Seventeen Talks on the Banking Question / Between Uncle Sam and Mr. Farmer, Mr. Banker, Mr. Lawyer, Mr. Laboringman, Mr. Merchant, Mr. Manufacturer

by Charles N. Fowler

We had a chart here the other night and some figures, which showed that the increase and decrease of the bank note currency in Canada amounted to $3.80/100 per capita every fall, and that every year, for a number of years, so far as we have the record at least, exactly on the 15th day of October, it was always at its maximum. Since we are now taking back from Canada what Canada originally took from Massachusetts, the principle of a true bank credit currency, we might expect just what they had in New England, before the war, and what Canada now has every year, and every month of the year, and every day of the month. That is, we would have an amount of bank note currency just equal to the demands of trade; no more, no less, but always just what the business of the country requires, dollar for dollar, day in and day out. Am I correct?

Mr. Banker: You are absolutely correct. Our variation in the demands of currency would not differ very much from that of Canada. We might expect a difference between the maximum and minimum issue of about $350,000,000 a year, that is, it ought to range from about one billion dollars to about one billion three hundred and fifty million dollars during each year, as matters now stand.

Mr. Lawyer: Well, if that is true, we should never know one season of the year from another, so far as the demands of currency are concerned.

Mr. Banker: No, you never would; and the facilities gained by the banks for adjusting themselves to the changing conditions would enable them to be far more helpful to their customers than they now are, and yet be absolutely safe in doing so. You see, I would not limit a bank to an amount of currency equal to its capital; but subject to the approval of the Board of Control, where the bank was located, it could issue as much more, or a total of 200 per cent of its capital. That is twice as much as its capital; for, there are banks today situated a good deal as the New England banks were before the war, where the people would use more bank notes than deposits, if they were permitted to study their own convenience. This we would find to be true in the newer parts of the cotton growing country in cotton picking times. Can anyone tell why a bank, under such circumstances, should not meet the peculiar demands of its customers, and furnish bank notes at a cost of one-sixth of what it must be, if the bank is compelled, as it is today, to rediscount its promissory notes, and buy gold certificates or United States notes to be used as currency, when its own bank notes would answer every purpose of currency just as well?

Mr. Lawyer: Then I understand also from what you said upon another occasion that you would allow a bank to use a part of its reserves during those seasons of the year when the demand for money was particularly strong, and make up its average reserves when the demand was slight.

Mr. Banker: Precisely so. Why should not a bank act just like any other merchant or trader, and adjust its stock of goods to the ever-changing conditions of its business? Of course I am fully aware that there is one element entering into a bank's business that is not common to other mercantile houses, and that is the question of its credit. It must keep itself in such a position at all times as to preclude the chance of suspicion arising about its ability to meet its demand obligations. This point brings me squarely up to the matter of a central reserve.

A bank that is known to be under the supervision of a Board of Control, which can and ought to know its actual condition, and which has the power to compel it to so conduct its business, as to be entitled to consideration and accommodation, whenever it asks for it, and actually needs it, will certainly have the confidence of the public to an unbounded degree. Of course, I am assuming that the public are aware of the fact that the Board of Control in turn has access to the great central reserve of one billion two hundred and fifty million dollars ($1,250,000,000).

You can imagine that the public under such circumstances would have absolute confidence in a bank. Indeed, I am of the opinion that as soon as this organization is effected, bank failures would be a thing of the past, because the public would soon come to appreciate this, and look upon every bank in the system as safe beyond the peradventure of a doubt.

Mr. Farmer: There would be every reason for confidence in such an institution because of its great strength; and yet, if I understand your plan, as outlined, every one of these individual zones would be as independent of every other zone as if it were a foreign country. It would be like a great bank standing alone, of which every bank within the zone was an integral part, for the purpose of the defense of the credit of each. Then again, every individual bank would remain just as independent as it is today, while at the same time it enjoyed the full confidence which the larger institution would be naturally entitled to.

Mr. Banker: That is precisely the result this coöperative reserve fund of one billion two hundred and fifty million dollars ($1,250,000,000) would produce.