thanks to M.B. who took the time and trouble to darken the door of Stanford library, and looked up and photocopied the text.

The VICE-PRESIDENT.  The hour of 2 o'clock having arrived, the Chair lays before the Senate the unfinished business, which is Senate bill 3023.

The Senate, as in Committee of the Whole, resumed the consideration of the bill (S. 3023) to amend the national banking laws.

Mr. La Follette.  Mr. President, in the observations which I submitted to the Senate upon the pending bill I directed attention first to the industrial reorganization which has taken place in the past few years, that, as it developed, centered in the hands of a limited number of men the control of the industrial and transportation combinations of the country.

I next directed the attention of the Senate to the fact that banking had likewise undergone a centralizing influence, and that there had resulted a community of interest among the centralized industrial and transportation organizations and the centralized banking institutions of the country.  This monopoly of banking and business gave a few men financial control.  There were no economic causes for a panic.  There were speculative, political, and legislative reasons that made it important for these combined interests to bring on the crisis of October, 1907.  I outlined the history of events, wrongfully conceived and executed, that brought the country to the verge of financial demoralization.

MORE EVIDENCE OF PANIC PLOT.

It is not always possible, Mr. President, to produce record evidence showing step by step the operations of these great powers.  Since I concluded the other day there has come to my hand some additional evidence which I regard as important enough to submit to the Senate at this time.

This is a letter written by the auditor of the Washington Life Insurance Company to its New Jersey manager.  It is made to appear as directing a compliance with "custom."  It is false in that.  It is not a custom, but an exceptional order directing the State manager of the company to cut down his bank balance and send money to New York.  The letter is as follows:

New York, June 12, 1907.
Mr. E.A. WHITTIER, Manager, Newark, N.J.

DEAR SIR:  It is the custom of our offices collecting as much in premiums as you do to remit each week a check on account of premiums collected.  We would ask you to please do so in the future, sending us a check for amount in bank over $500, the checks sent to us being in amounts of even hundred dollars.

Very truly, yours,
H.R. VERMILYE, Auditor.

Similar letters were sent generally to State managers of this insurance company throughout the country.

While I can not at this time produce the documentary evidence, I can say to the Senate with certainty that at least two other great New York insurance companies, controlled by identical or allied interests, at about the same time gave similar instructions to their State managers throughout the country.  The instructions contained in these letters reveal, so long ago as June, 1907, the existence of a concerted plan to withdraw from outside banks and concentrate in New York money controlled by these insurance companies.  This plan was conceived and inaugurated several months before there was thought or talk of panic and hard times, excepting the prophetic statements which were made by railroad presidents and the bankers allied with their interests.

The effect of this general withdrawal of insurance funds from local banks not only reduced the deposits and working credit of the banks in the country, but also greatly impaired the business of the companies themselves.  The insurance report for 1907 of business done by the New York companies shows a decrease for that year of, in round numbers, $150,000,000.  A large part of this decrease in business may be traced directly to the crippling of the financial backing of agents in the field.

To show that this policy injured the Washington Life, I desire to quote from a letter written by the National Newark Banking Company to Mr. Whittier, under date of September 5, 1907, in which it is said :

Please find inclosed the (name of maker) note for , dated September 4, 1907, which you offered to us for discount, and would say that in consideration of your comparatively small balance in the bank, that our board of directors do not think that your balance warrants as large a discount as the amount of this note.

The amount of this note represents the first premium of a policy of more than $25,000.  Because of the company's reduction of its balance in Newark this agent was prevented from securing for the company this $25,000 of business.

When the well-ordered panic arrived, even this means was not getting the money out of country banks at a rate to suit the system.  They wanted the money to come to New York instantly, so this is a sample of the orders that were sent to insurance agents:

New York, November 1, 1907.
E.A. WHITTIER,
185 Market street, Newark, N.J.:

Until further notice buy New York exchange in making remittance.  Charge cost of draft in account.
JOHN TATLOCK, President.

The certified checks of the Newark bank could not do the business fast enough.  Under the certified-check system the Newark bank would have the use of the money for about three days.  Under the system which compelled the purchase of exchange and unnecessarily increased the expense of the insurance company the money would be taken out of Newark instantly and the Newark bank could have no use of it.  First they crippled the banks, then they destroyed the ability of their agents to get business, and finally they deprived the policy holders of the accommodations to which they had been accustomed by denying them the concession to make loans upon their policy contracts except in accordance with the strict letter of the contract.  It had been the custom to permit loans and to give cash-surrender values upon policies at any time during the year, although the policy contract guaranteed such loan or surrender values only at the anniversary of the policy or within thirty days thereafter.  This telegram was sent out:

E.A. WHITTIER, 185 Market street:
New York, November 4, 1907.
From this day no loans will be made and no cash values will be paid except in strict accordance with policy contracts.
John Tatlock, President.

The effect of all these devices was to concentrate money in New York and to cripple ordinary business by diverting or closing up some of the usual channels through which money for business was secured.

Mr. GORE.  Mr. President

The VICE-PRESIDENT.  Does the Senator from Wisconsin yield to the Senator from Oklahoma ?

Mr. La Follette.  I do, sir.

Mr. GORE.[Thomas Pryor Gore (1870-1949) great-grandfather of Albert in-the-ballance Gore]  I desire to ask the Senator two or three questions.

I desire to say, first, that I have listened with a great deal of pleasure and approval to the splendid speech of the Senator from Wisconsin.  I trust he will regard it as not otherwise than a compliment when I say that, in my opinion, he is the best Democrat and the poorest Republican in the Senate and in the United States.  If I were a Republican I should be willing to support him for the Presidency;  if he were a Democrat I should be willing to support him for the Presidency, so thin a veil stands between him and the throne.

As I understood the Senator's remarks, he regards the act of Mr. Morgan and Mr. Rockefeller in rushing to the rescue of the bulls and bears of the stock exchange as a little effort to redeem their false reputation in the eyes of the country and to stay the policy of the President and save a third term.  Am I correct ?

Mr. La Follette.  The Senator is entirely correct in my interpretation of that action upon their part.

Mr. Gore.  As I understand, when the panic burst upon this country, or about that time, the Secretary of the Treasury had on deposit in the banks of Mr. Rockefeller and Mr. Morgan about $42,000,000 of the people's money.  Is that correct ?

Mr. La Follette.  I think that is approximately true.

Mr. Gore.  Approximately, I mean.  As I understood the Senator, it was with the people's money or with its equivalent that those gentlemen financed the tragic farce which they pulled off in the stock exchange.

Mr. La Follette.  With the people's money or its equivalent.

Mr. Gore.  Now, Mr. President, I heartily agree with the Senator that Mr. Rockefeller and Mr. Morgan shook down upon this country a panic which had ripened to the point of falling.  I agree with him that in order to locate the little sharks we must dissect the big sharks.  I agree with him that in pulling off that comedy or that tragedy they were seeking to redeem their fallen fame in the eyes of the people of this country.

Now, then, we have come to this point.  I want to enlighten myself, and I want the country to be enlightened, whether he and I agree with the nature and cast of characters.  I want to ask the Senator if he does not think that President Roosevelt and Secretary Cortelyou were star actors in that performance, or at least congratulating admirers when the play was over ?

Mr. La Follette.  I will wait until the Senator concludes.  He may have other interrogatories.

Mr. Gore.  I have only this further to submit.  The letter written by the President to Mr. Cortelyou on the 26th of November ran like this:

Washington, D.C., November 26, 1907.
My Dear Mr. Cortelyou :  I congratulate you upon the admirable way in which you have handled the present crisis

I only presume that was because of depositing the people's money in the banks of Morgan and Rockefeller and issuing bonds subject to call.

Then the President adds:

I congratulate also those substantial and conservative business men who in this crisis have acted with such wisdom and public spirit.  By their action they have rendered invaluable services in checking the present panic.

My purpose was to fix the responsibility upon all the actors.  I believe that Morgan and Rockefeller deserve the censure of the Senator from Wisconsin, but I do not believe they deserved the congratulations of the President of the United States, especially tendered to them upon an act the design of which was to defeat him for a third term.

Mr. La Follette.  Mr. President, of course it is not possible for me to influence the judgment of the Senator from Oklahoma.  I deprecate the projection into my discussion of this question of the partisan spirit which the interrogatory or interruption of the Senator from Oklahoma carries with it.  I know that in the course of the debate on this bill, politicspartisan politicshas made it seem worth while to assail the President and the Secretary of the Treasury for sending money to New York in that critical hour.

Mr. Gore.  Mr. President

The Vice-President.  Does the Senator from Wisconsin yield to the Senator from Oklahoma ?

Mr. La Follette.  Permit me to conclude now my reply to the Senator from Oklahoma.

Mr. Gore.  I thought the Senator had concluded.

Mr. La Follette.  Mr. President, whatever agencies were back of that panic, whatever purposes were behind it, the President of the United States and his Secretary of the Treasury were confronted with a serious situation.  A panic was on !  I do not know how the President regarded it.  Sitting there, in the White House, a man who had faced all manner of daubers, without the flicker of an eyelid, was confronted with this condition.  A panic was on !  I do not know what he thought about its inception;  I do not know what he thought as to how much of it was sham and how much of it was real.  It had reached a stage where legitimate business was put in peril, and grave responsibility fell upon him as the head of this great Government and upon his Secretary of the Treasury as the head of the Treasury Department.  I do not know how he to-day, in the light of all that has happened since then to interpret the actions of those men in that hour, may regard them and their relations to the panic.  At the time he was confronted with the panic.  He must act.  The business interests of the whole country were in danger.  Besides, he was bound to consider that a session of Congress was at hand;  a Presidential campaign was approaching;  great policies, vital, as I believe, and as I believe he believes, to the perpetuity of representative government were involved.  What was his first duty ?  Manifestly to direct his Secretary of the Treasury to do all that was possible to quiet alarm, to sustain faltering credit and ward off impending disaster.  The plain obligation of the hour was to arrest the progress of that panic, no matter what motives or causes were behind it.  So I assume he directed his Secretary of the Treasury to apply in part the aid of the Treasury Department where it would serve best to allay widespread distrust and prevent universal distress.  Where else could that money have been sent to accomplish as much to avert general disaster ?

Mr. BAILEY.  Mr. President, will the Senator allow me ?

Mr. La Follette.  I beg the Senator's pardon for just a moment.  No matter what might have been the influences at work behind this panic, where was it necessary to apply the remedy, where was it necessary to turn on the hose ?  Where people were apprehensive there might be a fire or where the fire was raging ?

Mr. BAILEY.  Mr. President

The PRESIDING OFFICER (Mr. BOURNE in the chair).  Does the Senator from Wisconsin yield to the Senator from Texas ?

Mr. La Follette.  Certainly.

Mr. BAILEY.  I suggest to the Senator from Wisconsin that the fire was raging throughout the entire country, and in this state of mind the banks were refusing to pay cash over their counters to their depositors, because they could not get their money from New York.  It seems to me that the Secretary of the Treasury might have distributed the money to the banks that could not collect from New York, rather than to give those banks more than their share, which they already had.

Mr. La Follette.  I am sure that my friend from Texas must see that while the country banks might need the money, their condition was not such as to threaten universal panic.  But if the New York banks were to failand I am not defending them, but the contraryand if the Senator had been present when I was addressing the Senate before, he would know that I assailed them.

Mr. BAILEY.  I heard the Senator's address and I know that.

Mr. La Follette.  But, Mr. President, outside of motives, and entirely apart from the purposes of these men, I say to you that the imminent danger of bank failures and of the failure of brokers that would have produced bank failures was right there in New York.  It started there, and unless averted, it would have spread the country over.

Mr. BAILEY.  Mr. President, will the Senator allow me further ?

Mr. La Follette.  I beg the Senator's pardon just for a moment.  In my own State and in my own home I know that bankers were very anxious for the return of their deposits, but I know that they were not able to get them and that no failures resulted.  I am very certain that if the banks of which they were correspondents in New York had gone into the hands of receivers or had closed their doors, the banks at home would have been compelled to close theirs.  The fact that the President and the Secretary of the Treasury focused all the support of the Treasury that, in their judgment, was necessary to avert a crisis in New York, I believe, stayed a great calamity, commercial and financial, in this country.

