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as long as the financial system created by our Federal laws remains unchanged and unreformed, the government will be exclusively responsible for the commercial, industrial and social disasters which flow from panics. This responsibility is a fixed one. It is unavoidable; and ought to be frankly recognized and acknowledged. The people are helpless. The character of this responsibility is better understood when it is realized that the effects of financial panics are not at all confined to the banks and the larger business world. A panic such as that of 1907, or a lesser panic, reaches directly or indirectly every town and hamlet of the country, and every family and individual. It nationalizes itself long before it has gone far; and its interruption of the business movements large and small, its fracture of the organization under which commercial and industrial life go on and the resulting social suffering are prolonged into years. These facts intensify the significance of the delays and postponements of the government. A panic is as unnecessary and as avoidable as an epidemic of smallpox. You can have an epidemic of smallpox if you disregard all that science has provided as a preventive. You can not possibly have an epidemic of smallpox if you will apply the simple means that science has provided. So we will continue to have panics only so long as we refuse to apply the simple preventives which he who runs may read.

Not only does the system established by the present Federal laws promote and develop panics, but at all times the country is carrying the needless and heavy burden of an unfit and wholly insufficient banking and currency system. This system never permits entirely free commercial, financial or industrial action at any time; because its liability to sudden constraint and restriction is always a part of the nation's financial consciousness. There never is a time when there is any long look ahead; except when we are in the midst of a panic when there is a long look of disaster ahead. There is never a long look of ease and convenience and prosperity ahead.

This is true even in the quietest periods of the year. And then there always comes, in the crop moving season, a special stress and constraint; which not only affects the imaginations but the actual resources of the banks. The autumnal constrictions are not felt, of course, so severely as those of a panic; but severely enough to make long periods of wholly unnecessary discomfort and apprehension; not to speak of the actual lack of financial facilities legitimately needed by the people and denied by the government.

We have had before us this autumn another object lesson of the urgency of the need of banking and currency relief. This relief which is so urgently needed by the legitimate business and enterprise of our people is not relief from a financial situation built up by the financial world itself, but is from a system and conditions superimposed by the government; and forced upon the business community and upon American society. The banking and currency system is the product of Federal law. And there can be no relief from it until Congress acts. And this is why Congressional action is urgent.

Fortunately, the banks have been able unaided to carry on, this autumn, the financial operations necessary to the movement of our vast crops; and at the same time finance the operations of a general business expansion--even in the face of a European disturbance. This, however, has called out nearly all the resources that were available under our constricting system. And it was at no time certain that the Treasury Department might not be fairly called upon to use its facilities to assist these ordinary business transactions. I should have been sorry to feel it necessary for the Treasury Department to intervene at such a normal period as this. But, of course, it would have assisted if it had become necessary; for the use of the surplus in the Treasury belongs of right to the business operations of the country whenever a real need for it arises. In view, however, of the impotent condition of our bank reserves whenever reserves are seriously needed, it has seemed that the present moderate accumulations in the Treasury might well be held intact for a greater need. The Treasury reserve is the only trustworthy one we have; and until Congress furnishes the nation with another and better reserve it is well to make that of the Treasury as useful and responsible as possible. I think it fortunate that the financial world has been able to finance the enlarged business of the country this autumn without resort to the reserve which the Treasury Department has accumulated. I also think it fortunate that the Treasury has accumulated a reserve to aid in bridging over until the new and urgent legislation is passed, and believe it is of high public importance that such a reserve shall be maintained until a more legitimate one has been provided for by legislation.

This anomalous relation between the Treasury Department and the general financial world is, at the same time, a part of the thing to be reformed. Taking large sums of actual money out of the ordinary financial use and locking it up as a dead mass in the vaults of the Treasury is a proceeding as unscientific and unreasoned as any other part of our unreasoned and unscientific banking and currency system. But until that system is changed so as to provide a trusty system of bank reserves, it seems to me the Treasury Department performs, as incidental to its very bad share in the banking and currency system, some functions as a reserve center which are of very great value. Since, however, the Treasury surplus is not a genuine self-acting reserve, it is desirable that as long as it is not excessive, it shall not be too easily drawn upon and absorbed—not used as long as the ordinary facilities of the money market can be made sufficient to meet the general demand. It was upon these general views that the Treasury Department acted this fall with respect to the money market.

It is not my intention to speak of the details of this urgent relief measure—this Banking and Currency legislation. But the general features of a new system-if that system shall be at all adequate to the emergency-must include, among its necessary features, provisions for never-failing reserves and never-failing currency, and for the perfect elasticity and flexibility of both; for the permanent organization and organized cooperation of the banks, which are now suffering and causing the nation to suffer by reason of their unorganized state; for a central agency, to represent and act for the organized and cooperative banks—this agency to be securely free from political or trust control, but with the government having adequate and intimate supervision of it; for independent banking units--so independent that no one bank can be owned, controlled or shared in in any degree, directly or indirectly, by any other bank; for the equality of all banks, national or state, both as to standards and as to functions--so that every requirement made of a national bank must be complied with equally by a state bank, and every function or privilege enjoyed by a state bank shall be enjoyed by a national bank; for the utilization and the fluidity of bank assets; for the scientific development of exchanges—domestic and foreign; for foreign banking as an adjunct of our foreign commerce; and for taking the Treasury Department out of the banking business.


In order that the Treasury Department might do what it couldpending legislation—to reduce the inconveniences and dangers of the present Banking and Currency system, it promoted and secured the formation of all necessary National Currency Associations throughout the country to make available the provisions of the AldrichVreeland law in case of need—and as a preventive of need, and these Associations are now practically complete. The important facilities afforded by that law are now available; and the assured knowledge that these facilities are ready to act at once is of itself a strong preventive of trouble.

That law, by the way, will expire by limitation June 30, 1914; and I recommend very strongly a reasonable extension of it that it may not lapse before it becomes unnecessary.

Annual Reports, Comptroller of Currency, Banking Statistics,


[Comptroller of Currency, Annual Report for 1912, pages 769–771 ; for 1931,

pages 1023-1025]

Resources and liabilities of the first Bank of the United States.

(Incorporated by Congress in 1791 for 20 years.]

(In millions of dollars.)

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Resources and liabilities of the second Bank of the United States.
(Chartered by Congress in 1816, for 20 years; renewal of charter denied; in consequence reorganization was
effected by means of authority of the Legislature of the State of Pennsylvania. The bank assigned in
1841, the affairs being finally liquidated in 1856, and resulted in the payment in full, interest and principal
of liabilities to depositors and note holders; the shareholders, however, received nothing on their invest-
ment in stock of the bank.)

[In millions of dollars.)

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