FOR AN ELASTIC CURRENCY

T

HE chief advantage of President Wilson's reform in the currency is that we are going to have it. For the last fifteen or twenty years we have known that our currency system was inadequate, but nothing was done. The bill that passes will not be perfect but it will in all probability improve the present status. For that and the promptness and vigor with which this part of the public business is being transacted we may be grateful.

Our currency at present is of two kinds: that which is issued by the Government, consisting of metallic money, gold and silver, United States notes, and Treasury notes; and that issued by the national banks in the form of notes secured by United States bonds. Whether the country is doing a big business or a little business, the amount of currency in circulation stays about the same. Of course, it ought to vary with the country's commercial transactions.

This the new bill proposes to effect by allowing the issue of bank notes secured by commercial paper, so that when commerce is large and its paper plentiful the currency will automatically increase and when it is scarce the currency will contract. When a man puts a note in his bank, the bank forwards it to the Federal reserve bank which can issue notes against it. When the man's note is paid, the currency secured by it is withdrawn from circulation by the reserve bank.

This first fundamental change in our currency system is generally approved. Most other countries have a central bank which has the power to fix the rate of discount for which a bank will accept commercial paper for collection. This is a kind of ally to an elastic currency in times of emergency. There has been no institution in the United States to do this. In panic times we have to count upon some makeshift measure, like the Aldrich-Vreeland law that was enacted after the 1907 panic to provide for the issue of "emergency currency," if the country's financial machinery should happen to break down again. In 1914 this law expires

The new currency bill provides a Federal Reserve Board and twelve Federal reserve banks. These banks have the power to fix the discount rate each in its own district subject to the approval of the Federal Reserve Board.

That there should be some wise and responsible agency to have this rate-fixing power is generally accepted.

The two fundamental objects of the bill are undoubtedly sound. How good is the machinery created to attain these objects will not really be known until it has been in actual operation. It has provoked all manner of criticism, some loose and unscientific, some from men whose opinions deserve most serious consideration.

At the head of the national banking system will be the Federal Reserve Board, consisting of the Secretary of the Treasury, the Secretary of Agriculture, the Comptroller of the Currency, and four members chosen by the President with the approval of the Senate.

Under the control of this Board will be twelve (or more) national reserve banks, each one serving a certain district. Besides a general supervision of the administration of the reserve banks the Board will have the power to order the reserve banks to rediscount one another's paper; to suspend all reserve requirements for thirty days and to renew the suspension for periods of fifteen days each; and to regulate the issue and retirement of treasury notes — the new elastic currency.

These notes shall be obligations of the United States. They shall be legal tender, and redeemable in gold. When a Federal reserve bank issues these treasury notes it must have commercial paper of equal amount as security and must besides keep a gold reserve of 333 per cent. of the amount of currency issued. As the commercial paper coming in to a Federal reserve bank varies, so will vary its issues of treasury notes.

It is obvious that this currency will ultimately drive out of circulation the present national bank notes, which are secured by government bonds. Therefore the law provides that as the present bank notes are retired, banks may turn in the 2 per cent. bonds of the United States, which they have hitherto used as

security for notes, and receive 3 per cent. bonds which do not carry that privilege and which will run for twenty years.

The Federal reserve banks will get their capital from the national banks of their district, which are to invest 10 per cent. of their own capital in the reserve bank and to be liable for another 10 per cent. on call. In addition, every national bank will be required to deposit without interest 5 per cent. of its own demand deposit.

The reserve banks financed in this manner are to deal in gold and bullion, at home and abroad; to invest in government (of this and other countries) and state bonds; to deal in foreign commercial paper and to open and maintain bank accounts abroad; and to establish, every week, a minimum rate of discount. This is the second fundamental change that the new law brings about.

There are other important provisions of the law drafted in an effort to increase the farmer's facilities for borrowing money on his land and to establish foreign branches to help our foreign trade. These provisions, like the rest of the bill, will be proved by service. If successful they will be of tremendous importance to the whole Nation, because improved rural credit could add wonderfully to the productiveness of our farms, and American branch banks abroad could be of inestimable advantage to our growing foreign trade.

