[Notes]Source: Journal of Political Economy, Vol. 8, No. 1 (Dec., 1899), pp. 89-93Published by: The University of Chicago PressStable URL: http://www.jstor.org/stable/1817597 .

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NOT ES.

1N- Europe a public career has long been open to economists. The finance ministers of the continent have been frequently selected from the rank of professional economists. In the Uniited States, on the other hanld, it has long been the fashion of the man of affairs to regard the academijic miian as unfit for the practical duities of office. Such a state of things could not, in nature, continue forever ; and there are many interesting evidences of an increasing respect for the opinions and judgment of trained economnists.

Soiime timBe ago David A. AWells and Francis A. Walker imiade great reputations in the service of the government. More recently several cases illustrate the value set upon economic training: P'rofessor A. T. Hadley's appointmnent some years ago as Coinmissioner of Labor in Con- necticut; P'rofessor H. C. Adamiis's continued service as the statis- tician of the Interstate Commerce Coiimmissiona; the exceptional collection of prices by Professor R. P. Falkner, for the Aldrich Senate (Coiiiiiittee; the coilspicuous efficiency of Professor F. W. Taussig on the Massachusetts Commiiiiission on Taxation the consultation of Gov- ernor Roosevelt with 1'rofessor E. R. A. Seligman on legislation relat- ing to taxation; the selection of Professor Emory R. Johnson, of the University of Pennsylvania, upon the Isthimlian Canal Commiiiiission the present work of Professor J. W. Jenks, on Trusts, for the Indus- trial Coinimission authorized by Congress ; and the choice of Pro- fessor WValter t. WNilcox, of Cornell, as the chief statistician of the new national census.

IHE rise in the rate of discount, and the exceptionally high rates charged on speculative operations during the last few weeks have an interest beyonad the temnporary effect on business and stock transac- tions. The causes lying behind the facts are very significant as to our monetary situation. In the first place, the rigidity of the currency is brought clearly to view, whenever the conditions of foreign exchange (such as are produced, among other things, by the Transvaal war) pre- vent the easy flow of gold to this country on the rise in the rate of interest. lThe unm-listakable prosperity of the country has taken up a

89

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90 JOURNAL OF POLITICAL ECONOMY

large part of the stock of paper inoney for uses as a medium of exchange, and the inelasticity of bank isstues has becoine painfully applarent. For this the self-evident remnedy to which the country mnust comiie in time- is a more elastic bank-currency based on com- mercial assets. The existing situation throws up this need in a very practical iiianner. In the second place, another factor has just reap- peared to work more or less damiiage. Not until very recently has the United States been blessed with a surplus. Th'lie heavy taxes imposed during the Spaniish war now unite with formiier sources in yielding an incomiie greater than the outlay (even wlhile the Philippine war contin- ues). 'lThis flow of m-loney into the treasur-y brings forth again the imalignant influence of the old Independent 'Treasury systemii upon the ionotey imiarket. A.lthough keeping as large deposits as seemn politically defensible with the banks, the secretary finds his surplus increasing. Just to the extent that this goes on, it drains the resources of the banks at the very time when great legitimiate demiands are imiade upon thelh by the development of industry. TlAhe crudeness of our mllonetary systemn is suire to be brought to light wvhenever an emergency arises. The pre- paymIment of bonds which has been offered by the Secretarv of the 'Treasury is a necessity arising fromii the Independent TFreasury Systemn, and deserves none of the criticisrn which a captious press has given it.

[HEl evident purpose of the party in power to pass a currency measuire at this session of Congress gives the bills presented in the house and senate exceptional interest. TFfhat of the house is remiark- able in imiany respects; it is admiiirably clear, com-lprehensive and adroit. Indeed, in imuportance no legislation since the Civil War is at all com- parable with it. In essentials it follows very closely the plan of the Indianapolis Monetary Commitiiission in regard to metallic currency, wlhile dealing sparingly wvith banking. (I) 'T'he bold declaration that 25.8 grains standard gold shall constitute the mlonetary unit will reniiove all uncertainty as to the coins in which private contracts are to be paid; and all gevernm-nent obligations are made specifically payable in gold. But this is not so satisfactory as it might be, in view of the retention of the present legal-tender qualities of the silver and paper now in exist- ence. These disadvantages are, however, counterbalanced by other provisions. (2) Of these the inost far reaching is the separation of the monetary and fiscal operations of the treasury. No other one thing will do iimore to clarify the public mnind as to the forces acting on our

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NOTES 9I

cUrrency, and at the same time protect ouir standard of prices. This is accomnplished by the creation of a Division of Issuie and Redemiption, which will entirely destroy the pernicious operation of the Act of .May 31, i878, which allowed United States notes to be reissued after bein,g redeemiied. ()I'lhe authlorization of direct redernption of the tokeen silver dollar secuires this kind of money fromn any possible depre- ciation, so long as the treasury has gold in the Bureau of Issue and Rledemption. (4) 'I'o secure the imieans, the secretary is given power to sell bonds. Nothing in the whole bill is of more practical value. And in this connection (with an eye on increased facility of bank issues) the refunding of the bonded debt has been proposed, especially in the senate bill. (5) '['he silver certificates are reduced in denomninations belowN, ten dollars. In that case, little silver is likely to comiie in for redemiiption in gold. And yet, wlvile little is said about silver in the bills, the whole danger from the silver currency is practically reinoved. If the essentials in thie above m-ientioned points finally ernerge in the law wshich wvill result fromii the conference of house and senate, the business public nay *well breathe a sigh of relief, and the constituency of the Indianapolis M\Ionetary Convention miay proudly claimn a great victorv.

