Pittsburg dispatch. [volume] (Pittsburg [Pa.]) 1880-1923, 1890-01-05
PREVENTING PANICS.
Lessons to be Learned From the An-
nual Increase of Exchanges.
APPROACHING THE DANGER LINE,
How Financial Ruin Might be AVerted BY
the Clearing House.
A CONSERVATIVE VIEW OF BUSINESS
1vRIrrEN FOR THE p1spArcH.

DuSluSSS III duI given AOOoAASy ~
the record of the bank Clearing House Of
the city which is the financial center of that
locality. The increase and decrease of busi-
less is marked by this agency with an accu-
racy that is astonishing to those not familiar
with Clearing House methods. The GER
tainty and accuracy of these records must in
due course of time cause them to be studied
more carefully and be generally accepted
and watched as veritsble barometers of
trade.
In the whole list of clearing houses in the
United States there is but one more import
ant than Pittsburg in the view above ex-
pressed. That one is New York. In vol
ume OF business the clearing houses OF Bos-
ton, Philadelphia, Chicago, st. Louis, San
Francisco and New Orleans at least show
more largely than Pittsburg, but none of
these are so important in indicating the
actual condition of trade.
This ARISES from the fact that Pittsburg
is the financial center of an industrial and
manufacturing territory, the productions OF
which underlie the value of all other COM
modities. Its productions of iron and coal
are especially referred to. An advance in
pig iron means an advance in all other COM
modities affected by general markets. A
decline in pig iron indicates decline In
prices generally. Depression or activity in
iron is one of the chief factors in denoting
depression or activity in all other branches of
commerce and industry. The Pittsburg
Clearing House is not an indicator of
prices but it is an indicator OF volume
or activity In commercial affairs in the
chief iron producing territory of the United
States.
TIL, rloo-;.- uar.o ,--o. o-oon;zad in the
year 1865, and the amount of its exchanges
in 1866 was $50, ,731, ,242 II. There was an
annual increase in the aggregate of ex-
changes until 1873, in which year they
reached the respectable total of 1926, 754,-
1853 SO, an advance within seven years of
about $212, 200, 900.
AN INDICATOR OF TROUBLE.
Business men will remember that COM
mercial revulsion or panic occurred in the
last named year, seriously affecting the iron
industry, bringing on industrial depression
which found its worst phases outwardly in
the general discomfort of wage earners, the
lawlessness and rioting of 1877.
The Clearing House was the sure, but
silent indicator of this, as we may glance
back over the record and gee. The exchanges
in the Clearing House gradually fell off
annually until in 1878, in which year they
were only $1S9, III, sos q, or about S1O6,-
600, 900 less than in 1873. The effects OF the
panic lasted five years.
This period at the close of 1873, which
marked the end of financial stagnation
arising from commercial depression, was one
of the most interesting in the financial his
tory of the nation, owing to the pendency
OF resumption of specie payments, which was
regarded as an experiment, even danger
Gus experiment by many. The prophets
had been loud in their predictions that re-
sumption of specie payments would neces-
sarily be attended by still greater decline
in values, more terrible depression in trade
and industry. There we're reasons for
thinking so, though the predictions were
not fulfilled and some cause led to renewed
confidence and a restoration of activity
under which the exchanges of the Clearing
House showed an increase in 1879 over those of
1873, and the annual increase continued until
1888, when they reached S497. .653 962 43 for the
yeaT-an amount then unprecedented.
This high tide will be observed by those who
follow the figures carefully to be about S2O2,-
900 greater than the high tide of 1873; and as
the panic Of 1884 did not occur until May, dur
ing which time the exchanges were still in
creasing, it is safe to put the annual excess of
exchanges at the period of panic in 1884 at
$40 OOO, 600 at least greater than the high mark
at the occurrence of the panic of 1873.
The panic in May, 1854. was not SO lasting in
its effects, but it was sharper and more fnan-
cially severe than that of 1873 as indicated by
the Clearing House exchanges, which fell off
to 1856, III, ,592 50 in 1885, decrease of about
Sal 900 within two years.
CONTINUED PROSPERITY.
Since then there has been an uninterrupted
annual increase of exchanges at the Clearing
House, those of 1889 being S654, ,OSO, $50 SO, the
largest years business in the history of the
institution. Large as it is, the total for the
year is but s156, ,426SSS so in excess of the high
year 1888 or S65 600 200 short of what has proved
the danger line in the past.
If the figures be compared during past two
years an increase will be observed annually of
more than S70,000, 600 and less than S75, 600.
Hence with the normal growth of activity the
deficiency between the present state of the ex-
changes and that which may from experience
show danger line is slightly less than a year.
The consideration of the volume of exchanges
at the clearing houses in connection with
panics may be regarded by many as more spec
ulative and theoretical than practical, and the
data thus far collected may be meager, but the
connection between them above pointed out
can be examined at least by the curious and
followed in experience as test of practical
bility.
Clearing houses are but historically new, and
all which may be learned from them has not
been ascertained- When the panic of 1857 oc-
CURED the New York Clearing House was
but three years old, and its figures in
that cor. connection S;t.2n could amount to
tion. A banker writing in 1858 and trying to
show the connection between these subjects
paid no attention to the volume of exchanges,
whatever. He had a theory that contraction of
loans was what had caused the panic in 1857
And, as may be easily inferred by practical
bankers, he had very little difficulty in showing
the time the Ohio Life Insurance and Trust
Company closed its branch in New York in
August. 1857, and the general suspension which
in October of that year.
oil 1v.n = Tc Fho
pursue under such conditions, whether it be
the most polite or not. Had each stood by
the other by means of the Clearing House and
assisted the commercial interests when most
the critical moment, panic might have been
averted; or failing, all united in a common
ruin, which followed anyway, is very evident
but that is not the subject under consideration
now.
HOW TO PREVENT PANICS.
All panics are preceded by infiations of credit
In some or all directions. Business "gets going
too fast for safety" Prices become unduly
high under the influence of extraordinary de-
mand, generally speculative in its nature. The
question remains whether the banks are true |
TO their own interests and the trust which is |
reposed in them by the public unless they be- |
gin to curtail their loans before the danger line
has been reached. Is it not better to prevent |
than to cure the disease3 If such comblna. |
t1ons as our Clearing Houses can be made ef- |
ncient IN preventing the consequences of infia- |
Llon 70 the limit OF their united powers, could |
not the same united powers, if exercised early |
enough, be still more potent in preventing in |
hatiOnf 1t seems to me SO.
The great practical difficulty is to know |
when imitation supervenes on a legitimate ad- |
vance in activity. This may never be possible |
TO ascertain to certainty. but with careful |
the volume of exchanges at the |
Clearing House must afford an indication. |
Every fall Of the mercury in the barometer is |
not followed by storm, and every increase of |
exchanges is not a matter of alarm, still the |
past has shown beyond question that the |
greatest heights of Clearing House exchanges |
have immediately preceded panic; that every |
long established Clearing House shows |
In its range of exchanges points which are |
high and low, varying according to commercial |
conditions; these may be profltably studied as
forecasts OF financial weather in connection |
with other indications
Local business Is active unusually so for this ]
season of the year; prices of real estate are ad-
Vancing under Stimulation; the iron trade is |
prosperous. and every condition portends q /
boom that will be viewed with concern by |
strictly conservative minds, but in the absence
1f influences unseen, the danger line will not |
Do reached for several months yet.
g. HARRISON.
n0JrS7r forget our tsToroaf NJ NokDS .als