country. That the moneylenders should have the monopoly seems to be the most absurd proposition to present to the voters of the republic. If bankers may control the moneysupply, will they make money plentiful or scarce? One may read the arguments of Secretary Gage and of the Indianapolis Conference without enlightenment upon this point, and yet the very doubt on such a vital point is the complete condemnation of the system.

The Textile Record of America last January asked these pertinent questions: "Upon what grounds of equity can it be demanded that the credit of the Government should be given to banks for the profit of their stockholders, and not to manufacturing corporations for the profit of their stockholders? In what particular has a bank-owner a claim to such backing which a mill-owner does not possess? " The Farmers' Alliance long ago asked these questions, and rallied two millions of voters to demand that the Government should loan money upon goods. If the deposits of the manufacturer and farmer are now to be made liable for the note issues of the banks, the inquiry must be made, Why should the banks issue the notes rather than the producers themselves? It is not certain that the end of the agitation which the banks have now aroused will not be the absolute repudiation of any special privilege to bankers in the control of the currency system, and a reinforcement of the demand that the Government shall supply the producers of the country directly with the money necessary for their industries. The banks should be satisfied that they have stopped all increase in our currency through the repeal of the Sherman Act, and are reaping an unjust harvest through the extortions of an appreciating money.

It is alleged that money issue and redemption are in Europe largely in the control of the banks. In answer it may be said that the very considerations which warrant such a method in Europe condemn it in the United States. The great banks of the leading European states, England, France, Germany, and Russia, are single, monopolistic banks, intimately connected with the government, with the protection of the gold reserve, and the redemption of the note issues.

We have 3,600 national banks under a system of competition, each defending its own solvency and promoting its own success, regardless of the State and other banks. No single bank or, indeed, any group of banks has a motive to protect gold redemption by the government or by other banks. Apart from the note-issuing power, we have a free banking system, including 9,000 banks. The three vital functions performed by the government banks of Europe are these: 1. To control the supply of gold;

2. To supply the reserves for note redemption;

3. To maintain the money market in time of panic. These ends are attained by the exercise of a power essentially monopolistic, and, it is respectfully submitted, are not attainable by banks under a competitive system.

1. The supply of gold in Great Britian is admittedly controlled by the regulation of the rate of discount in the Bank of England. This bank, while not strictly a government bank, governs the money market. If it is desired to stop an outpour of gold, the bank raises the value of gold by increasing the rate of interest arbitrarily; goods are thereby cheapened, and exports of goods take the place of gold exports; gold being more valuable, its import in payment of debts abroad displaces the import of goods. The other government banks of Europe adopt similar and other methods with the avowed purpose of regulating the inflow and outpour of gold.

2. The reserves for note redemption are zealously and arbitrarily guarded. The Bank of France pays silver when the money-brokers draw too heavily on the gold fund. The Bank of Germany compels the brokers to desist from gold exports, through the power it has over the credit of the money-dealers. Suffice it that in the struggle for gold each of the great banks sees to it that the metallic reserve is not depleted. Some of the methods are mysterious, but the end is fairly accomplished.

3. The money market is maintained in time of panics through these state banks if at all. In this regard there is a fatal weakness in our competitive system.

Panics arise from the contraction either of the money

supply or of credits. When the process of contraction begins, apprehension of danger gives impetus to the movement. This apprehension will grow to disastrous panic if the process be not checked, and it is clear that the only possible check is the free supply of money or credit.

Mr. Bagehot covers the matter thus: "Whatever bank or banks keep the ultimate banking reserve of the country must lend that reserve most freely in time of apprehension." And he adds: "The strain thrown by a panic on the final bank reserve is proportional to the magnitude of a country's commerce and to the number and size of the dependent banks." In the panic of 1825 the Bank of England loaned money even · on goods. In 1857 it increased its loans heavily on securities. In 1866, when the great panic opened, the Bank had but $29,000,000, but in a week it had loaned $65,000,000, and the total increase of its loans was $75,000,000. When the collapse of Argentine securities ruined the Barings in 1890, the Bank borrowed $15,000,000 of gold from the Bank of France, and saved England from a crisis. The Peel act restricts the note issues of the Bank of England, but it has had to be suspended several times to avert panic.

