on the ground that it represented a more scientific, logical, and safe method of doing business. Perhaps the very latest development in opinion since the organization of the federal reserve system has been that whereas the single-name plan has merits of such distinct nature as to insure its continued existence, the two-name or acceptance plan is needed as an auxiliary so that in the future the paper of the United States may be regarded as prominently containing elements of both classes. This eclectic view seems likely to be the sound one, although it safely avoids committing itself on the question how far the acceptance paper is to displace the single-name variety. What is clear is that one test of the federal reserve system must inevitably be the extent to which it has facilitated or assisted the growth of this acceptance paper. Has it done so in any adequate measure and can it in the future increase the degree of its success in that regard? The Federal Reserve act as originally passed gave the Federal Reserve Board authority to define commercial paper eligible for rediscount at federal reserve banks, and the board in its initial stages desired to discriminate in favor of the two-name paper, though it never went so far as to commit itself definitely in that way. Single-name paper has always formed the bulk of that discounted by the federal reserve banks, and this has been apparently the result of necessity. The Federal Reserve act, however, clearly intended to stimulate the "bill of exchange" whether that of the commercial enterprise or of the banker, and the board has, therefore, very properly endeavored by favoring rates and by special regulations to encourage the development both of the commercial bill of exchange (designated by it as the "trade acceptance") and of the bankers' accepted "bill of exchange."

Despite these efforts, the quantity of trade acceptances or commercial bills offering in the New York market has been lately described by a practical banking authority very friendly to the trade acceptance as "negligible." Although the amount of this paper rediscounted at federal reserve banks has been extraordinarily small, investigations carried on for the purpose of ascertaining how far the new type of paper was being used have shown that it was gaining ground, and in the autumn of 1916 a committee of federal reserve agents charged with the duty of investigating the subject, compiled from easily available sources a list of seventy more or less influential firms and corporations which had definitely adopted it. This list, it is understood, has been

In some parts of the

considerably extended since that time. country no progress whatever seems to have been made, due to the fact that local concerns were not dependent upon the banks and had no trouble in conducting their business relations upon the open account system. In others, however, very decided progress is clearly being attained, and the volume of trade acceptances presented to the banks is evidently no measure of the volume in existence. For evident reasons, the trade acceptance is a desirable means of closing an account, even if the concern which sells the goods is not under the necessity of discounting its paper at a bank. On the commercial side, then, it must be said that the federal reserve system has only begun the development of the particular kind of paper which is necessary to the satisfactory upbuilding of the enterprise. More attention has been given to the bankers' acceptance than to the trade acceptance, and apparently more success has been attained in connection with it. The original federal reserve act permitted the use of bankers' acceptances only in financing the exportation and importation of goods, a limitation at first understood to apply to foreign trade between the United States and other countries, but extended by the Federal Reserve Board to cover international trade between any countries. Later (on September 7, 1916) permission was granted for the acceptance by banks of bills growing out of domestic trade provided that the latter were documented in every case. Today, therefore, the bankers' acceptance may be drawn either as a foreign or as a domestic bill. No satisfactory data are as yet available concerning the development of the domestic acceptance, and, whatever the volume in existence may be, it is probably small. The foreign bankers' acceptance has had about two years for development, and we may roughly estimate that at the present time the acceptances of all American banks, whether members of the federal reserve system or not, are about $250,000,000-$300,000,000. Every member bank has the right to accept such paper up to 50 per cent of its capital stock, and the Federal Reserve Board has granted to forty-four banks the power to accept up to 100 per cent. The following brief table shows the distribution of these acceptances in an approximately accurate

way:

