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Frank Albert Fetter.

Source book in economics, selected and ed. for the use of college classes online

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tentlency. The cost of handling ore and extracting gold in
the Transvaal mines per ton of ore treated has steadily de-
clined and made a new low record in 1910.

The cost of mining gold, however, unless revolutionary
changes are accomplished, does not have as great an influence
upon production as in the case of common commodities for
which there is an unlimited supply of raw materials. It is a
fact already alluded to in this paper, and familiar to all who
have followed developments in the gold-mining industry, that
the great increase in the output since 1890 has been due in the
main to two contributing discoveries that were directly re-
lated to each other, to wit, the discovery of the Transvaal
field and the discovery of the cyanide process. Of course, it
is possible at any time for both of these discoveries to be
repeated in others as important, but until such new discov-
eries are made there will be no similar leap in production.
Since 1906 the rate of production in the United States, in-
cluding Alaska, has been practically at a standstill. There
is nothing to indicate a considerable change in either direc-
tion. Australasia has been on a declining scale since 190.':},
the annual yield being now about $28,000,000 below the high
year. Russia, Canada, and Mexico have shown an increase
of late about sufficient to offset Australasia. The Transvaal
has been pushed up to a new record in 1911, but the deposit is



312 GOLD PRODUCTION

well defined, and the increased production of recent years has
been due to an enlargement of the crushing plants rather
than to any extension of the field. This policy of increasing
the investments in order to exhaust the mines more rapidly
has probably gone nearly as far as it can be profitably fol-
lowed. . . .

While it is not likely that the Rand will show an apprecia-
ble decrease for a good many years to come, it is probably not
far from the maximum output. There has been no gain in
the world's production for some years except that made by
the Eand.

The figures given in the foregoing tables show how the
hitherto undeveloped countries, outside of the old circle of
industrial nations, are reaching out for a share of the new
supplies. As a river rises in flood the water creeps over its
banks, backs up its tributaries, fills up adjacent low places,
and spreads out over expansive areas of lowlands, with the
result that vastly more water is required to raise the level at
the high-water stage than when the river is low. A some-
what similar distribution of new gold is going on and in
prospect.

The historical parallel [page 288]. Gold was discovered
in California in 1848 and in Australia in 1851, and by 1852
these new fields were producing together over $100,000,000
per year. The first noticeable effect was an accumulation of
gold in the Bank of England, which reduced its discount rate
to encourage borrowing. The first industrial effect was in the
shipping and shipbuilding industry, due to the demands of an
increasing trade with the United States and Australia, but
•the revival soon extended to the building trades and thence to
all branches of industry, and spread over Europe.

By this time apprehensions were expressed as to the dis-
turbing effects upon monetary systems of the threatened in-
undation of gold. Holland and Belgium stopped coining it.

About this time counteracting influences began to operate,
and in view of the present movement of gold to India it is an



GOLD PRODUCTION 313

interesting fact that the most inii)ortant modifying influence
at that time M'as the movement of specie to India. . . .

Professor Stanley Jevons, a contemporary writer of liigh
repute . . . writing in 1865 and reviewing prices since 1849,
said:

If we compare prices now (March, 1865) with what they were at
their lowest in 1849, we tind tliere has been a rise of 21 per cent.
If we take tlie average of 1845-1850 as our standard of comparison,
the rise is 11 per cent. The real permanent rise due to the gold
discoveries is doubtless something between these, or probably nearer
tlie higher limit, 21 per cent. The gold discoveries have caused tiiis
rise of price. They have also neutralized the fall of prices which
might have been expected from the continuous progress of invention
and production, but of which the amount ia necessarily unknown.



THE NATIONAL BANKS

[The Comptroller of the Currency, an officer of the Treasury De-
partment of the U. S., gives in his annual report much information
not only about the national banks, but about State, private, and
savings banks in this country and in foreign countries. The following
are a few extracts from the report of 1910.]