It is, of course, inevitable that in making a new banking and currency system a great deal of controversy is stirred up. There are many criticisms of minor provisions which may be changed in the passage of the bill. But besides this there is a vigorous criticism of the machinery for carrying out the two fundamental parts of the bill, and this criticism is particularly from bankers. They complain that it is folly to have the Federal Reserve Board composed of seven members only one of whom must be a banker. They who are experts are, inferentially at least, almost excluded from the Board which controls the currency of the country. The criticism is natural. On the other hand the public, as the discussion of the Aldrich bill showed, have not complete confidence in a central organization dominated by

bankers. It would have in a measure the same feeling toward a group of bankers on the Federal Reserve Board as it would have toward half a dozen railroad presidents as members of the Interstate Commerce Commission.

The bankers, and many other people, too, fear the power of the Federal Reserve Board in the hands of politicians. Another set of people fear such a power in the hands of the bankers.

The solution of the problem is a great opportunity for the President - an opportunity to appoint great men. The real opposition to the bill comes from people who are afraid that the great power given the Federal Reserve Board will be used unwisely or abused. But the wide powers of the Board also give it a magnificent opportunity for public service. In the hands of the proper men it would be a tremendous advantage to the trade and commerce of the country. A Federal Reserve Board, composed of the Secretary of the Treasury, the Secretary of Agriculture, the Comptroller of the Currency, and four permanent Presidential appointees of a character that would commend them to the whole country, would be viewed somewhat as we look upon the Supreme Court, much as Englishmen look upon the directorate of the Bank of England (which is, by the way, not generally made up of bankers.)

Not even the appointment of justices to the Supreme Court of the United States is a greater opportunity or responsibility for the President than the appointment of the members of the Federal Reserve Board, and incidentally it greatly increases the office of the Comptroller of the Currency and adds to the tasks of the Secretary of Agriculture and of the Secretary of the Treasury.

WHY POLITICS IMPROVES

NE of the tests of a President's ability to succeed in the hardest task in the world is the promptness and wisdom with which he handles such situations as that which arose out of the Attorney-General's order to delay the trial of the Diggs-Caminetti case in California. The Attorney-General made a

mistake. To delay justice for the convenience or even for the necessities of the Department of Labor was unwise and unjustifiable. A nice discrimination of the proprieties would have insured at least as great effort at speedy justice in a case in which the family of an important official was concerned as in any other. The Attorney-General's mistake was a mistake of judgment. If it had not been quickly rectified it would have been a serious thing, for many people would have believed that political influence could procure favors before the law.

As it was, the case points very clearly the difference between public business and private business.

The man who owns or manages a private business may delay decision on certain matters and refuse to consider others. Whatever he does (within the law) is his own business and there is no one who has a right to question his motives.

In public business a question delayed or ignored may at any time become the basis of a scandal.

The motives behind practically every act of important public officials are scanned with cynical, critical eyes. Only a potent and vigilant sincerity of purpose can win and keep a wide public confidence in any public man. The ingratitude of the Republic is proverbial, for there are very few who can attain the ever-rising standard, not only of honesty but of ability, that the public demands. And yet it is in a large measure because of the searching light to which our public men are subjected that our politics is improving.

THE INIQUITY OF "RIDERS"

HE much discussed "rider" to the Sundry Civil bill was such a flagrant example of a vicious method of legislation that it has at last turned public attention and public condemnation toward this old evil.

This particular "rider" specified that none of the money appropriated in the Sundry Civil bill to enforce the Sherman Act should be used to prosecute farmers' societies or labor unions. Giving Congress the benefit of every doubt and consider

ing this a bona fide attempt to modify the Sherman Act, if the authors of this "rider" did not know that the principles underlying it were probably unconstitutional and that the "rider" itself was ineffective, they certainly should have known that amendments to the Sherman Act should be passed as such and not inserted in an appropriation bill.

If, on the other hand, it was an attempt to curry favor with the farmers and the labor unions by seeming to grant them immunity from the law though it really gave them nothing, it was a dishonest trick.

