banking is not yet 50 years old. In each of the three decades preceding 1870 the Bank of England by suspension of the Bank act of 1844 assumed, if it did not exercise, the power to suspend specie payments. Since 1870 all the disgraces in finance have been labeled American. It took the disgraceful American panic of 1907, upsetting the. foundations of the civilized world, to emphasize to America how inadequate and how dangerous was her banking and currency system.

Only a new party in power having everything to gain and nothing to lose would have undertaken the tasks of revision, in one year, of tariff, currency and business laws.

XVII

AN AMERICAN SYSTEM AND NEW DEFINITIONS DEMANDED.

But they

The irresistible expansive power of the United States, both in contact and example, is something with which the whole world has had to reckon now for a hundred years. "Les Americans; they do arreeve," exclaimed Sara Bernhardt. How they arrive, politically, financially or otherwise, they never seem to know or care. do get there and they know it. They have grown in that abounding self-confidence that effectively declares that individual faith removes all individual mountains. The Revolutionary Army fought without a constitution, and the colonies failed in their first attempt to make one. When, however, it was seen that the deficiency was in the power to tax, they made a new constitution that needed no tax amendment for more than a hundred years. Taxing incomes had not been dreamed of by our Revolutionary forefathers. Full confidence is growing in the new currency act that if it is found faulty anywhere we may easily amend it.

The deficiency in our banking system was in the extravagance of our fixed reserves, our lack of an outside, or investor's, discount and acceptance market, and thirdly our lack of centralized control over rates and reserves.

When we have sufficiently demonstrated our independence of all foreign financial advices and examples and also our ability to be the most extravagant nation in the world as respects bank reserves and gold hoardings, and panic penalties, we suddenly reform everything altogether.

Under the present bill we are to practically abolish any fixed reserve. All national bank reserves are cut to mere "till money" and may be suspended. The real reserves are set up with the new federal reserve banks to be later transmuted into book credits, for exchange and discount purposes, and to be eventually, as the country expands, covered many times over with the new form of currency. And here again all reserves may be suspended in time of need.

There will be centralized control over some reserves and over reserve rates and discounts. Acceptance markets and branch banks may be set up nationally and internationally. With reduced

cost for check collections and ability to interchange government bonds, government paper and gold, or to purchase the latter, we have started to remedy all our deficiencies in finance at one sweep and have tossed the whole into a Federal reserve board, yet to be named. We have been slow in preparing for the change but in no country in the world could so sweeping a change be so suddenly made and so generally accepted.

We Americans fought without a Constitution but under a Declaration of Independence. We continue to fight under the banner of our independence rather than under the restraints of our Constitution. Under that banner we absorb a million raw recruits a year and carry forward socially and politically just a bit of daredevil lawlessness that resists the police, cusses the courts, condemns the old way and seeks the new.

We use blood and muscle and vocal power most extravagantly; compete with the beaver in cutting the forests; persist in plowing two acres where one would raise the same crop under proper cultivation, and delight in pocket bill rolls and the jingle of pocket silver and gold.

This is the progressive, arriving American spirit that laughs at schoolmasters, judges, banks, economists and property accumulators; will scatter gold in the street if it elects, or make a minimum wage of $5 per day for office boy and scrub woman, just as a social experiment and in defiance to all precedent.

This is Uncle Sam with high hat and bursting trousers that have to be strapped under his boots to keep them on. He will polish his hat and change his financial suit when he "durn pleases," and when he does he is perfectly willing all the world should take notice. He would not be Uncle Sam if he did not "set the pace" when he starts for a new fashion.

People who think that America is going to have a European financial system may be reckoning without their host.

Those who think there is going to be immediately established an international discount market attracting foreign capital will probably have occasion to revise their plans. The greatest free trade market in the world is within the 48 American empires now called states. The greatest investment discount market in the world could be made right here and an inter-state note market may yet be set up under our new banking system and rival if not surpass any European discount market, before European investors can be attracted into an American bill market.

Europe knows very little of our quick system of communication, our jingling telephones and flashing public press or of our high

beating financial pulses. She is still as timid concerning the size of Brother Jonathan and his ability to "eat up all creation" as she is timorous of the Russian bear that still makes Europe nervous as he drops a hundred millions of reserves here and there over Europe.

XVIII

COMMERCIAL PAPER.

While we are borrowing our terms and formulas in the new Reserve Act from Europe it must be distinctly understood that these can be made applicable only under new rules from the Reserve Board. We have no such bill markets, or acceptance markets, as Europe possesses. Commercial paper by the European and by the older American standards was a note given for goods and so timed that a sale of the goods would meet the note. Acceptances are drafts, sometimes with collateral or bills of lading attached and accepted by the banker for payment 60 or 90 days hence. Such acceptances sell in the market upon the banker's name and credit and millions are invested in Europe in this form of security.

The American higher money rates causing discounts for cash have largely driven out the older forms of commercial paper. A buyer being offered 2% or 3% discount for cash, instead of 60 or 90 days' credit, immediately figures the rate of interest and rushes to his bank, if need be, to get the cash and the advantage of such a high interest rate.

The result is that today in the United States commercial paper is largely bank borrowing upon the name and credit of a single commercial house.

Modern economists are declaring that the American system of commercial borrowings is superior to the European. In Europe it is the name of the banker-merchant, Barings, Kleinwort, etc., that carries the paper and gets the low rate. In this country it is the general credit of the goods themselves and the merchant or manufacturer who is handling them.

It is not yet clear that the European system is to prevail in this country over the American system in this 20th century era.

The Federal Reserve Board must rule that borrowings for merchandise purposes that are good at the member bank must be accepted as commercial paper in re-discount at the Reserve Bank.

The first decision upon this matter may arise when the member banks offer half their instalment payments to the reserve banks in the form of "eligible paper" as noted in Section 19, but “a