The want of the conservation of proper gold reserves is what has led to the weakness of the German situation today and compels them to take steps to strengthen the reserves of the individual banks in accordance with the finding of the commission appointed to revise the banking laws of Germany. The individual banks of England have also been increasing their cash reserves for several years past, recognizing the force of what Jevons wrote several years ago.
MR. FARMER: That's all right, Mr. Banker, as a statement of principles, and I think it is perfectly clear to me just what you mean; but there is one point that I would like to have settled, and that's this: what is a reserve in the United States? That is, what can you call a reserve? You know I am a director of our little bank down in the village below. The other day I asked them what they held for reserves and the cashier brought out this list; $3,000 silver certificates; $3,500 of United States notes, or greenbacks; $4,500 National bank notes; $2,500 gold certificates; $1,500 gold coin; and some silver change. As quick as I saw that bunch of stuff, I said to myself, just what you pounded into me some nights ago, that those bank notes ought never to be held as reserves, because they were nothing but another bank's debts, nothing but another bank's I.O.U.'s. Do you know that idea never penetrated my cranium until that very minute. Now, that is an absolute absurdity, that one bank's debts should be used as another bank's reserves. Just imagine what a high old time we would have, if the banks went around the country exchanging their debts with each other for the purpose of creating reserves. The sky would be the limit. Just think of it; where would it stop?
MR. BANKER: Well, Mr. Farmer, that is precisely what the bankers of this country are doing. I know of one National banker who took $3,000,000 of his own bank notes, and put them into the reserves of a Trust Co., and all the stock of the Trust Co. was owned by his bank, and was locked up in the safe of the bank. I know another National bank that got a large Trust Co. to bury $3,500,000 of its notes down at the bottom of its reserves, so that they could not get out; and this is a fair sample of just what is going on all over this country today. This is done just to keep their notes out, so that they can make the extra 1 per cent or 1-1/4 on the notes in circulation, as we call it. Some one of you may say, well! these notes are secured by Government bonds. Yes, suppose they are, what of it? Congress has just passed a law providing for $500,000,000 more just like these present National Bank Notes, which are to be secured by State Bonds, Municipal Bonds, Railroad Bonds and Promissory Notes and what not, and the boast of that wonderful economist Aldrich was that you could not tell them apart. Any fraud, apparently, would suit him, so long as no one found it out. Now, I assert, and challenge any man to deny it, that if any good debt is fit to be used for reserve money, then every good debt is equally fit. If a Government debt is good reserve money, then New York State debts, Pennsylvania, Illinois, and all state debts; and if all state debts, then New York city, Philadelphia, Chicago and all city debts; and if New York, Chicago and Philadelphia debts are good reserve money, then the United States Steel, Standard Oil and all corporation debts; and if all corporation debts are good reserves, then the debts of J.P. Morgan, John D. Rockefeller, Andrew Carnegie and all private debts are good reserves. When you stop to think of it, what a preposterous proposition it is to make any debt a reserve for another debt. The State of California has just waked up, and will not permit her state banks to hold a National Bank Note as reserve; but the great State of New York specifically provides that her banks may hold National Bank Notes as reserves.