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intricacy. The legislative problems connected with these economic problems are difficult in the extreme and require experienced banking opinion as a guide for their solution. Moreover, it is probably impossible to make any one code of law respecting these things that will fit conditions in all parts of the country and all forms of business in each part. Wisdom would seem to dictate few and simple general laws in these premises, and they to be very largely enforced through the coöperation of the banks themselves. The present writer would suggest that the Clearing House Associations be given, each in its own community, very broad legal powers to enforce good banking morals. Many kinds of police work have to be performed by government through just such agencies, if they are to be performed at all.

Governments the world over, and never more than at present, undertake too much and actually accomplish too little. They do not do enough in the way of the provision of “ known stands ing laws" and the establishment and support of the “common judge.” They do too much in the way of trying, amid the dust of the market place, to see to it that the work of the world goes aright. Of late, indeed, they even try more and more to actually carry on the work of the world. Not results, but conditions--the affording of opportunity through proper institutions-should be their aim. As regards the particular subject before us, it is obviously out of the question that the Government should put its hand on each piece of commercial paper discounted to see that it is good. The work of government in these matters of banking regulation is largely negative: it can prevent fraud and prepare the way. It can get itself out of the way so that the banks can pass on to the performance of their proper functions. We ascend in any discussion of things of this sort into the higher air of the most difficult problems of statesmanship. Said the wisest man in things political in modern times: “In its preventive police thc state ought to be sparing of its efforts, and to employ means rather few, unfrequent and strong, than many and frequent. Statesmen who know themselves will, with the dignity which belongs to wisdom, proceed only in this, the superior orb and first mover of their duty, steadily, vigilantly, severely, courageously; whatever remains will, in a manner, provide for itself. But as they descend from the state to a province, from a province to a parish, and from a parish to a private house, they go on accelerated in their fall. They cannot do the lower duty; and, in proportion as they try it, they will certainly fail in the higher. They ought to know the different departments of things; what belongs to laws, and what manners alone can regulate. To these, great politicians may give a leaning, but they cannot give a law." *

If our National Government will only lay down a few simple and reasonable laws establishing the conditions for sound and efficient banking, it might well leave the “lower duty” of carrying these laws into effect, in large part "to provide for itself." It is clear to my mind, strange as it may sound in this over-governing age, that a firm of Certified Public Accountants employed by the banks could enforce all the laws for all the banks, under the present or any future code, far better than a corps of under-paid inspectors sent out, like the thirteenth century aulnagers of the assize of cloth, by the Comptroller of the Currency.

PUBLICITY. The matter which alone the present writer desires to develop at any length under the head of "general safeguards," is the matter of greater publicity. The weekly collective statements of the associated banks in the larger cities, at present voluntary and too much in bare outline, should be made out and published under sufficient specifications of law, and sworn to. What is called “ window dressing" by individual banks should cease; and the collective statement in all cases should be a real group-statement of the standing of the banks on a particular day, not the average for the week as it is at present.† The financial editors of the leading newspapers have been demanding this last change for years; why hasn't it been made long ago? Obscurationist methods of accounting, designed to cover up slipshod and more or less dishonest methods of doing business, are by their very nature fraudulent; and it is always within the province of government to exert its full powers to prevent fraud.

As an important aid to publicity (and without that in a democratic country, no good system of banking can be initiated or long maintained), the item of “ deposits” in the individual bank statement, or in the collective statement of associated banks, should be changed. It should be renamed “accounts current,

," • Edmund Burke, “ Thoughts and Details on Scarcity,” Works, Bohn's edition, Vol. V, P. 108.

† Since writing the above an improvement has been made in this matter in the case of the banks of New York City: but it is still voluntary and may be withdrawn.

for that is exactly what it is—a complexus of accounts with individuals standing on the books and representing sums due to be paid at any time. The general public will never grasp the meaning of the thoroughly misleading term now in use—“ deposits." They think that word means money, and that the whole always comes into existence through lodgments of cash; that is, through the purchase of cash with credit-in practical effect a borrowing transaction on the part of the banks. Even trained financial writers, when discussing the operations of a bank of discount, cannot avoid occasional lapses into forms of expression which strongly suggest that deposits are money. All the money a bank has (however it obtained it) is, of course, in the “reserve,” and is accounted for wholly under that item in the bank statement. Some words are not docile, faithful slaves of human thought, but tyrants constantly playing us scurvy tricks; and this word “ deposits ” is one of them. The customer of a bank with an unexhausted checking balance to his credit, has, indeed, command of a conventional means of payment acceptable in all ordinary commercial transactions; and to him, therefore, a deposit seems ordinarily exactly the same thing as money. He has recently found out to his cost, however, that it is not actually money. But to the bank at all times its deposits are not money, nor the equivalent of money, nor anything which is an indication of strength. This item in a bank statement does not show what a bank has available with which to go on doing more business, but reveals (in comparison with the “ loans” item) the business already done, and which has so far exhausted the powers of the bank to do further business. The term deposits pertains to a concept which is legal, not economic: and has nothing to do with anything that is physical, like money, or which constitutes a resource. Nevertheless the linguistic connotations of the word inevitably suggest something physical, and economic, and which can be used or misused by the banks. Even as the name for a legal concept the term deposits is thoroughly inaccurate, for they come into existence and continue in existence not through a relationship of depositum or bailment, but through a mutuum, which is wholly different from bailment. Obviously from what has just been said, what is absolutely requisite for clear thinking and clear talking respecting this matter, is more appropriate terminology. It is suggested therefore, and it is deemed an