Mr. BAILEY.  Mr. President, if I may be permitted to borrow the Senator's simile again, if a fire were raging and it was a question whether I would save the property of those who started the fire or save the property of their neighbors, I would use my hose and water supply to protect my neighbors and let the property of the fellows burn up who started the conflagration.  If it is true, as I am inclined to agree with the Senator from Wisconsin, that the New York bankers, or some New York interests, for selfish purposes undertook to teach the country a lesson, I think a good schoolmaster would have let them learn that lesson to their heart's content.  Instead of scraping the bottom of the Treasury and sending what little money there was left over to their relief, I would have distributed it among the agricultural and industrial portions of the country, and I would have left Wall street at least to see how Iong it could get along without the help of the Treasury.

I regret that the Senator thinks there was any politics in this.  I confess that I sympathize with the view of the Senator from Oklahoma [Mr. Gore].  I believe that if it be true that these people brought this trouble on, they ought to have been left to work it out without the assistance of the Secretary of the Treasury to begin with and certainly without the cordial approval of the President to end with.  So far as I am concerned, I want to see a financial system established under which New York's convulsions will not distress the balance of the country.  But at the risk of appearing partisan, the Senator from Wisconsin will permit me to say that this awful condition which he has so graphically described, so far as it is the product of law and legislation and governmental action at all, is the product of Republican policies and Republican administration.

Mr. La Follette.  Mr. President, permit me to say to the distinguished Senator from Texaswhose abilities I greatly admirethat had he been charged with the responsibility he would have been a very bad schoolmaster indeed had he yielded to his sentiment instead of to his judgment.

Mr. President, it was not a question of punishing the parties in Wall street who had brought this panic on.  It was a duty, when the panic reached a certain point, to take care of the coinmerce of the country.  This was done by turning the hose directly on the conflagration and stopping the spread of the fire, regardless of who the incendiaries were.  That is what presented itself to the President and to his Secretary of the Treasury.

Mr. GORE.  Mr. President

Mr. La Follette.  I beg the Senator's pardon, but I should like to be permitted to finish my answer.

The Senator from Oklahoma suggests that it was entirely wrong for the President, and I suppose it follows that it was quite wrong for the Secretary, in support of his action, to defend what occurred;  that it was wrong for the President to say that the men he then believed had aided in arresting the panic were entitled to credit.  I do not know, but it may be that President Roosevelt gave those gentlemen some expression of approval that subsequent consideration of their conduct in the light of all that happened might lead him to qualify.  I do not know what was in the mind of the President of the United States at the time this panic occurred or what was in his mind during its different stages;  but I do say that in directing the Secretary of the Treasury, as I assume he did, to respond to the critical situation which presented itself at that time in New York, right where the trouble had started and from whence it would spread all over the country, he did exactly what anyone with a sense of responsibility to the obligations of his office and the necessities of the commerce and credit of the country would have done.

Mr. GORE.  Mr. President

The VICE-PRESIDENT.  Does the Senator from Wisconsin yield to the Senator from Oklahoma ?

Mr. La Follette.  I do.

Mr. GORE.  Mr. President, I desire to disclaim the partisan spirit which the distinguished Senator from Wisconsin has been pleased to ascribe to me, I have never condemned the Republican party when I thought the Republican party was rightand occasionally it is right.  I have never commended the Democratic party when I thought that the Democratic party was wrongand occasionally it is wrong.  I condemned Mr. Cleveland for the issuance of bonds and for the favors he bestowed upon and the favoritism he showed to this selfsame Morgan.  Here and now, standing as a Democratic Senator, I condemn the last Democratic President of the United States for the favors and the favoritism which he showed to Mr. Morgan.  Mr. President, I hope that I have the courage to condemn wrong, whether in the Democratic or in the Republican party.  I trust that I can commend the right, whether in the Republican or the Democratic party.  I have always assumed that the Senator from Wisconsin was one of those statesmen who would commend the right and condemn the wrong, whether in the ranks of his own party or in the ranks of the opposition.

Mr. President, I will go so far for the present with the Senator as to justify President Roosevelt in standing and delivering to these pirates and depositing with them the people's money when the dagger was thrust at his throat;  but I can not excuse him for saluting the pirates as public-spirited benefactors.  I will go so far as to agree with the Senator in excusing the Presdent for calling in the services of the incendiaries who kindled the fire and to avail himself of their services to extinguish and arrest the conflagration;  but I can hardly go so far as to excuse him for saluting them as the deliverers of the Country.  I think if those gentlemen deserve the censure of the Senator from Wisconsin, they do not deserve the congratulations of the President;  but, as suggested by the distinguished Senator, possibly when the President is enlightened by the Senator's speech, he will join him and join me in condemnation of those pirates who shipwrecked the prosperity of this country.

MERIT, NOT POLITICS, THE GROUND FOR DISCUSSION.

Mr. La Follette.  Mr. President, I think it very much more important to do things than to spend the time of this body in criticising public officials for expressions of sentiment.

Now, Mr. President, I want, if possible, after this ebullition of partisan politics, to bring the attention of the Senate, Democrats as well as Republicans, back to the argument.  First, however, I believe the members of the Senate will acquit me of having been, during the brief time of my membership in this body, partisan on legislation in which public interests were involved.  Let me say, sir, that while I serve here, be it long or short, I will be found serving and voting according to my convictions of what the public interests of this country demand, rather than what may benefit the political fortunes of any political party.  I certainly have said nothing up to this stage of the discussion of this measure to provoke from anybody an interruption seeking to elicit from me some criticism of the President of the United States.  I am here to discuss a measure, looking at it as I see it, believing it to be the outcropping of a tendency in legislation to enact laws that serve the purpose of special interests rather than the public gooda tendency that is undermining the vital principles of free institutions.  I am here to discuss this proposition on its merits as they appear to me, and not to support the policies of one political party or condemn the policies of another.  No Senator has heard me, in the little that I have had to say on this floor, advert in any instance to political prejudice in order to influence action upon legislation, and while I am here I never will do so.

FINANCIAL BANKERS NEED INVESTIGATION.

I pass now, Mr. President, to resume my discussion of what is popularly known in the country as the "Aldrich bill," and I begin where I left off by saying that the "System" produced the panic of October, 1907.  The wanton disregard of legal and moral responsibility shown by its Rockefellers, and Morgans, and Rogers, and Harrimans, and Ryans, and all the lesser men who do their bidding has produced conditions which set the door ajar, out of which, at their command, may issue financial disturbance at any hour, and out of which social disorder may come some day despite all their efforts to bar the way.

Think, sir, of the work these men have done, and then think of them in charge of Government-controlled banks and the custody of trust funds.  Recall a few instances.

The Metropolitan Interborough Traction Company cleaned up, at the lowest estimate, $100,000,000 by methods which should have committed many of the participants to the penitentiary.  The public and the stockholders were robbed alike.  That dividends were paid with borrowed money purely to stock job the public is now known to a certainty.  Stock was thus ballooned to $296 per share, which goes begging now at $35.  The insiders robbed the company on construction of upwards of $40,000,000.  Investigation has disclosed that $1,000,000 was spent as a "yellow-dog fund" for corrupting public officials.  In 1886 Thomas F. Ryan was a poor man.  In 1905 Henry D. McDonough, his official representative, estimated Ryan's fortune at fifty millions.  The foundation of all his wealth and power was the Metropolitan Street Railway.

Now, mark thisand that is my only excuse for citing what is so well known to some of my Republican colleagues that they smilethe very men connected with this business, the men who originated it, are to be found among the directors of the big-group banks.

The Armstrong investigation revealed criminal dishonesty in the betrayal of sacred trust obligations by officials, finance committees, and trustees.  These same men are found among the officers and directors of the big-group banks.

The investigations of the Interstate Commerce Commission exposed stock and bond operations so depraved in character that the guilty parties to the transactions were compelled to shield themselves by declining to be interrogated further until compelled by a court of law.  These men are found among the directors of the big-group banks.

The courts had convicted men of violating the penal statutes over and over again, destroying rivals, establishing a monopoly control of business in defiance of law, the rights of property and public interest.  The very men who ordered these corporations to commit the crimes are found among the officers and directors of the big-group banks.

Mr. President, does this record invite legislation to supply these banks with money direct from the Public Treasury whenever their operations shake the public confidence and make an excuse for emergency currency, the entire issue of which they can largely control through their extended organization of banks ?

On the contrary, sir, I believe that it presents a situation demanding immediate investigation into all their operations.  The Senator from Arkansas [Mr. Clarke] emphasized that in the brief, all too brief, but able and pertinent address which he made in this Chamber.

I say, sir, that, on the contrary, I believe it presents a situation demanding immediate investigation, into all their operations.  If the men who control those banks would misuse the trust funds of insurance companies, and would conduct other corporations for their own advantage in violation of Federal statutes, as proven by the record of the Armstrong committee and the Interstate Commerce Commission from which I have quoted, does not public interest demand a searching investigation of the management of the banks and trust companies under their control, particularly when so many of them are Government-controlled banks ?

FINANCIAL PANICS UNKNOWN IN EUROPE.

Mr. President, in no other country than the United States are the banks allowed to absorb in speculation the capital belonging to legitimate trade.

England, France, and Germany have long recognized and maintained a distinction in banking that this country must recognize and maintain if our national business integrity is not to be destroyed.

European nations do not permit government banks to engage in promotion, but restrict them to the legitimate field of facilitating commerce.

Because of the strict separation of stock gambling from banking business the market centers of Europe do not know the fluctuations in interest rates common to New York;  the rise and fall of stock markets do not affect the legitimate channels of business.  Acute panics, such as we experience, are not known.

I know it has been assumed in this debate that panics are necessary evils, and it has been asserted that these same convulsions have taken place periodically in the great nations of Europe as well as in this country.  But practical financiers, as well as students of the subject high in authority, offer different testimony.

That there should be rise and fall in national prosperity is in accordance with natural law.  Ebb and flow are inherent to the life of the body politic as to the life of the individual.  But that this young, healthy, growing country should go mad financially every few years is unnatural and unnecessary.  Students of the subject agree that there is something radically wrong in our business methods and banking laws making possible this frequent recurrence of business epilepsy.  It was plain to every thoughtful citizen that the recent panic had no relation to normal conditions.  It was the good sense and sound judgment of the American people that averted national bankruptcy.

Mr. R.A. Seligman, professor of political economy, Columbia University, says :

If we compare our economic history with that of Europe, we observe that acute financial crises have there almost passed away.  England has had no severe convulsion since 1866, and in France and Germany also the disturbances are more and more assuming the form of periodic industrial depression rather than of acute financial crises.

ALDRICH BILL A MAKESHIFT.

Not one Senator has expressed the belief that the Aldrich bill is anything more than an expedient.  The most that has been claimed is that it may tend to lessen the danger of a panic, because it is hoped it will tend to lessen the fear of one.  But no one has contended that it will go to the root of the evileradicate the cause.

The Senator from Rhode Island, admitting that "our currency system may be fairly characterized as a piece of patchwork," declares that it " has not in the slightest degree checked the rising tide of a great nation's progress and prosperity."

That is, we have grown and prospered in spite of our failure to secure the manifestly needed improvement in our currency system.  But, sir, how much of banking in combination with promotion, underwriting, speculation with trust funds, scheming to form great central groups where the surplus capital of controlled banks is loaned to the controlling bank-bow much of all this, and more, might have been averted if the banking and currency laws a dozen years ago had been revised solely in the public interest ?

Advocates of this bill have admitted that it is only a makeshift.  The commercial interests of this great country, suffering from the evils of a succession of makeshift statutes, demand a thorough revision of our banking anti currency laws to meet the evil practices which are undermining the integrity of bank management.

Mr. President, the best time to work out the solution of any problem of national concern is when it engages public interest sufficiently to secure thorough and intelligent discussion.

