satisfactory to all they will hope for improvements in the future despite the proverbial inertia of government bureaus. Great credit is certainly due to the unwearying efforts of the representative accountants at Washington, who have accomplished what appeared a hopeless task at the outset. Whether the various State Commissions will support the I. C. C. by adopting this proposed classification remains to be seen. If they do, as it is to be hoped they will, the final step will seem to have been taken to secure uniformity of accounts.

Simplicity in Municipal Accounts.

Important steps looking to greater uniformity in the accounts and reports of the municipalities of the country were taken at a meeting in Washington, D. C., on May 22, 1908, of the Committee on Uniform Accounts and Reports of the League of American Municipalities. The committee's action will be submitted to the national convention of the League of American Municipalities to be held in Omaha, Neb., in September, for its approval.

Committees were appointed requesting the Municipal Bureau of Research of New York City to make recommendations and a report for a uniform schedule for city budgets; to submit suggestions on the question of making the calendar year the fiscal year in all cities; to confer with officials of the Census Bureau and other bodies with a view of perfecting and making more effective the present system of keeping accounts and rendering reports in the various municipalities, and also to work out a complete report and recommendations of schedules for uniform reports.

General discussion of the subject showed unanimity of opinion among the members for greater uniformity and simplicity in municipal accounts and reports. It is the desire of the committee to have municipal authorities render their accounts and reports in such a manner that anybody can understand them.

The meeting was presided over by Chairman Hugo S. Grosser, of Chicago, formerly city statistician of that city. Among the cities represented were New York, Baltimore, Charleston, Detroit, Duluth, Philadelphia and St. Paul.

Measures for Banking Reform.

BY CHARLES W. MIXTER,

Professor of Political Economy in the University of Vermont.

PART II.

A FLEXIBLE CREDIT BANK NOTE CURRENCY-SECURITY FOR ITS SAFETY.

The present system of bond-secured bank note currency (government guaranteed certificates virtually not real bank notes) is safe just as the solid wooden wheels of a Mexican cart are safe. It is also just as inefficient, and should be abandoned out of hand. It should be thrown overboard absolutely and without hesitation or misgiving. Any currency reform (the bank note part of currency reform) which consists in patching up the old bondsecured system-getting something fancy in solid wheels-has had its day. A bank, under any sort of system of banks, should be allowed to use its credit just as freely in the form of circulating notes, as in that other form of bank credit, the deposit.* Its reserve should apply both to notes and deposits equally; that is, it should be a true liquid reserve or "cover" for both alike. Both sorts of liabilities should, of course, be paid over the bank's own counter on demand, as long as the bank remains solvent. When it can no longer do that, the bank has become insolventit has incurred bankers' insolvency-and its doors should be closed.

To specially safeguard the note-holders, for certain wellknown reasons, a "safety fund" (not a part of the reserve, or to be called reserve)† should be established for each class of banks, to be made up by contributions from the several banks levied pro

*That is, freely within the limits imposed by appropriate general safeguards. Bank credit in neither form should be permitted to be used to purchase any form of securities other than short term business paper. A bank may properly invest its own capital and surplus in stocks and bonds, and in call loans, but not its credit. In other words, a bank's total demand liabilities-both notes and deposits-should not be allowed to exceed its reserves together with its holdings of discounted commercial paper-that is, real commercial paper founded on wealth creating processes, not so-called accommodation paper.

†The philosophy of "reserve" and "safety fund" should not be confounded, as they often are. A "reserve" is a thing for banks which are going concerns to use; it is a thing which helps to keep them going, A "safety fund" is a thing which is of service when for any reason a bank ceases to go; it is a thing for the receiver of a failed bank to use to pay off preferred creditors without delay.

rata according to their outstanding circulation. This fund might be properly 5 per cent. of the total circulation as in Canada. It should be managed under standing law by a committee of bankers, not by the Government; and the notes of any failed bank should be due to be paid at once out of it. The Government hereafter should govern, not bank; it should guarantee good laws and their enforcement, nothing else.

