Part 33

"A relief measure reforming the banking and currency system must include, among its necessary features, provisions for never-failing reserves and never-failing currency, and for the perfect elasticity and flexibility of both; for the permanent organization and organized coöperation of the banks, which are now suffering and causing the nation to suffer by reason of their unorganized state; for a central agency, to represent and act for the organized and coöperative banks--this agency to be securely free from political or trust control, but with the Government having adequate and intimate supervision of it; for independent banking units--so independent that no one bank can be owned, controlled, or shared in in any degree, directly or indirectly, by any other bank; for the equality of all banks, National or State, both as to standards and as to functions--so that every requirement made of a National bank must be complied with equally by a State bank, and every function or privilege enjoyed by a State bank shall be enjoyed by a National bank; for the utilization and the fluidity of bank assets; for the scientific development of exchanges--domestic and foreign; for foreign banking as an adjunct of our foreign commerce, and for taking the Treasury Department out of the banking business."

MR. FARMER: Well, you have forgotten the thing that interests me more, generally speaking, than all else, and that is the Land Credit Bank, which we went into last Wednesday night. Of course you intend to include this when you prepare your bill.

UNCLE SAM: You bet they will, for I think it's about time that the corn raiser, cotton planter and grain producer and all the rest of the toilers of the turf, should be getting their money at as low rates as anybody else on first-class security for a long period of time, and I am determined to give the farmers of the country the benefit of my good name to aid them in this matter.

MR. BANKER: Of course we had all agreed to that, and shall include it in the draft of the bill.

MR. MANUFACTURER: Uncle Sam, I move that Mr. Banker, Mr. Lawyer, and Mr. Farmer be a committee of three to prepare a bill to be submitted to us next Wednesday evening.

MR. MERCHANT: I second the motion.

UNCLE SAM: It's a go.

Good Night.

SIXTEENTH NIGHT

DRAFT OF BILL

UNCLE SAM: Well, boys, here we are ready for the report of the committee on legislation, I suppose you would call it. Are you ready to report now?

MR. FARMER: Yes, Mr. Lawyer will make our report and speak for the committee.

MR. LAWYER: Uncle Sam, your committee has been deeply impressed with the duty you have imposed upon it.

That the solution and settlement of our financial and banking problem is the most important economic question that has ever confronted the civilized world must be admitted by all who will take the trouble to investigate it and institute a comparison between our conditions and those of any other country at the time when it adopted its financial and banking system.

In 1803, when the Bank of France was established, the financial resources of France were without official record, but comparatively nominal.

In 1844, when the bank act under which the Bank of England is conducted was enacted, the banking resources of that country were probably in the neighborhood of $500,000,000. The total note issue of England, Scotland, and Ireland was less than $200,000,000; the public and private deposits in the Bank of England were less than $75,000,000; and the gold in the Bank of England was less than $75,000,000.

In 1873, when the Imperial Bank of Germany took its present form, industrial Germany was still slumbering; and the bank resources probably did not exceed $1,000,000,000. The capital of the incorporated banks was about $425,000,000, the notes were about $325,000,000, and the reserves held about $30,000,000.

The banking resources of the United States are today more than ($25,000,000,000) twenty-five thousand million dollars and our foreign trade more than ($4,000,000,000) four thousand million dollars. The question we are dealing with, therefore, is not only the most stupendous of its kind, but it must be considered both from a domestic and foreign point of view. It is from both these points of view that we have approached the preparation of this measure.

As I proceed to read the bill I shall make some comment by way of explanation in order that our purpose may be understood.

A bill to establish a complete Financial and Banking system for the United States of America.

SECTION 1. _Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled_, That a complete financial and banking system for the United States of America shall be, and is hereby, created, organized, and established as follows:

_First_: The commercial zone. _Second_: The bankers' council. _Third_: The board of control. _Fourth_: The American Reserve Bank.

SECTION 2. That upon the passage of this Act the President of the United States shall appoint three persons, who, with the Secretary of the Treasury and the Comptroller of the Currency, shall proceed immediately to designate such cities in the United States, not less than twenty-eight in number and not to exceed forty-two in number, for the location of the financial centres of the commercial zones, numbering them consecutively as shall best accommodate and serve the business and banking interests of the United States.

