Loading ...PREFACE By the Author
THIS volume is intended to furnish a plain, untechnical exposition of the defects of our present banking and currency system, together with a discussion of the remedies. Not since the Civil War has the country been confronted with a monetary and banking question of greater importance to business prosperity. The adequacy of the banking system affects the everyday existence of the laborer, farmer and merchant. The unnecessary expense of obtaining credit under a bad banking system is borne by the borrower; the impossibility of getting loans in a time of panic shuts up factory and shop and falls most severely upon the wage- earner who loses his employment. Unemployment is largely increased by financial panics.
The reason for the existence of the National Citizens’ League, which is made up of business men, is found in the fact that the reform affects the borrowing business man more than the lending bank; the bank can always protect itself by sacrificing the borrower. There is practically no class in the community not directly concerned in the outcome of this campaign of education. This book explains the effects of our banking system and of its reform on every class.
It has long been seen that our currency is needlessly inelastic ; that our credit system is even more dangerously inelastic; that our large gold supply is ineffectively used; that the scattering of reserves forbids co-operative action by the banks in times of stress; that our rigid reserve system even breeds panics; that state banks and trust companies are doing commercial banking but without cooperation with national banks; that our Independent Sub-Treasury often attacks the reserves of banks at times of danger and works without business-like economy and efiiciency ; that idle funds of banks drift to New York and on call loans feed stock speculation ; and that our trade is greatly hampered by lack of American banking facilities in foreign countries. For these reasons the people are calling loudly for legislation which shall be non-partisan and formed on seasoned experience, without breaking with our democratic system of independent banks. It should also be a matter of care that elasticity should be obtained without the dangers of over-expansion.
The reform should not take the shape of a dominant central bank, nor should it be the creature of politics. For this reason the Government of the United States should not enter the discount and deposit business of banking ; but, on the other hand, it should supervise and regulate a cooperative means of assistance, like an enlarged clearing-house association, in the common interest, and require the banks to pay all the cost of providing capital, supplying gold reserves, and issuing notes under its close supervision. Thus the surplus profits of note-issues and of discounts would go to the people of the United States. Moreover, in any legislation, care should be taken that control of our credit system should not pass into the hands of any sinister political or financial interests.
For these good and sufficient reasons, the National Citizens’ League, organized in most of the States of the Union, is now carrying on a campaign of education so that the worth of every measure proposed to Congress may be rightly judged. For this reason the plan of the National Monetary Commission – the elaborate and most discussed plan before the public — has been given extended study. The League, however, is not committed to any specific measure. If discussion shows that any other plan is superior to that now before Congress, it will support that plan. It will favor any measure which incorporates its fundamental principles without regard to its origin. It realizes, however, that the remedy for the defects of our present credit system lies in some form of a cooperative institution, evolved from our clearing-house experience, by whatever name it may be called, which will remove the defects of to-day. The evil of separate sections, working at odds, can no longer be tolerated. The cooperation desired should be countrywide, providing for the importation of gold, in the interest of all banks, big and little, giving assistance to all in times of stress, and supplying uniformity in the rate of discount. Such advantages could not be gained by dividing the country into independent detached sections, leaving the situation much as it is to-day. But this cooperative agency should furnish the indispensable economy of united reserves and common places for the rediscount of commercial paper impossible under a system of separate organizations.
J. Laurence Laughlin,
Chairman of the Bxecutive Committee,
National Citizens’ League.
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