America's Money Machine

The Bill Considered 69
session for two limited purposes-revision of the tariff and currency
legislation. While the Administration debated among themselves the
form of the currency bill they could agree on, Congress devoted its time
to the tariff.
OnJune 18, 1913, after numerous White House conferences, the Administration
released the text of its proposed bill. The Bryan influence
was evident. Instead of a currency based upon commercial paper, fluctuating
with commercial demand, and controlled by bankers, as proposed
by the National Monetary Commission, the bill provided for a currency
that rested almost entirely on government fiat. That is, while it proposed
a Federal Board of Reserve of nine members, six of the members would
be government appointees and only three would represent the banking
system; moreover, notes would be issued by the U. S. Treasury to banks
against the deposit ofacceptable collateral, but the notes would be obligations
ofthe U. S. Government. In addition, the bill would terminate the
national bank note issue and the circulation privilege which national
banks had enjoyed since 1864.
The news provoked an immediate reaction in the banking community,
sufficient to cause a number ofmodifications before the bill was formally
introduced in the two houses on June 26. The opposition now became
an uproar, with a threat from banks of wholesale surrenders of their
national charters and transfer to state charter if the bill were enacted.
Almost at once, the New York Times declared that the Administration's
banking and currency bill in its present form was "dead and done for."
"Even the enactment of the measure would not modify this judgment,"
thejournal declared, "for it is now perfectly evident that it should not be
put into practical effect." 2
The immediate objection of the banks, of course, was to the termination
of the circulation privilege. Banks were principal holders of the
government two per cent bonds outstanding, eligible for security of
notes. Ofthe $731 million outstanding, $700 million were held to secure
circulation and deposits. The demand for these obligations by banks
served to keep the bonds at par despite the low interest rate they carried.
The proposal to abolish the circulation privilege promptly caused a drop
in the quotations and threatened loss to the holders.
Faced with this unexpected development, the Administration gave assurances
that the bill would be amended to continue the circulation
privilege for· twenty years. Before the end ofJuly the banking bill had
come under the influence of more temperate views and a number of