Thirteenth: This central gold reserve should be held in trust by a body of men composed of one man from each commercial zone, for the benefit of all the commercial zones.
Fourteenth: Each Board of Control should have access to this central gold reserve, and should have power to sell gold to any bank within its zone and under its supervision, in case it desired it for the purpose of moving crops or for any other legitimate reason. The practical result would be, that the gold would be held, to a large extent, at the financial centres, and under the command of the Board of Control, precisely as the Clearing House committees today hold the reserves of the banks constituting their respective Clearing Houses.
Fifteenth: The use, distribution and control of the central gold reserve should be under the management of the representatives of all the commercial zones, who should be composed equally of business men and bankers.
Sixteenth: For the purpose of establishing responsibility and securing efficiency, the representatives of the zones should act through corporate powers granted by the National Government.
Seventeenth: The purpose of a national centralization of gold to so large an extent is two-fold:
(1) It brings all the banking power of the United States to the defense of the commercial interests in every part of the United States instantaneously.(2) It will give to the representatives of the zones the power to control and direct the movement of gold to and from the United States, by fixing and enforcing a price for the use of gold, or a discount rate for gold transactions throughout the United States.
(1) It brings all the banking power of the United States to the defense of the commercial interests in every part of the United States instantaneously.
(2) It will give to the representatives of the zones the power to control and direct the movement of gold to and from the United States, by fixing and enforcing a price for the use of gold, or a discount rate for gold transactions throughout the United States.
These reforms are based upon three distinct propositions:
First: They incorporate the principles of a central gold reserve, as illustrated by the Bank of England, where all the transactions are in gold, and gold alone, without the use or intervention of bank credit in the form of bank credit notes, which could be used for reserves by the banks throughout Great Britain.
Second: They incorporate the principle of bank credit currency, as illustrated by the bank note system of Canada, which involves daily redemption in gold coin through the clearing houses.
Third: They extend to every economic or natural commercial zone the established and approved practices of the American Clearing Houses, that is:
(1) Bank supervision and control over all members.(2) A reserve created by all the members of the Clearing House and held by the Clearing House Committee for the benefit of all the members.(3) Such a free check system over every commercial zone, precisely as New England has had since 1899, and as has just been established over a large territory around New York by the New York Clearing House.
(1) Bank supervision and control over all members.
(2) A reserve created by all the members of the Clearing House and held by the Clearing House Committee for the benefit of all the members.
(3) Such a free check system over every commercial zone, precisely as New England has had since 1899, and as has just been established over a large territory around New York by the New York Clearing House.
The result of these reforms would be:
(1) To make each individual bank absolutely independent, because it has an unlimited resource in the coöperative gold reserve.(2) To make every commercial zone as free and independent of every other commercial zone, as England is of France, or France is of Germany.(3) To completely decentralize all bank credit in the United States, while it centralizes the gold to a degree that would enable us by raising the discount rateto close the door of our markets against the demands for gold from abroad.(4) To insure all depositors in National banks against loss.(5) To liquefy and therefore develop a general market for commercial paper.(6) To save the business interests of this country more than $200,000,000 every year, to say nothing of the incalculable losses growing out of our ever-recurring panics.#/
(1) To make each individual bank absolutely independent, because it has an unlimited resource in the coöperative gold reserve.
(2) To make every commercial zone as free and independent of every other commercial zone, as England is of France, or France is of Germany.
(3) To completely decentralize all bank credit in the United States, while it centralizes the gold to a degree that would enable us by raising the discount rateto close the door of our markets against the demands for gold from abroad.
(4) To insure all depositors in National banks against loss.
(5) To liquefy and therefore develop a general market for commercial paper.
(6) To save the business interests of this country more than $200,000,000 every year, to say nothing of the incalculable losses growing out of our ever-recurring panics.#/
Mr. Lawyer: Mr. Banker, you have stated with great clearness and precision just what our investigation has demonstrated should be done to give us a sound and economical financial and banking system.
After a careful consideration of the question, I am prepared to say that the Aldrich scheme would not accomplish or effect a single one of these reforms.
On the other hand, I am convinced that, while it would give us temporary relief, immediately there would follow undue expansion. In quick succession there would come wild inflation, a vast amount of gold would be expelled from the country and we would find ourselves in the end in far greater and more serious difficulties than those from which we are now suffering.
Mr. Banker: Your conclusion is in perfect keeping with my own. It seems to me very remarkable how many people were temporarily misled by its claims, but have since turned from it and are now opposed to it.