When could there have been a greater necessity or a more favorable opportunity for searching investigation and the forming of an enlightened judgment respecting the underlying causes of the recent panic;  when a better opportunity for the Finance Committee to have summoned before it the foremost bankers, merchants, and financial scholars of this nation for conference ?  Why should it be determinedit would almost seem predeterminedthat it is not possible at this time to enter upon the consideration of a comprehensive and thorough plan for banking and currency legislation, specifically directed to restore banking to its true function in the commercial transactions of the country ?

The crisis of the panic of 1907 was passed.  The map of the events causing it was before us.  The country was alive to the importance of the questions involved.  Why delay meeting the issue ?  Why postpone to some future Congress the plain obligation that rests upon this Congress ?

By way of apology for this delay, it has been suggested in the debate that the only time to undertake this work was in time of industrial prosperity, confidence, and financial peace.

A thoughtful American public will ask, Why, then, has it not been undertaken before ?  Why the distinguished Senators in control of the Finance Committee have not been working on this question in the years past, which have been years of unrivaled prosperity and of financial peace ?  Will not the American public conclude that the dominant power in the Senate of the United States, for some reason, will revise the national currency system neither in time of panic nor in time of peace ?

Nor will the American public be satisfied with the reason assigned by the Senator from Rhode Island why a thorough consideration of this question is not undertaken now.  He says, "There is no considerable consensus of opinion on any general or special plan," and hence the committee concluded not to enter at this time upon a thorough reform of our currency legislation.

How long must we wait for a consensus of opinion ?  Must all views be first harmonized ?  Must all principle be first compromised ?  Dispute among interested bankers, expert authorities, and disinterested legislators there is and always will be.  But is a dangerous and defective condition in our banking and currency laws to continue until protracted convulsion leaves us prostrate ?

Must we wait until there is a "consensus of opinion" and an agreement of all differences, before legislation of greatest public moment can be considered in the United States Senate ?  Shall revision of the currency system, revision of the tariff, just and reasonable railway-rate legislation, legislation to prevent the wrongful use of injunction, legislation to strengthen the Sherman Act, to meet court decisions affecting the employers' liability law, all await this perfect "consensus of opinion ?"

If that were to be the recognized rule, what license is there for putting this bill through under whip and spur ?  There is no consensus of opinion for this measure among merchants, manufacturers, commercial bankers, or with the general public.  The students of governmental finance generally condemn it.  There is consensus of opinion for this particular measure among the managers of great interests, and of the great speculating financial groups, of which J. Pierpont Morgan stands as the type.

But, sir, it has been the settled policy of legislative leadership for years to maintain conditions which are intolerable except to the few;  to defer legislation respecting interstate transportation, and then when it is enacted, to make it plausible in appearance and hollow at heart;  because those who have monopolized the natural resources of the country do not want it, to defer tariff revision until the manufacturers of more highly finished products, made desperate by oppression, join at last with the consumers of the country in open revolt;  to prevent legislation looking to the preservation of our public lands and mineral resources, and to defer currency legislation which shall make a well-balanced system, responsive to the needs of the commerce of the country, and to enact from time to time various emergency statutes, limited in their scope, to serve only the larger banks identified with special interests.

RAILROAD BOND PROVISION.

Mr. President, I pass by and ask to have printed in the RECORD what I had prepared to say upon the railway-bond provision of the bill, because that provision has been dexterously whisked out of the bill.  I might well discuss it as showing the character and real purpose of this piece of legislation.

Let me say, Mr. President, we are not through with the railway bond proposition.  It will appear again and again, until finally it is overwhelmingly beaten with those who propose it or until it is worked in and engrafted upon the currency system of this country.  Let no man on this floor make a mistake, for the public is not making any mistake with respect to this business.  I shall to-morrow offer a resolution to discharge the Committee on Interstate Commerce from the further consideration of a bill, which I have had all this session and practically all of last session before that committee, for the valuation of railway property, and in discussing that resolution at a time when the valuation of railway property is before the Senate I will say some of the things that I might have said to-day.

Mr. CLARKE of Arkansas.  Mr. President

The VICE-PRESIDENT.  Does the Senator from Wisconsin yield to the Senator from Arkansas ?

Mr. La Follette.  I do.

Mr. CLARKE of Arkansas.  Does not the Senator from Wisconsin deem a discussion of the value of railroad bonds as security for the deposit of Government money relevant at this time, in view of the fact that the $250,000,000 of Government money placed in national banks without interest was secured in part by $185,000,000 of bonds other than Government bonds ?  An inspection of the securities pledged by each individual bank indicates that probably half of the amount is in railroad bonds.

Mr. La Follette.  Let me say in answer to the Senator from Arkansas that it is pertinent to discuss railway valuation with respect to this bill, notwithstanding the jack-in-the-box withdrawal of the railroad-bond provision.  It is pertinent to discuss it not only as bearing upon the suggestion made by the Senator from Arkansas, but as bearing upon the stock jobbing and manipulation in railroad bonds and railroad stocks which produce panics, which it is contended this legislation will prevent, and it will not take, let me say to the Senator from Arkansas, very much persuasion to induce me to take it up.  I am rather aching to do it. [Laughter.]

Mr. CULBERSON.  Let us have it.

Mr. CLARKE of Arkansas.  I hope the Senator from Wisconsin will do so, because I am sure if he treats it with the same breadth of comprehension that he has the other points, it will be most interesting.

Mr. La Follette.  It would be utterly impossible for me to do so and conclude to-day, but if I felt that I might have the indulgence of the Senate for another day I would take up railway valuation and discuss it.

Mr. CLARKE of Arkansas.  I do not discover any disposition on the part of the Senate to limit the Senator's time or to unduly interfere with the progress of his argument I should be glad to hear it, so far as I am concerned.

Mr. La Follette.  Well, since there is no outspoken dissent anywhere, I will do so;  and I want to say to the Senate that I had not made any arrangement with the Senator from Arkansas for this.  I will cover in a way the discussion of railway bonds as a basis for currency issue and as a basis for Treasury deposits and as a basis for and corrective of panics in Wall street.  I suppose I will find myself before I get through with it discussing its appearance in the bill and its withdrawal from the bill as throwing a light upon this legislation which I believe ought to penetrate the minds of all the Senators upon this floor before they vote.

The bill proposed to accept interest-bearing bonds as a basis for securing additional circulating notes.  It proposed that the Treasurer of the United States, with the approval of the Secretary, should accept State and municipal bonds and certain railroad bonds.

BILL PREFERRED RAILROAD BONDS.

Now, in order to distinguish the difference in the attitude of this bill toward municipal bonds and railroad bonds, just look at the difference In the test which was applied in the billalthough it may be pertinent for me to ask before proceeding further, as I was not here during the morning hour and do not know all that happened, whether the provision with respect to State, municipal, and county bonds is still in the bill.

It is interesting and instructive to compare the test this bill proposed to apply to railroad bonds as basis of security for currency with the test provided for acceptance of municipal bonds for the same purpose.  Observe the test which it proposes to apply to determine the acceptability of municipal bonds :

First.  No municipal bonds will be accepted unless issued by a municipality or district which has been in existence for ten years.

Second.  No bonds of any municipality or district will be accepted where such municipality or district has, within a period of ten years, defaulted in the payment of any part of principal or interest on any funded debt authorized to be contracted by it.

Third.  No bond of any municipality or district will be accepted where the net funded indebtedness exceeds 10 per cent of the valuation of its taxable property ascertained by the last preceding valuation of property for the assessment of taxes.

In the foregoing, evidence is given of a desire on the part of the committee to place the valuation of municipal bonds upon the true basis of and require that it shall have relation to the taxable, physical property back of such bonds.

Compare the care exercised in this case with the test to be applied in determining the character of the railway bonds proposed as a basis for additional circulating notes :

The Treasurer, with the approval of the Secretary, shall accept the first mortgage bonds of any railway reporting, to the Interstate Commerce Commission, where such railway company has paid dividends of not less than 4 per cent annually on its capital stock for a period of five years previous to the deposit of such bonds.

In determining the acceptance of first mortgage railway bonds of reporting railroads as a basis for currency circulation, the sole test required under this proposed bill is the payment of 4 per cent dividends on the total stock issue continuously for five years.

OFFICIAL DISCRETION NO SAFEGUARD.

Under the terms of this bill it is very doubtful that the Secretary of the Treasury could exercise any discretion to reject any railroad bonds, whether watered or not, that might be offered to secure circulating notes, if they met these simple requirements.  But, admitting that the bill confers that right and duty upon him, it would be impossible for him, under the pressure to which he is subjected in times of financial stress, involving industrial and financial calamity, and threatening the very integrity of the Treasury itself, to exercise his discretion with any degree of strictness against the admission of bonds which meet the tests prescribed in the law.  At such times experience shows that legal restraint is not reenforced by the official discretion, but that such discretion must be exercised rather to discover means whereby legal obstacles may be surmounted and the bounds of legal restraint may be widened, because every care must be taken not to aggravate panic conditions, and everything possible, or admissible, under any construction of the laws, must be done to ward off impending national disaster.

During the recent panic the Treasury Department deliberately refused to inform itself, at the height of the panic as to the condition of national banks, although it must have felt unusual anxiety as to the condition of those banks.  The reason the Department refrained from calling for the usual report of the condition of the banks during the month of November was because the result of such a call would have been to reveal conditions among national banks which would probably have embarrassed the Department and further weakened confidence and augmented the panic.

So great was the pressure upon the Department for relief that the deposit of Government funds with these banks was increased to the amount of $200,000,000, to the impoverishment of the Treasury itself, so that it became necessary for the Department to issue certificates of indebtedness to meet the expenses of the Treasury.  The Treasury had this vast sum on deposit with the banks to help relieve the money stringency, and was afraid to withdraw even the small amount required to meet its current needs.  Resort was had to the act of 1898, authorizing the issuance of interest-bearing certificates of indebtedness by the Treasury when necessary to meet expenses of government, and under an exercise of official discretion, which has been much criticized, certificates were issued to maintain government when we had $200,000,000 in Government depositories subject, in legal contemplation, to the orders of the Treasury.  The Secretary's answer to criticism of this action shows that he believed he was forced to this action to preserve the integrity of the Treasury itself.  In his response to Senate resolution 33, on this point, the Secretary (S. Doc. 208, 1-60, p. 19) says that it seemed to him

That it would be a strained construction of the act of 1898 and of his (the Secretary's) official responsibility to hold that it was s his duty, in order to meet the current needs of the Treasury.  to invoke a financial disaster by attempting to withdraw funds on deposit with national banks at a time when they were subject to severe strain in meeting the business requirements of the country, and when any additional act or policy tending to subject them to further pressure might make absolutely impossible, if it were not already so, the return to the Treasury of the funds required for meeting its obligations.

In other words, the Department was led to believe that an attempt to withdraw any portion of the $200,000,000 on deposit, and which the New York banks, were lending at a hundred per cent, would have precipitated a crash in which the whole or a large part of the entire amount would be lost and the Treasury be bankrupted for the time.

As further illustration of the manner in which official discretion is forced by the exigencies of financial convulsions, attention may be directed to the action of the Treasury in exchanging Government bonds for railroad bonds as security for Government deposits.  In order that banks might have their United States bonds which they had deposited with the Treasury to secure deposits to use for issuing bank notes for circulation and to increase the supply of currency, they were invited by the Treasury to substitute municipal and railroad bonds to secure their deposits.  The banks having on hand or being able to borrow railroad and municipal bonds very generally responded to this invitation, depositing large amounts of railroad bonds and thus leaving only a nominal amount of Government bonds to comply with the letter of the law, which requires that United States deposits shall be secured by United States bonds and otherwise.  The construction of the law under which this was done, as well as the official judgment and discretion shown, have been the subject of serious adverse criticism, and it was doubtless realized at the time that such would be the case.  But so great was the pressure of banks and so menacing were the perils of the hour made to appear that it was done.  If the law was strained in construction, that was merely a regrettable incident.  If censure was incurred, it could not be helped.

Promptly upon this invitation, the banks increased their deposits of municipal and railroad bonds in the Treasury from $87,232,022 on October 19, 1907, to $142,889,822 within a few days and to $200,856,628 by December 7, an increase of $113,624,606, or 130 per cent.

