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Annual Report, Secretary of Treasury (Franklin MacVeagh)
[Sixty-First Congress, 2d Session, December 6, 1909, Page 141
BANKING AND CURRENCY REFORM
It is not necessary and not appropriate for the Secretary of the Treasury at this time to discuss the plan of banking and currency reform. The necessity for such reform is universally recognized, and when the time is ripe it will be the duty of the Treasury Department to express its judgment. Meanwhile the initiative in this important legislation was committed by the Congress to its Monetary Commission, and until that commission has reported it will be the policy of the department to preserve an open mind. The question has been and still is growing. The reform of our currency system has enlarged itself into the reform of our banking and currency systems, which brings into contemplation not merely the national banks, but the state banks in their three divisions-commercial banks, trust companies, and savings institutions. It is to be hoped that the extent and gravity of these broad readjustments will induce a public demand for calm and disinterested treatment of the issues and a public recognition of the profound importance of a rational, harmonious agreement. Neither political partisanship nor special interest nor pride of opinion should be allowed to obstruct a purely economic reform of such great significance to the nation in both its national and international relations. The change, when it comes, and whatever it may be, must be at any rate fundamentally right. It is better by far that there shall be no change whatever than that it shall be another makeshift. We must have at least the beginning of a permanent system. At present we have neither an adjustable currency nor trustworthy surplus reserves, two absolutely essential features of any banking system upon which the finances and the commerce of this great nation can securely rest. To secure these essentials-to speak of no others--the looked-for reform must deal with fundamentals.
Annual Report, Secretary of Treasury (Franklin MacVeagh) [Sixty-First Congress, 3d Session, December 5, 1910, Pages 4-5]
BANKING AND CURRENCY
The reform of the banking and currency system is still in the future. Is is very regrettable that circumstances have made earlier consideration of this great and pressing subject impracticable; and short as the present session of Congress is to be, it would be a great step forward if this subject could at least arrive at some form of definiteness and concentration before Congress adjourns. It is not like a new matter. It has received very great and very widespread consideration for years; and especially during the last two or three years the economic authorities under the lead of the National Monetary Commission have been greatly occupied with its problems and factors. No public question has in the last three years received so much competent study as this has; and it would be quite wrong to feel there is need of further hesitation in taking action.
The whole financial history of our country is a long series of troubles and agitations. And now that we have in sight the establishment of a real and permanent banking and currency system that will be both safe and sane it makes one impatient to see it accomplished. It is of the first consequence that this great economic questionimportant to all the people of this country, rich and poor alike— shall escape the deadly consequences of a partisan treatment. It is, therefore, to be hoped that it can come into Congress detached from political or sectional considerations.
As long as we continue under our present system we are liable to panics; and the vast devastations of panics reach Republicans and Democrats and all parts of the country alike. Panics are no longer necessary and no longer respectable. They are avoidable; but not under our system. Our system can fairly be called a panic-breeding system; whereas, every other great national banking and currency system is panic-preventing. It is for the Government to say whether it will have panics in the future or whether it will not. It is a mere matter of choice. We can continue to have panics or we can stop having panics, exactly as we prefer. It will not cost a penny to prevent them; and it has cost us untold millions and untold suffering every time we have had one.
We have no system of reserves. Our banking system destroys our reserves. It concentrates in New York what are pretended to be reserves and then forces the New York banks to lend and abolish them. Now, a reserve is necessary to the very idea of banking; but our system instead of building up a reserve destroys it as fast as it inclines to accumulate.
We have no way to increase our currency when it is needed, except under the Aldrich-Vreeland law, which will soon expire and which is only intended for emergencies. We have a currency which is forced up, whether we need it or not, to a certain measure of our 2 per cent bonds. But it can not get up any further; and it practically can not come down.
Nor, under our system, can ordinary transactions of business go forward uninterrupted in a time of stress and strain. And yet the final test of a banking and currency system is that the ordinary banking facilities needed by business shall be provided at all times and under all circumstances.
Annual Report, Secretary of Treasury (Franklin MacVeagh) [Sixty-Second Congress, 2d Session, December 4, 1911, Pages 1-5]
BANKING AND CURRENCY REFORM.
It is a matter for profound congratulation that it will now be feasible to realize without further postponement the long-awaited reform of the banking and currency system. The Congress has taken all the steps preliminary to final consideration and action.
The immediate impulse to the appointment of the Monetary Commission was the tremendous havoc created in all of the activities of the nation-public and private, large and small-by the gratuitous panic of 1907. But this action of the Congress was a definitive response to a long period of agitation upon the part of our business world and a long drawn out national expectancy of reform. The action of the Congress in appointing its commission, therefore, was a semifinal act in a movement many years old. And it would be a vast disappointment to the country if now, when all the preliminaries have been accomplished, anything should be permitted to obstruct or postpone prompt consideration and action.
The report of this commission will in all probability be so nearly complete in suggestions, and will furnish such ample facts and general material, that whether Congress shall adopt the recommendations of the commission as a whole or not, there need be no further postponement of legislation. The tentative plan of the commission, în its main features, has satisfied very much the larger part of the expert opinion of the nation; and it has generally the support of our business men. This has been made possible by the early and continuous action of the Monetary Commission in giving the widest scope to its investigations, and by calling into its work everybody it was able to reach who had experience or knowledge that could be useful to it. While this report is due to the Monetary Commission, it is also a product of the judgment of the people, so far, at least, as its fundamental features are concerned. The fact confronts us, that whereas our country has not before in many years even approached a consensus of opinion on monetary matters it has now largely and mainly agreed. And the Congress is meeting a situation immensely simplified. The persistent difficulties of monetary reform have almost entirely disappeared; and legislation traditionally complex and laborious presents itself with its chief problems so clearly solved, with its complexity so smoothed out and with its provisions so generally approved that the final work of the Congress can now go forward without delay.
