21
THE CHICAGO BANKER
July !8, 1908]
MISSISSIPPI VALLEY TRUST COMPANY
$8,400,000
ST. LOUIS
Capital, Surplus and Profits :	:	:	:
A General Trust Company "Business Transacted
CORRESPONDENCE SOLICITED AND PROMPT ATTENTION TO BUSINESS ASSURED
assets, as compared with bonds, the narrow limits imposed by the statutory definition of “Commercial Paper,” the liabilities and responsibilities assumed by associated banks using such notes, all combined, reduced to a minimum if they do not entirely destroy the advantage which was thought had been gained by a recognition of the principle of commercial paper as a basis for note issues. The bill as it stands can only be regarded as a triumph of the managers on the part of the senate and a humiliating defeat of those who labored for good and sound currency. The bill fastens upon our system more securely than ever the theory of bond secured notes and for this, if for no other reason, it should be condemned. It is to be regretted that while feigning recognition of commercial paper, the bill has been so adroitly framed that in practice the use of bonds will be found the only practical method under the law by which notes may be secured. This seems to be a deliberate deception of the public and unworthy of our national legislature.
All students of the financial history of our country since the passage of the National Bank Act know that the volume of currency secured by government bonds does not fluctuate in response to the needs of trade. They know that the rigidity of bond secured currency is one of its chief evils, if not its greatest danger. They also know that the bonds which are so highly favored under this new act belong to the same class which were used to secure the wild cat and red dog issues of ante-bellum days. The bonds, other than governments, which shall be acceptable as security for notes issued under this act, are “bonds or other interest bearing obligations of any state of the United States, or any legally authorized bonds issued by any city, town, county, or other legally constituted municipality or district in the United States,, which has been in existence for a period of ten years, and which for a period of ten years previous to such deposit has not defaulted in the payment of any part of either principal or interest of any funded debt authorized to be contracted by it and whose net funded indebtedness does not exceed ten per centum of the value of its taxable property, to be ascertained by the last preceding valuation of property for the assessment of taxes.”
Against such securities a bank may receive notes up to 90 per cent of the market value of securities deposited. This may be equal to but shall not exceed the par value of the bonds. A bank using such bonds for security may take out notes directly, and is not obliged to join any currency association, nor to assume any liability for the note issues of other banks. The maximum amount of notes which a bank may take out directly against such bonds, (after having taken out the required 40 per cent of its capital in notes secured by government bonds), is an amount equal to the remaining 60 per cent of its capital, plus 100 per cent of its unimpaired surplus.
A bank desiring to use commercial paper as security for its notes must as in the other case (Continued on page 28)
are almost as many in number as are individuals who hold them.
For these reasons it seems better to seek what good may be found in the bill and to consider the benefits that may be derived from it, and be prepared to receive those benefits when occasion arises, rather than to indulge in unfriendly criticism.
Good or bad, the new law is upon our statute books, where probably it will remain until it expires by limitation. It is too much to expect at the next session of Congress any result to grow out of the work of the Congressional Monetary Commission. Congress has never been inclined voluntarily to assume the responsibility of constructive legislation and is not likely to do so in this instance. The membership of the commission as it is composed is such, owing to their well known views, as not to justify any strong hope of unanimous conclusion. It is, therefore, only reasonable to expect, in view of probable division, that the new law will remain upon the statute books substantially unchanged and be given a trial before further experiments are attempted. Discussion in these circumstances becomes largely academic, but this does not deprive discussion of its educational value, nor constitute a reason why those who have worked for sound and permanent reform should not continue with renewed courage and vigor to carry on the campaign of public education.
The Vreeland Bill as originally introduced in the house recognized the principle that commercial paper is the soundest security which can be placed behind bank note issues. It was framed as a compromise between extreme views; and appeared to offer a safe and ingenuous solution of the difficulties which had grown out of the obstinate contentions of those who desired “bond-secured-currency-or nothing” on the one hand; and the growing popular demand on the other hand for an issue of notes secured in some safe and proper manner, by the sound commercial assets of the banks. Although strongly opposed to the emergency features which are inseparable from all highly taxed note issues, and opposed also to the creation of liabilities which are unprotected by gold reserves, because I believe it wholly unsound in theory and wrong in principle. I thought and freely expressed the opinion that the original Vreeland bill was a good measure, as far as an emergency measure could be made good, and that if it became a law it probably would fulfill our requirements for a long time. This I still believe to be true, because after a few years, in the light of experience, perhaps the tax could have been reduced a little at a time, the emergency features gradually discarded, and gold reserves required; thus eventually making the bill what it ought to be—a measure which would yield a safe and moderate increase in volume of notes under seasonal pressure, fully secured by current assets of the banks and protected by adequate reserves of gold. But as the bill finally came out of the party conference not much was left in which to find relief or comfort. The discrimination against commercial
that they may be discussed and understood. The new law, while not devoid of sentimental value, as well as of a certain amount of political usefulness, is purely an emergency measure, constructed upon unsound theory, and as such must take its place as a fit companion of numerous statutory predecessors. It is an unsatisfactory apology on the part of Congress and is the result of hasty, not to say discreditable legislation. The lessons of the panic developed a state of public mind which made some currency legislation during the recent session of Congress imperative from a political point of view, if not an actual and immediate business necessity. The great party in power had been in full charge of all branches of government for more than ten years, during which time the high tide of prosperity had been reached. Partly at least because of an inelastic and unresponsive currency system, incapable of meeting the extraordinary demands of strained credit, this prosperity culminated in a panic, from the effects of which the business of the country still was suffering when Congress met. These circumstances, together with the fact that an important campaign was impending, placed at once upon the party a responsibility which could not be ignored or postponed. It was clear even before Congress met that such a situation might develop as did arise at the close of the session, which made escape from action of some kind on the currency question all but hopeless. The new law is the result.
Passed as it was during the closing hours of the session, in the stress of necessity, under the whip and spur of party lash, after brief consideration on the part of house and senate, amid the excitement of pyrotechnic oratory and in a rush at a critical moment when the filibusters were not on guard, the bill should be expected to bear within it more evidences of political necessity than of economic wisdom. It is a wonder that it is not worse. Indeed, it would have been worse but for the Spartan efforts of a few managers on the part of the house. To them all praise should be given and to them the business interests of this country owe a heavy debt of gratitude for their earnest labors in behalf of serious currency reform. These labors will bear good fruit in time.
Whatever criticisms may be made, in all fairness the necessities which gave birth to the law should be held in mind, with resentment towards no one. It is unfortunate for the interests of the people but it is nevertheless true, that political considerations influence, if they do not control, nearly all important national legislation, the most of it being accomplished only through compromises and concessions. Every measure of far reaching importance before it emerges from Congress must have run the gauntlet of amendments in both houses, and must have stood the pressure of political expediency, of public opinion, and of private influence. This is particularly true of financial legislation, because of the vast and sometimes conflicting interests involved; and also because of the irreconcilable divergencies of opinion, which upon this question