n in order to recover their bonds for sale at the enhanced
price. When the price of government bonds falls, many banks purchase
additional quantities and increase their circulation.
Changes in the price of government bonds and in the number of national
banks, however, have no connection whatever with changes in our
currency needs, and no more do the fluctuations in the volume of the
currency as a whole, made up of these various elements combined. As a
result of this condition, rates on loans and discounts fluctuate
greatly on account of wide variations between the demand and the
supply of loan funds, and commerce is hampered at certain seasons and
overstimulated at others. As was indicated above, this lack of
elasticity in our currency aggravates the defects of our reserve
system and also aids in the production of financial panics.
_6. Plans for Reform_
On account of the defects in our system of banking, there has been
long-continued agitation for reform, increasing in scope and intensity
in recent years. After the crisis of 1907, which revealed these
defects to many persons who had not observed them before, Congress
appointed a commission to make investigations and to prepare a reform
measure. In January, 1912, this committee submitted a report which
embodied a bill for the incorporation of a National Reserve
Association, to be made up of a federation of local associations of
banks and trust companies. The purpose of this association was to
supply a market for commercial paper, an elastic element in the
currency, a place for the deposit of the bank reserves of the country
and of the funds of the government, as well as proper machinery for
the administration of this market and these funds.
For various reasons, the plan of the monetary commission did not meet
with universal favor. It was condemned in particular by the Democratic
party, which was victorious at the polls in the fall elections, and
installed a new administration in Washington, March 4, 1913. A special
session of the new Congress was called to consider the tariff
question, and to it was submitted another plan for the reform of our
banking system, which was enacted into law December 23, 1913.
This law provides for the incorporation of so-called "Federal Reserve
Banks," the number to be not less than eight or more than twelve. The
country is to be divided into as many districts as there are Federal
Reserve Banks, and the national banks in each dist
|