Organization of national banks. Under section 5133 of
the Revised Statutes the organization of national banking
associations by any number of persons, not less than five,
is authorized. This section provides that the incorporators
shall enter into articles of association specifying in general
terms the object for which the association is formed and a
copy thereof forwarded to the Comptroller to be filed and
preserved in his office. The following section provides for
the execution of an organization certificate by those who have
entered into articles of association. This certificate is re-
quired to be acknowledged before a judge of some court of
record or a notary public and transmitted to the Comptroller.
When these documents have been filed with the Comptroller
the association becomes a body corporate, but with powers
limited to transaction of business incidental to organization
until the issuance of the Comptroller's certificate authorizing
the association to begin the business of banking. The law
further requires the collection and certification of payment
of at least 50 per cent, of the authorized capital stock and
the deposit of a specified amount of United States registered
interest-bearing bonds, and authorizes an examination for the
purpose of determining the amount of money paid in on ac-
count of capital stock and whether all requirements of law
in relation to organization have been met.

As the law, however, specifically confers upon the Comp-

314



THE NATIONAL BANKS 315

troller discretion with respect to approval of the name selected
for an association, the course of procedure under the estab-
lished rules of the office is to re(iuire the submission of a
formal application for authority to organize an association
wherein is stateil the title desired, location of the bank, cap-
ital stock, the signatures of the applicants given, accompanied
by advice in regard to the business and financial standing of
the applicants, number of shares to be subscribed for, and
the previous banking experience, if any, of the applicants.
Indorsements are required with respect to the character and
standing of the applicants, the population of the place at
which it is proposed to organize the bank, and an expression
of opinion with respect to prospects of success of the associa-
tion if chartered and conservatively managed.

Prior to the disposition of an application a copy thereof is
sent to the national-bank examiner, to the member in Con-
gress for the district in which the bank is located, and to
the superintendent of the State banking department, with
reiiuest for information with respect to the character and
standing of the applicants, the existing demand for a bank at
the locality, and an expression of opinion as to whether suc-
cess is probable.

Applications for authority to convert State banks into
national banking associations are made by the directors, and
each case of this character is investigated for the purpose of
determining whether the bank has been conducted in con-
formity with law, its measure of success, and also as to the
character of its assets and general business.

In view of the fact that bank stock is generally regarded
as a very desirable investment, the organization of banks,
both national and State, has been very active during recent
years, and it has been shown to be evident to both i'ederal
and state authorities that many banking institutions are or-
ganized, or organization att<'mpted, without giving due con-
sideration to their demand oi' tlicir pi-ospects of success. As
far as jjossible the state autliorities are now acting in bar-



316 THE NATIONAL BANKS

mony with the Comptroller in the upbuilding of banking con-
ditions by preventing the organization of banks where the
demand therefore is not apparent or where organization is at-
tempted by those whose character and standing are ques-
tionable.

During the year ended October 31, 1910, 425 applications
were received for authority to organize national banks, in-
cluding applications to convert state banking institutions.
Approval was granted in 315 cases and there were 74 rejec-
tions, the cause of the latter being, first, existence of ample
banking facilities at the place; second, population and busi-
ness too limited to warrant success; third, character of the
applicants and of others interested. Kejections of applica-
tions to convert were based, primarily, upon information re-
ceived to the effect that the management had been neither
in conformity with law nor successful.

Charters were issued during the year to 311 associations
having aggregate authorized capital stock of $30,760,000, and
from the date of the passage of the national-banking act in 1863
to October 31, 1910, charters to the number of 9883 were
granted. At the close of the current year 7218 banks were in
active operation, 2176 having been placed in voluntary liqui-
dation and 489 in the charge of receivers for liquidation of
their business in the interest of depositors and other cred-
itors. Included in the total number of charters granted were
1571 to institutions which were conversions of state banks.
The capital of these converted banks at date of entrance into
the national banking system was $330,665,928.