SECTION 3. That within ninety days after the designation of the cities for the location of the financial centres of the commercial zones every national bank, with the approval of the five persons designated in section two of this Act, shall select one of the centres so designated as the place for its clearing house, and thereupon the Comptroller of the Currency shall notify all the national banks to meet at their respective financial centres on a given day and at a designated place for the purpose of organizing the several commercial zones, of which there shall not be less than twenty-eight nor more than forty-two in number.

COMMENT:--Referring to sections two and three I would urge upon your attention these points:

_Geographical Considerations_

Great Britain has only 120,000 square miles of territory. France has 204,000 and Germany 208,000 square miles. All Europe, outside of Russia, is only about half the size of the United States. It has 1,600,000 square miles, while we have 3,026,000 square miles. Including Russia, all Europe has only 3,600,000 square miles.

Extended as our territory is, our products are far more varied and more universally important to the human race than those of any other nation. They exceed in value $35,000,000,000 a year.

_Local Interests_

New England is essentially a manufacturing center of dry goods, wearing apparel, and metal wares. Pennsylvania is known the world over for its coal, iron, and oil industries. New Orleans is the market for cotton, sugar, and rice. Kansas City is the emporium for live stock and grain. Chicago, the greatest food market on earth, is fast coming to be one of the greatest manufacturing points in almost every line of industry. St. Paul and Minneapolis supply us with wheat and flour. The cities of the Rocky Mountains are growing in importance year by year, each one entitled to distinction for some particular industry. The development of the Pacific coast, from San Diego to Seattle, is challenging universal attention.

It is the opinion of your committee that it is highly important, indeed, absolutely essential, for the best interests of the people, industrially, commercially, socially, and politically, that each geographical zone of common business interests should have independent self-government in matters of banking, precisely as the several States have control of their local affairs.

At the same time, these commercial zones should be so harmonized and federated as to give to each the financial strength and power of all combined, precisely as every State is as strong and powerful politically as the Federal Government itself.

All the governments of Europe are traditionally monarchical and imperialistic. Their banking institutions not only all bear the insignia of their political origin, but also characteristically mark the times and conditions that gave them birth.

In England alone self-government found true expression in the selection of the board of directors of the Bank of England. The British Government has no relation to the management, either directly or indirectly. It neither appoints a single representative on the board, nor has any voice whatever in his selection.

Again, it is to be noted that the Englishman, ever tenaciously jealous of his rights, excluded from the board of directors all bankers. No banker has ever sat upon the board of directors of the Bank of England.

The French Empire of 1803 and the German Empire of 1873 are each reflected in the organization of the Bank of France and the Imperial Bank of Germany.

This Government was organized as a protest against royal rule and imperial power. It has been fighting the evils of centralization for more than a hundred years; and of nothing has it shown such persistent jealousy as the possible centralization of financial interests and the control of commercial credits.

Will it be said by some one who thinks only in the terms of the special interests that, notwithstanding this watchfulness and constant anxiety, great aggregations of capital in the business world have come practically to control the business situation; that our commerce is practically centralized now, and that our banking should be so, to make it the counterpart of the existing state of things?

Let us not assume that the problems of coördinated power and wealth have all been solved. Let us believe that the study of this modern mystery has just begun. Let us hope that if it is possible for us so to solve the financial and banking problem as to recognize the best traditions of the Republic and the highest aspirations of the American people, keeping steadily in view every economic law involved, we shall then save our beloved country from the tragic consequence of political controversies directly affecting our commercial credit and indirectly affecting every day's labor and every dollar of capital until the question is settled right.

We must not forget that every conceivable phase of the so-called "money question" has been the football of American politics from the organization of the First and the Second United States banks, down through the greenback madness, the silver craze and the gold standard fight. Not a single subject has aroused such intense bitterness as this one, excepting slavery alone.

Whoever, then, tries to solve this problem must recognize at every turn the origin of our political institutions, the genius of our people, and the peculiar characteristics of the American citizen or he will fail utterly in his undertaking.

SECTION 4. That each bank shall be entitled to one vote, which shall be cast by an officer of the bank who has been duly authorized by a vote of the board of directors thereof, such authorization to be evidenced in writing and under the seal of the bank. Each bank shall be identified in its zone by a number.

COMMENT:--It is our judgment that every bank should have equal power in organizing and consequently in controlling the respective zones; because we believe the business interests of the country will be better conserved thereby.

SECTION 5. That the association of all national banks clearing or redeeming their notes at each of the cities so designated shall be known as "The ---- Commercial Zone."