Wise leadership in the farmers' societies and labor organizations would have made them take this occasion to say that they wanted no special favors before the law, for this seemingly attempted discrimination on their behalf, inferentially at least, puts them in the class of "special interests." And in getting into the "special interest" class they have provoked the President into a special statement that where ever they break the law they will be prosecuted. This will be a new condition, for labor unions have violated the Sherman Act with impunity, so far as suits instituted by the Department of Justice are concerned. The President has specifically promised that this shall happen no more.

Except for the President's statement, there is nothing to recommend this "rider" to the public.

From the partisan standpoint it is likewise incomprehensible—a Democratic Congress putting a Democratic President in an embarrassing position. Congress must have known that the President would do just what he did that, since the objectionable clause was ineffective to accomplish discrimination (there being other money available to prosecute possible violations of the law), he would sign the bill and at the same time issue a statement which would do more than all previous discussion to call down on it the public condemnation that it deserves.

A study of the consequences of vetoing a Sundry Civil appropriation bill within a few days of the end of the Government's fiscal year, with a tariff bill still in the throes of passage and a currency bill just

to seed." President Taft's tariff board made the interesting discovery that the woolen manufacturers really had no idea of what their products cost indeed, had no system of keeping costs. Their machinery nearly everywhere was a generation out of date. Looms in use in 1880 were still doing active service. Meanwhile, they have been charging the American people nearly twice as much for their product as European manufacturers charge. The case is not an isolated, though perhaps an exaggerated, one.

In spite of these revelations, the American woolen industries will survive the new tariff; but they will survive, not by reducing wages, but by installing modern equipment, ending wasteful abuses in a hundred different ways, and improving their products.

A manufacturer of bicycle chains was complaining recently to a well known efficiency engineer about the new tariff. "I cannot compete with German manufacturers under it," he declared. "The cost of material on these chains is only 15 per cent. of the cost; the rest is labor. How, then, can I meet German manufacturers, whose labor cost is so low?" Until the efficiency expert investigated conditions, this argument seemed plausible enough. When he did he had little difficulty in showing his client dozens of directions in which he could stop expensive wastes and install new economic methods. "I find I can make bicycle chains cheaper than the Germans with no duty at alland without cutting wages," said the enlightened manufacturer, after introducing these new ideas.

And, whatever other good the new tariff accomplish, it will make the backward manufacturers discover themselves make the laggards come up to the standard set by our better industrial plants. For the first time they now have an opportunity and the necessity to learn their own business. And this new efficiency will ultimately find its way into all departments of American life. It will become a great national educational force. Waste is the

great American sin waste in government, in private life, in agriculture, in the use of national resources, in business.

If,

in manufacturing, we can have a farreaching lesson in efficiency and economy, no one can foresee what tremendous effects it may have upon the national character. SCORNING THE PORK BARREL

F

OR years there have been Congressmen who asked for votes because of their ability to get appropriations for their districts and who "pointed with pride" to the fruits of this ability. For many years to come, men will probably run for Congress and make this "honest graft" a plank in their platforms.

But it is interesting that in the last few years many Congressmen have had the courage to depict "the pork barrel" in its true light. The latest case is that of Representative J. J. Whitacre, of Ohio, who refused to attend the dedication of a new Federal building at Massillon (which has a population of 14,000) because the money for it was obtained by "pork barrel" methods.

In his letter declining the invitation he said:

"What is the matter with this country, anyhow, when Congressmen are measured by their ability to fool the people by the size of the appropriations secured for the district? Is that the measure of efficiency? Rather, is it not a measure of inefficiency and the very best reason for keeping such men at home?"

When enough members of Congress come to feel keenly the disgrace of the "pork barrel," the methods of making appropriations will be changed so that the conscienceless candidate will not be able to bid for votes by promises of Federal expenditures, and the more high-minded Congressmen will not be forced to compete with those who have no scruples about "pork." The remedy is in the hands of the members of Congress.

CHARACTER IN PUBLIC MEN

HE chief lesson to be drawn from the present political tangle in New York state (and perhaps the most reassuring) is that, after all, character is the one thing that counts in a public