As to banking, the mneasures proposed are inadequate and will pro- duce little improvement. TI'he increase of the limit of issue from-l go to 1oo per cent., together with a newly refunded bond at 21, per cent. selling about par, will somnewhat help those banks which issue notes. 'T'he remioval of the tax fromii circulation will also wvork to the samiie end. 'T'lie imposition of a tax on capital and surplus, however, miieets with opposition fromn larg'e banks, as well it miight. These are exactly the institutions of the great financial centers, which issue no notes (to sl)eak of) and which consequently pay no tax under the existing law. 'I'he country banks, on the other hand, which could not do business without notes have had to pay the tax in the past. By the new pro- posals, the country banks will be relieved at the expense of the large city banks, which is as it should be. This proposal ought to bring support to the measure from-l the South and \Vest. But once the funda- imentals of our currency have been settled, we may hopefully turn in the future to miieasures better suited to adapt our banking systemii to the needs of industry and trade.

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92 JOURATAL OF POLITICAL ECONOM.1Y

SAUERBECK'S general index numbers for recent months show an increase of prices for extractive products and raw materials (foodstuffs not having recentlv changed)

April 1899 - - 65.6 September I 899 - - 68.3 July - - 66.9 October - 70.0 August - - 67.6 November - - 71 5

As compared with 63.8 in December I898 and the low point of 59.2 in JtlyT I896 there is a imiarked uvpward movemnent. The average in past years was

1883 - - - - 82 1895 - - - - 62 1889- - - - 72 1896- - - - 6i 1893 - - - - 68 1897 - - - - 62 1894- - - - 63 1898- - - - 64

This rising tendency is confirmed by the London Ecoiiomist's index number (inl which cotton has again had a large influence)

DeceMber I895 - - 1999 March 1899 - - 1973 it I896 - I946 June - 2028

I 1897 - - I890 Auigust - - 2035 1 898 - I9I8 September - 2085

At the end of October I899 the index number had risen to 2128, or altilost the initial )oint of 2200, which represents the average prices of 1845-1850.

A LTHOUGHr the Statistical Report of the Interstate Commnerce Coii-mmission for I898, which has just cotiie to hand, does not bring the returns within sixteen months of the present time, it does show a recovery by the roads of all that was lost during the years of depression. Gross earnings for the year ending June 30, I898, were $I,247,325,62I as aganist $1,220,751,874 in 1893, the highest ainount received in any year prior to I898. This is a gain of I50 mnillion dollars fromn the low water imlark of I 894 or I 895. The report which we receive this timle next year will slhow that this gain was more than doubled for the year ending J one 30, I899, and the mnonthly reports fromn roads in all sections of the United States show that great as the gains were last year, the high returns are being surpassed this year. The net income for I898 shows a percentage of gain even greater than the gross earning;. Indeed the net incomne for I 898 is 85 million dollars above the low water mark of 1894,

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NOTES 9 3

or mnore than two and one half timiies as mnuch as was available for divi- dends in I894 or I895. And yet the dividends actually paid in I898 are 5.4 miillion dollars less than in I894. But the dividend payments of I894 left a deficit of nearly 46 million dollars while in 1898 there remnained a surplus after dividends *were paid of 44 million dollars. Although the gross aind net earnings of the roads were greater in I898 than ever before, there are only three years since I890 when the stockholders have not received g,reater dlividends. Fromii I890 to I894 dividends were always above ioo iiillion dollars, but in those years the surplus never exceeded I5 miillion- dollars after dividends were paid, and in tbe years 1894, I895, and I897 there were heavy deficits. the surplus of iS9S looks as if the roads were being ianaged on a imiore conservative basis. The inana-ers seemi to lhave profited by the experience of the lean y ears and are layin-t up a surplus which will enable themn to weather the next stormn without takin- refuge in tlhe receiver's court.

TIhe Period of depression seemns also to have taught lessons of econony and better imlethods of operation, for the increased earning,s have been secured in spite of a steady decline in both freight and passengo-er rates. Increased traffic due to greater business activity is, of course, the imlost important factor in explaining the addition to gross earn I O's, but if operating expenses had not been materially reduced the net incomiie showing would lhave been mluch less favorable. Freig-ht rates have declined 20 per cent. since I890, and yet the percentage of operatingy expenses is less in I898 than in any previous year. In the face of all this decline, and while the railways are making a good profit in carrvinrl frei,rht at three fourths of a cent per ton per imile, a leading railway official declares before the Industrial Commission that there is still mnore w-aste in the railway business than in any other imnportant industrv. WNThat will the rates be when consolidation or better organi- zation elimiinates the reinaining iteims of waste ?

STREETI' RAILWVAYS AND THE PUBLIC.'

THE paper presented by Mr. Yerkes at the recent meeting of the Amilerican Street Railway Association, and the discussion thereoni,

'See paper by CHARiLES. T. VERKES, " Investments in Street Railways; how can they be made secure and remunerative." Eightteenth Annutal Report of the American Sli-ee! Rai/coay Associationz, PP. 49-55.

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