The common indorsement of the reform and of its urgency marks in a peculiar manner the nonpartisan character of the present movement. There is no bit of party color left in the monetary question. The instinct of the nation has eradicated partisanship from this great business and social question. Congress set the example by forming a nonpartisan commission. It found no difficulty in rising out of the air of party to deal with this subject. And the example which the Congress set has dominated the whole consideration of this question by commission and people from that day to this. It was Congress which determined that this question should not become mixed up, hampered and possibly defeated by rivalries and strife. The Nation took Congress at its word; and in all its dealings with this question has been led by nonpartisan instincts and standards. The commission and the great numbers of the people who have participated have all understood, not only the importance but the fitness of keeping this economical question on the nonpartisan plane where it belongs, and where alone it can receive adequate treatment.
So far as the administration is concerned, it has heartily taken its cue from Congress; and has done, and will continue to do, its part in keeping this great issue wholly nonpartisan. The administration wants this legislation to come from the whole of Congress and from both parties; and to be for the whole of the people.
The principal requirements of a new banking and currency measure are that it shall provide a practical immunity from serious panicssuch an immunity as is enjoyed by the other leading financial nations; that it shall abolish the habitually recurrent ordinary stringencies in the money market, which keep relations between the bankers and the business men of the country almost continuously at sixes and sevens; that it shall remove the defects of our domestic exchanges; that it shall enlarge and develop the facilities of our foreign exchange system; that it shall properly develop the discount market; that it shall wholesomely assist in regulating the interest rates and making them uniform throughout the country; that it shall put an end to the tendency which forces our bank balances into speculative channels, and save them for regular trade and commerce. To meet the case it is necessary to have an elastic currency, available reserves and every necessary provision and power both to permit and to check the expansion of loans.
The new banking system will also have to provide with distinctness and completeness ample banking facilities for our foreign commercea commerce that with the proper governmental encouragement will be world-wide and world-varied. It is idle to expect that we shall ever have a developed foreign commerce without a developed foreign banking system. Our present system grew up in a period of isolation.
We must provide, too, and without reservation, for a perfect equality of privilege and opportunity between national and state banks. State banks must have every advantage national banks have; and national banks must have every advantage state banks have. And this equality can not be attained unless national and state banks are on the same footing as to trust company banking and as to savings bank functions. And it is indispensable that the new law shall deny with great precision to any bank included within its provisions, whether national or state, the right to own stock in any other independent bank. The law should not fail to conclusively forbid such ownership. There is no
immediate danger to be apprehended from such holdings; but now is the time to protect for the future the independence and individuality of the banks; and to forestall in their case the general tendency to the formation of undue combinations and trusts. The prohibition should be so explicit that its spirit as well as its letter could be enforced. We must prevent perpetually the concentration of the banking power in the hands of the few-a concentration which under our present system is inevitable by the mere operation of financial evolution.
The disabilities under which our country labors are due not to the faults or failings of the individual banks, but to the fact that these banks are not organized into a cooperative and protective system; and it follows that the fundamental and essential feature of any reform is that the banks shall be thus organized. And organization means the establishment of a central institution representative of the banks. But this institution need not be and should not be a central bank. It must be purely and only a central agency of the banks. It was natural to think, at first, of a central bank; but it was early discovered that a central bank could have no place in our system-and that if the approved and fortunate features of our present system were to be preserved, as everybody determined they should be, some other central institution than the central bank must be devised. A central bank could not perform the functions waiting to be performed. It could not fill the need. The thing required as a central institution must be something new, but also something normally evolved from our present system. The idea of a national reserve association has therefore grown up; and it has grown up just as the idea of the clearing house grew up; and it follows the clearing house as a sequence on a far larger and more important scale.
Until lately it was not as clearly seen as it is now, that the interests involved in this great question are not confined to the bankers and the large business community. The interests of every order of society are involved, especially in the prevention of the barbarous disaster and havoc of our wholly unnecessary panics; and scarcely less in the habitual interruption of the even flow of business caused by the inconstancy of banking facilities. Farmers, working men, people of the smaller business interests and people at large are enmeshed in the imperfections of our banking and currency system. It is very fortunate, therefore, that the question will be presented to Congress this year in such shape and with such information that its committees and its whole body can readily act upon the question with perfect intelligence. The present Congress will be confronted with several other cardinal matters; but none will be more urgent and pressing than this, and none will have been waiting longer.
NATIONAL CURRENCY ASSOCIATIONS.
Seven new national currency associations have been organized since my last report at the following places: Albany, N.Y., Kansas City, Mo., Baltimore, Md., Cincinnati, Ohio, Dallas, Tex., Montgomery, Ala., and Denver, Colo.; and thus the needed organizations under the Aldrich-Vreeland Act are practically complete. The Aldrich-Vreeland law expires, however, on June 30, 1914; so that these organizations will only be available for times of storm and stress for about