1890

1891

1892

1893

V. CHART SHOWING FLUCTUATIONS IN THE MONEY DEMANDS ON ALL NATIONAL BANKS OF THE UNITED STATES, AND BY CLASSES

1894

1895

1896

1897 1898 1899

1900

1901

cial soundness

assets and proportionately increasing liabilities, have caused issue to be joined between them. The school The dividing line in which have pleaded for reform based campaigns for finan- on ability to pay, have styled their argument a plea for financial "soundness." The school which have urged measures for settlement, without being required to fulfil their contracts for future delivery of money, have been characterized by their opponents as "inflationists." But, whatever may be chosen as terms properly to represent these two financial creeds, it must be recognized that each is an attempt to solve the problem of liquidation the one, by the introduction of methods which will insure a larger proportion of assets to credit issued, the other, by a provision for new issues of credit liabilities to meet those already outstanding. It may be further observed that, in all of these contests, the one school have stood for the strict fulfilment of existing contracts, and have sought to protect business against the evil of future excesses of creditissue, while the other school have sought to obtain relief from a present emergency, arising out of demands for the delivery of money on existing contracts of credit.

In 1893-96, attempt was made to solve the problem of liquidation by establishing 371.5 grains of silver as the standard of payment of existing liabilities and for the valuation of assets. With the price of silver as it then stood, this device would at once

controversy

have doubled the proportion of assets to credit liabilities, and would have made liquidation easy. Two successive political campaigns reThe sound money corded victory for the gold standard; and all future doubt as to the ability of the Government to liquidate its credit-money obligations, by payment according to the standard, was set at rest by increasing the assets of the Government available to meet gold demands. These questions are now considered settled, but a new period of liquidation brings with it a similar controversy with respect to the credit-accounts of commercial banks. On questions of public policy, opinion is again divided between the same schools, representing the same ideals that have contested for supremacy throughout the last two centuries.

The Demands of the Two Schools of Banking Reform

A re-statement of their respective demands may lend clearness to the presentation of contending faiths. To give greater facility to the liquidation of bank-credit liabilities, the one school argue: (1) for authority to issue new promissory notes in settlement of credit-accounts outstanding; (2) for a first lien on the general assets of the bank to secure the ultimate payment of these notes; (3) for the abolition of the Sub-Treasury; (4) for the "deposit" of all revenues of the Government in the commercial banks, without

Demands of the "commercial assets" banking school

collateral security; (5) for the right of banks to establish branches, without requiring a proportionate increase of capital-resources to liabilities.

The arguments offered in support of these several demands are in brief as follows: (1) That authority to issue notes will relieve the banks from the necessity of obtaining legal-tender money for delivery in time Arguments supof unusual demand for liquidation of porting these de- bank-credit, and will thus relieve exmands traordinary pressure on the money market; (2) that a first lien on the general assets of the bank, to secure the ultimate payment of notes issued in settlement of outstanding credit-accounts, will keep the bank-note as "sound" as the issues of the Government, and will protect it as well as if secured by a deposit of Government bonds; (3) that the abolition of the Sub-Treasury system will prevent money being abstracted from the regular channels of trade when there is a surplus of Government revenue over expenditure; (4) that by "depositing" the revenues of the Government with the commercial banks, these "deposits" may be used to support still larger volumes of credit-accounts, and increase the available funds of the community; (5) that by a system of branch-banking, capital will be given greater "fluidity," — i.e., the money of the bank may flow from one part of the country to another as it may be needed.

Answering these contentions, the other school of