Acceptances of the approved sort will not necessarily, if at all, greatly increase production; but they will create a new form of investment, that is, a guaranteed commercial paper of which billions of the single name sort are being sold today. Of course, two-name paper with the acceptance of a bank of high standing will soon bring into being here, just as it has in London and other financial centres of Europe, new capital. That is, capital will be attracted to the business of buying and selling such high-class paper. It will be a profitable investment for the idle funds of merchants and manufacturers at those seasons of the year when all of their capital is not occupied in their business, and also for the banks of the country at those times of the year when the local demands are not equal to their supply of funds. It is undoubtedly true that such paper would also soon find a market abroad, as well as at home, and to that extent would facilitate American manufacture and commerce. But we must not deceive ourselves about the fact that the banks will just to that extent increase their liabilities while they have not increased their actual capital to the extent of a single cent.
Mr. Manufacturer: I must confess that I have misapprehended the effect of an acceptance, but you are certainly right with regard to it, and unless we should keep the business of the country in a sound condition, the acceptance business might prove a two-edged sword, and this emphasizes the fact that we must keep a close watch upon what our commercial fund is all the time, and prevent it from being transferred and absorbed in fixed investments, which is always a bane to the commerce of a country.
We must not forget these three important factors which are always present here in the United States: first, the vast, undeveloped resources of our country, and the ever-inviting opportunities; second, the intelligence, the ambition, the impulsiveness and the optimism of our people; third, the peculiar, local relations of our twenty-five thousand, individual, independent banks, which are always in close sympathy with and affected by the growth and development of their locality and the varied interests, and the enthusiasm of the people. The vision of our local banker is largely confined to his immediate vicinity.
Mr. Farmer: How absolutely true that is, and therefore how great must be our caution in opening up the flood gates of credit, before we know that we have guarded the situation at every point. I notice that those banks before the war were all so sound and successful because they had to get the coin to make redemption with. Here is something I read in a book yesterday, and it strikes me that it is right in point now: "Redemption is the breath of life to all credit." You bet I have found it's death to a fellow who's got to, and can't pay.
Mr. Banker: Yes, and when you realize that credit is the very soul of trade and commerce, as it is carried on today, how absolutely essential it becomes that credit be kept within the limits of certain coin redemption, if we are to have sound business conditions.
Mr. Merchant: Well, Mr. Banker, how do you propose to keep credit within safe boundaries, and so insure sound business conditions all the time?
Mr. Banker: In just two ways:
First: By having the reserves of gold on hand in the various banks, sufficient at all times to prove all commercial credits, say from 5 to 20 per cent, according to the peculiar business and varying responsibility of the banks to their banking obligations; and in addition, such a central gold reserve as will to all intents and purposes be unlimited, so far as any possible demands may be made upon it—say 10 per cent ultimately of all individual deposits and 5 per cent of savings deposits. This would give us at the present time about one billion dollars ($1,000,000,000) of cash reserve, and about one billion two hundred and fifty million dollars ($1,250,000,000) of gold in a central reserve to meet the emergencies of commerce.
Second: Such a supervision of the banks by the banks themselves as will keep their assets in liquid form, at least to the extent that their assets are commercial assets and are liable for individual deposits on demand.