The proportion of these bonds which were railroad bonds is not shown by the statement submitted to the Senate by the Secretary of the Treasury.

Mr. CLARKE of Arkansas.  Mr. President

The VICE-PRESIDENT.  Does the Senator from Wisconsin yield to the Senator from Arkansas ?

Mr. La Follette.  Certainly.

Mr. CLARKE of Arkansas.  I will say to the Senator that the Treasury Department did not advise the Senate of the character of the bonds accepted for the several loans made, but that information is given in a document furnished upon the request of the House of Representatives, Document No. 714 of the House of Representatives, and I will read a statement which I have come upon, just as I opened the book :

National Bank of Oxford, Oxford, Pa.;  Delaware and Hudson Railroad;  Atchison, Topeka and Santa Fe;  Norfolk and Western ;  Central of Georgia;  Erie Railroad;  Greenbrier Railroad ;  Missouri Pacific;  St. Louis, Iron Mountain and Southern ;  Wheeling and Lake Erie;  Norfolk and Southern ;  Pennsylvania Railroad ;  St. Louis and San Francisco.

The loan of the banks was secured by these railroad bonds.  There are numerous others stated here probably still greater than that.

Mr. La Follette.  Upon reliable information from another source, Mr. President, I can state that one New York bank, which had several millions of dollars of United States deposits, put up less than 10 per cent of its security in United States bonds.  About half of the entire amount was secured by railroad bonds, some of which would not be accepted as investments for savings banks in New York and Massachusetts;  some of which were not first mortgage bonds at all;  some of which were largely secured by collateral liens;  some of which are largely, if not principally, secured by the deposit of other railroad stocks and bonds;  some of which are outstanding at the rates of twenty, twenty-five, forty, and fifty thousand dollars and upward per mile on the road covered as a first lien, while for some of them I am unable to find any quotations in the stock and bond handbooks for the New York Stock Exchange, and many of them show great fluctuations in market price, falling off during the recent panic, ten, fifteen, nearly twenty points, most of them over fifteen points, from prices attained in 1905-6.

That there should be a little letting down of the bars at such times is inevitable under present conditions.  In the effort to get out circulation the tendency will be to accept everything that the banks offer in the way of bonds which can be admitted under any construction of the law.

I say, Mr. President, that this is worthy of the serious thought of Senators in considering the issue of bonds upon State and other municipal securities.  The time when the law will be tested, when it will meet the severest strain, will be in the hour of great excitement, when all-powerful pressure will be brought to bear to influence the discretion of one man, or at most three, whose discretion alone will hinder projecting into the Treasury and the monetary system of the country securities that may be questionable in character.

SOME BONDS PROPOSED BILL WOULD ACCEPT.

I have taken occasion to investigate the nature of the security underlying a few bonds which would or might have been made the basis of currency circulation under this bill.

Some of these bonds are outstanding as a first lien at an average of twenty-five to one hundred thousand dollars per mile on the line covered.  I will not say that these bonds in any case exceed the value of the underlying properties.  But, bearing in mind that the average estimated value by reliable authority of all the railroad property of the United States is placed at $23,500 per mile, and that the average of the railroad properties in three States, by actual inventory, has been found to be less than this estimate, grave questions must arise when we find on any line of road whose value is not known first-mortgage bonds two or three times the estimated average value, bonds which would be admissible as the basis of circulation under this bill.  The question is forced whether, in such cases, circulation may not be issued in excess of the value of the security, the real security, the tangible property back of the bonds.

Illinois Central Railroad 3 per cent and 3½ per cent bond, are first-mortgage bonds under the Massachusetts law and are carried by Massachusetts savings banks.  This road has been paying dividends since 1901 at 6 to 7 per cent.  Among the threes and threes and a half of this road are the St. Louis Division and Terminal first-mortgage gold bonds, which are a first lien on 239 miles of line extending from St. Louis, Mo., to Eldorado, Ill., with branches in Illinois.  The total amount of outstanding threes and threes and a half under this mortgage is $13,375,275, or an average of $51,779 per mile for the line covered.  This is more than twice the amount of the estimated average value per mile of all the railroads of the country.

Another Illinois Central three and a half per cent bond is the $22,729,000 Louisville division first-mortgage gold bonds, which are a first lien on 553 miles of line extending from Memphis, Tenn., to near Louisville, Ky., at an average of $41,100 per mile, nearly twice the average value of railroads in the United States.

Chicago, Burlington and Quincy three and a halfs and fours are first-mortgage bonds carried by Massachusetts savings banks.  This road has paid dividends of 7 per cent since 1902.  These bonds are outstanding to the amount of $85,000,000 as a first lien on 1,643 miles of line and terminals in Illinois, Wisconsin, Minnesota, Missouri, and Iowa.  They average $51,578 per mile for the line covered, which is again more than twice the value of the average railway property.  The total bonded indebtedness of the Pennsylvania system is $191,561,271.  Of this amount $19,997,820 is represented by general mortgage sixes, which Moody's Manual says are "a first lien on 459.69, including main line, Harrisburg to Pittsburg;  Pennsylvania line, York to Philadelphia; Pennsylvania and various smaller branches; also on the lease of the Harrisburg, Portsmouth, Mount Joy and Lancaster Railroad, extending from Harrisburg to Dillerville and Columbia, Pa."  If these securities are held to be first-mortgage bonds within the meaning of the bill, they would have been otherwise admissible for deposit.  They represent a bonded debt of about $43,473 per mile for the line upon which they constitute a first mortgage.

The Pennsylvania has paid dividends since 1901 at 6 to 6½ per cent.  These bonds are admitted as first-mortgage bonds for savings-bank investment in Massachusetts and would, presumably, have been accepted as a basis for currency circulation under this bill.

The New York, Lackawanna and Western Railway is a part of the Delaware, Lackawanna and Western system, being operated by the latter company under lease and perpetuity.  Under this lease the lessee company pays an annual dividend of 5 per cent on the stock of the leased company.  There are outstanding among the obligations of the New York, Lackawanna and Western Railway twelve million first mortgage 6 per cent bonds, which are a first lien on 208 miles of road, Binghamton to International Bridge, N.Y. These bonds are carried as investments by Massachusetts savings banks, although they average $57,691 per mile, a sum almost two and a half times the average true value of the physical property of railroads in the United States.

The Lake Shore and Michigan Southern Railway, which is controlled through stock ownership and operated as a part of the New York Central system, has paid dividends since 1891, ranging from 6 to 10 per cent.  A part of the bonded debt of this road is the $50,000,000 first mortgage 3½ per cent gold bonds, which are secured upon 879 miles of line owned and 224 miles of proprietary lines, in all 1,103 miles.  That is an average indebtedness under this mortgage amounting to $45,331 per mile of line, which is approximately twice the average estimated value of railroads in this country, and is nearly twice the average in the States where railroads have been valued.  Moreover, about 200 miles of this property lies in the State of Michigan.  The average value of that part of this line, as determined by actual inventory, was only $19,150 per mile.

The Hannibal and St. Joseph Railroad is a part of the Chicago, Burlington and Quincy system, which has for several years past paid dividends at the rate of 7 per cent per annum.  The Hannibal and St. Joseph Railway has outstanding $8,000,000 consolidated mortgage 6 per cent bonds, which are first-mortgage bonds under the Massachusetts law, and are investments for savings banks in that State.  These bonds are a first lien on 280 miles of line lying nearly all in the State of Missouri, averaging $27,647 per mile on the line covered, a sum in excess of the average value of railroad property.

The Erie and Pittsburg Railroad is operated as a part of the Pennsylvania system under a lease for nine hundred and ninety-nine years, by the terms of which the Pennsylvania Railroad Company guarantees a dividend of 7 per cent on the stock of the leased line.  Of the indebtedness of the Erie and Pittsburg $393,000 general (now first) mortgage 3½ per cent gold bonds are outstanding as a first lien on 101 miles of line, extending from Newcastle to Girard Junction, and from Girard Junction to Erie, Pa.  These are first-mortgage bonds for Massachusetts savings banks, and average $43,495 per mile for the line covered.

The Minneapolis and St. Louis Railroad was under investigation by the senate committee of the State of Minnesota.  The value of its line in that State was placed at $18,600 per mile, and $2,600 per mile for equipment.  Inspection of railroad manuals shows that this line has paid dividends in recent years as follows:  1901, 4 per cent;  1902, 5 per cent;  1903, 5 per cent;  1904, 2½ per cent.  It has a total bonded indebtedness of $19,565,000 as of June 30, 1906, practically all of which, excepting $5,282,000 are first-mortgage bonds ranging from $10,000 to $35,000 per mile on the line covered by the mortgage.

The most important of the various mortgages is the first and refunding 4 per cent mortgage, of which $9,845,000 in bonds is outstanding secured as a first lien on 276 miles of line and a general lien on the rest of the property and also a deposit of some railroad stocks.  In view of the prior first mortgages on the rest of the property, aggregating about $4,000,000 and ranging from $10,000 to $15,000 per mile, and a prior cansolidated mortgage on the property of $5,282,000, it is plain that the principal security under this first and refunding mortgage is the 276 miles of line on which it is a first lien at about $35,000 per mile, or nearly twice the average value placed upon the company's lines by the Minnesota committee.  These bonds would most likely have been accepted as the basis of circulation if the dividends were slightly increased, which can easily be done by increasing transportation rates if necessary.

Wisconsin, Minnesota and Pacific Railroad is controlled by the Chicago Great Western Railway through stock ownership.  The Great Western has not paid dividends on all its stock.  The manuals do not show what dividends are earned or paid by the Wisconsin, Minnesota and Pacific Railroad Company.

The report of the Sundberg committee of the senate of the State of Minnesota places the present cost of reproduction of this road at $16,000 per mile.

There are outstanding against this property $5,796,000 first mortgage 4 per cent gold bonds, which is an average of over $21,000 per mile on the total 271 miles of line.

Of course, if this road can show dividends of 4 per cent on its stock, its bonds could have been deposited under the proposed bill, and they would have become security for circulating notes in excess of the value of the security.  Dividends are only a question of how much the public can be made to pay.

The Chicago, Rock Island, and Pacific Railway Company has a total bonded debt as of June 30, 1906, of $164,587,000.  It has paid dividends recent years as follows:  1899 to 1902 5 per cent;  1003, 7 per cent;  1904, 8¼ per cent, 1905, 6¼ per cent;  1906, 6 per cent.  Of the bonded debt $12,500,000 first 6s constitute a mortgage on 764 miles of main line, Chicago to Council Bluffs, an average of $16,360 per mile for the line covered.

Sixty-one million five hundred and eighty-one thousand dollars general gold 4s are outstanding, secured by a first lien upon 2,403 miles of road and appurtenances, and also secured by a second lien on 764 miles, and collateral lien on 93 miles.  We have here an instance of first-mortgage bonds at $25,626 per mile on the line covered.  They are first-mortgage bonds for investment for savings banks and trust funds in New York, and would presumably, be admissible under this bill, although they amount to more than the average value of railroad property in the United States on a line of road commonly regarded as below the average in character of construction, which runs through a section of country where the difficulties and cost of construction are generally supposed to be much below the average for the country as a whole.

The Philadelphia and Erie Railroad is operated by the Pennsylvania under a nine hundred and ninety-nine year lease.  Dividends have been paid on common and special stock for several years past ranging from 4 per cent to 7 per cent.  The bonded indebtedness consists of $19,823,000 first gold 4s, 5s, and 6s, secured by a first mortgage on 307 miles of line, and guaranteed by the Pennsylvania Railroad Company.  They are first-mortgage bonds to the amount of about $64,570 per mile, for the line covered by the mortgage.  I presume that these are first-mortgage bonds, which would have been accepted as the basis of currency circulation under the proposed hill, although they amount to nearly three times the average value of railroad property.

