more ready cash than at other seasons. The strain inevitable began to develop. Interior banks called their loans and shipped the proceeds home, but in some instances seemed to think it strange that the withdrawal of the actual money from financial centers, whither it had been sent to be loaned on call, should cause any stringency at these centers. Those who studied to write articles that would surely be read, and neglected to study actual conditions, attributed the noticeable tension not to increased business, but to the presence of sudden speculation.

It becomes acute.

It was not long until warehouses were overflowing and railroads found themselves utterly unable to transport the tendered freight. Before the first of September, great quantities of freight had accumulated west of the Rocky Mountains, which five transcontinental railroads combined did not have trackage enough nor equipment sufficient to transport. A little later ships were compelled to tie up at lake ports, unable to unload in warehouses or in cars. The New York Central Railroad, with its four tracks, did not have available cars enough to carry the freight tendered at Buffalo. To meet unprecedented demands, its board of directors at a single meeting appropriated $27,000,000 for additional equipment. Other roads were equally congested and equally liberal in their plans and in their appropriations. The principal railroads of the country within a period of ninety days appropriated more than $100,000,000 for additional equipment. It soon became impossible to place an order for steel rails or other equipment to be delivered in twelve months.

Treasury relief.

Finding transportation facilities inadequate to promptly export our agricultural products, the Secretary of the Treasury deemed it wise to again facilitate the importation of gold from abroad with which to carry them until they could be exported. Under plain and unequivocal authority of law, and without a penny of expense to the Government, approximately another $50,000,000 of gold was brought from abroad and turned into the channels of trade. In addition, $26,000,000 of the money withdrawn in midsummer was restored. Of this, $3,000,000 was given to New York City and the same amount tendered to Chicago, a part of which was declined, however, because the banks found it impossible to borrow the bonds with which to secure it and unprofitable to buy them. Boston, Philadelphia, St. Louis, and New Orleans each received $2,000,000; Baltimore, Louisville, Kansas City, Cleveland, and Cincinnati $1,000,000 each; Pittsburg, Buffalo, Minneapolis, Milwaukee, Detroit, St. Paul,

Omaha, Des Moines, Denver, Sioux City, Memphis, Peoria, Atlanta, Nashville, and Sioux Falls approximately $500,000 each. Meanwhile, sensational writers told the people that all this was being done for the encouragement of speculation on Wall Street. If those who recognize that a deposit of money at Denver relieves financial tension at Wall Street will also acknowledge that a deposit in New York relieves financial stringency at Denver, no material harm will ensue. Money is almost as liquid as water and finds its level about as quickly.

More bank-note circulation.

The Secretary also offered to accept satisfactory security, other than Government bonds, for Government deposits to the extent of $18,000,000, conditioned that the bonds thus released should be immediately made the basis of circulation' by banks for which circulation had been already prepared, and further conditioned that the same should be retired at the rate of $3,000,000 per month between March 15 and September 1. This is the maximum contraction of national-bank circulation during the summer months which the Secretary of the Treasury has power, under the law, to enforce, or even to permit.

The effect.

It is never possible to measure the influence of Treasury transactions such as are here described, nor to state what our experience would have been had the Treasury failed to act in a given crisis. One man of very large experience, with business interests in several States, who never made a speculative transaction in stocks or bonds, recently expressed the opinion that but for the precautionary measures adopted by the Treasury the price of every bushel of grain in the United States would have declined ere this 10 cents. Business men in western cities have crossed the street to express appreciation and to give assurance that the action taken was immedately felt in their localities, though in some instances at no small distance from any city where a deposit was actually made.

Much-needed elasticity.

These cases have been thus reviewed, not for the purpose of expressing an opinion as to the wisdom or want of wisdom exercised by this Department, but solely as the basis of an argument in favor of some Congressional legislation on the subject of a more elastic currency. Every other instrument of business from grain sack to merchant ship responds in some measure at least to the actual needs of commerce, while the money of the United States remains a fixed quantity.

Methods discussed.

Various methods have been suggested by which this well-recognized defect in our monetary system may be corrected. Committees composed of prominent financiers have met, deliberated, devised, and made reports. Financial writers, doctrinaires, practical business men, and impractical theorists, men of experience and those wholly without, have discussed the question with much learning and occasionally in much ignorance. This is all very welcome. Frequently the most impracticable and unthinkable plan will suggest something wise or help to eliminate what is unwise.

Divergent views.

Unfortunately, but naturally, even the reports of committees appointed because of their recognized experience and intelligence are quite divergent. On one thing only is there well-nigh universal agreement all recognize the necessity of a currency system that will contract when money is redundant as promptly as it will expand when money is scarce. Inflation is not the remedy. A currency that will not as promptly contract as it will expand would be harmful.

Partial agreement.

