LAWFUL MONEY. Memorandum prepared for the Treasury Department by Mr. Broughton, TREASURY DEPARTMENT, OFFICE OF THE SECRETARY, The terms "lawful money and legal tender" are different names for the same thing. The term "lawful money" originated in the act of February 25, 1862, authorizing the issue of United States notes. It was probably used in subsequent acts, because the term was comprehensive and, notwithstanding the fact that gold and silver coins were not then in circulation, it would necessarily embrace them, as well as legal-tender notes, whenever specie payments should be resumed. However, commonly the term "lawful money" has been applied to the United States notes. Legal tender" is a quality given a circulating medium by Congress, and possessing this quality it becomes “lawful money." The fact is interesting that the Continental Congress which authorized the issues of Continental currency did not ordain it legal tender, but asked the States to do so; it is stated all did so except Rhode Island. Act of February 25, 1862. authorizing the issue of United States notes: and such notes herein authorized shall be receivable in payment of all taxes, internal duties, excises, debts, and demands of every kind due to the United States, except duties on imports, and of all claims and demands against the United States of every kind whatsoever, except for interest upon bonds and notes, which shall be paid in coin, and shall also be lawful money and a legal tender in payment of all debts, public and private, within the United States, except duties ou imports and interest as aforesaid." NOVEMBER 22, 1913.-Ordered to be printed, with the individual views of members of the committee. Mr. HITCHCOCK (for himself, Messrs. NELSON, BRISTOW, CRAWFORD, MCLEAN, and WEEKS), from the Committee on Banking and Currency, submitted the following VIEWS. [To accompany H. R. 7837.] The undersigned members of the Banking and Currency Committee, constituting one-half of its membership, regret their inability to present to the Senate the majority report, which until lately appeared to be probable, on H. R. 7837, known as the Federal Reserve Act. We take leave, however, to present the following statement of our views and to recommend the passage of the bill with the amendments which we incorporate in the print of the bill which we have submitted. We also append hereto and ask to have printed herewith the bill as it would read if so amended. The House bill was received by the committee September 18 last past. We had commenced to hold hearings upon it prior to that time, and they were continued up to October 25. In these hearings many witnesses from all parts of the country, including bankers of all classes, merchants, business men, publicists, experts, and political economists, were examined. Much valuable information was obtained and many useful suggestions were made which greatly aided the committee in perfecting the bill. The testimony covers over 3,000 pages and has been printed for the use of the Senate. On October 27, following the close of the hearings, the committee went into executive session and began at once consideration of the vital provisions of the bill. Discussion was followed in each case by a vote in full committee on the vital provisions of the bill and, among others, the following important changes were tentatively decided on: By a vote of 6 to the committee decided that the reserve board shall do the work of an organization committee. By a vote of 9 to 1 the Secretary of Agriculture was taken off the reserve board. By a vote of 8 to 2 the Comptroller of the Currency was taken off the board. By a vote of 9 to 3 the Secretary of the Treasury was retained upon the board. By a vote of 6 to 4 the membership of the reserve board was increased to nine and the term of members fixed at eight years, one retiring each year. By a vote of 7 to 5 the number of Federal banks was reduced to four, and at one time this vote for four reserve banks stood 8 to 4. By a vote of 7 to 5 it was decided that the new system should, so far as possible, be owned by the people and that the stock should be offered to the public at par for 60 days, the banks being merely required to underwrite the issue and take what the public did not subscribe for. By the same vote it was decided that the banking interests shall elect four directors and the Federal board representing the Government shall select five directors of each Federal reserve bank. By a vote of 10 to 2 it was decided that the capital stock of the regional banks shall be 6 per cent of the capital and surplus of the national banks in the district and, whether taken by the public or the banks, shall be paid for one-third cash, one-third in 30 days, and one-third in 60 days. By a vote of 8 to 4 it was decided that the Federal reserve notes shall be payable in gold. By a vote of 4 to 8 the effort to substitute bank notes guaranteed by the Government for United States notes was beaten. Thus we were going through the bill taking one important provision after another and voting upon it in a nonpartisan spirit, and making such progress that it was hoped the bill could be reported by the 15th of this month. Consideration and decisions had been nonpartisan in character in accordance