New York Central and Hudson River Railroad refunding mortgage 3½ per cent gold bonds are accepted as first-mortgage bonds under the Massachusetts law and are carried by the savings banks of that State.  Since 1900 this line had paid dividends at 5 and 6 per cent per annum.  These bonds to the amount of $85,000,000 are outstanding as a first lien on 808 miles of line, and are additionally secured, it is said, on certain bridge stock and leasehold interests.  On the tangible property covered by the mortgage the bonds outstanding average $105,098 per mile of line, or more than four times the average value per mile of railroad property in the United States.

As already stated, without a valuation of the physical properties of these roads, no one is able to prove that the amount of bonds outstanding in any of these instances exceeds the value of the property on which they are secured;  but the presumption surely ought to prevail against them until an inventory establishes the facts respecting their value.  In no case does the par or market value of railroad bonds raise any presumption as to the true value of the property upon which they are secured.  For the Government to issue currency on these bonds as security without knowing anything about the value of the security would be a leap in the dark.

For us to pass laws here that lend Government credit to railroad financiering schemes that guarantee, in a measure, railroad securities and adopt railroad securities, good, bad, and indifferent into the currency system of the country, without either discrimination or investigation, could not be justified under any pretext of serving the public interest.

GOVERNMENT CREDIT FOR WATERED BONDS

But, sir, waiving the question of the sufficiency of the test which this bill proposed as a protection to the Government in accepting railway bonds for currency issue, could it be just for other reasons of profound public interest to enact or even propose such legislation ?

The ability of a railway company to pay a given dividend upon its stock depends directly upon the rates which it shall charge for transportation, which is the only commodity it has to sell to the public upon which it can realize returns out of which to pay dividends.  The just basis for transportation charges is well settled.  As a common carrier, the railway company is entitled to charge sufficiently high rates to pay operating expenses and a reasonably fair return upon the fair value of the property which it uses for the convenience of the public.  This is the standard, and the only standard, by which to measure reasonable rates.  To secure the application of this standard to the railway rates of the country has been the object of a struggle extending over many years.  The courts have sanctioned it, the Interstate Commerce Commission has urged it upon the attention of Congress, and common justice to the public interest demands it.  Tried by this standard, if a railway company has grossly overcapitalized its property, it can not rightfully impose upon the public a transportation charge to pay any return or dividend upon this fictitious capitalization.  It does not signify that the public have not yet been able to secure the application of this standard to the rates of the country.  Their cause is just, and its defeat from year to year has been accomplished only through the powerful influences which the great transportation companies of the country and those interested in their securities have been able to successfully exert in preventing legislation.

To-day we are confronted with the astounding proposition that Congress shall hold out a legislative inducement for the exactions of transportation charges which shall net a continuous 4 per cent dividend on railway capitalization.  It is idle to say that this measure was limited in its scope;  that it had reference simply to a limited issue of railway bonds as security.  He is blind, indeed, who does not see the ultimate effect of a proposition which directly or indirectly raises a standard for the payment of a fixed dividend upon railway capitalization without regard to the value of the property.  The certain effect of this action by Congress would be to stimulate every railway company within the purview of this statute to maintain the position of its bonds within the favored class, and every other railway company to qualify at the earliest possible moment for admission to the favored class.

Mr. President, let me urge upon the attention of Senators here this afternoon the relevancy of this discussion as bearing upon the bill just as it stands to-day.  Put municipal bonds into the Treasury as a basis of currency circulation, and at another session you will have railway bonds driving that wedge home and getting admission into the Treasury as a basis of circulation.  It is not the first time in the history of legislation that the chairman of the Committee on Finance has brought forth a proposition here to work by legislative decree railway bonds into the Treasury Department as bearing upon the financial operations of that great Department of the Government.

PREMIUM ON RAILROAD RATE EXTORTION.

It is as plain, sir, as the noonday sun that the direct effect of this proposition would be to advance railway rate charges, and that it would identify the Government with a maintenance of rates in all cases where it had accepted railway bonds for currency circulation.  Any legislation, Mr. President, is most dangerous which even temporarily throws the influence of those intrusted with the administration of government in the Executive Departments in opposition to general public interest.  Railway bonds, once in the possession of the Treasury Department as security for circulation issuedan issue back of which is pledged the Government faithmust have, in greater or less degree, the active support of the Government to maintain the credit and standing of such security.

It is no answer to say, as did the Senator from Rhode Island in attempted reply to the criticism of the junior Senator from Michigan, that the Government could demand additional securities whenever railway bonds are discredited for any reason.  Suppose, sir, that it would be futile to make such demand upon the banks which have pledged the securities in question.  Suppose, for instance, that the group of twelve New York banks known as the "Morse chain" had acquired, together with their connections in other States, holdings of railway bonds, and had deposited those bonds with the Treasury Department, taking out circulation therefor.  What response would meet the demands of the Secretary of the Treasury upon such a string of banks for other and better security ?  Such a demand made, much less enforced, might at a critical juncture precipitate financial disaster so vast in, extent that our country could not recover from it in a decade.  Why, sir, during the recent panic the Government did not dare to call even for the usual bank statements from national banks.  Will anyone question that if this event occurred coincident with an effort to secure legislation which would place the railway rates of the country upon a just basis, in compliance with the legal and equitable standard, will anyone question that all the power of an Administration, whose Treasury Department had issued its circulating notes based upon railway bonds, which might be disqualified, would be exercised against such legislation ?

Hence, logically, as a result of this railway-bond provision, we would put the Government in an attitude of temporary, if it might not develop into permanent, opposition to public interest.

The railway lobby, always powerful in maintaining its interest in legislation, would be further reenforced by such legislation.  All holders of railway bonds, the prices of which would be enhanced by the operation of such a law, and all holders of railway bonds seeking admission to the favored market which such a law would make for the bonds of roads paying 4 per cent on fictitious, as well as legitimate, capitalization, would, with added incentive, mass their power and influence against any legislation seeking to regulate railway rates upon the basis of the actual value of railway property rather than upon the basis recognized by this bill.

Ah, but we were informed by the Senator from Rhode Island who in the debate on this bill March 5 interrupted the junior Senator from Michigan to declare that "the twentieth section of the interstate-commerce act furnishes ample machinery to ascertain the character and the value of these bonds."

Mr. President, I deny that section 20 of the interstate-commerce act confers any such power upon the Interstate Commerce Commission.

Section 20 of the interstate-commerce act stood for nineteen years unchanged. It was never claimed by anyone to confer upon the Interstate Commerce Commission the ability to ascertain the value of the physical property of a railway company.  That it is necessary to ascertain the physical value of railway property to determine the reasonableness of railway rates is approved by the courts, applied in at least two States, and is declared to be necessary by the Interstate Commerce Commission.

THE NEED FOR RAILROAD VALUATION.

In its report to Congress for 1906 it said :

Among the subjects which deserve the attention of the Congress is the need of a trustworthy valuation of railway property.  No tribunal upon which the duty may be imposed, whether legislative, administrative, or judicial, can pass a satisfactory judgment upon the reasonableness of railway rates without taking into account the value of railway property.

Mr. President, the dictates of reason, the decision of the courts, the declarations of the Interstate Commerce Commission, make the valuation of the physical property of the railroad a basic fact in fixing reasonable rates.  The ascertainment of reasonable rates will determine the dividend which shall be paid.  If the property is grossly overcapitalized, that dividend, upon the establishment of a reasonable rate, may fall below 4 per cent.  Without the value of the physical property of the railway, commission and court are alike powerless to determine the reasonable rate, the lawful rate.  A road which maintains excessive rates may thus wrongfully pay 4 per cent dividends and more upon fictitious capitalization, and the Government, by way of rewarding its extortion, would place its bonds in the favored class of securities accepted for issuance of currency.

But the Senator from Rhode Island insists that "section 20 of the interstate-commerce act as amended by the 'rate bill,' so-called, furnishes ample machinery to ascertain the character and value of these bonds."  Will the Senator from Rhode Island contend that section 20 was so amended as to enable the Interstate Commerce Commission to ascertain the value of the physical property of the railway companies of the country ?  I think not.  A11 that anyone will claim for the amended section, in this particular, is that it will authorize the employment of "special agents or examiners" to exercise administrative supervision over the railway accounts.  This is the substance and effect of the amendment to section 20 of the interstate-commerce act which may in any way aid the Commission in investigating with respect to railway bonds.  Through its special agents the Commission can ascertain whether the accounts are honestly and properly kept according to the system which it has prescribed, whether the charges to operating expenses are properly made, and whether the dividends are correctly entered and paid over, and the amount of the same.

But, Mr. President, this does not determine the true value of the bond any more than the high interest rate of an excessive loan would be proof of the value of a first mortgage upon real estate.  The value of the property covered by the mortgage determines the value of the security.  The value of the physical property of the railway company is vital in determining the character and value of the first mortgage bonds upon the road.

But more than that.  In its last annual report (advance copy) the Interstate Commerce Commission urges that they be authorized and empowered to make an inventory of the physical property of the railroads of the country, not only for the purpose of ascertaining the reasonableness of capitalization and the reasonableness of schedule rates, but "to make effective administration of the depreciation accounts" and "the correct interpretation of the balance sheet."  With all that may be claimed for section 20 as amended, it appears that even as to the accounting of railroads a valuation of their physical properties was considered vitally essential.

The Commission says :

Before the close of the present fiscal year the Commission will be in a position to prescribe a standard form of balance sheet.  The purpose of a balance sheet is to disclose the financial standing of a corporation, and this it does by placing in parallel columns a statement of assets and of liabilities.  But in the case of railway companies the Commission is unable to test the accuracy of the assets reported, and there is no feasible means of providing such a test other than by 2 detailed inventory of the property which the assets represent.  If Congress designed by the provision which it made for a prescribed system of accounts that the Commission should do what lies in its power to guarantee the sound financing of railways, the necessity for making an inventory appraisal of railway property can not longer be delayed.

From whatever point of view this question of valuation be regarded, whether of reasonable capitalization, of a reasonable schedule of rates, of effective administration of the depreciation accounts, or of the correct interpretation of the balance sheet, one is forced to conclude that an authoritative valuation of railway property is the next important step in the development of governmental supervision over railway administration.

But, Mr. President, suppose the Commission did not urge the valuation of the physical property of railways as a basis for ascertaining their reasonable capitalization and for determining the reasonableness of their rates;  suppose the courts had never enunciated the relation of physical valuation to reasonable rates;  nay, go further, suppose the Commission and the courts had declared for rates based upon fictitious capitalization, in the end there would be established a commission that would make valuation the determining factor in fixing the just standard of rates, and the courts would finally be compelled to revise their errors of judgment and announce the decree of justice.

If it is a confiscation of the property of a common carrier to make it serve the public for less than will maintain its property, pay its operating expenses, and give it a just return upon investment, it is equally a confiscation of the property of the public to fix a schedule of rates which pays 4 per cent or any other dividend upon fictitious railway capitalization.  And, sir, to pass legislation which by indirection sanctions or encourages, or by implication recognizes as just, the payment of any dividend rate excepting one based upon the fair value of the property dedicated to the public use is a legislative crime.

What do Senators think would be the real purpose of working railway bonds into the currency system of the Government ?  What do Senators think would be the effect of naming railway bonds in the law as security for currency circulation ?  Perhaps the Senator from Rhode Island will say they are already there as security for Government deposits.  If so, they are there only by dictum of an administration officer and, at that, only there as additional security for the return of a loan.  They are not there by express legislative sanction.  They are not there as a basis for a currency issue.  But when they have once been specifically incorporated in the law, when once the Government invites the national banks of the country to invest in them for the patriotic purpose of averting financial disaster, these railroad bonds would become sacred paper.  The good faith of the country would be pledged to defeat any legislation that suggests a disturbance of the 4 per cent dividend upon the stocks.  The Senator from Rhode Island would be heard in solemn warning.  We would be told that the bonds were bought by the banks, not to make money but to be held in readiness to protect the credit and commerce of the country;  that bond markets are easily disturbed;  that such security is delicate and sensitive;  that legislation menacing dividends, even upon grossly watered stocks, would alarm the holders of these bonds and force them upon a falling market at great sacrifice, possibly producing panic, and leaving the banks but partially prepared to take out emergency currency.