On the surface, this progress in the use of the bankers' acceptance may be regarded as satisfactory. It may be true, as some critics state, that the development is "abnormal," and that had it not been for the sudden advent of the United States in the international market as a "creditor country," no such use of the bankers' acceptance could possibly have been attained. This question is one of those "pleas of confession and avoidance," to which no attention need be paid. The fact is that the development has occurred and that it has been rendered possible by the existence of the federal reserve system. How far, however, has it been real? Very early in its history the Federal Reserve Board was obliged to meet the inquiry whether an acceptance must be based upon a commercial transaction in the narrow and restricted sense of the term-that is to say, whether the acceptance must represent an actual sale of goods corresponding to that particular drawing and to be settled for at maturity. There were evidently two questions involved in this matter: one, whether each and every acceptance as such must represent a transaction, an actual shipment, or whether it might represent merely a part of a general operation; the other, whether the paper so given must be positively regarded as an obligation demanding settlement at maturity or whether it might be "renewed." It is evident that the question really at stake here was whether the bankers' acceptance must or must not be regarded as a genuine commercial bill. The Federal Reserve Board ruled that there was nothing to prevent a bank from entering into a contract establishing a line of credit in behalf of given concerns, and that when this line had been established, acceptances (provided they did not overrun the total credit thus established) could be renewed or replaced by new issues for a designated period. The acceptance thus really tended to be

come a finance bill, and a considerable volume of renewal acceptances was promptly placed upon the market by bankers who were engaged in financing the operations of concerns desirous of supplying goods to foreign governments. It is not possible to state exactly the amount of these renewal acceptances, but the volume placed on the market up to January 1, 1917, was probably in the neighborhood of $125,000,000. The amount held by the federal reserve banks at its maximum was about $30,000,000, a sum since reduced to less than one half its former amount.

These renewal acceptances cannot be regarded as a normal or perhaps as a wholesome element in the financial market. The idea of renewal is itself repugnant to the conception of the commercial bill, and when we recognize that perhaps one half of the total acceptances available in the American market today are of this non-commercial kind, our progress in the development of the bankers' acceptance plainly appears to have been much less than had been supposed. That there has been real progress, that the new method has struck its roots, that it will in future not merely hold its own, but develop, there is every reason to believe, and this must be regarded as one of the hopeful and useful results of the federal reserve system up to date. The discount market in so far as based upon standardized commercial paper, authenticated by the acceptance of houses so well known as to render paper marketable, exists today in the United States, but exists only as a nucleus surrounded by a somewhat nebulous and uncertain body of possibilities. There remains, therefore, the task of developing and confirming the real practice of acceptance by American banking houses upon a regular business basis, not the result of war or of exceptional export conditions, but worked out in consequence of legitimate commercial demand, coupled with the application of active banking enterprise. Exactly how far and how soon this will be possible, it must be admitted still remains to be ascertained. The failure of American banking houses to enter the foreign field with any degree of activity in so far as the establishment of branches or regular agencies abroad is concerned, is not an encouraging symptom, although, of course, the development of the acceptance market may proceed upon more or less satisfactory lines independent of this active participation in foreign trade.

IV

One of the fundamental ideas that were embodied in the Federal

Reserve act as originally drawn was that of providing a check collection system that would be national in its scope. The considerations which impelled the framers of the Federal Reserve act to incorporate this provision were both theoretical and practical. We need not here discuss, however, the theoretical aspect of credit media in their relation to the currency, but may for present purposes confine attention wholly to actual results as exemplified in practice, through the application of the Federal Reserve act. The bad practice whereby checks were maintained outstanding for large amounts and for long periods of time in order to enhance the apparent holdings of various banks, and the coördinate practice whereby holders of such checks were made to pay exorbitant and varying sums for the conversion of their claims into actual money had been recognized by the framers of the act as unwarranted handicaps to industry and as blemishes upon an otherwise promising system of business settlement. They were, moreover, regarded as germs of unsoundness, likely to produce harmful growths when stringency or panic brought bad conditions leading to a suspension of specie payments, which usually rendered the great "float" of checks and drafts uncollectible in cash. Upon the practical side it was recognized that under the old system of reserves, reserve balances in cities had been made to carry the load of collections, that is to say, had been made to serve a dual purpose that of a reserve balance and that of a collection basis.

It was noted that this reserve consisted in no small degree of uncollected items which had been deposited with the banks and had as a matter of courtesy on the part of the Comptroller of the Currency been allowed to count as reserves. It was believed that in practice the member bank must be furnished with the same service by the reserve bank that it had in the past received from other member banks acting as reserve agents, and that this service on the part of reserve banks would tend very strongly (if properly performed) to reduce the amount of the outstanding "float" and to place the collection system upon a sound and effective footing.

We shall not find it necessary at this point to rehearse the history of the long struggle that has attended the effort to make the collection requirements of the act effective. Enough has been said when it is pointed out that from the beginning the application