supply it. When the supply of notes exceeds the demand, they must redeem the notes and retire them until needed again. If the same reserve is required to be maintained against the gold-reserve notes as against deposits, it will make no difference to the bank whether a borrower takes the notes of the bank away with him, or leaves the proceeds of his note on deposit with the bank, except so far as the note circulation is taxed by the government. It is the very fundamental principle of bank-note circulation that there is no difference to the bank between the bank-note credit and the deposit credit. They are both obligations of the bank and exactly the same thing so far as the bank is concerned. It is only a question of the convenience of the customer, whether he leaves the credit in the shape of a deposit to be checked against or takes the notes to be used as cash. It is not so much a privilege of the bank to issue the notes as it is a privilege of the customer to do whichever suits him best.

It is important that it shall be thoroughly understood that there is no difference between the deposit credit and the bank-note credit, and that bank notes which are protected by a gold reserve, quickly and easily redeemable and not available for reserves, will not stay in circulation in greater volume than is needed for current cash transactions. With these principles fixed in our mind, there will be no justifiable fear of inflation from such notes. Any bank which can be trusted with deposits can be trusted to issue the notes. The guarantee fund will make the notes of any bank safe in the hands of every holder, no matter what happens to the bank. The main safety of the whole system, however, is the gold reserve and the constant current redemption. Constant and frequent redemption cannot be too strongly insisted upon. The notes must be perfectly free to come and go, and thus freely follow supply and demand.

The notes of the Suffolk bank system were the best paper currency we ever had in America, and they were kept good by frequent redemption, although they were purely credit notes. The system grew and was successful without government aid, because it was based on correct principles. The worst bank notes we ever had were the "wildcat" bank notes in the West, which were bondsecured. In the states where they required reserves and provided

for current redemption the bank notes were good, but where they depended on the bond security they were very bad.

The chief trouble with our present bank notes is that the supply is hardly in the slightest degree regulated by the demand. It mainly depends on the price of bonds, and the profit on circulation is so very small that the banks are compelled to figure to small fractions to see whether it pays or not. The issue of circulation, instead of being the exercise of one of the most proper and useful functions of a bank, in supplying currency as needed by the people, becomes rather a speculation in bonds, and there are thus introduced into the regulation of the volume of the currency factors which have no proper relation to it whatever.

The Secretary of the Treasury has recently very wisely and properly encouraged the increase of circulation, in anticipation of the demand which may be hard to supply next autumn. The outstanding notes are now for the first time over four hundred million dollars. No one can tell whether this is enough or too much, or how much more it may be by September or October next. How much better it would be if we had a system which would automatically adjust this amount, each bank supplying its own customers according to their needs. There is far more danger of inflation because these bond-secured notes become redundant, than there would be if the banks could issue a portion of their circulation in uncovered gold-reserve notes, with such proper redemption requirements that they would retire themselves when no longer needed, and could be kept out only by exertions on the part of the bank, and then only as long as they were demanded by the public for current cash transactions.

Objection is frequently heard to having a great number of small banks, widely scattered, issue uncovered notes. On thorough consideration this objection does not seem to be serious, and there are some counterbalancing advantages. The notes being furnished by the government, there is no danger of fraudulent over-issue. The proposed proportion of uncovered notes to the capital of the bank is not large, and the regulations could be made such as to remove the temptation to organize the banks for the note issue only. The constant redemption spoken of so often would check this. Those of you who remember the time when you had notes out which you

were constantly looking to have presented for redemption doubtless realize that such notes are a source of considerable anxiety and solicitude. These small banks are now allowed to take unlimited deposits. On account of the guarantee fund the notes will be safer than the deposits. If the banks are fit to take unlimited deposits, they are fit to issue a limited quantity of notes, protected by a gold reserve. One chief advantage of the issue by the number of banks is that the gauge of the quantity needed by widely scattered banks, each in close touch with its own customers and community, would be the best possible way to determine the proper amount required. They would feel and supply the demand more quickly and collect and retire the notes more promptly, quietly, and with less disturbance, when these were no longer needed in circulation.