WOULD BLOCK RAILROAD VALUATION.

Could any plan have been devised which would be more effective in blocking the way of legislation for valuation of the physical properties of railways and defeating the final reduction of rates to a just and reasonable basis ?  Coming as they do in the guise of reenforcement to failing credit, these bonds are made to appear as promoters of public interest.  Let no Senator be deceived.  The public will not be misled.  There are many and moving reasons back of this railway-bond proposition.

The public has grown insistent for legislation that shall not only recognize an unreasonable rate as unlawful, and proclaim the right to reasonable rates as the amended interstate-commerce act does, but legislation which should clothe a commission with authority to ascertain the true value of railway property as the only means of determining reasonable rates, and then direct the commission to base rates upon the value so ascertained, which the amended interstate-commerce act wholly fails to do.

The public is insistent.  Legislation for more than a quarter of a century has juggled with this question.  It is opportune for us to remember that the struggle to secure reasonable rates started thirty-four years ago.  A generation of men have gone to their graves since this contest began, and yet there is no Federal law under which a reasonable rate can be determined to-day.  It is unnecessary to comment on the influences which have baffled all efforts to secure the legislation necessary to determine the gross overcapitalization of the railways of the country.

The citizen has acquired a clear understanding with respect to it.  He can no longer be satisfied with statutes which assert that rates shall be reasonable, and which fail utterly to provide reasonable rates.  He might be pacified for a brief time with railway-rate legislation which was heralded forth as a great progressive achievement, but he soon learned that it did not relieve him from the burden of excessive rates.  In the mind of the citizen, one simple business proposition has found definite lodgment.  He clearly understands that in order to determine the amount of profit in any business three things must be definitely known :  First, the value of the property used in the business must be determined by inventory.  Second, the annual cost of operating the business must be ascertained.  Third, the annual income from the business must be ascertained.  From these factors the percentage of net profits can be exactly determined.  He applies these simple and sound business propositions to the common carrier.  He knows that legislation provides that the common carrier should report the annual cost of operating its business and the income derived, but be knows also that legislation has failed to provide for taking an inventory of the property employed in the business of the common carrier, and that without that inventory from which to determine the value of the property no one can tell whether the common carrier is making a profit of 4 or a profit of 40 per cent upon the fair value of the property.  From every hamlet and village of the country comes a demand for railroad valuation.

RAILROAD VALUATION DEMANDED.

Mr. BACON.  Mr. President, with the permission of the Senator, I should like to ask him a question.

Mr. La Follette.  Certainly.

Mr. BACON.  In view of the ephemeral, uncertain, and fickle character, to say nothing of the elastic features which the Senator ascribes to the railroad bonds, I wish to make an inquiry of him.

I understood the Senator, in response to inquiries of several Senators, to justify and applaud the action of the President and the Secretary of the Treasury in the concentration of the deposits in New York at the time of the acuteness of the panic, to the exclusion of the demands of the banks in the other parts of the country.  In view of the character which he ascribes to the railroad bonds and the overvaluation of property that they represent, I desire to ask the Senator if he also approves and applauds the action of the Secretary of the Treasury in receiving bonds of that class as a security for the deposits of the money of the United States in the several national banks of the country ?

Mr. La Follette.  I do not know, supposing the case, what I might have done in that situation.

Mr. BACON.  If the Senator will pardon a further interruption I am referring particularly now

Mr. La Follette.  I understand.

Mr. BACON.  To such a deposit as the Senator from Arkansas read from the report as one made in that particular case.

Mr. La Follette.  I will say this:  I do not believe that such securities are within the law, excepting as securities in addition to Government bonds for such deposits.  I do not believe that the law warrants the loaning of Government moneys upon that class of securities independent of Government bonds.

But, I might add, it is really not a distinction of great consequence whether the Treasury accepts all the security for United States deposits in the form of municipal and railroad bonds or whether it requires also a nominal amount of United States bonds, as may be done under the construction of the law which has prevailed for several years, which Congress has made no effort to change or preclude by amendment of the law.

TENDENCIES OF FINANCIAL LEGISLATION.

Now, Mr. President, if I may have the indulgence of the Senate a little further, I desire to come back to the consideration of the pending bill, and in order to interpret that bill and pass judgment upon it I believe it should be studied in the light of preceding legislation relative to banking and currency.

It seems to me that the tendency of legislation with respect to banking and currency has been to favor the great banking institutions having community of interest with the powers that control the industrial and transportation life of the country.

I want to call attention just for a moment to one phase of legislation in the mind of every Senator here as showing the operation of legislation written in the statutes away back many years ago.

The law as to reserves in national banks is so framed as to drain the reserves of the country banks to the reserve city banks and from the reserve city banks into the central reserve banks.  As developed in operation it masses an excess of the banking reserves in Wall street, where it may be absorbed in speculation.  Let me state a particular instance which I do not believe has been brought to the attention of the Senate in the debates here.

In 1904 the lawful money reserves of the national banks of the country increased fifty millions.  Operations in Wall street for that year created extraordinary demands.  The effect upon the reserves of the country was significant.  Of the total increase of $55,000,000 in lawful reserves for that year the gain in the lawful money reserves of the national banks of New York City was $24,000,000.  Out of this total gain of $24,000,000 in lawful money reserves for all the national banks of New York the four great national banks in the two groups, viz, the National City, the National Bank of Commerce, the First National, and the Chase National, absorbed $20,600,000.  Thus 85 per cent of the gain of reserves in New York City and 38 per cent of the cash gain of all the national banks of the United States was gathered in by these four banks.

Is there a Senator on this floor who does not know that this aggravated the condition that finally put business in peril in this country last October ?  Is it not rather a striking thing that that was not one of the first things to which a majority of the Finance Committee, shaping legislation, should have directed its attention in bringing in a bill before the Senate to cure or to meet the troubles that arose out of that period ?  It is true we are promised that at some time or other before we come to vote upon this subject some amendment will be presented with respect to reserves.  But was that not one of the first provisions that should have appeared in this bill ?  Instead, a provision which seemed to recognize the defects was left out when it was reported back to the Senate.

While the operation of the banking law providing for the redepositing of reserves reduced the reserve strength of the banks far below what it would otherwise have been, it was still too much restraint for the banks.  I am citing these old statutes simply to show the general trend of legislation, simply to show that it has seemed to move in the direction of beneficence to certain great interests in this country, going back even to an early time.

The national bank act of 1864 required that banks should keep reserve both on circulation and on their deposits.

By the amendment of June 30, 1874, it was provided that no reserve need be kept by reason of circulation and that the 5 per cent of circulation kept in the Treasury to retire circulating notes might be counted as a part of the reserve held against deposits.  The net results of the provision for redeposit of reserves and the subsequent reduction of the reserve requirement of the law has been to leave the depositors without any protection whatever in the way of legal-reserve requirements on national banks.

No conservative or safe banker would undertake to conduct banking business with reserves no larger than are required by existing law.  Such reserves would be insufficient to permit the conduct of current business.  But it serves the purposes of financial and speculative bankers to be able to have practically a free hand with their reserves, and it is in the interests of the central reserve bankers to be able to collect the reserves of all the banks of the country for use in the stock market.

The legislation of one year ago emphasizes the especial care bestowed upon these large banks.  When the Aldrich bill of March, 1907, was under consideration, the Senator from Minnesota [Mr. NELSON] led in an effort to prevent that legislation from bestowing a gratuity upon favored banks.  He offered an amendment providing, among other things, for payment of interest upon the daily balances of the Treasury deposits in such banks.  The Senator from Rhode Island opposed and defeated the amendment.

While the proposed tax was urged, upon the ground that it was but just that the banks receiving the public money for use in the regular course of business by such banks should pay a reasonable interest rate, I submit that it is worthy of consideration at this time for other important reasons.

PLAN FOR AN EMERGENCY FUND.

It is estimated that $200,000,000, in round numbers, is the amount required to move the crop in the fall of the year.  This is an extra strain upon the money in circulation, producing a stringency and requiring an extra reserve supply as an offset to this temporary demand.

The profit to banks in securing the use of Government money free of any interest charge operates to keep the surplus moneys of the Treasury largely in the hands of national banks at all times.  The imposition of an interest rate of 2 per cent or higher would tend to return such deposit money to the Treasury from time to time as demand for it declined and the profit of retaining it diminished.  In other words, the circulation of the surplus moneys of the Treasury, which constitute the deposit funds for these banks, can be clothed with an element of elasticity by a properly adjusted interest rate, giving to such circulation an emergency character to meet exactly the varying demands of commerce.  Such interest rate would return the money to the Treasury as a reserve, from which it could be drawn whenever the time came for moving the crops of the country.

I am not arguing that customs duties should be kept at the present rate for the purpose of furnishing such a surplus.  But while the stand-pat interests of the country defeat tariff revision, and an excessive surplus is maintained, I submit that such surplus might be made to furnish an emergency currency if a tender regard for these particular banks did not prevent the imposition of a proper interest charge thereon.

Such an amendment to existing law would not furnish as large an emergency fund as is proposed in the pending bill.  It would furnish as much money as anybody has estimated is required to meet the temporary demand arising when the crops are to be moved.  Is not that the only legitimate demand upon which it can be claimed that an emergency currency should issue ?  It should not provide an emergency fund to meet the speculative needs of Wall street in a panic, such as the pending bill provides.  Nor do I believe it to be a wise public policy to provide such a fund by legislation.

Mr. President, I do not know that it would be possible to pass a bill amending the act of March, 1907, subjecting the deposits of Government moneys to such an interest rate as would cause two hundred and twenty-two millions of Government money now in use by national banks to float back into the Treasury, as into a reservoir, to be drawn upon when the time comes to move the crop of 1908.  I do know that under such a law the national banks would not be retaining this money for free use, as they are at present, and retiring their own circulation in order to save the tax of one-half of 1 per cent thereon.

Because there is at the present time no demand for the amount of money now in circulation, the small tax of one-half of 1 per cent upon the circulation of national banks is causing the retirement of such circulation substantially up to the limit of the statute, or in round numbers, $9,000,000 per month.  Since January last, as stated by the Senator from Arkansas [Mr. CLARKE], the amount retired, added to that upon which applications for retirement have already been filed, would aggregate approximately for the first six months of the present year $50,000,000.  Obviously, there is at the present time an excess of currency in the country, as indicated by the action of the banks and shown by the high per capita of $35 reported by the Treasury.

FOR BENEFIT OF SPECIAL INTERESTS.

Mr. President, a review of the currency legislation as suggested in the foregoing would lead any student to approach consideration of the pending bill with the expectation that it would be found partial in its character to the same favored interests.

It proposes an issue of 500,000,000 of additional notes to be issued to national banking associations, such issue to be based upon the securities named in this bill.  What are these securities ?  State bonds, municipal bonds, andas reported by the committee and advocated by the Senator from Rhode Island [Mr. ALDRICH]railroad bonds.

Mr. President, by whom are such bonds held ?  Are they stable securities ?  Or are they fluctuating in character ?  If it should appear that such bonds are for any reason chiefly held by a limited number of banks, not available to the great majority of national banks, it would appear that the effect of this legislation, whatever its purpose, would be to confer a benefit upon those banks holding or controlling such securities which form their adoption as the basis for currency issue. From the present attitude of the Senator from Rhode Island, one would he bound to believe that he considers municipal and railroad bonds as safe and stable investments for banks and a safe and stable basis for currency issue.

What was the opinion of the Senator upon this question one year ago when the Aldrich bill of that session to increase the free deposits of Government money for the group banks was pending in the Senate ?  At that time, as before stated, the Senator from Minnesota offered an amendment to require national banks to pay taxes upon Government deposits.  His amendment was broader than that, and I do not believe that the full breadth of that amendment and its full scope and purpose have yet been brought to the attention of the Senate in this discussion.  The amendment provided further that the Treasurer should accept as security for such deposits municipal and railroad bonds, as well as United States bonds, and named the New York and Massachusetts savings bank standard as a criterion.  It was thought by the Senator from Minnesota that this amendment would enable banks which could not afford to purchase Government bonds at prevailing high premiums in order to secure Government deposits, to buy municipal bonds and railroad bonds, and, authorizing their acceptance by the Secretary of the Treasury, would thereby permit such banks to share in the benefit of the Government deposits.

