First: They incorporate the principles of a central gold reserve, as illustrated by the Bank of England, where all the transactions are in gold, and gold alone, without the use or intervention of bank credit in the form of bank credit notes, which could be used for reserves by the banks throughout Great Britain.
Second: They incorporate the principle of bank credit currency, as illustrated by the bank note system of Canada, which involves daily redemption in gold coin through the clearing houses.
Third: They extend to every economic or natural commercial zone the established and approved practices of the American Clearing Houses, that is:
(1) Bank supervision and control over all members.
(2) A reserve created by all the members of the Clearing House and held by the Clearing House Committee for the benefit of all the members.
(3) Such a free check system over every commercial zone, precisely as New England has had since 1899, and as has just been established over a large territory around New York by the New York Clearing House.
The result of these reforms would be:
(1) To make each individual bank absolutely independent, because it has an unlimited resource in the coöperative gold reserve.
(2) To make every commercial zone as free and independent of every other commercial zone, as England is of France, or France is of Germany.
(3) To completely decentralize all bank credit in the United States, while it centralizes the gold to a degree that would enable us by raising the discount rate to close the door of our markets against the demands for gold from abroad.
(4) To insure all depositors in National banks against loss.
(5) To liquefy and therefore develop a general market for commercial paper.
(6) To save the business interests of this country more than $200,000,000 every year, to say nothing of the incalculable losses growing out of our ever-recurring panics. #/
Mr. Lawyer: Mr. Banker, you have stated with great clearness and precision just what our investigation has demonstrated should be done to give us a sound and economical financial and banking system.
After a careful consideration of the question, I am prepared to say that the Aldrich scheme would not accomplish or effect a single one of these reforms.
On the other hand, I am convinced that, while it would give us temporary relief, immediately there would follow undue expansion. In quick succession there would come wild inflation, a vast amount of gold would be expelled from the country and we would find ourselves in the end in far greater and more serious difficulties than those from which we are now suffering.
Mr. Banker: Your conclusion is in perfect keeping with my own. It seems to me very remarkable how many people were temporarily misled by its claims, but have since turned from it and are now opposed to it.