SECTION 6. That all the national banks of each of the commercial zones so constituted and established shall organize themselves into "The ---- Commercial Zone" by electing a chairman, a secretary, and a treasurer, who shall all hold office until the first Monday of the following May, and by proceeding in the following manner:

SECTION 7. That they shall take some point in the financial centre of their respective commercial zones, from which they shall draw seven radial lines, so cutting the territory as to divide the whole number of banks, as nearly as possible, into seven district groups, each district containing approximately the same number of banks, and may from time to time thereafter shift said radial line for the purpose of maintaining such equal subdivision of the banks.

COMMENT:--It is a matter of great importance that these districts shall be automatically and arbitrarily constituted, if possible; and this plan will accomplish it. By this method every part of every commercial zone will be represented by business men as well as bankers. Neither particular sections nor particular banks can have any direct advantage.

SECTION 8. That each subdivision of the commercial zone so created shall be known as a district, and they shall bear numbers respectively from one to seven, inclusive.

SECTION 9. That the board of the bankers' council shall be constituted as follows:

_First_: The bankers of each district of the respective zones, voting as prescribed in section four of this Act, shall elect a banker and a business man as members of said board.

_Second_: The term of office shall be seven years; but the terms of the members of the first board shall be for one, two, three, four, five, six and seven years, respectively; that is, the board shall arrange itself into seven groups, each being composed of one banker and one business man, and thereupon the seven groups shall determine by lot how long each group shall serve.

_Third_: The fourteen members of the board of the bankers' council of the respective zones shall then elect their president, who shall not be one of the fourteen so selected, but shall be a resident of one of the districts in their own zone. The term of service of the president of said board shall be left to the respective boards of the bankers' council in the several zones.

SECTION 10. That the services to be rendered by the bankers' council shall be advisory to the board of control whenever the board of control may call them in consultation, or an appeal is made to them from the action of the board of control by some citizen or citizens of their particular zone.

SECTION 11. That the members of the bankers' council shall receive no salary, but all expenses incurred by them severally incidental to such consultation and services shall be paid.

COMMENT:--The relation of the Bankers' Council is the same to the zone as the Clearing House Committee is to the Clearing House. It will be the supreme court of the zone. It has the last word upon all business questions growing out of banking in the zone, in case of appeal.

SECTION 12. That the president of the bankers' council shall be chairman of the board of control.

SECTION 13. That the president of the bankers' council shall be a deputy United States comptroller.

SECTION 14. That each of the deputy comptrollers of the currency shall from time to time furnish such information and make such reports to the Comptroller of the Currency as the board of directors of the American Reserve Bank shall prescribe: _Provided, however_, That the Comptroller of the Currency may ask for reports as now provided by law.

SECTION 15. That the board of control shall be constituted as follows:

_First_: The bankers of each district, excepting the district in which the chairman resides, voting as prescribed in section four of this Act, shall elect a banker who resides in their district as a member of the board of control.

_Second_: The term of office shall be seven years, but the terms of the members of the first board shall be for two, three, four, five, six and seven years, respectively, and the six members so elected shall determine by lot how long each shall serve.

SECTION 16. That before any member of a board of control enters upon the performance of his duties he shall sever all connection as officer or stockholder with every bank in his commercial zone, and he shall be ineligible to any position in any bank in his zone during the time for which he shall have been elected to serve.

COMMENT:--The Board of Control will be composed of a body of men who are younger than the Bankers' Council; but of the same high order. They will be men who have the undoubted confidence of the banking fraternity; men who are to win the prizes in the banking world. This position will be a sure stepping stone to the best positions; but it must not be used for that purpose, at least until each man has served out his time.

SECTION 17. That compensation of the members of the board of control shall be five thousand dollars per annum, payable monthly, including the chairman, except that the chairman may receive any salary in addition thereto that the bankers of his zone may determine to pay him: _Provided_, That such additional salary shall be assessed upon the capital and surplus of all the national banks in that zone.

COMMENT:--The President of the Bankers' Council, Chairman of the Board of Control, and Deputy United States Comptroller should all be represented by the same individual for these reasons:

_First_--The relation between the two bodies of men should be easy and constant for the best interests of the people. There should be no slow machinery to put into operation in case of necessity. Quickness and harmony will always be essential.

_Second_--The power of the United States Government should always be present to enforce orders.

