The disadvantage of shipping boxes or kegs of gold to and fro between America and Europe is apparent when we consider that it is a time-wasting see-saw performance, which involves the expense of packing, cartage, freightage, insurance, and loss of interest while in transit, and still greater loss due to abrasion consequent on sea transportation, to say nothing of bankers’ commissions, and risk of partial or entire loss by robbery, accident, or marine disaster; ignoring, moreover, the restraints it imposes upon our foreign trade.
All these disadvantages could be obviated and this handicap upon our commerce removed by a mutual-interest arrangement, between the leading banks in the United States and Europe, to deposit a sufficiently large amount of gold on each side of the Atlantic, and issue international clearing-house certificates and draw bills of exchange against the deposits. This gold could be counted as part of their reserve, if in their own vaults; or the Bank of England, in London, and the United States Sub-Treasury in Wall Street, could be used as the gold depositaries. We have a clearing house for bank checks in each of the large cities, and one also for the transactions of the New York Stock Exchange. London, too, has its bank clearing house. Why, then, should the clearing house system not be extended to international transfers of gold, so as to make them possible at any moment by cable-telegraph instead of the slow process of six-days transfers? In this way our international dealings would be quickened and extended and our financial and commercial relations become more intimate.
There is no good reason why we should unnecessarily treat gold as we do, when we can save time, money, and risk by keeping the metal where it is, and issuing certificates of deposit against it, and the use and transfer of which would serve as well as gold shipments.
The present custom becomes a ridiculous “chasse” across the Atlantic, when we see the same gold shipped to Europe, then shipped back to America within a few days after reaching its destination, without being unpacked, owing to sudden intervening changes in the rates of exchange, making it profitable for the former gold exporting country to import the metal. Such wasteful shilly-shally procedure would be likely to excite mirth in opera bouffe, but bankers who ship gold are very serious about it, and seem to be without enough perception of the ludicrous to see anything funny in its coming and going, although they feel the shoe pinch in its costliness in both time and money. As the world’s gold production increases the urgent need of this over-sea change will become more and more conspicuous, and its adoption will accord with the generally progressive spirit and methods of our telegraphic and telephonic age.
Had such an international gold clearing house existed the sagacious but unprecedented action of the Secretary of the Treasury, to relieve the money market by making deposits, as secured loans, in certain banks, to encourage and cover their prospective gold importations from Europe, the same to be returned on the arrival of the gold, would have been unnecessary. While this expedient has well served a temporary purpose, it is not to be relied upon as a permanent source of relief during monetary stress, and it involves a stretch of authority under the law that is open to grave objection. But, as it happened, the Secretary’s action, which was taken just before the San Francisco disaster occurred, proved particularly fortunate, and probably prevented a very serious aggravation of the stringency in the money market, owing to the heavy remittances to California. It was a piece of good luck that seemed almost providential, and the end justified the means. But it should always be regarded as only a fortuitous circumstance and temporary expedient, not as a permanent source of relief; and it emphasizes our need of a new international gold transfer system. Moreover, the benefit Europe would derive from it would be equal to our own.
The Secretary, under the circumstances, acted wisely in also increasing the Treasury deposits in the national banks, while the Government’s receipts were largely in excess of its disbursements, so as to offset, as far as possible, this preponderance of receipts, and lessen the drain of money into the Sub-Treasuries. But this method of relief is, too, only a temporary expedient, to remedy the evils of the Sub-Treasury system. While the Sub-Treasury system lasts Congress should authorize the Secretary to deposit customs, as well as internal revenue receipts, in the national bank depositaries, in time of stringency, when the Government’s receipts exceed its disbursements, and it has more than a sufficient working balance. The Government should, as a compensation to it, require the banks to pay interest at, say, two and one-half or three per cent per annum on such deposits, these not to exceed, in amount, 25 per cent of their paid-up and unimpaired capital, and to be returnable on demand, but without requiring these special deposits to be secured. They should, however, be made a first lien upon the assets of the banks.
If the changes above suggested were made, I am sanguine that they would prove to be remedies for the evils and disadvantages under which we now labor, and so increase the stability of our money market and improve and fortify the machinery of the whole monetary system, while giving more elasticity to the currency.
CHAPTER LXXVI.
INDIVIDUALISM VERSUS SOCIALISM.[[4]]
[4]. An address delivered by Henry Clews on Sunday afternoon, May 12, 1907, at the Columbia Theatre, Brooklyn, in debate with Professor Kirkpatrick, graduate of Albion College, Michigan, and former professor in the University of Chicago.