the principal cities of the Dominion was, not more elasticity, but a more National currency,-one that would circulate at par in every part of the country, yet be equally responsive to the requirements of commerce. Theretofore the notes of each bank had been accepted without hesitation by all other banks, but the universal laws of exchange prescribed that in certain cases such notes should be only accepted at a discount. For example, the movement of funds being in general from the Maritime Provinces toward Ontario and Quebec, the notes of the Nova Scotia and New Brunswick banks generally were at a slight discount in Toronto and Montreal, as drafts upon those banks would naturally be. Likewise, the notes of Toronto and Montreal banks were usually subject to some discount in the Northwest Provinces. But by the establishment of the redemption agencies provided for by the Act of 1890 a distinctly national character has been imparted to the notes of all banks, and discount, for geographical reasons, has been done away with.

That the prompt and automatic redemption which is the basis of the elasticity of the Canadian bank circulation is not due in any degree to the “redemption agencies" thus established, is shown by a glance at the table on page 12, from which it appears that, prior to the legislation of 1890, the adjustment of the supply of currency to the needs of commerce, through successive expansions and contractions, was no less perfect than it has since been.

This fact is significant in view of the tendency of United States financiers and statesmen to place extraordinary stress upon providing by legislation for elaborate redemption facilities. The experience of Canada has shown that legislation in this regard was delightfully immaterial—it having been as perfectly ineffective to secure special elasticity and prompt redemption as it was perfectly uncalled for on behalf of either, both of these aims having been perfectly subserved by the natural course of business before the law was passed.

Instructive, however, as is Canada's experience in this regard, our own is still more striking and valuable when we once catch a glimpse through the fog that thirty years' experience with the artificial redemption provided by our National Banking Act has spread about us. During the fiscal year ending June 30, 1894, on the basis of above $200,000,000 average circulation of National bank notes, some $100,000,000 in all passed through the elaborate redemption bureau so carefully provided by law. Of these $50,900,000 were cases of exchange of old or mutilated for new currency; $10,900,000 the final redemption of banks which had ceased to issue circulating notes; and only $39,900,000, or less than two-fifths, was normal current redemption through which alone elasticity could be assisted. Before the war, however, when commercial expedients were much less effective than now, upon a basis of less than $50,000,000 average circulation of the New England banks for which it acted, the redemptions of the Suffolk Bank during its later years amounted to $400,000,000 annually-of which but an insignificant fraction were the mutilated and dead currency redemptions which, the mere incidentals of an effective system, are about the only uses our Federal system subserves.

The experience of Canada has shown that no elaboration of legal require ments adds to the efficiency with which if commerce is let alone it can and will attend to current redemption. In this regard clearing houses are as omnipotent as Governmnt seems to be powerless. Our own experience has demonstrated how completely a thoroughly good system which had developed without the aid of law has been petrified by attempting to assist it.

GENERAL REVIEW OF CANADIAN CURRENCY.

The remaining elements in the general currency system of Canada, in addition to the notes of the chartered banks, already described at length, are but three: viz., gold coin, subsidiary silver and Dominion notes.

Canada has no gold coinage of her own; but the gold coins of the United States and the United Kingdom pass current and are legal tender. There is very little gold in actual circulation. The Dominion Government holds at present, as a reserve against the outstanding Dominion notes, some $10,000,000; the chartered banks hold perhaps $6,500,000 or $7,000,000 additional; while the remainder of the gold in Canada, including that held by private bankers and savings banks, may be sufficient to bring the total up to $20,000,000, in round numbers.

The silver coinage dates from 1870. It consists solely of subsidiary coins, which are legal tender to the extent of ten dollars. The total issue from 1870 to the close of the fiscal year 1893, was $6,339,585.

The Dominion note issues are the direct outgrowth of the Provincial notes authorized in the Province of Canada in 1866. The limit of the issue, fixed in 1868 at $8,000,000, was successfully increased to nine, twelve, twenty, and finally-by an act

approved July 23, 1894-has been fixed at $25,000,000. As security for their redemp tion, the Minister of Finance is required to hold in gold and Dominion securities, guaranteed by the Imperial Government, twenty-five per cent. of the amount issued, at least three-fifths of which shall be in gold; the remaining seventy-five per cent. of the issue shall be covered by ordinary Dominion securities. The issue may also be increased above the limit specifled if the Minister of Finance holds gold to the full amount of such excess, in addition to the reserve otherwise required.

The aggregate issue on October 31, 1894, was $22,212,884, of which more than $14,000,000 was in denominations of $500 and $1,000, mainly held by the banks and used in their settlements with each other. Of the remainder, $7,048,953 was in bills for $1 and $2, and $212,152 in fractional currency.

The note circulation of the Canadian banks, therefore, makes up over forty-five per cent. of the entire currency of Canada.