important suggestion, that deposits be renamed and reported hereafter in official records as “ accounts current.”

But even if the name deposits cannot be changed because of the force of usage, this item in the bank statement should in any case be further analyzed, and presented in published reports classified under the following heads: (1) Due the General Public; (2) Due Other Banks; (3) Due the United States Government; (4) Due Stockholders and Officers of the Bank.* As a still further “aid to reflection," and for the benefit of bank officials themselves, as well as a means of turning on the light for the outside public, there should be a new statistical section added to the single or collective published statement of the banks. A mere condensed balance sheet, or statement of condition" in the conventional form, is not enough for purposes of really illuminating publicity. A certain amount of relevant statistics as to “ loans,” etc., classified under different heads, should be required in the form of a report supplementary to the "statement,” and should be published under oath the same as the "statement " itself. Without the light thrown by the statistical part of a railroad report, nobody could get much useful information from the “income account” and the balance sheet alone. We have suffered a disaster, an unparalleled disaster; and we are smarting from it yet, and will for many a day to come. Now-you-see-it and now-you-don't-see-it methods of conducting banks and pubfishing banking information must go, and full publicity must come. THE DISTINCTION BETWEEN THE SOUNDNESS OF PARTICULAR BANKS AND THE SOUNDNESS OF THE WHOLE

BANKING SYSTEM. The above suggestions, given in brief outline, pertain partly to making individual banks sound, and partly to making the banking system as a whole sound, and making it more efficacious. In the remainder of this paper, the aim will be to discuss solely additional ways and means for making the banking system as a whole sound and efficient. Moreover, the discussion will be directed mainly toward particular features, tending to make the system as a whole sound, rather than toward those things known technically among economists as “general safeguards.”

*If the first sub-item of deposits-"Due the General Public"-should be further subdivided into Class A-arising from leading transactions, and Class B-arising from borrow. ing transactions, it seems as if it would be a good thing in the interest of perspicuity. But this innovation is not of prime importance, and very likely would be difficult to carry into practice.

The chief reason why practicing bankers are generally poor advisers respecting legislation on banking subjects, is that their attention is largely occupied (apart from wholly personal concerns) with the consideration of the things that make individual banks sound—not the system. Their outlook is in every way limited.* They know their own bank (not always) and the banks in their neighborhood, and their correspondent banks : but they know very little, as a rule, about banks in other countries, or about the history and philosophy of banking. They fail, therefore, oftentimes utterly to grasp the situation as a whole, even in their own country at a given time. In other words, they are menof-affairs, not statesmen or publicists, even within the realm of banking. Not being economists they constantly fall into the most common pitfall in popular economic reasoning-I mean the reasoning fallaciously from the “particular" to the “ general.” A particular man, to illustrate, is rich if he has more money in his pocket than he used to have, but only while other people in general have the same; and so the Greenbackers, overlooking the limitation, argued that all you have to do to make us all rich, is to have the Government issue more money to each man. The head officials of our leading banks and trust companies reason in a similar fashion in respect to bank reserves, the nature of banking disorders, and the appropriate remedies. “There is always some.thing which blinds those [apparently] best placed to see; and it is not (therefore] the persons engaged in affairs who are the best judges of the mechanism they direct or which, rather, sweeps them along.”Congress should go for advice, by all means, chiefly to the financial writers on the staffs of the leading newspapers. They know the facts and the theory.

WHAT SHOULD BE COUNTED AS LEGAL RESERVE. Among the things that most need to be straightened out as regards the conduct of the national banks (besides those things already mentioned), are first of all the matter of the “reserve.” Nothing but cash—“lawful money” of the United States, actually on hand in the vault (and preferably gold and gold alone should be “ lawful money”), should be allowed by law to count as “reserve.” The individual bank in ordinary times is safe enough with a moderately large cash reserve, together with

* See Bagehot, Lombard Street, Works, Vol. V, pp. 115 and 147. † Juglar, Des Crises Commerciales, p. 340.

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