with the views expressed in the open Senate October 9 by Senators on both sides of the Chamber. At this juncture, however, in the committee deliberations, a motion to reconsider one of the important questions was made and carried, and the whole subject was thrown open again. After several days of discussion it was found on taking a vote that the committee had become evenly divided and finally six of our colleagues on the committee withdrew from our meetings and proceeded to consider the bill in separate session. We continued with the consideration of the bill, although lacking a quorum, accepting the decisions which had already been tentatively made in full committee as above specified. Waiving a strong preference which prevailed in committee in favor of a single Government bank with branches, we accepted the regional bank plan as the only hopeful outlook for action by this Congress, but retained the amendment substituting 4 regional banks for 12. While the single Government bank plan would produce the only perfect mobilization of reserves, as has been demonstrated by the experience of other countries, the adoption of four regional banks under a single control will, it is thought, approximate this result and, in a country so large as ours, with so many banks, probably prove efficient. Every addition to this number of reserve banks must inevitably tend to dissipate the reserves and weaken the system. The more reserve banks the less perfect will be the use of reserve funds, which means that asset currency will be issued with greater frequency and in larger volume. It will often happen with a system of 12 reserve banks that a number of them will be calling for currency and charging a high interest rate when other reserve banks will be in their dull season with slack demand for money and large balances. With four reserve banks, each embracing a large territory served by branches and having a variety of climate and interests, this would rarely occur. Moreover, to cut the country up into many reserve districts means that most of the reserve banks would be comparatively weak and would not inspire confidence. They would not even equal in size some of their member banks supposed to depend on them. It would probably be difficult to sell to the public the stock in these small reserve banks because they might not be able to earn dividends and would probably be frequently compelled to call upon the stronger ones for assistance. In our opinion the ownership of the stock by the people is highly important. If $106,000,000 of stock in these four reserve banks can be sold to the public as a 5 per centum investment there will be thereby added to the banking capital of the United States that great sum of money. We think this very desirable. At present there is a deficiency in the banking capital in many sections of the United States. The tendency of each bank has been to do as large a volume of business on as small an amount of capital as possible for the purpose of maintaining dividends, and the result has been a growing disparity in the proportion of capital to deposits. To compel national banks to subscribe for the capital in the proposed reserve banks simply means the shifting of $106,000,000 of capital now actively employed with great efficiency and benefit to the public by the various banks to a place where the return is limited to 5 per centum. Such a contraction from the working capital would be to aggravate the evil now existing, and we greatly prefer the plan of bringing this new capital into the banking world and giving to small investors the tax-free, highly desirable 5 per centum investment which they will eagerly take. In this way tens of thousands of our people will be directly interested in this great Governmentcontrolled banking system. This is easily possible with a system of four reserve banks, and it is very doubtful with a larger number. It has seemed to us, moreover, wise that upon these reserve banks the Government should have a majority of the board of directors. We have, therefore, proposed an amendment giving the Government five and the banking interests four of these directors. In the division of earnings we have provided that after the payment of 5 per cent dividends and the accumulation of a surplus the net profits, instead of being divided between the stockholders and the Government, shall be disposed of by giving the Government onehalf and with the other half creating a depositors' insurance fund, so that when a member bank shall fail in spite of this new system the depositors may be reimbursed out of these accumulated profits. This method levies a tax upon no bank, but it will add immensely to the feeling of confidence and security among depositors and stop bank runs. We have proposed that the national banks shall decide whether to join this new system or not within six months, as it has seemed to us that a year is an unnecessary length of time. We have recommended that the size of the Federal reserve board be increased to nine, because of the vast interests which are intrusted to it, the great country which must be covered, and the many questions and complaints which must be considered. We have thought also that every member of the board should give his whole time to |