Let us now apply these three operations of the European state banks to our national system, treating them in the reverse of the above order.

Our competitive system, in the first place, is a breeder and not a healer of panics. Be it a currency or credit panic, each bank looks to its own safety. It strengthens its cash reserves and contracts its loans, that it be not caught in the storm. This terrible operation was seen in 1893. The national banks called in loans to the amount of $320,000,000, and increased their cash reserves. Ruin followed in the path of this process. The report of the Treasurer of the United States in 1873 shows the same history: "Suddenly there began a rapid calling in of demand loans, and a very general run on the banks for the withdrawal of deposits." A striking commentary on the present efforts of the banks to discredit the government notes appears in the official report that, "In this condition of things great pressure was brought to bear upon the Treasury Department to afford relief by the

issue of United States notes." The banks begged for $20,000,000 in United States notes on pledge of clearing-house certificates, with securities. The Treasury declined for want of power, but finally supplied $13,000,000 by purchase of bonds for the sinking fund. The Secretary of the Treasury reported: "The currency paid out of the Treasury for bonds did much to strengthen many savings banks and to prevent a panic among their numerous depositors." All this occurred while the banks had power to issue notes secured by United States bonds.

The proposition to entrust the whole monetary supply to the banks opens up terrible possibilities of panic, which may well give pause to the bankers themselves. Suppose ourselves dependent upon gold alone for redemption, and that the banks have issued notes upon their assets to supply the country with currency. They have now a liability which did not exist before; they must find gold for their note redemption. With heavy gold exports, or a shortage from any cause, the banks must begin to strengthen their gold redemption-fund to secure their own solvency. This process will tend to the hoarding of gold and to speculations in gold, and depositors will be driven to withdrawals lest the bank's assets be held for note redemption on a suspension of specie payments by the banks. Out of several thousand banks some are sure to be caught in such a movement. The Treasury report for 1873 says: "The suspension of certain large banking houses alarmed the people as to the safety of banks and banking institutions in general." If this feeling opened the panic of 1873, what will be our security when banks are issuing notes on their assets, and depending for redemption upon gold alone? May it not fairly be said that, even if this new system is honestly devised to relieve the government, it will at least weaken the public confidence in the banks themselves in time of distrust. The panic process, once started, has nothing to check it; it feeds upon itself. When the incautious banks begin to go to the wall for lack of gold reserve to redeem their notes, the strong banks must follow. The depositors, whose funds are now made liable for notes, will hasten the crash.

Here we realize the difference between the Bank of England, one great responsible reserve agent, backed by the government, on the one hand, and 4,000 separate banks struggling with each other for reserve funds. The strength of the system must be measured by that of its weakest member. In the name of our national solvency, let Secretary Gage consider whither he is leading us. Business men and bankers alike should beg him to take further advice upon his doubtful plan of creating banknotes which shall not be legal tender in payment of debt. Clearly, when the banks are fighting for gold, none can be had by the business community. When the weak banks begin to suspend specie payments, distrust in the banknotes will set in, and as the banknotes are not legal tender, a money panic must ensue such as the world has never seen. Yet Secretary Gage proposes to retire a part of the legal-tender notes of the government and substitute mere bank promises, which, in his words, "ought not to be endowed with any artificial power, except that which goes with the promise to pay money."

But, with these developments, where stands the Government, which the new system purports to protect?

Behind the banknotes stands the credit of the Government. But even with this credit can it be said that the banknote will be "endowed with any artificial power" save that of a promise to pay gold? The promise of the government is, it must be remembered, to redeem these banknotes in gold, while the system proposes to strip the Government of its present necessity of preserving a gold redemption-fund; that is the ostensible purpose of the whole scheme. Yet, when the banks suspend specie payments, the United States must also suspend specie payments on the same notes.

So, moving in the fatal circle, we come back to the ultimate responsibility of the Government. Yet the new system strips the Government of its self-protection, while it invites panic by trusting thousands of banks to do a business which a great single monopolistic bank does with fear and trembling. Hastening to the second function of the European bank, which has been mentioned above, we inquire, What bank or banks will undertake to supply the reserves for note redemp