America's Money Machine

The Great Investigation 59
of all intelligent men who have studied the question, both here and
abroad, these money panics are entirely due to a defective banking and
currency system....
"I say it, Mr. Chairman, because when we turn to every other great
nation on the face of the earth ... we find that no one of them has had
a money panic for more than fifty years."
Observing with perspicacity that while "elasticity ofcash is important,"
"elasticity ofcredit is ofvastly greater importance," Vreeland pointed out
that 95 per cent of business transactions were done with instruments
other than currency. "The banking part of our problem is vastly more
important than the currency part of it."
Proceeding from these premises he argued against the minimum reserve
requirements of American banking practice. "Go to England,
Austria, France, Germany-any great country abroad," he exhorted­
"Not one of them by law requires a bank to keep a dollar of reserve on
hand."
To illustrate his meaning he cited the practice of the French Credit
Lyonnais, at the time the greatest bank in the world, with over $300
million ofdeposits and upwards of$80 million capital funds. He reported
that he asked the governor how much cash he kept in the vault against
these deposits. The governor called his bookkeeper, who announced that
it amounted to about 5 1/2 per cent ofthe demand liabilities. In surprise,
the Congressman asked if they did not have runs upon banks in France,
and did the people never become excited? The governor conceded that
the French did indeed become excited. "With the most excitable people
on earth," asked Vreeland, "how do you feel safe in carrying this small
reserve of 5 1/2 per cent?" The explanation which the Congressman
reported from the governor was that the bank could take to the Bank of
France up to $150 millions of paper bearing three solvent names and
obtain notes "as good as gold." "If I could not do that," added the
governor, "I could not sleep nights."
Vreeland summarized his conclusions in two points.
First, the note issue should be centralized in one institution, with the
issue to rest upon gold and commercial paper, not less than one-half of
the reserve to consist of gold.
Second, the mobilization of part of the cash reserves of the banking
system in one institution, this institution to carry large reserves, and to
have the right to expand its note issue and credit liability based upon gold
and commercial paper.
Congressman Vreeland, had he been gifted with prophetic foresight,