The Portland daily press., 1873-09-26
The Folly of "Runs.c

The Folly OF "Runs."
The human race has always greatly derided
the custom prevailing among sheep, OF fol-
lowing a leader blindly, even though he
should leap over precpice. Let one sheep
of flock in motion dart off in any direction,
and the rest are likely to follow, however alb
snrd the movement may be and into whatev-
or danger they may go. This fact has been
put in aegory, fable, moral essay and jest, in
all sorts of forms, by persons proudly con-
sclous of superiority to any such folly. And
vet t lese same people, when opportunity Of
fers. will often be guilty of this same absurdi-
ty which they so loftily deride in the sheep,
who, from circumstances beyond their vn
control, are unable to say You're another"
We have had most vivid Illustration of
this human idosyncrasy during the financial
panic of the past week, in which people, 9TH
erwise apparently reasonable, have joined in
fierce and continuous runs upon banking es
Establishments of high character, when it was
absolutely certain that such a course would
precipitate the very calamity which they
dreaded. The theory of banking implies that
of individuals, and loans or invests consider
able proportion Of such deposits in order to
produce the income which sustaiIs the bust
ness. A small reserve only of cash is kept on
hand to meet the ordinary call which gener-
ally does not exceed the deposits of any CIV
en- day. The Bank of England, the synonym
for safety and caution, hold only 11.2 per cent.
of its liabilities in cash on hand. The
London and Westminster Bank-"the
first of the joint stock banks in
public estimation according to Mr..
bagehot, = reserves in cash only
Is per cent. of it's liabilities. These institu-
tions represent the extreme of conservatism
in banking. In America the cash reserve
probably averages somewhat less than this.
1t is evident, therefore, that if twenty-five
per cent. its liabilities be presented a. once
to any bank in Chrstendom, it mustsuspend,
however strong and solvent it may really be,
unless its securities can be turned instantly
into cash, whicl is impossible in time of
panic.
With these facts in view, runs have been
hiduO III NCW lOlh upOll oCNVldi
houses of the highest responsibility and I'M
doubted solvency. resulting, of course, in their
temporary suspension-notably the houses of
Fisk & Hatch and Henry Cews & Co. In
the latter case, the finn stood up pluckily,
meeting The assault for three or four days,
paying out million and quarter of dollars
and finally succumbing on account of the
failure of the Fourth National Bank to honor
their checks. Clews & Co. had deposited
that morning 100000 worth of securities.
with the understanding that they could
be drawn against up to their value;
but suddenly at half past two in the after
noon the bank refused to pay checks,
after less than 100000 had been drawn.
The doors OF Clews G. Co. were closed at
once, and although many capitalists promptly
offered assistance, it was too late. as suspension
had occurred. Ofcourse it will be temporary
and this house as well as many others in
similar condition will lose bnt little in char.
acter and prestige; they only serve as illus.
trations Of the capacity for collective folly in
men who may be severally sensible. Had
the depositors in any of the good houses but
kept their head, and gone on In the ordinary
course Of their business much OF the calamity
might have been averted. If everybody who
has bank balance insists upon Withdrawing
and locking up his fragment of currency,
business of all kinds must stop and we must
return to first principles and barter one com
modify for another. England was reduced
nearly to this condition in her great panic
early in this century and the history of her
experience is not sufficiently agreeable to
make the prospect of repetition alluring.
Our own seasons of financial distress I'm 1881
and 1851, though not so bad, were unpleasant
enough for examples.