It is not claimed by the most enthusiastic advocates of this change in our currency, that it will cure all our financial ills. We cannot by any means yet known prevent speculation and overtrading. It seems to be a fixed law in all human affairs, and especially in business, that events run in cycles, and that we are bound to have periods of too great activity, followed by corresponding periods of depression. Modern business is the result of the development of credit, and must be done largely on credit to be done at all. There never is a time when there is money enough to liquidate all outstanding credits, or even any large part of them. We are thus always exposed to the possibility that some unexpected and unavoidable event will lead to such a demand for liquidation that many who have debts cannot meet them, and this will lead to a panic or crisis, followed by a period of depression in all lines of business and trade. It is idle to expect to cure or change this by legislation, but we may by proper financial and currency laws remove some of the causes of disturbance and diminish the chances of sudden demands for liquidation. We are confronted with a situation in business to-day, one of the dangers of which is the fear of a demand for currency next autumn which may check business of all kinds. Being forewarned and expecting it, every one is now making every possible preparation for it, and in this there is much reason for hope that serious trouble may be avoided. It may be said that this situation is not due to our currency laws, but to entirely different causes. This may be, and doubtless is, largely true. But our

currency and banking system is a great factor in the situation, and if we had a better and more elastic bank currency, it would be a source of strength now when needed. If our banks had been in the habit of supplying the varying demands for currency, and an automatic elastic system were in operation which all knew would take care of the demand as it came, there would have been no necessity that extra endeavors be made by the United States Treasury to increase the circulation; and there would also be less danger of inflation from such a circulation as could then be issued and expanded than from our present bond-secured circulation, which, after it has been expanded, can only be contracted at the rate of $3,000,000 per month. This is a matter of far greater importance to the people who want and need this money than it is to the banks. A man who wants currency for his business and cannot get it is much worse off than the banker who cannot furnish it. It may only mean a loss of profit to the bank when it means ruin to the customer.

The people who want this currency for handling their crops and products are entitled to the credit based on the wealth of marketable articles they have produced. They are entitled to it in the shape which is most convenient to them, whether as a bank deposit subject to check, or current cash. It is the duty of the government to supply them with the best facilities which can be devised, and to enact such laws as will enable the banks to serve their customers to the best possible advantage to the whole country. This question is a matter of equal, if not greater, importance to the entire business community, who find every year their calculations interfered with, if not overthrown, by the annual disturbance which is due to the demand for currency to move the crops. That we allow this to go on year after year without any attempt to cure or stop it, is an absolute disgrace to us.

SOUND VERSUS SOFT MONEY

ADDRESS DELIVERED BY ANDREW JAY FRAME, PRESIDENT OF THE WAUKESHA NATIONAL BANK, WAUKESHA, WIS., BEFORE THE WISCONSIN BANKERS' ASSOCIATION, AT MILWAUKEE, AUGUST, 1903.

I GRIEVE to disagree with some of my good friends, yet I yield to no man in patriotism. I desire ameliorated conditions. When we sum up the years of agitation for asset currency and a sound solution of the elastic problem, and find that the only product that has been seriously considered to date is the Fowler bill-to the fallacies of which I make specific reference hereafter-I conclude it is easier to criticise than provide a remedy for incurable diseases. The disease under discussion might be diagnosed as "hard up.” A large majority of the human family have an annual attack of it, and many have it in chronic form. Issuing I. O. U.'s will rarely cure the malady, but liberal libations of conservatism wonderfully ameliorate severe attacks.

The battle of the standards which have been fought in the United States for more than a quarter of a century, culminated successfully March 14, 1900, in the adoption of the world's standard, gold. Since then, instead of strengthening our foundations by unequivocal laws, making our vast quantity of inferior silver coinwhich is ever decreasing in intrinsic value-redeemable in gold; instead of wiping out our greenbacks, thus removing another burden from the government which is not tolerated by any progressive nation, the burden of song has been to undermine our present foundation by the injection of an additional quantity of inferior currency called asset currency, under conditions not paralleled in any progressive country, and which, as certain as the laws of gravitation, will drive our gold abroad under the Gresham Law, or produce still further inflation in prices, resulting in riotous speculative ventures, and consequent deeper depression when the ebb tide in our prosperity sets in. Such a result is as inevitable as that history repeats itself. The Kaffir proverb, that "he who will not profit by the experience of the past, gets knowledge when trouble overtakes him," has no terrors for the speculator. Under the impetus of rapid fortune acquired by some, in the swelling tide of prosperity, the get-rich-quick fever has intoxicated the many. Some men ordinarily conservative have wavered in their course