FRENCH BANK NOTES.

Standing out even more conspicuously as a representative of a pure credit system, the Bank of France surpasses in some respects even the Scotch banks, since certain trammels have been thrown around the latter in the name of safeguards, because, forsooth, the English banks had disastrous experiences due to unwise laws.

In 1803, when the charter of the Bank of France was under consideration for renewal, Napoleon, with his own hand, inserted in the draft of the bill these prerequisites for note issues:

"The notes shall be covered either by coin held by the bank or by notes secured by collateral or by notes signed by three responsible persons."

That is the law to-day with regard to its note issues. Nothing could be in more perfect consonance with sound banking. Nothing could be a truer and safer basis for a credit currency or for a credit at a bank against which to draw checks.

There is nothing in the law of France requiring the banks to carry any particular reserve, but experience has taught the managers of the Bank of France that a certain reserve is essential to insure confidence and protect the credit of the institution.

But the vast reserve of gold carried by the Bank of France is not a reserve to protect the notes as distinguished from the other liabilities of the bank, but to protect them in common with all the other obligations.

If anyone supposes that the Bank of France carries $588,000,000, or more than 50 per cent of its notes, to protect its notes alone, he is laboring under a profound delusion, and his dream is rendered ridiculous when he is reminded of the fact that if the bank holds all this sum as a note reserve it has made no provision whatever for the protection of its other demand obligations, amounting to more than $200,000,000.

As well might we say that the banks of Scotland are carrying $135,000,000 of gold coin to protect their $40,000,000 of notes and not to protect their other demand obligations, amounting to more than $600,000,000.

Let it be distinctly understood, once for all, that it requires just the same reserve to protect $100,000 of deposits, subject to check, as it does to protect $100,000 of credit notes, and that there is not the slightest difference between them as liabilities, both being current accounts and payable upon demand in legal tender should the creditor so require.

In France both the note holder and the depositor stand upon identically the same footing, neither being protected more than the other by a guaranty fund or a prior lien. Although the notes of the Bank of France amount to $929,000,000, or more than five times the deposits, which amount to only $200,000,000, the Frenchman has as much confidence in his note as any American has in our bank note or any Englishman in a Bank of England note.

The note of the Bank of France, however, is the purest kind of a credit note. It rests entirely upon the credit of the Bank of France and is protected only by its general assets. It has always been a practically unlimited issue, because the limit has always been far

above the requirements of trade, being to-day fixed by law at $1,450,000,000, while the actual issue is only $1,193,000,000.

In 1903 one hundred years had expired since Napoleon prescribed the basis of this ideal credit note which has done so much to give France the lowest interest rate in the world, thus proving that while she has had the cheapest tool with which to do her commercial work that tool has been as good as the best in the world.

The Bank of France has a capital of $35,000,000 and carries a reserve of $588,000,000.

This capital and gold reserve are, first, to protect all the liabilities of the bank-the current accounts, deposits, and notes; second, to guarantee the parity of gold and silver and in that way the stability of the monetary system of France, and, third, to establish a commercial reserve for the protection of all French credits.

GERMAN BANK NOTES.

The Reichsbank, or Imperial Bank of Germany, was created in 1875 out of the Bank of Prussia, which had existed since 1765.

This bank is obliged to hold in its vaults, as security for the amount of its bank notes in actual circulation at any time, one-third in current German gold, Government certificates, or in bullion or foreign coin (the pound fine being reckoned at $348), and the balance in discounted notes which bear a maturity of three months at the longest, and on which the names of three or at least two persons known to be responsible stand as indorsers. When the circulation exceeds the metallic reserve by the arbitrary amount of $112,500,000, upon which there is no tax, a tax of 5 per cent is imposed.

No bond or guaranty fund stands between the note holder and possible loss. In case of the liquidation of the bank the note holder and the depositor stand on the same footing.

Here is a true credit currency, with a basis and a relation to the deposit identical with that of the Bank of France to all intents and purposes, the only essential difference being in the nominal limit upon notes of the Bank of France and the 5 per cent tax imposed, under certain conditions, upon notes of the Imperial Bank of Germany.

The entire capital of $37,500,000, with a surplus of $10,125,000 and a metallic reserve of $200,000,000, not only serves the purpose of protecting the bank's own liabilities, but is considered as the commercial reserve of German credits. Therefore he who assumes that the entire metallic reserve is intended to protect the notes of the bank utterly misapprehends its purpose; for if the law made no requirement whatever the reserve would not be a single mark less. Laws more powerful than written statutes control the motives and policies of the managers.

While neither bonds nor gold coin are set apart to protect specially the bank notes, does any American suppose that the German people hesitate to take them or do not accept them with all the assurance he may possess when boasting of the American bank note?

ENGLAND HAS RECOURSE TO A CREDIT CURRENCY.

The Bank of England, too, issues a credit currency whenever the emergency arises. Since the passage of the bank act of 1844, which was supposed to plant the currency of Great Britain upon coin or

bullion alone, in every case where a crisis has arisen or has been threateningly impending the bank act has been suspended. It was suspended three years later, in 1847. It was suspended ten years later, in 1857, and nine years later, in 1866, and bank notes issued without reference to a deposit of gold coin or bullion; while preparations for its suspension have been frequently made since, with the uniform result of breaking the force of the panic and ending the crisis. The "currency principle," or a currency based on coin alone, proved a failure in both Amsterdam and Hamburg in 1764, and again in Hamburg in 1857.

