MR. BANKER: I can tell you how to do that; that is very easy.
When the State Banks come into the National system as they certainly will, if you have the right kind of a system, they will exchange their notes for the gold or gold certificates that are now in circulation, as they come in over their counters. You see that all the gold and gold certificates that are now held by the banks only amount to $879,000,000, although there is in the country $1,850,000,000 of gold, practically one billion of gold, or $10 of gold for every man, woman and child out in the corn, cotton and wheat fields; in the mining camps, when as a matter of fact, this gold should be in the reserves of our banks, protecting our bank credits; and bank notes should be in the corn, cotton and wheat fields, in the mining camps filling the true function of currency, and where gold, or gold certificates are not at all needed.
MR. LAWYER: Now, wait a moment, Mr. Banker, and let me see if I grasp that. It is very important that we should all understand this. I am exceedingly anxious to, and it strikes me that we are at a mighty interesting juncture of this subject. If a State Bank with a reserve of $70,000 came into your National system and had to increase its present reserve, which is only 7 per cent, by as much as 10 per cent, it could do so by simply retaining the gold and gold certificates as they were deposited from day to day, and pay out its bank notes to the extent of one hundred thousand dollars. The result would be that the bank would increase its liabilities by $100,000, but it would also increase its reserves by $100,000. That is certainly a perfectly sound proposition. Before the bank came into the system, its reserves were only 7 per cent, or $70,000, since its deposits were $1,000,000. After it goes into the National system, it has changed $100,000 of its notes for $100,000 of gold, or gold certificates, as they came in over the counter; it now owes $1,100,000, of which $100,000 is of notes, but it now has $187,000 of reserves of all of its demand liabilities, or 17 per cent, instead of $70,000, or 7 per cent, as before.
MR. MERCHANT: Isn't that a simple and very easy thing to do? And what tremendous strength it would give to the whole banking situation immediately.