Most of the reports of committees indorse all the essential features of the suggestions contained in recent reports of the Secretary of the Treasury, where heavily taxed additional national-bank circulation is recommended. The most important feature of this plan is the certainty of retirement when the extraordinary demand ceases. Its retirement will be accomplished not by collecting in the actual notes and redeeming them, but by allowing the bank issuing the same to make a corresponding deposit with the Treasury or at a subtreasury. This accomplishes the contraction, and the bills themselves will sooner or later be returned and charged against this deposit. Interest on the issue will of course cease when the deposit is made. By eliminating the words "secured by United States. bonds deposited with the Treasury of the United States" from the present bank note, the additional circulation issue need contain no distinguishing feature. The Government should accept the tax as a premium for underwriting the issue, and should guarantee its prompt redemption. The people have become familiar with national-bank notes and will not discredit them, though they fail to recite the fact that bonds have been deposited against them. The ultimate redemption of national-bank notes is now guaranteed by the Government by reason of the Government's liability on the bonds deposited for their security. The direct guarantee of the Government would not change this essential feature so far as the public is concerned, and the tax collected would cover the risk many fold.

German plan.

There is nothing particularly new in this plan. Barring the Government's guarantee, which, in view of recognized public sentiment against unguaranteed currency, I think wise to provide in any and all currency, it is the application as far as possible of the German plan to our present system. In Germany the rate on uncovered currency is 5 per cent, and the current interest rates are lower there than in the United States. It is questionable whether any lower rate of tax in this country would insure prompt retirement. I deem it inappropriate, however, to carry my recommendations to the details of legislation. Both the plan to be adopted and the details of the plan must be worked out by the legislative branch under such advice as it may call to its aid. Only on the subject generally does this Department commit itself.

Credit currency.

Much can be said in favor of credit currency for permanent maintenance. The addition thereof to our present currency system has been urged for half a century. Many bills have been introduced embodying the plan; Congressional committees have from time to time made favorable reports thereon; and it has quite recently received the unqualified indorsement of a joint committee representing commercial and banking organizations and composed of men of the very highest business and financial standing.

If a new currency system were being devised, unquestionably this plan would be included, and it might possibly take the place of the present bond-secured circulation. No one now, however, recommends it as a substitute. Those who favor it propose its incorporation into, rather than its substitution for, our present system.

Whether it will work as freely and as automatically in conjunction with other bank-note circulation as when the entire issue of bank notes is based on credits can be determined only by trial. To what extent the existence of State banks, savings banks, and trust companies will afford a resting place for such an issue is another matter, which can not be computed. Until the experiment is tried both these elements will remain matters of estimate if not of conjecture. It must not be forgotten that a given per cent of increased rapidity of redemption when money is redundant over that prevailing when money is scarce will not work the same aggregate of contraction when less than one-fourth of the bank circulation is based on credits as would result if all bank circulation were of the kind proposed.

The circulation of the country has increased during the last five years more than $600,000,000, or $120,000,000 per annum, and business interests have certainly kept pace with this increase, and interest

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rates throughout the world are now unusually high. I would not, therefore, view even with apprehension of evil any credit currency legislation so restricted as to render impossible the permanent maintenance of more than $200,000,000.

The limitation of $3,000,000 per month.

It has frequently been suggested that if the limitation of $3,000,000 in the amount that may be deposited by national banks for the retirement of circulation were removed greater elasticity would ensue. I very seriously doubt the proposition and beg to cite some experiences. No sooner was the new issue of Panama bonds advertised in July, 1906, than banks throughout the country commenced to retire their circulation that they might sell their bonds, a process which, but for the provision limiting the amount of retirement to $3,000,000 per month, would have probably pounded the price of 2 per cent bonds approximately to par. Several times when deposits have been made, resulting in an advance in the price of consols, national-bank circulation has been retired and the bonds sold at an advance. In several instances banks have sought to be made depositaries of Government money on the ground that there was a scarcity in their locality, and when designated have tried to retire their circulation so as to use the bonds on which the circulation was based as security for the deposit. It may be said of such a course that it is natural and inevitable, and I cite it as one reason for the suggestion on page 54 hereof that it would be wise to clothe the Secretary of the Treasury with discretion whether he will allow retirement of circulation at any given time, and to place such limitation thereon as in his judgment will best conserve the business interests of the country.

Central bank.

Several other plans have been proposed for supplying the element of elasticity in our currency system. Many practical and well-informed financiers have recommended a central Government bank patterned, in some measure at least, after those of the principal financial countries of Europe. The abolition of the independent treasury would be of course involved in such a plan. Government money would be then regularly deposited in this central bank, from which disbursements would be made, and the Government's supervision of and interference with the monetary operations and the financial condition of the country would be effectually eliminated.

At first blush this seems desirable, but in practice I fear it would soon be found to work less satisfactorily than the present system. Such a bank would of necessity be governed by a board, the members of which would doubtless have outside interests. They would be responsible to no administration, to no political party, and each could shift the responsibility from himself to the board as an aggre