of 1893 and 1907 the banks of the country made free use of emergency currency. Experience has proved that clearing house certificates backed by commercial assets of banks can safely be relied upon to satisfy the local need for currency in times of panic. It may be well to place a legal sanction on this kind of currency, but it is impossible to see why anything more should be attempted. As for Senator Aldrich's bill, if one of its effects shall be to prevent the issue of clearing house currency, such as the country used in November and December of 1907, it would leave the banks in a worse plight than they are now. Commercial banks do not make a practice of owning bonds of any kind. These are fixed assets and have no place on the ledger of a commercial bank. If Senator Aldrich's bill should become a law, only a small number of the National banks of this country would be in a position to avail themselves of its privileges. At the very time when merchants most needed help, such a law would tend to draw the liquid capital of the country away from business into various forms of long-time investment. It is difficult to believe that a measure so impotent and so unsound in principle will receive the approval of Congress.

It should be clearly understood that from the issue of a highly taxed emergency currency nothing can be expected until after a panic is under way, for banks will not issue such currency until panic conditions prevail. Advocates of this kind of currency have no right to cite the Bank of Germany as an illustration of its advantages. The capital stock of that institution is owned by private citizens, but it is managed by officers appointed by the Government, and these officers are not stockholders. Under its charter the bank is permitted to issue emergency currency taxed 5 per cent., and such currency it has frequently issued in periods of stringency not serious in character, thus quickly relieving a tense situation. The governors of the bank give little thought to the question of profit. It is their duty, in so far as possible, to protect the financial and commercial interests of Germany, and if in their opinion a larger circulation of notes is needed, more notes are put forth without regard to the probable effect upon stockholders' dividends. Indeed, the Reichsbank has exceeded the regular limit of note issue at times when the rate of interest in Berlin was less than 5 per cent. We could not expect that any such broad policy or patriotic motives would regulate the issu

ance of emergency currency by the National banks of this country. If the tax were fixed at 6 per cent., it is doubtful if any bank would put such notes into circulation unless the managers felt pretty certain that the discount rate was to stand at 8 per cent. or higher for some time. An advance in the call loan rate for money would not be sufficient to warrant the issue of a highly taxed emergency currency, for the call loan rate is notoriously unstable.

If, therefore, Congress is to do no more at this session than to provide for an issue of emergency notes, the fact should be generally recognized that no real and final improvement of our currency system has been attempted, for it would be a calamity if the vital question of currency reform should, by the enactment of such a measure, be laid on the shelf. Furthermore, if the measure is to possess palliative potency in time of panic, it must give the banks authority to issue taxed notes the moment they are needed. In my judgment, such notes would be entirely safe, and the Government could safely undertake their redemption, even though they were buttressed by no deposit of collateral. If no bank were permitted to issue these notes except with the approval of the Secretary of the Treasury and the Comptroller of the Treasury-officials who have abundant means of ascertaining the exact condition of every National bank in the country—it is most unlikely that there would be any default. Even if a panic swept away some of the banks which had issued emergency circulation, the Government would be amply protected by its lien upon the assets and by the safety fund created by the tax. However, if the so-called conservative men in Congress cannot be persuaded to indorse the emergency issue of unsecured notes, let the required security consist of the ordinary assets of commercial banks. If, furthermore, the law require that the security be approved and guaranteed by some responsible clearing house, then the possibility of loss through issue of emergency notes would be practically zero.

There remains to be noticed one other plan for the amendment of the National banking system of note-issue. It deserves notice because it has many advocates among bankers throughout the country and because it is the most defective and vicious scheme which has any large numbers of supporters. This plan proposes that National banks shall be permitted to issue notes

secured by bonds other than Government. Its advocates apparently think that the defects of our National banking circulation are due entirely to the scarcity of Government bonds. What they seem to aim at is a larger circulation rather than a more elastic circulation.

It can easily be seen that the scarcity of Government bonds has nothing whatever to do with the inelasticity of our currency. If the National debt were three times its present amount, our National banking circulation would doubtless be larger than now, but it would not be a bit more elastic. The true nature of the National bank note is not commonly understood. It is really a sort of back door greenback. With the exception of the silver certificates and treasury notes of 1890, the United States has nominally issued no paper money since the Civil War, yet in reality it has issued paper money every time it has negotiated an issue of Government bonds. The National bank note is merely a Government bond made payable to bearer and stripped of its interest. Practically the only limit to the issue of the notes is the amount of available Government bonds. If the law should also permit the issue of notes against certain railway and municipal bonds, there would be no limit to the amount of notes which might be issued, and the circulation would increase until every other form of paper money had been eliminated. Inflation of this kind. would drive gold from the country in large quantities and doubtless cause much apprehension if not panic.

If I am right in my analysis of the various schemes for the improvement of our National banking circulation, we are forced to the conclusion that none can safely be tried unless the greenbacks and silver dollars are either retired or "demonetized." Popular disapproval would doubtless block any attempt at the retirement of outstanding Government credit money. Its partial demonetization however is feasible, for that could be accomplished by the simple requirement that the reserves of National banks shall consist of gold either entirely or to the extent of 90 per cent. If such a law were enacted, at least $200,000,000 in gold certificates would be drawn into banking reserves to take the place of greenbacks and silver. Even then about $300,000,000 in gold certificates would remain in circulation among the people, displaceable by bank notes.

It is by no means certain, indeed, that bank notes would not

displace greenbacks and silver certificates even though these could no longer be counted in bank reserves. Since they would be exchangeable for gold at the United States Treasury, a bank would naturally regard them as the equivalent of reserve money and hence would not be likely to pay them out so long as the stock of its own notes was unexhausted.

There is, therefore, only one means of escape from our currency dilemma, and that is a Central Bank of Issue under Government control. We are forced to the conclusion that the Central Bank of Issue is not only the best but really the most practicable solution of our currency problem. Such a bank would be an arm of the Federal treasury and the various forms of Government credit money now in circulation would figure among its liabilities exactly as would its own notes. It could not inflate the currency without immediate payment of the penalty, for the resultant export demand for gold would be directed against its

own reserve.

Corporate Management Compared With

Government Control.*

BY ELIJAH W. SELLS, C. P. A.

President of The American Association of Public Accountants. MR. TOASTMASTER, PRESIDENT, MEMBERS OF THE SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS OF THE STATE OF NEW JERSEY, AND GUESTS:

To be thought worthy of being asked to respond to a toast to "The American Association of Public Accountants" is highly appreciated. That Association in turn extends to you its hearty congratulations upon the attainment of your tenth anniversary, and wishes for you, in the years to come, all prosperity, and that the highest standard in the development of your young profession may be realized in the membership of your Society. Your President, who has been on the Executive Committee of the American Association during the past year, and your Vice-President, who is the Secretary, are both well informed respecting the affairs of the American Association, and have doubtless kept you well informed. I need not, therefore, talk to you about it.

The Society of Certified Public Accountants of the State of New Jersey occupies a prominent position in the American Association. It is the third largest Society, and it is especially conspicuous because more corporations and more corporate capital have their corporate home in the State of New Jersey than in any other State. And so I want to take this occasion to discuss with you, and in a spirit that shall lack neither candor nor courage, certain public questions upon which the experience of a public accountant is competent to throw light, although rather serious for such a gathering as this.

The position of the public accountant in respect to corporations and their management is always an independent one. Unlike the attorney he is not expected to make out a case. The character of the service he renders is impersonal. All he can do

Remarks at the anniversary dinner of the Society of Certified Public Accountants of the State of New Jersey, January 20, 1908.