PRESENT CONDITION OF CANADIAN BANKS.

The condition of the Canadian banks at the present time is set forth in the following summary of the monthly returns of the several banks for September, 1894.

STATEMENT OF THE 39 CHARTERED BANKS OF THE DOMINION OF CANADA,
For the month ending September 30, 1894.

SOUND CURRENCY.

PUBLISHED BY THE SOUND CURRENCY COMMITTEE OF THE REFORM CLUB.

Publication Office, No. 52 William St., New York City.

Vol. II., No. 8.

NEW YORK, MARCH 15, 1895.

(SUBSCRIPTION,

$1.00.

7 SINGLE COPIES, 5 Cents.

Each number contains a special discussion of some Sound Currency question.

What a bank can with propriety advance to a merchant or undertaker of any kind, is not either the whole capital with which he trades, or even any considerable part of that capital; but that part of it only which he would otherwise be obliged to keep by him unemployed, and in ready money, for answering occasional demands. If the paper money which the bank advances never exceeds this value, it can never exceed the value of the gold and silver which would necessarily circulate in the country if there was no paper money; it can never exceed the quantity which the circulation of the country can absorb and employ.

When a bank discounts to a merchant a real bill of exchange drawn by a real creditorupon a real debtor, and which, as soon as it becomes due, is really paid by that debtor, it only advances to him a part of the value which he would otherwise be obliged to keep by him unem ployed and in ready money for answering occasional demands. The payment of the bill, when it becomes due, replaces to the bark the value of what it had advanced, together with the interest. The coffers of the bank, so far as its dealings are confined to such customers, resemble a water-pond, from which, though a stream is continually running out, yet another is continually running in, fully equal to that which runs out; so that, without any further care or attention, the pond keeps always equally, or very nearly equally, full. Little or no expense can ever be necessary for replenishing the coffers of such a bank.

DISCOUNTS ONLY TO MEET FLUCTUATING DEMAND FOR CURRENCY.... 330
ADVANTAGES OF THIS..

330

THE ECONOMY OF BANK-NOTE CURRENCY.

What is the proportion which the circulating money of any country bears to the whole value of the annual produce circulated by means of it, it is, perhaps, impossible to determine. It has been computed by different authors at a fifth, at a tenth, at a twentieth, and at a thirtieth part of that value. But how small soever the proportion which the circulating money may bear to the whole value of the annual produce, as but a part, and frequently but a small part, of that product, is ever destined for the maintenance of industry, it must always bear a very considerable proportion to that part. When, therefore, by the substitution of paper, the gold and silver necessary for circulation is reduced to, perhaps, a fifth part of the former quantity, if the value of only the greater part of the other four-fifths be added to the funds which are destined for the maintenance of industry, it must make a very considerable addition to the quantity of that industry, and, consequently, to the value of the annual produce of land and labor.

An operation of this kind has, within these five-and-twenty or thirty years, been performed in Scotland, by the erection of new banking companies in almost every considerable town, and even in some country villages. The effects of it have been precisely those above described. The business of the country is almost entirely carried on by means of the paper of those different banking companies, with which purchases and payments of all kinds are commonly made. Silver very seldom appears, except in the change of a twenty-shillings bank-note, and gold still seldomer. But though the conduct of all those different companies has not been exceptionable, and has accordingly required an act of parliament to regulate it, the country, notwithstanding, has evidently derived great benefit from their trade. I have heard it asserted, that the trade of the city of Glasgow doubled in about fifteen years, after the first erection of the banks there; and that the trade of Scotland has more than quadrupled since the first erection of the two public banks at Edinburgh, of which the one, called the Bank of Scotland, was established by Act of Parliament in 1693; the other, called the Royal Bank, by Royal Charter in 1727. Whether the trade, either of Scotland in general, or of the city of Glasgow in particular, has really increased in so great a proportion, during so short a period, I do not pretend to know. If either of them has increased in this proportion, it seems to be an effect too great to be accounted for by the sole operation of this cause. That the trade and industry of Scotland, however, have increased very considerably during this period, and that the banks of issue have contributed a good deal to this increase, cannot be doubted.

The value of the silver money which circulated in Scotland before the Union, in 1707, and which, immediately after it, was brought into the Bank of Scotland in order to be re-coined, amounted to £411,117 10s. 9d. sterling. No account has been got of the gold coin; but it appears from the ancient accounts of the mint of Scotland, that the value of the gold annually coined, somewhat exceeded that of the silver. There were a good many people too upon this occasion, who, from a diffidence of repayment, did not bring their silver into the Bank of Scotland; and there was, besides, some English coin, which was not called in. The whole value of the gold and silver, therefore, which circulated in Scotland before the Union, cannot be estimated at less than a million sterling. It seems to have constituted almost the whole circulation of that country; for though the circulation of the Bank of Scotland, which had then no rival, was considerable, it seems to have made but a very small part of the whole. In the present times the whole circulation of Scotland cannot be estimated at less than two millions, of which that part which consists in gold and silver, most probably, does not amount to half a million. But though the circulating gold and silver of Scotland have suffered so great a diminution during this period, its real riches and prosperity do not appear to have suffered any. Its agriculture, manufactures, and trade, on the contrary, the annual produce of its land and labor, have evidently been augmented.