Mr. Lawyer: I do not think that is either remarkable or strange, when you recall the mental condition of the whole country, due to the panic; the vast amount of money poured into its propaganda; the claims made for it and the fact that it incorporated some things that the public realized ought to be done.
For example, it proposed to divide the country into districts, an idea that Congressman Fowler had advocated ever since 1897 or for more than fifteen years, and had incorporated in his bill of 1908.
The Aldrich scheme provided for a Central Reserve, but composed almost entirely of United States bonds, United States notes and silver in some form, a fact that did not attract the attention of the public at the outset.
It proposed to make an unlimited market for the rediscount of paper, a most pleasing thought to contemplate until it was discovered that this was to be done by "replenishing" the reserves of our 25,000 banks "indefinitely," as Aldrich said, with bank debts in the form of bank notes issued by the so-called "Reserve Association." It incorporated the plan proposed by Congressman Fowler in his bill of 1908 for converting the "Two per cent United States bonds" into "Three per cent United States bonds," a fact that impressed the National banks favorably.
The so-called Association was given an attractive name—"National Reserve Association," also borrowed from the first draft of Congressman Fowler's Bill of 1908, with only a slight change. He called his central reserve, "United States Reserve Association." Finally, owing to the clever presentation of the scheme, the country took to it at the start, because they wanted something done and they hoped that the scheme was what Mr. Aldrich declared it to be, when he said, "The plan we propose is, essentially, an American system, scientific in its methods and democratic in its control."
Every intelligent man now knows that the system he proposed was the German system from top to bottom, which broke down completely under the first real test, which came in 1911.
Every man who calls himself an economist must admit, instead of its being scientific in character, it was constructed in absolute defiance of all economic law, and now the public is convinced that instead of being democratic in control, it was intended to be a gigantic "Central Bank" with fifteen branches over which a "Governor," a name wholly foreign to American banking institutions, and his seven associates were to rule, the"Governor" appointing his assistant managers over the fifteen branches as if it were a Manchu dynasty and not a democracy at all.
Thus one by one the economic blunders have been pointed out; one by one the sinister motives have been exposed; one by one the false pretenses have been unmasked, until there is left only a recollection of the impression made by the expenditure of hundreds of thousands of dollars in this futile attempt to enslave all American bank credit and the lesson of extreme caution and a most urgent need on the part of every citizen in every walk of life, of study, diligent study, if he desires to perform a truly patriotic duty and be of some real service to his country in this hour of peril, inspired only by unselfish motives and a sincere devotion to the welfare of the whole people.
Mr. Merchant: Mr. Lawyer has certainly succeeded in pointing out very clearly the things thatmust be excludedfrom our bill.
Mr. Manufacturer: And Mr. Banker has certainly succeeded in pointing out very clearly the things thatmust be includedin our bill.
Mr. Laboringman: Well, then, if we are all sure that we are right, let us go ahead.
Mr. Farmer: We will; and as our forefathers fought for the birth of this nation we will fight for its life.
Uncle Sam: Boys, I shall live only through your intelligence, your courage, your justice, your honor, your patriotism, your service, your sacrifice; and I shall be immortal only if all those who come after you shall possess these same virtues.
Farewell.
APPENDIX A
UNITED STATES CIRCULATION STATEMENT—January 2, 1913.
Population of continental United States January 2, 1913, estimated at 96,496,000; circulation per capita, $34.72.
FOOTNOTES:[2]For redemption of outstanding certificates an exact equivalent in amount of the appropriate kinds of money is held in the Treasury, and is not included in the account of money held as assets of the Government.
FOOTNOTES:
[2]For redemption of outstanding certificates an exact equivalent in amount of the appropriate kinds of money is held in the Treasury, and is not included in the account of money held as assets of the Government.
[2]For redemption of outstanding certificates an exact equivalent in amount of the appropriate kinds of money is held in the Treasury, and is not included in the account of money held as assets of the Government.
APPENDIX B
CLASSIFICATION OF CASH IN BANKS—June 14, 1912.
APPENDIX C
Assuming that the plan should be adopted within the year 1913, and taking round but approximate figures, the amount of reserves required to put the plan into operation would be as follows:
This amount is probably about equally divided between the banks and the people.
But this increased amount of bank notes, amounting to $225,522,000, will not take any additional reserves because the deposits which will be converted into these notes are now covered by reserves. It is plain that, thereafter, book credits and note credits will be currently interchangeable.
Thus every demand for currency will be met automatically and perfectly, every day, everywhere, throughout the United States, day in and day out; month in and month out; year in and year out.
INDEX