_Third_--A man of the greatest ability obtainable should be secured to occupy this place; therefore his salary and length of service should be left open for arrangement with the Bankers' Council. This man ought to be the leading man in banking in his zone in point of character and wisdom.

SECTION 18. That the services to be rendered by the board of control shall be as follows:

_First_: Each board of control shall have supervision of all the national banks located in its zone.

COMMENT:--The expense and annoyance of bank examinations as they are carried on today would be reduced one-half and they would be worth ten times as much as they are today with the exception of those made by clearing house examiners.

_Second_: The boards of control shall have power to employ all the examiners and such other assistants as may be necessary to properly and efficiently supervise the banks under them, and such examiners, as far as possible, shall be paid stated salaries.

_Third_: Each board of control shall have power to purchase commercial paper or bills of exchange from the banks in its zone whenever they desire to build up their reserves by obtaining additional gold or for the purpose of crop moving or any special or extraordinary demand of trade: _Provided, however_, That all the paper so purchased by them shall bear the unqualified indorsement of some bank in their respective zone.

COMMENT:--MR. MERCHANT: Now it seems to me as though that organization is as simple, direct and complete as it can possibly be. It makes every zone an absolutely independent banking democracy. No outside influence is permitted to interfere with the zone. It is certainly local self-government from top to bottom. The fact that anyone in the zone may appeal to the Bankers' Council for redress and that every district has two representatives upon that board, will insure fair consideration at the hands of the Board of Control.

SECTION 19. That in case of a bank failure in any commercial zone one of the members of the board of control in that zone shall be appointed the receiver thereof and shall not receive any additional compensation for the services rendered as such receiver.

SECTION 20. That the board of directors of the American Reserve Bank shall be constituted as follows:

_First_: The bankers' council of each commercial zone shall elect a member to the board of the American Reserve Bank. The commercial zones bearing the odd numbers shall elect bankers and the commercial zones bearing the even numbers shall elect business men, and every seven years thereafter the bankers' council of the respective zones shall alternately elect a banker or a business man, so that the elective members of the board of directors of the American Reserve Bank shall always be composed of an equal number of bankers and business men.

_Second_: The term of service shall be seven years; but the terms of service of the first elected board shall be for one, two, three, four, five, six, and seven years, respectively; that is, the board shall arrange itself into seven groups, each composed of two or more bankers and two or more business men, and thereupon the seven groups shall determine by lot how long each group shall serve.

SECTION 21. That it shall be the duty of the board of the American Reserve Bank, and it shall have the power, to fix the rate of interest or discount at which all the commercial paper or bills of exchange shall be purchased or discounted by all the boards of control.

SECTION 22. That it shall be the duty of the board of directors of the American Reserve Bank to issue a bulletin the latter part of each week, giving a statement showing a balance sheet of the American Reserve Bank and making such suggestions and comment and giving such advice as their wisdom may determine; and it shall make such arrangements as to insure the presence of this bulletin at practically every national bank in the United States every Monday morning.

SECTION 23. That the place of business of the American Reserve Bank shall be Washington, District of Columbia.

SECTION 24. That the members of the board of the American Reserve Bank shall reside in Washington, District of Columbia, and shall give their time and personal attention to the business of the bank.

SECTION 25. That the members of the board of the American Reserve Bank shall receive as compensation ten thousand dollars per annum each, payable in monthly installments.

COMMENT:--Each independent zone will send its own man to represent it in the board of the American Reserve Bank--so that every financial centre will have a spokesman to present its claims on the one hand and to give full and reliable information on the other; also to guide the whole board in its policy. The board shall give weekly advice to all the banks in the United States upon the condition of business at home and abroad. The American Reserve Bank, as we shall see, will hold all central reserves of the United States for the benefit and protection of each and all of the zones precisely as the zones must protect all the individual banks within their borders.

Since our gold reserves are now a part of the common reserves of the whole commercial world, the price for the use of gold must be under the control of the Board of Directors of the American Reserve Bank. In this capacity they are acting for every individual bank in the United States whose agent they are.

SECTION 26. That the board of directors of the American Reserve Bank shall elect as the president of the American Reserve Bank some one who is not a member of the board so constituted. They shall also elect a vice-president of said American Reserve Bank and such other officers as they may decide from time to time to be necessary to the best conduct of the business of said bank.

COMMENT:--Since the board of directors are the direct representatives of the respective zones, and since the American Reserve Bank is only the servant of the combined zones working in coöperation, it is clear, that the board should elect its own president and vice-president.