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The general public, under such a plan as is set forth above, cannot possibly lose a cent on the circulating notes of failed banks. So much for that. To safeguard in addition the wellmanaged banks in any class from excessive assessments to maintain the "safety fund" drawn upon by reason of the misdeeds of other banks of their class, (and for this purpose at any rate they should be put into separate classes), it should be further provided that the notes after redemption by the committee in charge of the safety fund shall constitute a first lien on the total assets of the failed bank or banks. Under a system of banking provided with proper general safeguards, few, if any, failures will be so bad that the total assets will not cover at least the notes in full. These provisions respecting the establishment and administration of a 'safety fund," together with the statistical data behind the suggestion, remove wholly a common objection on the part of bankers to the safety fund plan. It was a fallacious objection at best, for good banks everywhere and always suffer by reason of the sins of bad banks. You cannot get away from that moral law in any department of human life. A scheme of flexible, really credit bank note issue, thus secured as to both current redeemability and ultimate redeemability, would be perfectly safe and serviceable. It would be a financial wagon with a good, sound, civilized set of wheels; with hubs, spokes, fellies, and tires. You could haul a decent sized load on that wagon, not only without its breaking down, but with something less than ten horses to draw. But the matter of adequate real reserve for bank notes under this scheme is not to be overlooked, nor its importance minimized. Because the ultimate redeemability of credit notes must be specially provided for by means of a first lien on the "- safety fund' in the interest of the general public, and on the total assets of the failed bank in the interest of the custodians of the safety fund, is no reason why the current redeemability should not be provided for just as fully as is the currrent payment of deposits. The expres

sion "asset currency," often used to designate the project of law described above, is inexact and blundering. We have in the bondsecured bank circulation an asset" currency of a sort already. Also the "emergency currency" proposed by some to be issued against three-fourths of the value of bales of cotton lodged in Government depositories, would be an "asset" currency. This is a phase of a characteristic failing in the thought of Americans. We rely for national military defense, for example, upon an asset

army.

THE ESSENTIAL MEANS FOR SECURING THE FLEXIBILITY OF A CREDIT BANK NOTE CIRCULATION.

The flexibility or elasticity of a credit system of bank note issue consists in two things-first, ready expansibility; and second, automatic contractibility. The expansibility takes care of itself if the banks are left free to issue their notes as business requirements demand. The contractibility will also take care of itself in a country like Scotland or Canada (or in New England in the days of the Suffolk Bank System), where there are a few large banks, each anxious to protect its share of the field of circulation. Under these conditions there is a sufficient motive coming voluntarily into play for each bank in the system to send home promptly for redemption the notes of all other banks it receives. But where there is a system of many banks as at present in the United States, this motive of self-interest does not work with sufficient force to be effective, and a law must be enacted that no bank shall pay out the notes of any other bank. This feature of a flexible currency scheme is absolutely essential. Any plan for an elastic bank currency, whatever its other details, will fail if this feature is left out. In both the Hepburn and Fowler reports, and also in the Fowler bill, there is absolutely no mention of a rule, either compulsory or voluntary, under which the banks shall each abstain from paying out the notes of other banks. Our banker mechanics would make a hub, felly and spoke wheel, without the tire.

One the other hand, the enforcement of this simple rule of non-reissue is enough to secure full contractibility, without any further compulsory check or penalty. A tax or fine is the proper means to employ to keep banks from "staying below the reserve," but not for the purpose of insuring contractibility-as is

recommended in both the Hepburn and Fowler reports. There has been much misapprehension in many quarters on this point. There should be, it may be remarked in passing, no tax on bank note circulation for mere purposes of revenue. Why tax the people's money? Why put any restraint upon the life blood of commerce? As evidence of what worlds away from the proposed scheme our present practice is, we have only to observe that under the existing law only a certain fixed amount of notes (an absolute, not proportional amount) may be retired in any one month.

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To facilitate the working of the contractibility side of an elastic currency, Assorting Houses should be established at convenient points; that is, the principle of "central redemption should be applied. Through these last named institutions, the whole mass of bank credit, as well as that of each individual bank, circulating in the form of notes, would be constantly, day by day, put to the test of redemption, just as now the general mass of bank credit in the form of deposits, and that of each bank in particular, circulating by check, is constantly put to the test of payment by the settlement of balances at the Clearing House. Of course each individual bank would pay both its notes and its deposits over its own counter, if cash is demanded, as at present. Under the new plan notes would expand at crop-moving time; would find their way presently into the tills of the merchants; before long would be turned into the banks where the merchants keep their accounts; and then would be sent home, either to the issuing bank or to the nearest Assorting House, and presented for redemption. They would disappear from circulation after having performed their function by a rather ephemeral existence, just as now is the case with checks, and the individual expanding and contracting deposit accounts behind the checks.

Such flexible credit currency would not be, as the term is commonly understood, an "emergency currency": it would be for daily use. The emergency-meeting power of the system proposed consists in both flexible deposit creation and flexible note issue, together with the provision of an elastic limit as to reserve in place of the present dead-line. Little emergencies should be met automatically and quickly in the ordinary course of business, and the big ones should never come at all. There has been much inconsequential talk about "emergency currency." One seems to take