Under the provisions of the act of March 14, 1900, national
banks to the number of 2953, with aggregate capital of $76,-
930,500, were organized, the average capital being approxi-
mately $26,000. Since the date of the act in question, 1666
banks were organized under the law of 1864, their aggregate
capital being $214,912,800 and the individual capital $50,000
or more. It further appears that 652 of the banks chartered



THE N'ATI()XAI> I'.ANKS 317

ill lliis period wore foiivcrsions of stale l);mks, their ea[)ilal
beiiii:: $51,445,800 ; 140;} reoryaiii/.ations of state or private
banks, with aggregate eai)ital of $93, 987,000 ; and 2564 pri-
mary organizations, the capital represented being $146,410,-
500. Tlie total numl)er of banks organized from March 14,
1900, to the end of the current year was 4619 with aggregate
capital of $291,843,300, exceetling by 1002 the number of
banks in active operation on j\Iarch 14, 1900. The average
number of banks organized monthly from March 14, 1900, to
October 31, 1907, was approximately 40; the average in 1908,
27; in 1909, 25; and in 1910, 26.

Reserves and deposits. The original law reciuired the
maintenance of a reserve on deposits in all respects but an
exception was made with respect to United States deposits in
the act of May 30, 1908. In determining the amount of
deposits on which reserve is required to be held there is first
ascertained the net balance due to other banks, to which are
added dividends unpaid, individual deposits, and deposits of
United States disbursing officers. From this gross amount
the following deductions are allowed : Checks on other banks
in the same place, exchanges for clearing house, bills of other
national banks, and amount due from the Treasurer of the
United States. The resultant amount of these deductions
represents the sum of the deposits upon wdiich is based the
required reserve; that is, 25 per cent, for reserve city banks
and 15 per cent, for all other banks. The amount of the
reserve being determined, there is deducted therefrom the
5 per cent, redemption fund which the law authorizes to be
counted as a part of the reserve. The 25 per cent, reserve
required by central reserve city banks must consist of lawful
money in bank; in other reserve city banks at least 121/2 per
cent, in bank, with a limit of 121/0 per cent, with approved
agents in central reserve city banks. Banks located else-
where than in reserve cities are recjuired 1o maintain a reserve
of 15 per cent., of which at least two-fifths or 6 per cent., must



318 THE NATIONAL BANKS

be in cash in bank and three-fifths, or 9 per cent., may be on
deposit with correspondents in central or other reserve city
banks.

While occasionally a bank is deficient in the amount of
reserve required, the aggregate requirement for all banks is
rarely deficient. . . .

The entire reserve required to be held by central reserve
city banks is in lawful money with the exception of the re-
demption fund, which averages approximately one-fourth of
1 per cent. In other reserve city banks the lawful money
reserve slightly exceeds 51 per cent., the amount available
with reserve agents 47 per cent., and the redemption fund
slightly less than 2 per cent. The reserve held in lawful
money by country banks averages 45 per cent, of the total
reserve held, tlie amount available with reserve agents aver-
aging approximately 50 per cent., and the amount in redemp-
tion fund slightly in excess of 4 per cent. Taking the coun-
try as a whole, the lawful money in bank is approximately
64 per cent, of the total reserve held, amount available with
reserve agents 34 per cent., and the redemption fund 2 per
cent.

Profit on national-bank circulation. In computing the
profit on the issuance of national-bank circulation it is as-
sumed that the entire amount based on the bond deposit is
in circulation and no deduction is made by reason of the fact
that a reserve fund of 5 per cent, on the issues is required to
be maintained in the office of the Treasurer of the United
States for the redemption of notes as presented at the de-
partment, as the redemption fund is permitted by law to be
counted as a part of the bank's lawful reserve. In the cal-
culation appearing in the appendix to this report, the profit
is stated, based on the average net price of bonds, monthly,
during the year ended October 31, 1910, and is computed
separately on deposits of 2 per cent, consols of 1930, the 4 per
cent, loan of 1925, and the 2 per cent. Panama Canal Loan.
Money is assumed to be worth 6 per cent, and the measure of



THE NATIONAL BANKS 319

profit is the difference between the net receipts from the cir-
culation loaned at 6 per cent, and interest that would be ob-
tained on the cost of the bonds loaned at the same rate; in
other words, from the interest received on the bonds at the
rate provided therein, and the interest on circulation loaned
at 6 per cent., are deducted the taxes on circulation, expense
incident to the obtaining of circulation, i.e., plates, redemp-
tion charues, etc., together with the sinking fund and from
the difference is deducted the interest on the cost of the bonds
to show the profit.

