[Volume XXVII
THE CHICAGO BANKER
6
100 YEARS OLD IN 1910
This is the oldest bank in the United States west of the Alleghany Mountains. In February, 1910, it will be 100 years old, having been in continuous existence since 1810. It has passed through four wars and the many severe financial panics of this country, and has never failed to protect its depositors. It conducts a general banking business; makes loans and receives deposits, issues letters of credit and makes collections on all parts of the world. <1 It desires to extend its connections with banks in all parts of the United States, and invites propositions for the collection of its business, tjj It offers its services to banks and bankers as a collection Agent and Reserve Depositary.	«
Capital and Surplus $5,400,000.00
J. D. AYRES, Assistant Cashier GEO. F. WRIGHT, Auditor
J.JtM.' RUSSELL, Assistant Cashier
OFFICERS
Tt\e
W. F. BICKEL, Cashier
Rank of Pittsburgh
1 vN a t ioiTL al JL Association w
WILSON A. SHAW, Pre»ident HARRISON NESBIT, Vice-Pre«.
This writer has been engaged in the national bank business since its establishment nearly fifty years ago and it has never occurred to him that a “struggle” was required on the part of the banks at any time to keep their notes in circulation. I do not think that Mr. Hepburn will find many bankers in the business to agree with him in the statement.
The ■only appearance of redemption the system has ever incurred except the return of mutilated notes, is referred to by Mr. Hepburn.
The New York banks and perhaps at times the banks of other central reserve cities, in order to maintain the reserve of legal tender money required by law, are forced to exchange national bank notes for legal tenders. But this kind of redemption really amounts to no redemption at all.
It arises from no difficulty the banks encounter to circulate the notes but from the requirements of the law.
The $222,291.620 of bank notes which Mr. Hepburn says were last year deposited in the treasury for redemption by the New York banks were at once forwarded to the banks which issued them and by them immediately returned to circulation the same as any other money. They were out of circulation for no longer time than gold or any other currency in process of transportation front place to place.
Weakness of Present System
The weakness in our banking system arises as an able English writer expresses it not so much from the lack of “elastic currency” as front inelastic banking.
Our banking law concerning reservies is ineffective and weak as well as ridiculous.
No means are provided for concentrating resources and making them useful in times of stress and panic—on the contrary, the arrangement is just the opposite and tends to make every bank a panic breeder instead of panic breaker.
While the actual money required to be held on hand by every bank is insignificant for the protection of depositors for which it is intended, it is sufficient on account of the multiplicity of banking to take from circulation the larger part of our circulating medium.
The absurdity of our reserve requirements is shown in the necessity placed upon the New York banks as stated by Mr. Hepburn of shipping many millions of national bank notes to Washington in order to obtain the species of currency designated as reserve money.
These banks may hold as reserve silver and silver certificates which are redeemable in nothing and yet national bank notes,—the safest of our currencies, because redeemable at the United States Treasury and protected dollar for dollar by national security as well as the capital of the issuing banks—must be exchanged for other money merely for a technical difference between them indicating a use for the superior currency almost forgotten in actual business transactions —that of legal tender.
The subject of bank reserve was fully treated in an article by the writer which was published (Continued on page 30)
such thing as automatic redemption; nothing will bring the notes back except loss of credit or an excessive issue leading to gold exportation.
Mr. Hepburn in his article undertakes to show the contrary of this. He says: “Had we had an elastic currency based upon normal bank assets, the volume naturally would have contracted enormously during- the period of business stagnation following the panic.”
But this is merely an opinion of Mr. Hepburn. There is nothing in our currency experience to justify it.
It is conceded that our present secured bank currency does not contract in that way no matter how great the stagnation may be and this condition would affect it in exactly the same manner as an unsecured currency would be affected.
Mr. Hepburn recognizes this fact and endeavors to explain it away.
Referring to the bonds the banks must carry to obtain circulation he says “owning these bonds and unable to sell them except at a loss, the banks struggle to keep out circulation against the same in order to lighten the burden of carrying them: and this is the reason our bank note volume does not contract.”
Banks do not as a rule sell bonds and retire circulation, even at a profit unless the profit is so large as to render selling more profitable than holding—and why should they sell at a loss ?
The proceeds of the bonds sold would merely cancel the circulation and nothing would be gained by it, whereas even if they retained in their vaults every dollar of their circulation, the bonds would continue to give some returns.
There can be no burden in carrying the bonds unless the taxes paid the government on circulation exceed the interest received, and this may be saved by merely holding the notes.
MAUSOLEUM
The above mausoleum is one ot our simple, well constructed designs which can be erected at a comparatively low cost with six to eight crypts. How much less barbarous this method is than burying in the ground.
Write for free booklet on “Monuments” to
CHAS, G. BLAKE & CO.
The Old and Reliable Makers of Mausoleums and Monuments 782 Woman’s Temple Tel. 115 Main Chicago, 111.
circulation as a rule is not withdrawn except at the will of the issuing bank.
Gold and Paper
Gold is the only natural money and requires no law to give it circulation. Paper or credit money performs exactly the same service that gold performs as money and is subject to the same economic law governing the production and circulation of gold. It forms with gold the currency capital of a country.
The material difference between them is that gold probably in the long run costs in labor and capital all the value it possesses in use, but paper money is created without the labor and savings ordinarily demanded in the production of capital —it costs nothing except the taxes on bank notes imposed by the government.
A practical illustration will show how credit may be converted into real capital.
The necessities of the Civil War caused the creation of a public debt far beyond what the capital supply of this country could carry.
To meet the emergency congress authorized the creation of banks with power to issue notes to circulate as money the same to be secured by government bonds.
The banks created, possessed the capital to purchase the bonds, but if the process had ended here, they would have been left without means to do business.
The circulation received was practically a return to them of the capital parted with and enabled them to meet the commercial demands of the day the same as if the original capital had remained intact.
The creation of capital of this character is a serious matter and it should not be done except in great emergencies or to serve a public purpose.
It should never be authorized to serve merely the personal interests of individuals or corporations.
Our national bank currency was issued for a public purpose and still maintains that character by lowering the interest rate paid on the public debt. It should however, be limited in its volume just as the Bank of England notes are limited, otherwise there is danger that an increase in the public debt may cause an excessive note issue and lead to the export of gold. Contraction of Currency
Paper currency, whenever issued is at once absorbed in capitalistic enterprises, the same as a similar amount of gold would be absorbed, and cannot be withdrawn except at the cost of much suffering and distress. Whatever amount is withdrawn would be a strain to that extent upon the capital supply of the country.
This was evidenced when at the close of the Civil War the government undertook to cancel and retire its excessive issue of legal tender notes, which was absolutely required to enable the country to return to a specie basis.
It was forced to suspend the operation and even then the panic of 1873 followed with its years of business depression and liquidation.
Bank notes will continue in circulation so long as there is profit in the transaction, and money is always worth something. There can be no