In opposition to the amendment of the Senator from Minnesota (Mr. NELSON] the Senator from Rhode Island [Mr. ALDRICH] advanced a skillfully contrived argument embodying the following propositions :

1.  That banks could not afford to buy Government bonds at prevailing market prices to secure United States deposits and pay 2 per cent interest on deposits.

2.  That under the amendment all United States deposits would go to a few large banks in New York, Chicago, and other large financial centers, which alone early securities of the kind named in the amendment.

3.  That these securities, namely, municipal and railroad bonds, were so unstable in character that no prudent banker could afford to invest in them.

A REMARKABLE CHANGE OF FRONT.

The Senator from Rhode Island seemed quite indifferent to the fact brought out in that debate that the Secretary of the Treasury was at that time already accepting securities of the class specified in the amendment of the Senator from Minnesota.  While generously enlightening the Senate from the fullness of his knowledge and experience in the realm of finance as to just what class of banks held the specified securities and where they were located, the chairman of the Finance Committee, in reply to the all-important question of the Senator from Minnesota [Mr. NELSON] as to the character of the bonds then being accepted by the Treasury, contented himself with a weak "I am not advised" just as he was "not advised" the other day of Mr. Morgan's attitude on the pending bill.  It would seem that on a matter which had been officially announced to the banking world by the Secretary of the Treasury;  which had been avowed in his official report;  which involved most important questions of fiscal policy as well as a questionable construction of law;  which was an important subject of legislation before the Senate and before the Finance Committee, and which the Senator himself dignified by an elaborate addressit would seem that as to a matter of this kind the chairman of the important Committee on Finance would have had some curiosity to know the real facts of the case.

It would seem that as the chairman of the Finance Committee he might have asked the Secretary of the Treasury about it.  Coming from him it would not have been indelicate or embarrassing.  He did not mind asking the Department to construct for him an elaborate computation to show that banks could not afford to pay interest on deposits.

But the Senator wanted to defeat the interest amendment, and to that end argued against the admission of other than United States bonds, because he could not show that the interest would be so burdensome if these banks were admitted to secure the deposits.  He did not profess to know that precisely this character of bonds were already being accepted.  Evidently he did not much care.  He could argue against their admission, notwithstanding that they were already being admitted, as then stated and as subsequent inquiry confirms.  The Senator did know that the banks holding this class of bonds were the big banks of New York and the great financial centers.  These banks did not want any law authorizing the deposit of these bonds as security for Government money coupled with an interest charge.  So far as the deposit of bonds was concerned, they didn't need any such law.  They had the Secretary's "construction" of existing law, which enabled them to do that already.

In an argument directed mainly against the taxation of deposits, the Senator from Rhode Island informed the Senate that one purpose of the amendment offered by the Senator from Minnesota was to

Spread this money about. * * * His purpose being that there shall be what he would call, I suppose, an equitable distribution of the money deposited throughout the United States.

The Senator from Rhode Island [Mr. ALDRICH] contended that the amendment of the Senator from Minnesota would not accomplish this purpose, but the reverse.  "Banks could not afford" to put up Government bonds and pay interest on deposits.  The only banks having the other bonds mentioned were the "large banks of the great financial centers."

TESTIMONY FROM THE CONGRESSIONAL RECORD.

Continuing, the Senator from Rhode Island proceeded to show that small banks could not afford to hold Government bonds as an investment at all, or to buy them at a premium, as a pledge for Treasury deposits under the proposed law, and then pay a 2 per cent tax upon such deposits.  He offered a Treasury computation to prove that it would result in loss.  The Senator from Minnesota was quick to see that the argument and the computation to show that the 2 per cent tax would result in loss applied only in fact to Government bonds and, interrupting the Senator from Rhode Island, said :

Mr. NELSON.  But that only relates, if the Senator will allow me, to the matter of Government bonds, and not to these other bonds.  That is to say, municipal and railway bonds.

To which the Senator from Rhode Island replied :

Mr. ALDRICH.  I understand.  But do you suppose that a bank in your State or in any State is going to buy other bonds and take the chances of fluctuation ?  The Government bonds are sold substantially along a certain line.  They vary very little in price.  The risk of loss growing out of the purchase is infinitesimal as compared with other security.

Continuing his argument disparaging bonds other than Government bonds as suitable holdings for securing Government deposits, he said :

Take the bonds of the State of Massachusetts, to which I have alluded.  A few years ago they were selling far above par.  Take the bonds of the city of New York ;  take the large amounts of bonds which have been issued by States and municipalities throughout the Union.  In these days they are fluctuating widely, and no prudent banker could afford to buy bonds other than the bonds of the United States.

But, Mr. President, that was a year ago.  Then the Senator from Rhode Island was laboring to defeat, and he did defeat, the amendment of the Senator from Minnesota to assess a 2 per cent tax on Government deposits with national banks.  Such a tax would have tremendously reduced the profits of the great system banks which were to be so largely benefited.  Quite a different proposition is presented to-day.  The bonds which were then so "widely fluctuating" that no "prudent banker" could afford to invest in them are now recommended by the Senator from Rhode Island as "judicious investments."

The Senator from Rbode Island, in the course of his remarks in the Senate on February 10, 1908, in support of this bill, said:

It is evident that the banks of the country might wisely and without difficulty or loss invest five hundred millions in first-class State, municipal, or railroad bonds.  This investment would be an exercise of that care and management which should characterize institutions which have and expect to retain the confidence of the American people.

The bonds which the Senator from Minnesota was seeking to make a legal and statutory basis of acceptance by the Secretary of the Treasury were State and municipal bonds.  They were State and municipal bonds measured by the terms by his amendment of the standard fixed by the Massachusetts and New York savings-bank statutes.  Therefore it is to be presumed that they were State and municipal bonds of a high character.  Why did it suit the purpose of the Senator from Rhode Island to denounce bonds of that character one year ago on this floor and defeat the amendment to tax bank deposits which, as has been shown, and which, as he made plain by his argument, went to these special banks very largely ?  Why, I say, did it suit his purpose to denounce bonds of that character as "widely fluctuating," as "such bonds as no prudent banker would ever invest in," and to-day present to the consideration of this body a proposition to make them the basis for circulation ?  For, mark you, if they once find legislative sanction for the bonds proposed in this bill as a basis for currency circulation, even emergency currency, it simply means that we shall ultimately have all kinds of bonds ingrafted upon our money system.

At another point in the course of his speech of February 10, 1908, speaking of "the municipal securities which are described in the bill," the Senator from Rhode Island says:

These securities would form a part of the bank's best assets and would constitute from every banking standpoint a judicious investment.

Again, in the course of his remarks, the Senator speaks in the following strong terms in behalf of municipal and railroad bonds:

The Congress, in my judgment

And you may see foreshadowed here what is to come if you ever let these bonds in.  Listen to this statement

The Congress, in my judgment, might properly, in the wise exercise of its supervisory control over the investments of national banks, require these institutions to invest a portion of their assets in this class of securities, and this without reference to their use as security for possible note issues or United States deposits.  This requirement would be in the interest alike of the public and of stockholders.

Have we reached the point in this country where a few men hold control of such a mass of this sort of securities that you must be called upon to legislate into the national banking laws a compulsory statute that the banks shall make a competitive market for those securities ?

The Senator's change of front since last year as to the investment character of securities of the classes mentioned in the hill is all the more noteworthy, particularly as to railroad bonds, by reason of the general disrepute into which they have since fallen.  Not only did these railway securities fare badly at home in the recent Wall street panic, but they forfeited confidence in Europe as well.

OUR SECURITIES REJECTED ABROAD.

Mr. Stuyvesant Fish, in an authorized interview, commenting on the causes of the recent panic, refers to the discrimination of European bankers against "American finance bills," or what are known in Wall street as collateral loans.

He says this discrimination was aggravated by their seeing the uses to which the finances of certain American railroads had been diverted.

Within a few months the Bank of France has declined to make any advances on American finance bills, and the Bank of England, not only itself refused to discount American finance bills, but notified its customers that they must not do so.  But the Aldrich bill proposed that the United States should issue five hundred millions of currency on these very securities rejected by these foreign bankers.

We have so expanded and watered the securities of this country that they have lost the confidence of European investors.  A crisis had come where it became necessary to rehabilitate them in the markets of the world.  Foreign bankers refused to loan on American railroad securities unless the United States would guarantee the securities.  That is the report of the financial review of the year on foreign markets.  So we have before us this bill, which proposed a Government guaranty of these securities to the extent of adopting them into our currency system.

That these securities have fallen into ill repute, instead of being a warning to the Government to let them alone, is the real motive back of this bill.  He is blind who can not see the potency of such legislation to restore market values to securities which have lost the confidence of the public at home and abroad.  That it would be the effect of this legislation to give better standing to railroad securitiesyes, that it was the purpose of this legislation to give better standing to railroad securitieswas admitted by the Senator from Rhode Island [Mr. ALDRICH] on the 10th of February.

It seems to me, Mr. President, that this goes only one step further than the proposition to compel by law the banks to invest in a certain class of securities.  We have passed, of course, the time of land grants for railroad companies.  Here is something to take the place.  In the speech of the Senator from Rhode Island on the 10th of February he said :

In theory and by existing legislation, railroad companies are quasi public corporations under strict governmental control and regulation.  Immense amounts of money will be required in the near future in the development of various parts of the country, especially in the South and West.  Anything which the Government can do within the limits of absolute safety and without cost to itself to give a better standing to the railroad securities which must be issued to provide railroad facilities in sections of the country that existing roads do not reach should be done without hesitation.

Here is a bold admission that this legislation was to affect railroad securities not yet in existence.  Roads were to be encouraged to build because railroad bonds were to be so favored as to make it more and more profitable to push railroad building and railroad bonding.

When Government bonds were made the basis for national-bank issue it was avowedly for the purpose of enhancing their market value.  It had that effect.  It would have like effect upon these securities.  Who would derive that benefit ?

WHERE THE BONDS ARE HELD.

Complete statistics of the investment by banks in railroad bonds, or of the extent and distribution of such investments are not available. An extensive inquiry into this matter was, however, made in 1905, by J.S. Bache & Co., bankers and brokers of New York City.  The inquiry was conducted by their Mr. Cornwall, who writes at length about it in the Annals of the American Academy of Political and Social Science for last September.

I submit it as throwing a flood of light upon the railroad-bond proposition that was in this bill, and by that light we may be better able perhaps to interpret some of the provisions left in the bill.

Letters of inquiry were addressed to about 7,000 banks and trust companies throughout the country, the list embracing every such establishment with a capital of $50,000 or more in the United States.  About 4,000 replies were received.  These returns were tabulated, and on the basis of the returns of the banks reporting the holdings of the banks not reporting were estimated according to the total amounts of their deposits.  In this manner Mr. Cornwall believes that the total railroad-bond holdings by banks in each State were "arrived at with substantial accuracy."  And it would seem, in view of the large number of the returns, that much reliance might be placed upon these estimates.

According to Mr. Cornwall's estimates, there were held at that time by banks and trust companies of the United States railroad bonds to the total amount of $913,051,000.  It is interesting to note that substantially 75 per cent of the total amount is held by the banks and trust companies of New England and the Eastern States.  The bulk of this, as would be expected, is found in New York and Pennsylvania.  From the figures of Mr. Cornwall I have constructed the following table :

Railroad bonds held by banks and trust companies.
New England States...............$94,260,000...............10.33%
Eastern States...................587,830,000...............64.40%
Southern State.....................6,602,000................0.72%
Middle Western States............147,151,000...............16.10%
Western States.......................944,000................0.13%
Pacific States....................76,234,000................8.32%
United States....................913,051,000..............100
New York City....................206,345,000...............22.6
New York State and city..........294,812,000...............32.3
Pennsylvania, including Philadelphia...207,728,000.........22.7
New York and Pennsylvania........502,570,000...............55

These figures are significant.  In the aspect of the question urged by men whose experience and position qualify them to judge, including the chairman of the Finance Committee of last year, that banks which had not already a supply of these bonds on hand would not be able to buy and carry a supply of them to have for use in emergencies under the proposed law, these figures as to the distribution of the present holdings are of significance as clearly localizing the direct benefit in booming the prices of these bonds which was expected to follow the enactment of the proposed bill.