AMERICAN PRECEDENTS.

Crossing the Atlantic, let us review the history of credit notes in our own country, and we shall find that during a period of seventy years, wherever tried, credit notes proved themselves the only perfect instrument of modern trade, whose corner stone is credit.

CLEARING-HOUSE CERTIFICATES.

What is a clearing-house certificate? It is a bank note issued by the clearing house and based upon the assets of the banks deposited with the clearing house, and therefore a credit note in identically the sense in which this bill recommends a credit currency. In 1884 the New York banks issued $24,915,000 credit notes or clearing-house certificates, and in 1890 they issued $15,205,000 of them. In 1893 the New York banks issued $38,280,000 of these credit notes, and Boston, Baltimore, Philadelphia, and Pittsburg $25,000,000 of them. Therefore we assert that at no time whenever a great crisis has arisen has England or the United States or any other country found relief except in the expansive principle of issuing notes based upon credit or the goods in the country and not upon coin.

J. Laurence Laughlin, in support of this proposition, used this language:

It is in such circur.stances as these, we shall find, that means of payment are created, based again on goods such as clearing-house certificates; or, as in England, by obtaining new reserves of notes based on consols by a suspension of the bank act. In short, a panic demonstrates that credit transactions are really based on goods; that liquidation never can be forced in money; and that the invariable remedy is some method of tiding over the emergency by creating means of payment based on goods (not specie) which will be acceptable by lenders from borrowers (e. g., clearing-house certificates).

THE FIRST UNITED STATES BANK.

In the very morning of our national life our experience began with a true credit currency issued under the charter of the first United States bank, granted February 25, 1791. The act was drawn by Alexander Hamilton and signed by George Washington.

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This bank could "establish offices wherever they shall think fit in the United States for the purpose of discount and deposit only;" and the act further provided that the total amount of the debt which the said corporation shall at any time owe, whether by bond, bill, or note, or other contract, shall not exceed the sum of $10,000,000" (which was the amount of its capital) "over and above the moneys then actually deposited in the bank for safe-keeping."

The right of note issue, then, by the terms of the act was measured by the capital; and yet in 1811 the balance sheet showed only $5,037,125 of notes out, although the bank had the right to issue $10,000,000.

First bank of United States-statement of condition, January, 1811.

At the end of twenty years there were only eight branches, located at New Orleans, Savannah, Washington, Charleston, Norfolk, Baltimore, New York, and Boston, together with the home office at Philadelphia, although they could "establish offices wherever they shall think best."

The curse of unreasoning partisanship was abroad in the land then as now, and a renewal of the charter was defeated in the House by a single vote, the motion to postpone indefinitely being carried by 65 to 64. The vote in the Senate was a tie, and the question was decided by George Clinton, Vice-President, voting against it.

Every note of the bank had been equal to coin in all parts of the United States, and when it was liquidated the shareholders received $434 per share, or a premium of $34, the par being $400.

THE SECOND UNITED STATES BANK.

In his message of December 5, 1815, James Madison urged a Second United States Bank as the proper instrumentality by which we should again resume specie payments, and immediately his Secretary of the Treasury, Mr. Dallas, submitted a detailed plan.

The Second United States Bank, with a capital of $35,000,000, was chartered by act of April 10, 1816, which contained these words:

The total amount of debts which the corporation shall at any time owe, whether by bond, bill or note, or other contract, over and above the debt or debts due for money deposited in the bank, shall not exceed the sum of $35,000,000.

Thus it will be seen that the issue of notes was limited to the amount of the capital, and by the act they were redeemable in coin. The directors were authorized to establish branches.

When the partisan rage of Jackson over the Portsmouth branch appointment had obscured every public consideration, the work of destruction began, which resulted in tearing down an institution of great usefulness and setting back the evolution of a sound system of banking and currency for nearly a century.

For evade it as we may to-day the time will come when the underlying principles of that institution will be incorporated into the laws of the land, and every bank will be compelled to redeem its obligations in gold coin. Then the banks will take their place among the financial institutions of the world, and their notes will once more be accepted throughout all the civilized parts of the earth.

In 1829 Jackson assumed the duties of the Presidential office. James Parton, his eulogistic biographer, in speaking of the United States Bank at this time, says:

Its capital was thirty-five millions. The public money deposited in its vaults averaged six or seven millions; its private deposits six millions more; its circulation twelve millions; its discounts more than forty millions a year; its annual profits more than three millions. There were 25 branches in the cities and towns of the Union. * * * In every county of the Union, in every nation on the globe were stockholders of the United States Bank. One-fifth of its stock was owned by foreigners, one-fourth of its stock was owned by women, orphans, and the trustees of charity funds, so high, so unquestioned was its credit. Its bank notes were as good as gold in every part of the country. From Maine to Georgia, from Georgia to Astoria, a man could travel and pass these notes at every point without discount. Nay, in Sweden, Paris, Rome, Cairo, Calcutta, St. Petersburg, the notes of the Bank of the United States were worth a fraction more or less than their value at home, according to the current rate of exchange. They could usually be sold at a premium at the remotest commercial centers. It was not uncommon for the stock of the bank to be sold at a premium of 40 per cent. The directors of the bank were 25 in number, of whom 5 were appointed by the President. The bank and its branches received and disbursed the entire revenues of the nation.

Principal items of resources and liabilities of the Bank of the United States from 1817 to 1840. RESOURCES.