retary of the Treasury sees fit to intervene, his power is limited by the willingness and ability of the banks to supply the security required. Even then the exercise of his discretion introduces an element of uncertainty which renders unavoidable the erratic character of the influence of which we are speaking.

The result of this lack of an elastic element in our currency and of the influences causing erratic variations in the amount of hand-to-hand money in circulation is wide fluctuations in the reserves of the Associated Banks and in money rates. The chart on page 278 indicates the extent of these fluctuations in recent years in terms of annual averages, and that on page 277 indicates average conditions for each year.

The actual fluctuations are much greater than these charts, based on averages, indicate. The following table representing the maximum and minimum of the typical rates in recent years, better reveals their magnitude:

On account of the absence of a central bank, there is wanting in New York the steadying and unifying influence

of a bank rate and the bulwark to confidence which the great European banks form. The banks associated in the Clearing-House act as a unit and in harmony on many matters of great importance, but they cannot approximate the unity and quickness of action of a single institution. In rate making, loaning and discounting, and in the manipulation of their reserves within legal limits, they act independently, except on rare occasions in times of crises, when the Clearing-House Association decides upon extraordinary measures. The most they can then do is temporarily to combine their reserves through the issue of clearing-house certificates.* They do not and cannot bear the responsibility directly or indirectly assumed by the central banks of Europe to supply the market with funds against the rediscount of first-class bills.

The interests of the public as opposed to those of individuals or groups of individuals lack adequate representation on the New York market. In the European markets these interests are cared for by the government through its direct or indirect control of the central bank. Their sole representative in New York is the Secretary of the Treasury, whose power, as we have seen, is quite limited. The result is that the New York market is subject to manipulation for the benefit of special interests and at the expense of the public.

The circulation of the government notes, familiarly known as greenbacks, is a feature of our money market worthy of note. These notes, amounting to $346,681,016 redeemable on demand in gold by the United States Treas

*These are certificates issued against specified securities deposited with the Clearing-House Association and receivable for clearing-house balances. They usually bear a high rate of interest and are sometimes issued in denominations small enough to make them available for general circulation.

ury and legal tender for the payment of all debts public and private, except duties on imports and interest on the public debt, constitute a fixed element in our currency and are available for use as bank reserves. By their presentation for redemption it is possible at times for the banks to throw upon the Treasury the burden of supplying the market with gold. The ability of the Treasury to meet this obligation depends upon a reserve of $150,000,000 in gold kept for that purpose and, in case of its depletion, upon the right to borrow gold by the issue of bonds.

A similiar obligation is imposed on the government by the circulation of more than five hundred million silver dollars or silver certificates representing them. The bullion value of these coins varies with the price of silver, but for many years it has been less than one-half their face value. The responsibility for making good this difference is imposed upon the Treasury by the legal requirement that it must at all times maintain the circulation value of these coins at a parity with gold. For the meeting of this obligation no gold reserve is maintained nor has the right to issue gold bonds for this purpose been granted by Congress. The Treasury is protected only indirectly and very imperfectly by legal provisions requiring the retirement of greenbacks and national bank-notes of low denominations, and the issue of the bulk of the silver certificates in these denominations. By this means it is hoped that the silver currency may be kept constantly in use and its return to the government prevented.

The peculiar feature of our money market, due to the circulation of these greenbacks and silver dollars, is the placing of the responsibility for the maintenance of gold payments upon the Treasury without equipping it with the means of meeting this responsibility under all possible conditions. The gold reserve of $150,000,000 once ex

hausted, the only resort of the Treasury is the borrowing of gold by means of bond issues. In times of monetary stringency and sharp international competition for gold, precisely the times on which such a situation would have to be faced, such a proceeding would at the best be slow and expensive and might be impossible. Knowledge of the weakness and unprotected character of the Treasury under such conditions contribute toward a panicky feeling on the money market whenever these conditions are feared or approximated, and thus helps to create the kind of a situation which it should be the chief function of the guardian of the public interests on the money market to prevent.

6. Some peculiarities of the London market. The London market owes its chief peculiarities to the central position which England occupies in international commerce, to certain features of her banking system, and to the magnitude of English investments in foreign securities.

For more than a century London has served as a clearing house for international commerce. Through the colonial system of England, her free trade policy, her early establishment of, and persistent adherence to, the gold standard of value, her great wealth, and the genius of her people for commerce, London merchants have established trade connections with every part of the world and are able to perform the function of an intermediary for foreign merchants in other parts of the world more economically than those of any other country. The volume of this kind of business performed by them has long been enormous and shows no tendency to diminish in spite of the increasing competition of other centers. One result of this commercial eminence has been to make London the chief market in the world for foreign bills of exchange, and control of this market has given her a command of the monetary, particularly of the gold, resources of the world possessed by no

other city and at the same time has subjected her to drafts from every quarter. She has thus become the central money market of the world.

In the performance of this function the manipulation of the rate of discount of the Bank of England plays the leading rôle. On account of their ready saleability and their high character in other respects, the bankers of the chief continental markets fill their portfolios with London bills whenever local paper is inadequate for the profitable employment of their funds, a common condition of things, especially in France, Belgium and Holland. On account of its influence on the market rate, the rate of the Bank of England, however, is the chief determinant of the profitableness of these investments. Accordingly when that rate rises, London paper is purchased in increased quantities, and when it is lowered, it is sold and new investments diminished in magnitude. In the one case the power of London to draw gold from the continental centers is increased, a balance in her favor being created or an adverse balance diminished or annihilated, and in the other the power of these centers to draw on London is enhanced. The gold supply of the London market is thus more elastic than that of any other.

This fact renders less serious the consequences of the inelasticity of the English system of bank-note issues. As was pointed out in a preceding chapter, with the exception of a small amount of notes issued by a few joint-stock and private banks, the magnitude of which cannot be increased and which diminishes very slowly, the Bank of England issues all the notes in circulation under the limitations imposed by the bank act of 1844 and subsequent orders in council issued in accordance with its provisions. As a result of these limitations the volume of bank-notes in circulation normally increases only when a corresponding