It is, of course, from those localities where railroad bonds are held that application will be made for circulating notes to be issued on such bonds for circulation.  The banks which have the bonds will be the ones to get the notes when money is high and emergency notes are worth the getting.

As shown from the best sources of information which I found available, 75 per cent of the railroad bonds are held by banks in New England and Eastern States, and only 25 per cent is distributed throughout the West, Middle West, and the South.  I have been unable to obtain information which places bank holdings of municipal bonds at more than 25 per cent of the total estimated outstanding issue.

Mr. Cornwall's estimate on this class of securities, however, shows, although in a less degree, this same tendency to concentration of the bank holdings of municipal bonds that prevails with respect to railroad bonds.  Banks of New England and the Eastern States hold 42 per cent of the total amount held by banks of the entire country.  With the highly organized banking system, the perfected community of interest between national banks and other financial institutions in this section, the entire holdings will be at the command of the big group banks for circulation purposes.  In the cities of Boston, New York, Philadelphia, Chicago, and St. Louis it is estimated that over 27 per cent of all the bank holdings of municipal bonds are held.

These cities constitute the headquarters of the operations of the money trust and are dominated by it to the extent that whatever securities of this kind might be held by them would be at the disposal of the trust for circulation purposes.  In like manner through its branches in the lesser business centers it will draw in much of the balance.  Its power to command any securities in the country at will is practically unlimited.  With the securities in hand its control of the currency system of the country is powerfully augmented by this bill.  In saying that the holdings of the municipal and railroad bonds of the country are in the hands of the great banks of New York and the other financial centers I am only repeating the statement made in this Chamber a year ago by the Senator from Rhode Island, the distinguished chairman of the Finance Committee.  How these great banks are organized and dominated and the nature of the business in which they are engaged I have demonstrated here.

That neither railroad nor municipal bonds are in the possession or within the reach of the commercial bankers of the country there can be little doubt.  Reason and testimony alike make it quite conclusive that commercial banking requires reserves to be held in a more quickly convertible class of securities than long-time bonds of any character.

That this is a bill which will operate for the benefit of the speculative, financial bankers is proved to a demonstration.  That it will not serve the legitimate business interests of the country is equally evident.  That its effect and operation would -be to set the money trust up in a regular business of conducting panics for profit will appear to anyone who will give it candid study in the light of existing conditions.

At this point, Mr. President, I beg to introduce a few comments by careful commercial bankers and business men in criticism of the proposed bill.  They at least show that there is no "consensus of opinion" even among bankers favoring this legislation.

BANKERS WHO DISAPPROVE OF THE ALDRICH BILL.

E.A. Potter, president of the American Trust and Savings Bank, of Chicago, said:

In order to get additional circulation under the proposed plan, it is necessary to deposit with the Government bonds of a certain class.  This would impose upon national banks in this section, for instance, the burden of going into the market to get bonds.  Under the circumstances I do not feel that such a scheme would give the relief the Aldrich bill purports to furnish.

George M. Reynolds, president of the Continental National Bank, of Chicago, says:

I do not approve of the Aldrich bill, because I think it is cumbersome, and likely to delay too long by red tape the needed relief in emergencies.

E.A. Hammil, of Chicago, president of the Corn Exchange National Bank, says:

I do not like the measure brought out by Senator Aldrich. * * * I feel that the Aldrich plan would favor Eastern bond houses and banks, especially those of New York and Boston.

C.A. Latimer, vice-president of the Northern National Bank, Ashland, Wis., says:

It is radically wrong to accept railroad bonds as security.  It would upbuild the individual by legislative enactment.  It practically puts the responsibility for the Issue of new notes upon the Comptroller of the Currency.  It gives too much power to one man, or at best to but three men.  Money used for the purchase of bonds would be largely depositors' money.  The process would lessen the deposit or security and tend to cause unrest, instead of a feeling of confidence.

A.A. Dye, one of the officials of the First National Bank at Tyndall and of the First National Bank at Springfield, both in South Dakota, says:

Not one country bank in a hundred has any State, municipal, or railway bonds.  If Government aid must be backed by bond security, it can come through the large banks only.  In that case what little help the country banks would derive must be secondary.  They would be forced to borrow of the central banks at the high rate for money established by the hard-pinched gamblers of the East, or get no help in times of stringency.

We have had a very recent experience to teach us what the schemes of Government aid through its deposits amounts to, so far as country banks are concerned.  Not one dollar so placed during the panic ever reached the banks in our part of Dakota, and it was weeks after such Government aid before we could get the Eastern banks to return even our own deposits.  They were evidently needed to loan to Wall street gamblers at high rates of interest.  Under the hypocritical pretense of getting funds to send West for the movement of the crops, Eastern banks sought money to replace the reserves they had loaned to speculators. * * * There could not have been a better illustration of the futility, not to say injustice, of a scheme of relief that reached only one class of banks.

N.B. Van Slyke, president of the First National Bank of Madison, Wis., is one of the oldest bankers in the United States, whose opinions command respect among bankers, I undertake to say, throughout the country.

Mr. Van Slyke says:

I beg leave to say that the provisions of Senate bill 3023 would not meet the problem attempted to be solved.  Its "elastic" feature might expand to meet emergencies in Wall street, where bonds, stocks, and other securities are owned or can be borrowed to deposit for additional currency.  But its contraction would be quite another thing, tax or no tax.  Country banks, however apparently inactive at this time, believe that the banks in the great moneyed center should restrict their loans to their own legitimate means without calling upon the Government, as they frequently have, to help them in their shortage occasioned by excessive loans.

If banks will confine themselves to the just and proper sphere of promoting legitimate trade rather than loaning on margins for speculative purposes, there would be no need of an "emergency" currency, which in itself only palliates without cure.

John L. Hamilton, chairman of the currency committee, American Bankers' Association, say of the Aldrich bill:

The securities required are such as are carried by scarcely a bank of the country class, or those required to carry a 15 per cent reserve ;  and if this bill should become a law, instead of being of any benefit to them, it would be a positive detriment as compared with the present law, and instead of preventing a panic, when its provisions are understood, it would more likely cause one and leave the country banks entirely at the mercy of their customers, with an additional handicap in the way of a reserve and a surer chance for future imprisonment for violation of the national banking act.  If the Members of Congress have the interests of their constituents at heart, they will vote "no" on this measure, as its passage would be worse than no legislation.

Hon. Lyman J. Gage, ex-Secretary of the Treasury, on February 19, 1908, on his appearance before the Committee on Banking and Currency of the House of Representatives, was asked the following question by a member of the committee:

If you were president of the First National Bank of Chicago and the Aldrich bill passes, would you buy bonds with the possibility that you might want to use them, or would you wait until the time came and then depend upon purchasing them ?

Mr. Gage answered as follows:

In the case of the First National Bank of Chicago I should not buy any, because they have got too many now.  They have got an overstock.  If I were in a country bankif I may step aside from the particular case of the First National Bankif I were in a country bank where I stood pretty close to the producers, where the goods of commerce originated, small factories, and where capital is scarce, and where my function as s banker was necessary to the welfare, industry, and happiness of that locality, I would take my chances on going broke before I would take $100,000, if you please, if that was my proportion of this supposed relief, and tie it up in bonds, thus leaving my constituents without the facilities I can not furnish them, and so taking from them the use of my banking power for an indefinite period of time.

Referring to the Aldrich bill, Mr. Gage said, in another connection:

I am opposed to the measure originating in the Senate.

Ex-Secretary of the Treasury Leslie M. Shaw, in November, 1907, said :

No bond-secured circulation can be elastic.  It is possible, and, in fact, probable, that the national banks of New York City, Boston, Philadelphia, Chicago, and possibly one or two other cities, though I do not know where they are located, could borrow the necessary State and high-class railroad and municipal bonds on which to secure supplemental circulation in time of emergency.  I know, however, that banks in some of the cities above named have had difficulty within the past few months in borrowing the bonds with which to secure deposits of public money.  It will be recognized that a deposit of $100,000 of public money secured by bonds costing $110,000 is of no advantage if the hank receiving the deposit is compelled to buy the bonds, and the right to issue $100,000 in bank notes unavailable as reserve would be no boon to a bank that should find it necessary to purchase the bonds at a somewhat larger sum in reserve money.

If one will take occasion to examine, he will discover that the banks with available bonds which can be used as a basis for supplemental circulation are very few, indeed.  Those that do have them, hold them as quick assets to be sold as the needs of public business may require.  The right to hypothecate them as security for circulation would be of no advantage when their market value in reserve money is in excess of the amount of bank notes obtainable thereon.  Let no one deceive himself into the belief that the right to issue supplemental high-taxed currency secured by a deposit of State, municipal, or railroad bonds would be of any advantage except to such institutions as can borrow the bonds on their own credit or on a pledge of other collateral.  To 99 per cent of the banks it would be unavailable.

The Trades League of Philadelphia, one of the most conservative bodies in America, with a membership of 3,000, representing every variety of banking, industrial, mercantile, and manufacturing activity, unanimously adopted a report of its special committee on banking and currency, from which I quote the following :

In our opinion the Aldrich bill would be of no substantial benefit to the manufacturing, commercial, or agricultural interests of this country, although it might to some extent have favored financial interests from the maximum penalties of a currency panic, and incidentally would also impart a fictitious value to the bonds specified, and we therefore oppose its passage.

Resolved, That the Trades League of Philadelphia is unalterably opposed to the passage of the Aldrich currency bill, for the reason that it provides for additional bond-secured currency based upon a deposit of State, municipal, and railroad bonds, which country banks do not generally possess, and imposing a rate of interest which few commercial banks can afford to pay, thereby creating a fictitious value for certain bonds, favoring special financial interests, and ignoring the agricultural, manufacturing, and commercial needs of the country.

The board of directors of the Merchants' Association of New York, representing some of the largest mercantile houses of the world, unanimously approved the report of its committee on bankruptcy and commercial law, from which I quote the following :

It is no safe function for a bank of deposit or issue to invest assets held against demand obligations in long-termed notes, bonds, or mortgages, the conversion of which into cash in times of stringency can only be accomplished at a sacrifice of the principal, if at all.  The policy which might reasonably create an artificial market for the national obligations in time of civil war can not excuse an extension of the same favor to State or municipal bonds and railroad mortgages in time of peace.

The high tax which this bill proposes to levy upon the issue of emergency currency, and which in the last analysis would be paid by the borrower to the banks when increased, as it would be in practice at least one-third by reserve requirements, Is not only unnecessary but oppressive, and in this and other States would provoke an immediate disregard of the statute against usury.  It is not becoming that a great nation should fill its coffers from the necessities of borrowers, and it is manifestly improper to pass one law which offers inducements to the violation of another.  It is the unanimous opinion of your committee * * * that rather than accept legislation of the character of the Aldrich bill, which we feel in its ultimate results would be most disastrous to the commercial interests of the country, it would be preferable to have no legislation at all, in spite of the manifest necessity of some relief to the present intolerable situation.

Now, Mr. President, with the indulgence of the Senate, I will rest here in what I have to say upon this bill, and will resume at 2 o'clock to-morrow, when the unfinished business of the Senate is reached.

Mr. ALDRICH.  Probably it has escaped the attention of the Senator from Wisconsin that to-morrow the whole day has been devoted, by unanimous-consent agreement, to the shipping bill.

Mr. La Follette.  It did, I will say to the Senator from Rhode Island, and therefore I will ask, if the day is taken by the shipping bill, that I be permitted to resume the discussion of this bill on Monday at 2 o'clock, when the time for taking up the unfinished business arrives.

Mr. ALDRICH.  I hope we may have a session on Saturday, but I shall not press the matter now.  I had thought we might get through, or largely through, the discussion of the bill this week.