It is chiefly by discounting bills of exchange, that is, by advancing money upon them before they are due, that the greater part of banks and bankers issue their promissory notes. They deduct always, upon whatever sum they advance, the legal interest till the bill shall become due. The payment of the bill when it becomes due, replaces to the bank the value of what had been advanced, together with a clear profit of the interest. The banker, who advances to the merchant whose bill he discounts, not gold and silver, but his own promissory notes, has the advantage of being able to discount to a greater amount by the whole value of his

* Ruddiman's Preface to Anderson's Diplomata, etc., Scotiæ.

promissory notes, which he finds by experience are commonly in circulation. He is thereby enabled to make his clear gain of interest on so much a larger sum.

SPECIAL FEATURES OF SCOTCH BANKING.

The commerce of Scotland, which at present is not very great, was still mor inconsiderable when the two first banking companies were established; and those companies would have had but little trade, had they confined their business to the discounting bills of exchange. They invented, therefore, another method of issuing their promissory notes; by granting, what they called, cash accounts, that is, by giving credit to the extent of a certain sum (two or three thousand pounds, for example) to any individual who could procure two persons of undoubted credit and good landed estate to become surety for him, that whatever money should be advanced to him, within the sum for which the credit had been given, should be repaid upon demand, together with the legal interest. Credits of this kind are, I believe, commonly granted by banks and bankers in all different parts of the world. But the easy terms upon which the Scotch banking companies accept of repayment are, so far as I know, peculiar to them, and have, perhaps, been the principal cause, both of the great trade of those companies, and of the benefit which the country has received from it.

Acceptance of Piecemeal Repayment of Loans.

Whoever has a credit of this kind with one of those companies, and borrows a thousand pounds upon it, for example, may repay this sum piecemeal, by twenty and thirty pounds at a time, the company discounting a proportionable part of the interest of the great sum from the day on which each of those small sums is paid in, till the whole be in this manner repaid. All merchants, therefore, and almost all men of business, find it convenient to keep such cash accounts with them, and are thereby interested to promote the trade of those companies, by readily receiving their notes in all payments, and by encouraging all those with whom they have any influence to do the same. The banks, when their customers apply to them for money, generally advance it to them in their own promissory notes. These the merchants pay away to the manufacturers for goods, the manufacturers to the farmers for materials and provisions, the farmers to their landlords for rent, the landlords repay them to the merchants for the conveniencies and luxuries with which they supply them, and the merchants again return them to the banks in order to balance their cash accounts, or to replace what they may have borrowed of them; and thus almost the whole money business of the country is transacted by means of them. Hence the great trade of those companies.

Saving of Capital Thus Effected.

By means of those cash accounts every merchant can, without imprudence, carry on a greater trade than he otherwise could do. If there are two merchants, one in London, and the other in Edinburgh, who employ equal stocks in the same branch of trade, the Edinburgh merchant can, without imprudence, carry on a greater trade, and give employment to a greater number of people than the London merchant. The London merchant must always keep by him a considerable sum of money, either in his own coffers, or in those of his banker, who gives him no interest for it, in order to answer the demands continually coming upon him for payment of the goods which he purchases upon credit. Let the ordinary amount of this sum be supposed five hundred pounds. The value of the goods in his warehouse must always be less by five hundred pounds than it would have been had he not been obliged to keep such a sum unemployed. Let us suppose that he generally disposes of his whole stock upon hand, or of goods to the value of his whole stock upon hand, once in the year. By being obliged to keep so great a sum unemployed, he must sell in a year five hundred pounds worth less goods than he might otherwise have done. His annual profits must be less by all that he could have made by the sale of five hundred pounds worth more goods; and the number of people employed in preparing his goods for the market, must be less by all those that five hundred pounds more stock could have employed. The merchant in Edinburgh, on the other hand, keeps no money unemployed for answering such occasional demands. When they actually come upon him, he satisfies them from his cash account with the bank, and gradually replaces the sum borrowed with the money or paper which comes in from the occasional sales of his goods. With the same stock, therefore, he can, without imprudence, have at all times in his warehouse a larger quantity of goods than the London merchant; and can thereby both make a greater profit himself, and give constant employment to a greater number of industrious people who prepare those goods for the market. Hence the great benefit which the country has derived from this trade. The facility of discounting bills of exchange, it may be thought indeed,