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changes in the future. These changes, however, are not a necessary part of our currency problem. If it be wise to increase the amount of reserve carried by some of the State institutions, this can be done without making it a part of the reorganization of our currency. Let us keep that problem as simple as may be, without complicating it by the addition of other problems which do not form a necessary part of it.


While a central bank should not take the place of our existing banking institutions, the operation of similar central organizations in other countries has successfully established the fact that some element of central control is essential.

We have 20,000 established banks, each doing efficient work, but we have no method of bringing about united action in time of emergency. We have 20,000 soldiers and no general. The result has been that in time of panic, each one of our 20,000 soldiers has tried to steal the ammunition of some of the others, in order to fight his own little battle. It is not necessary, however, to disband the army in order to make it effective. Let us preserve all the advantages which we obtain from our system of independent banks and add the very great advantages which foreign nations obtain from the control by a central organization.


This does not mean that the central bank will have anything to say about the daily transactions of the independent banks or will in any way regulate the relations between the local banks and their customers. It merely means that we will superimpose upon our existing banking system an organization which will be the servant of our independent banks and of the communities which they in turn serve.

It will be a bank for banks, and will offer to the independent bank the same measure of accommodation and relief which the local bank affords to its customers.

Probably the most important function which this bank will fill is as a central depository for a portion of the reserves which are required by law. These reserves form the ammunition of our 20,000 soldiers. Each soldier should have in his cartridge box a sufficient amount of ammunition to meet any ordinary attack. The balance should be centered in one depository, where the knowledge of its presence and its great size will inspire confidence, and where it can be rendered easily available under intelligent control, for the need of any of the soldiers on the firing line.

Those who are opposed to a central organization in any form say that this can be readily accomplished by selecting a central depository, where a portion of the reserve can be held. They forget that while the mere presence of the reserve in a central mass may inspire confidence, it cannot be effectively used without some intelligent, directing control, and this control can only be effective through some central organization.


The next function in importance will be the issue of currency. We all recognize that enlightened nations base their currency upon credit, with a substantial and adequate reserve of gold. A currency system, to meet the requirements of a nation so teeming with energy and enterprise as this, must be so elastic as to expand and contract with the requirements of trade. Most of us are convinced of the necessity of an expansion of currency, but many do not realize that it is just as necessary that the currency contract when it is not needed by the industries of the country.

The local bank is the bank of discount for the business community, and under ordinary conditions can take care of the requirements of the community which it serves. A central bank should be a bank of discount for the local banks. Let the man on the street picture to his mind that the note issuing of the central bank is merely to extend to the local bank by means of the rediscounting its negotiable paper, the same assistance to tide over an emergency that the local bank extends to him as a business man.

There must, however, be an organization for central control, to tell the local bank when it has gone far enough, just as the local bank must by its advice and co-operation check the unwise expansion of the merchant. If the local bank should rediscount with the central bank to an unlimited extent, the same condition would be created as would be the case if the local bank put no restrictions upon the amount of paper which it would discount for the merchant. There must be some wise, regulating control, which will perform the same functions in the central bank as the officers and directors of the local banks do in their institutions.


The third function in importance for the central bank is to deal in gold and foreign exchange, in order to conserve our gold reserves. This is the ammunition train which must be brought up by order of the commanding general to replenish the reserve ammunition. Each soldier cannot have his own ammunition train, and in the case of our financial system, the power to import gold or to deal in foreign exchange for the purpose of influencing gold to this country, must be delegated to a central control.

These three functions are about all it is necessary to grant to a central bank, and surely they are not very radical. Let us recount them :

First. The power to centralize and manage the reserves of the banks, so that they may be fluid and ready for instant


Second. The power to issue bank notes by rediscounting, when necessary, for existing banks, maintaining, of course, an adequate gold reserve against all notes which are issued, and,

Third. The power to deal in gold and foreign exchange, in order to protect and build up our gold reserve, when necessary.

If we grant these simple powers to a central bank, eliminate the danger of competition or friction with the inde

pendent banks, and make the central institution merely a piece of machinery to serve other banks and through them the business community, we do not seem to be doing anything very dangerous or radical.


The name which we give to this central institution is perhaps unimportant. We may call it a clearing house, a central bank or any other of the many which have been suggested. When it is once in operation, we in this country will understand its functions and limitations. In my opinion, it will be desirable to give it a name which will be understood and recognized abroad, but the name is not in any sense fundamental. The institution, and the principles upon which it is founded, are the essential points.


I have alluded to the necessity of recognizing that such an institution as we suggest is not a radical departure or dangerous or complicated, and if the delegates who are gath ered here will go back to the various parts of the country which they, represent and spread the knowledge that this problem is to be solved in a simple manner, they will do much to aid in its solution and to overcome the unjust prejudice which unfortunately exists to-day against a central institution of any kind.

Point out that the central bank should be owned by the united banks of the country and that the principle involved is not new, or, as some say, un-American—that it is simply an extension of the system by which the smallest merchant goes to his own bank for the discount of his note, so that that bank in turn may go to the united power of all the banks for assistance in time of need, by the rediscount of the note which it has taken from the merchant-a system by which we unite the banking power of the country for the protection and service of the business community.


Mr. PAUL WARBURG, from the Committee on Resolutions, read and moved the adoption of the following report:—

The Committee on Resolutions have examined the resolutions received by this convention, and begs to report as follows:

Of the nine resolutions received from various commercial bodies, seven advocated in substance the creation of a central banking organization in the United States. These bodies were the following:

The Chamber of Commerce of the City of New York, the Merchants' Association of New York, the New York Produce Exchange, the Board of Trade of Philadelphia, the Chamber of Commerce of Spokane, Washington; the Board of Trade of Scranton, Pa.; the Board of Trade of Wilmington, N. C.

The Chamber of Commerce and the Clearing House Association of Quincy, and the Commercial Club of Davenport, Iowa, sent in reports favoring the creation of some kind of currency based on clearing house certificates.

After a full discussion, your committee has passed the following preamble and resolutions, which it makes free to submit herewith:The first resolution has been accepted with all votes except one. viz: Mr. Acker's; the second resolution was adopted unanimously. WHEREAS, A modern financial system, which must rest upon credit supported by adequate gold reserves, can be safe and efficient only if so organized as to enable the concentration of idle cash in one reser-voir and to render such cash always speedily available for all legitimate needs, thus assuring confidence; and

WHEREAS, Careful investigation and the experience of all other great nations, have demonstrated that a central bank system is the most efficient instrumentality for this purpose, providing the means for such concentration of cash and assuring the transformation into cash, whenever needed, of deposits, commercial paper and other proper forms of credit; conserving the gold resources of the nation and maintaining the same at a safe proportion to its cash obligations; and

WHEREAS, The banking system in use in the United States has proved disastrously defective, because

It scatters reserves among more than 20,000 banks, each striving in time of stress, to strengthen itself at the expense of the others; It prevents the utilization of reserves and the mobilization of the resources in banks which are invested in commercial paper;

It substitutes stock-market loans for discounts of commercial paper, making the former the regulator of the daily supply and demand for credit;

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