….INTRODUCTION….

This pamphlet is designed to show that the periodic financial panics in the United States result from certain fixed and specific causes, and that an analysis of these causes indicates that the approach of such panics may be clearly noted and effectually prevented.

It is designed to show that of the existing currency in the nation, only a portion finds its way into the banks. That with a given quantity of currency in the banks only a definite amount of credit can be extended by the banks. That periodically, owing to the growth of business and the expansion of bank loans, the entire banks of the nation reach the extreme limit of their loaning capacity and can grant no more credit, with the result that a “capital famine” ensues, immediately affecting all branches of industry and precipitating a financial panic.

It is also designed to show that all of our currency is based upon and supported by the gold in circulation ; that a given quantity of gold will only support a given quantity of paper, and that we shall invite commercial disaster and national dishonor by injecting too much paper into our circulation ; so that there is a definite limit to the quantity of currency.

The amount of our currency can not be indefinitely increased, and it is therefore necessary to get the greatest possible use out of the currency that we have, and to so regulate our affairs that we shall get along on the credit that can safely be granted with such amount of currency.

It is the opinion of the writer that the trouble with our existing system is two-fold:

First. That there is no machinery for the regulation and control of bank loans and credits, and no method by which a gradual check can be placed upon the expansion of bank credits ~when the reserves of currency run low.

Second. That there is no adequate organization among the banks for mutual support, and, therefore, each individual bank must keep on hand in a dead reserve fund too large an amount of currency, with the result that the amount of bank credit that can be granted is unduly limited.

The remedy suggested is the creation of a Central Bank with strictly limited powers which shall hold the surplus reserves of all of the banks, and also the moneys of the National Government, and which shall use such moneys solely for the purpose of rediscounting short-term bank paper. This will enable the individual banks to safely operate on small cash reserves, as they will be in position to obtain more currency instantly from the Central Bank while there is any surplus currency available in the nation; while the Central Bank, by manipulating the rate of discount, can regulate and control the entire bank loans of the nation. The said bank should have no power to issue paper money except temporary emergency paper strictly limited in amount.

The first portion of this pamphlet is devoted to the study of the uses of currency, and the quantity needed to properly carry on the business of this nation; the second part to a discussion of what that currency shall be composed and the third part to the proposed remedy.

In dealing with these questions the report of the Comptroller of the Currency of the United States for 1908 is used, and the figures showing the condition of the banks as of November 12, 1906, is made the basis of computation. A copy of the material parts of this report is attached to this pamphlet for greater clearness.

The term currency is used to include all kinds of money, whether specie or paper.

In the opinion of the writer, there is nothing vitally wrong with the currency system of the United States, and the only changes in the existing laws necessary to establish an ideal banking and currency system are to repeal the provisions of the National Bank Act relating to reserves, to abolish the Independent Treasury System, and to create a Central Bank with strictly limited powers, as above indicated.

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