the present fact that to-day the great powers, without a single exception, have but one monev, namely gold, and that silver and paper are merely credit, promises to pay gold.
5.	"Wall Street."—We must not overlook our dependence on Wall Street. Banks are interdependent now as never before, and it would be sheer folly for the little prairie bank of North Dakota to overlook its dependence on New York. Even London, Paris, and Berlin do not forget this. We do hear talk and read magazine articles on the subject of the West financing itself now. And to a limited extent this is true. But to a very limited extent. Here in the city of Bismarck where we meet, the state has erected a capital building and a state penitentiary. The money was obtained from Wall Street in the first place. So with most of our other state institutions. I don’t know of a single state capitol now built in the West that did not get its money, entirely or largely, from Wall Street. And so with our railroads and other large industries. I am not stating this to praise and laud Wall Street, but merely as a significant fact. We must have a great money market, and up to the present, that has happened to be New York. It means vast power for Wall Street, power that may be, sometimes has been, abused. But all power may be abused. AYe must still have our famous Street. I speak thus at some length on this point for I have discovered that the average man of our state, and other Western states, has an attitude of mind towards AA'all Street which is a curious compound of ignorance, superstition, and hatred.
Elastic Currency and the Banks
There is no more confused question before our
Our American democracy is a mixed blessing. One evil is that we have so little expert service in law making and law administering. And yet our great economic questions of transportation, insurance, tariff, labor, corporations, taxation, money, banking, currency, etc., require the very keenest of expert knowledge for their final solution. We know what bungling has been done even by the most zealous of our law makers. We may rest assured that all genuine improvements in our currency and financial methods must come principally from suggestions of our bankers in the end, and after bitter experience has taught its lessons. Here you are the experts or ought to be. This is a slo v process in our present system of government, but a sure one. Eventually your interests and the public interests will be seen to coincide, even by the most suspicious and prejudiced laymen. In the good old days of Shays’ Rebellion the banker was cordially hated as the worst enemy of the poor man. And but yesterday that great organization. the Knights of Labor, while admitting freely to its six hundred thousand membership all laborers, farmers, merchants, and manufacturers, sternly drew the line and excluded four classes pi "undesirable citizens,” namely, gamblers, saloon-keepers, lawyers, and bankers! Well, Shays and the Knights of Labor have come and gone, but the banker goes on forever.
But you who are bankers have got to show the laymen, not by arguments but by facts, what the country needs in the way of good, sound banking, banking founded on bedrock principles of finance. You are all familiar with Carnegie’s criticism that we have the worst banking system in the world. The great ironmaster referred here solelv to the inelastic feature of our currency, and not our banking methods in general. But he makes us pause and sharply ask ourselves, Are we right with our present banking svstem? Or are we wrong? If wrong, then it is time to get right.
Objects of this Paper
It is my intention in this paper to discuss somewhat in detail the vital question of elasticity of currency, its meaning and significance, and compare various countries with our own with respect to this question. This will naturally lead to the discussion of panics and their relations, if any, to an elastic bank currency. My own conclusions in the matter will be stated, not only as general principles, but, for the sake of clearness and concreteness, as definite recommendations. Some Fundamental Principles
But before proceeding with the discussion, let me lay down a few propositions which I deem fundamental.
1.	Barter.—All our trade and commerce is. in the last analysis barter. AA'e merely exchange our goods or our services for other people's goods or services.
2.	Alonev.—And in making these exchanges monev has graduallv come to« serve as a uni-