dition of the patient more serious in the end. Yet that would be the effect of nearly all of the currency plans that have been proposed. None of these plans provides for any check or restriction upon the existing over-expansion of our uncovered bank note currency and of bank credits. None of these plans strikes at the cause of our present troubles or would tend to prevent a recurrence of these troubles. These plans are merely designed to palliate the evil effects of over-expansion by authorizing additional expansion in times of trouble. The effect in each case would be to loosen still further the inadequate checks upon overexpansion that now exist, and the ultimate result in each case. would be to make the situation more dangerous than before.

One plan is that the banks shall be authorized, in case of emergency, to issue an additional amount of bank notes for use as currency, upon payment of a high tax to the Government; this high tax being designed to prevent the banks from issuing their notes, except when there is a severe money stringency and rates of interest are very high. This is the plan embodied in the Aldrich bill, and it is claimed, in support of this plan, that it follows the precedent of a similar plan that has worked with marked success in Germany-the Imperial Bank of Germany being allowed to issue its notes without limit, upon payment of a tax at the rate of 5 per cent. per annum to the Government. Nothing could be further from the facts than that this would be following a precedent set by Germany. If we should follow the German system, we should indeed have sounder financial conditions in the United States than we have to-day; but the merit of the German system lies in the adherence to sound banking methods, and not in the issue of bank notes upon payment of a 5 per cent. tax to the Government. The Imperial Bank of Germany, which is a great central bank, controlled by the Government, watches and guards financial conditions throughout Germany; and it carefully keeps the expansion of bank credits within the limits of safety. It commonly holds reserves amounting to 40 per cent. of its aggregate deposit liabilities and note issues. The note issues of the German banks, even in times of money stringency, do not exceed onethird of the notes which the National banks of the United States have outstanding at all times, and per capita of population, they do not exceed one-half the note issues outstanding in the United States. Furthermore, the Imperial Bank of Germany can never

issue notes in excess of three times the amount of coin which it holds in its reserve.

The Aldrich bill contains nothing to prevent the overexpansion of bank note currency and of bank credits, which has caused our financial disasters in the past. Its only object is to authorize further expansion in times of stringency. It would merely encourage the banks to expand still further their credits in normal times, relying upon the power of issuing circulation when the penalties of over-expansion are threatening them.

The Fowler bill is designed to substitute what are called asset bank notes for our present bond-secured National bank notes; but here again there is no provision to prevent the over-expansion of bank note issues and of bank credits, which are the cause of our trouble. On the contrary, the effect of this bill would be to make such over-expansion easier than before.

Under the Fowler plan, the banks would be empowered to issue a practically unlimited amount of their notes for use as currency, upon payment of a tax at the rate of 2 per cent. per annum. The actual issue of the notes would be limited only by the demand for currency as a circulating medium and by the presentation of the notes to the banks for redemption in lawful money. We know from our experience with the present National bank notes that the banks would put out all the notes they can, and that the notes would be presented for redemption only by banks that have received them from depositors and that desire to obtain lawful money good as reserves in exchange for the notes. The Fowler plan would probably result in substituting bank notes for the greater part of the lawful money now in actual ciculation and in adding this lawful money to the bank reserves. In this way the reserves of the banks and their power to grant credits in the form of deposit liabilities and to make loans would be enormously increased. The consequence would be a vast expansion of bank credits as soon as the spirit of speculation revives throughout the country, and large exports of gold until the reserves of the banks have adjusted themselves to the prevailing demand for credits. The ultimate result would be to make the financial condition of the whole country more insecure than it has ever been. The Fowler plan contains other features, all tending to cause inflation of bank credits. It likewise provides for the guaranty of bank deposits by a common fund to be contributed by

the banks; but I am unable, for want of time, to discuss this important feature of the plan.

Then there is the plan to have the Government guarantee the deposit liabilities of the banks. I have pointed out to you that 90 per cent. of the so-called deposit liabilities of the banks are not deposits at all, but merely represent exchanges of credits made by the banks for a profit. They are utterly different from the deposits made in a savings bank. I hardly think that such business transactions are of such specially meritorious character as to warrant lending the credit of the United States for their support. The effect of a Government guarantee of bank deposits would inevitably be to encourage looser banking methods, because people could then do business and swap credits with a speculative, improvident, and badly managed bank as safely as with a sound and conservative bank of many years' standing. Under this plan, if the United States should guarantee the deposits of the National banks alone, it would assume a liability amounting to five thousand millions of dollars, or about five times the whole National debt. If the Government should guarantee the State banks and trust companies, also, or practically force them to become National banks, the Government would guarantee the payment of about twelve thousand millions of dollars. Such a guarantee would not accomplish the desired result unless the Government should be prepared to pay instantly in cash the deposits of any bank which fails. Unless the Government should keep on hand at all times hundreds of millions of dollars in gold, as a reserve to pay depositors in times of panic, the whole plan of a Government guarantee of bank deposits would be ineffective, and would be little more than a gigantic bluff.