During the year in question, 2 per cent, consols of 1930
ranged in price from a minimum of 100.505 on November,
1909, to a maximum of 101.24 in September, 1910, and on the
same dates the profit on circulation in excess of 6 per cent, on
the investment was 1.387 per cent, and 1.313 per cent., re-
spectively ; that is to say, on the issue of $100,000 of circula-
tion on the security of 2 per cent, consols of 1930, at a cost
of 100.505 the profit on circulation in excess of 6 per cent, on
the investment was $1349.39, and on the bonds at a cost of
101.24 the profit was $1329.31.

The highest average net price of 4 per cent, bonds was
116 693 in November, 1909, and the rate on circulation se-
cured by bonds of that class was 1.076 per cent. The lowest
price on these bonds during the year was 114.875 during May,
eTune, and July, the rate of profit being 1.225 per cent, in
^fay, 1.220 per cent, in June, and 1.225 per cent, in July.
The rate of profit, however, reached the maximum of 1.233
per cent, when the bonds in February were quoted at 114.932.
The profit on circulation secured by the Panama Canal bonds
is but nominally in excess of the profit on 2 per cent, consols,
although in November, 1909, when the Panama Canal bonds
were quoted at 100.130, the rate of profit on circulation Avas
greater than on any other class of bonds at any time during
the year, being stated at 1.426 per cent.

Earnings and dividends of national banks. While the
dividend i)eriods of national banks vary, and under the law



320 THE NATIONAL BANKS

reports of earnings and dividends are required to be made to
the Comptroller within ten days after the declaration o£ divi-
dends, for statistical purposes the reports are abstracted for
semiannual periods ending December 31 and June 30. In
the appendix to this report appear the abstracts, by reserve
cities and States, for the periods ended December 31, 1909,
and June 30, 1910, Combining these two abstracts, for the
purpose of showing results for the entire year, it appears that
the average capital on which dividends were paid was $963,-
457,549. The average surplus was $630,159,719 and the gross
earnings $402,655,823.44 against which were charged losses
and premiums aggregating $38,714,082.62, or 9.6 per cent.,
and expenses of $209,784,251.35 or 52.18 per cent. With
these deductions the net earnings are shown to have been
$154,167,489.47, from which dividends were paid to the
amount of $105,898,622, or 10.99 per cent, on the capital and
6.65 per cent, on the capital and surplus. The net earnings
were equivalent to 9.67 per cent, of the capital and surplus.

The act re([uiring the submission of reports of earnings and
dividends was not passed until 1869 ; hence the records begin
with the year ended March 1, 1870, continuing to June 30,
1910, a period of forty-one years. The average annual net
earnings of banks during this period are shown to have been
$71,956,096 and the average dividends $54,198,299, or an
average rate of 8.98 per cent, on the capital stock. The aggre-
gate net earnings for the forty-one years are stated at $2,950,-
199,928 and the dividends at $2,222,130,367.

National-currency associations. In the annual report of
the Comptroller of the Currency for 1908 the salient pro-
visions were published of the act of May 30, 1908, providing
for the formation of national-currency associations and the
issue of additional national-bank currency.

Under this act national-currency associations may be formed
by any number of national banks, not less than ten, with
aggregate capital and surplus of at least $5,000,000, and lo-
cated in contiguous territory. No national bank, however.



THE NATIONAL BANKS 321

in;iy he a meiiibiT of a eiUTCMioy association unless it has an
iuiimi)airod capital and a surplus amounting to at least 20
per eent. of its capital. It is further provided that to be
entitled to issue adilitional currency a national bank, a mem-
ber of the currency association, shall have circulation out-
standiuii', secured by United States bonds, aggreji^ating not
less than 40 per cent, of the capital stock. Additional cir-
culation proviiled by this act may only be issued upon the
recommendation of the Comptroller and approval of the Sec-
retary of the Treasury. The maximum circulation issuable
by a bank on United States bonds, and under authority of
the act of J\lay 30, 1908, is measured by the capital and sur-
plus of the bank.

The officers of a currency association, on behalf of one of
the bank members, may apply for authority to issue additional
circulation to an amount not exceeding 75 per cent, of the
cash value of the securities or commercial paper deposited
with the association, and upon deposit of state, city, town,
count}', or other municipal bonds of the character prescribed
by the act may obtain for issue circulating notes to the extent
of 90 per cent, of the market value of the bonds deposited.
The issue of additional circulation on commercial paper, how-
ever, is limited to 30 per cent, of the unimpaired capital and
surplus.

The act contemplates that no additional circulation shall
be permitted to be issued unless, in the judgment of the Sec-
retary of the Treasury, conditions in the country at large, or
in a special locality, warrant such action, and under section
8 of the act it is made the duty of the Secretary of the
Treasury to obtain information with reference to the value
and character of securities authorized to be accepted, and
from time to time to furnish information to national-banking
associations as to such securities as would be acceptable under
the provisions of the act.

The act further provides for an issue of circulating notes
and the incorporation of the statement upon their face that



322 THE NATIONAL BANKS

"they are secured by United States bonds or other securi-
ties," certified by the written or engraved signatures o£ the
Treasurer and Register and by the imprint of the seal of the
Treasury. They shall also express upon their face the prom-
ise of the association receiving the same to pay on demand,
attested by the signature of the president or vice-president and
cashier. Under this requirement, circulation has been pre-
pared for every national-banking association, and there is
stored in the reserve vault of the bureau a stock of incomplete
currency amounting to $500,000,000. So far, no circulating
notes, other than those secured by United States bonds, have
been issued, but all incomplete currency shipped to a bank
bears the legend quoted.

On June 30, 1910, the number of national banks reporting
was 7145, with paid-in capital of $989,567,114 and surplus of
$644,857,482.82. Of these banks, 5699 had circulation se-
cured by United States bonds equal to or exceeding 40 per
cent, of the capital, and 1415 circulation less than that pro-
portion.

In less than thirty days after the passage of the emergency-
currency act a national-currency association was formed in
the District of Columbia, of which all of the eleven banks iu
the District were members. The aggregate capital and sur-
plus of the banks at that time were $5,202,000 and $3,942,000
respectively. . . .

While the formation of other currency associations was
undertaken, none was perfected in a manner acceptable to
the Secretary of the Treasury until the midsummer of 1910,
by reason of what were regarded as insurmountable obstacles
on the part of banks interested. These obstacles, however,
were in a large measure overcome by a revised construction of
the law.

Banking power of the United States. The following table
shows for 1910 the banking power of the United States, in-
cluding the island possessions, as indicated by the volume of
capita], surplus, deposits, and circulation.



TIIIO NATIONAL 15ANKS

Amounts in million dollnr.s.



323





u

a


a
■ O


Surplus,
etc.


o
c.


3


o


National banks ....
Stale, etc., bunks . .
Non-report iiijr

buuks


7.1 jr.

1.3,'JoO
4,1GS


$ 080..'')
890.3

77.1


!? S(il,4
1,091.0

28.3


n $ r.,.T.n.7
9,990 1

521.0


$675.6


7,868.3
12,553.6

627.1




27,263


3!1, 957.1


$1,980.8


$15,859.5


$675.6


21,049.2



a Includes government deposits.

b Number of banks and umuunts estimated upon statements from reporting
private banks.



PLAN FOR MONETARY LEGISLATION

[The act of Congress, May 30, 1908, provided for a national monetary
commission to inquire into and report to Congress what changes were
necessary or desirable, in tlie monetary system of the United States,
or in the laws relating to banking and currency. After extended in-
quiries and public discussion, the Commission submitted its report to
Congress in January, 1912. The principal defects to be remedied were
summarized in the following propositions in Senate Document 243
(Jan. 9, 1912), 62d Congress, 2d session, pp. 6-9.]

Defects of our present monetary system :

1. We have no provision for the concentration of the cash
reserves of the banks and for their mobilization and use wher-
ever needed in times of trouble. Experience has shown that
the scattered cash reserves of our banks are inadequate for
purposes of assistance or defense at such times.

2. Antiquated Federal and State laws restrict the use of
bank reserves and prohibit the lending poM^er of banks at
times when, in the presence of unusual demands, reserves
should be freely used and credit liberally extended to all de-
serving customers.



Online LibraryFrank Albert FetterSource book in economics, selected and ed. for the use of college classes → online text (page 25 of 30)