It has been urged in Congress that the Government alone should issue notes for use as currency, on the ground that the issue of notes to be used as currency, like the coinage of the precious metals, is a governmental function that should be delegated to the banks. The answer to this proposal is that the issue of the promissory notes of the Government in order to supply and regulate the currency has never been considered a governmental function by any nation in times of prosperity, or in normal times; that the issue of Government notes has never been resorted to by any nation, except in times of stress, when the National credit was low, and that it has invariably proved a source of trouble and

danger in the end. We have had our own experience with our greenbacks, issued in war times, and the cause of untold tribulation and loss to the people. At the present time these greenbacks have been rendered innocuous, because their issue has been limited, and because the Government has promised to redeem them in gold, and to keep on hand a large reserve of gold for their payment; but to extend the issue of greenbacks would inevitably bring back again the evils through which we have passed. It would be utterly impracticable to make an issue of Government notes elastic, so that it would contract when contraction is necessary for the safety of the credit situation of the country. If the issue of these Government notes should be on top of the present issue of greenbacks, silver and National bank notes, it would be a measure of unmitigated inflation-but that part of the plan has not been disclosed. There are other features of this plan which remain in the dark. How are the Government notes to be put out? Is the Government to stop levying taxes and to pay its debts in its promissory notes? Are these notes to be issued to an unlimited amount, and if not, how is the limit to be fixed? Is the Government to redeem its notes on demand in gold, and keep an adequate supply of gold on hand for that purpose, and how is the Government to obtain the required supply of gold? Can we rest assured that these questions would always be determined by Congress in a wise and conservative manner? In view of the financial heresies which have prevailed, and which still prevail with some of our voters, and in view of our political system and our political methods, it seems to me that any plan of issuing Government notes, even though their issue be safeguarded at the outset in the most conservative manner, would be bound to bring endless agitation and uncertainty, and would be bound to prove disastrous to the whole country in the end.

Another plan that has been proposed and urged by high authority, is to establish a central bank in the United States, as in England, France, and Germany. I do not believe that a great central bank would be practicable or desirable in the United States. In order to accomplish the desired purpose, such a bank would have to be of colossal magnitude. It would have to be made the depositary of the public moneys, and be invested with a monopoly of issuing bank notes. Such an institution would not be in harmony with our political methods, and with our business habits.

Past experience shows that the people would never consent to the establishment of such a large central bank. You could never convince the people that it would be desirable, or that it would be safe to invest any man or number of men with the vast powers which the control of such a bank would confer. Even if you could establish such a bank and place its control in the hands of the wisest and most honorable men of the country, you could never satisfy the people that its powers were used wisely and impartially for the benefit of all sections and all interests in the country.

I have a plan of my own, which, I believe, would place our system of banking and currency upon a sound and satisfactory basis, but I am not allowed the time to explain it to-night. It is, in brief, a plan to form an association of the banks, which would have power, subject to control by the Treasury Department, to regulate the reserves to be furnished by the banks against their note issues according to the requirements of the credit situation throughout the country.

Various currency plans have been proposed in Congress, and, no doubt, will be debated during the present session, if the Speaker permits it. It seems to me, however, that neither Congress nor the people of the United States are prepared at the present time to solve this great problem intelligently and wisely. It could not be studied and considered with the requisite calm and deliberation at the beginning of a Presidential campaign. The people of the United States, in a century of National existence, have tried almost every known fallacy in banking, and have suffered grievously in consequence. Congress should recognize that the material welfare of the entire country depends upon the adoption of a sound and practical system of banking and currency, and that the only patriotic course is to eliminate all party feeling and politics from the consideration of this subject. Congress should recognize that the problem is an exceedingly complicated and difficult one, and that no plan can be sound or safe unless it be in accord with the elementary principles of economic science upon which the leading financial experts of the world are agreed. Under these circumstances it seems to me that the sensible and sane course is to appoint a non-partisan commission to study the financial systems of other countries, as well as our own, and, after obtaining the advice of the leading financial experts, to report a carefully matured plan at the next session of Congress.