Evening star., 1898-12-06

1
done by fairly describing the course of the
| financial movement as it now goes on. and
| by presenting in contrast the movement as
| 1t would go on under the conditions advo-
| Gated. 1t is a familiar fact that, in the
| period of harvesting ana crop moving, the
| currency is strongly drawn from the CEN
| tiers to the country districts. When this
| movement is over. the currency again tends
| toward the centers. The currency flows to
| the center to pay loans occaSoned by its
| use and other general Indebtedness. and
| also to secure the benefit of interest to the
| country banker for portion of his funds
| which in dun period would otherwise lie
| unemployed in his hands. AT present. the
currency so sent consists almost entirely of
| legal tender notes and treasury notes-that
| is to say, in the money which the law re-
| cognizes as lawful reserve Thus received
| by the banks in the money centers il be-
comes a reserve for deposits in the relation
| of one to four. Now, deposits may be in
| creased by loans well as by the deposit
| OF cash. loan for $4,000 or 100000 goes
| to the borrowers credit upon the banks
| books, and swels the deposit account by so
| much True, the borrower may check
| against this fund, but his check may also
| be deposited in the same bank, in which
case ii is a mere transfer to another ac
| count; or, If it be deposited in another bank
and paid in money by the lending bank, 1t
| is still transfer. The total deposits of all
| the banks are swelled by this original loan.
In confirmation that this expansive move
| ment Is fairly described, 1 quote from the
| New York Herald of November ID. fol-
| lows: "Comparing yesterdays Clearing
| house> statement with that of five weeks
| ago, it appears that the banks hold thir-
| teen millions more money, and have eX-
| panded their loans by the surprising amount
| of fifty-one and a half millions. the IN
crease in deposits resulting from these
| two items being no less than sixty-six mil
lions 1t can be easily perceived that this
possibility of increasing loans against an
| inflow of reserve funds in the proportion of
four to one is a temptation to which the
! city bank is likely to yield. 1t must be re-
| ha ipXk ard, ,a,,t If
currency from the country occurs at the
! time of year when commercial activities are
| the least and the general requirements for
| the use of loans in the interior are the
smallest. The effort of the banks at the
| centers to increase their loans causes inter-
| est to fall. The fall in the rate of interest
causes interest and dividendpaying Securf-
| ties TO rise. The rise in securities induces
| speculative buying. The speculative buyer
| becomes the banks borrowing customer.
| The banker is thus enabled to put out his
| funds, as he is apt to term it, though he
really does no such thing. He keeps his
funds, but, in the way described, he swellS
his deposit liability until his funds on hand
are made answerable to the rule of one of
cash TO four of liabilities, or % per cent
against his deposits
1t is in the condition above described
with varying degrees of regularity and in
tensfty, that the financial status is found
when the crops in the west and south ap-
proach harVcSt-that Is to say, a maximum
of loans and deposits; a minimum in cash
reserves. During the season until then the
country banker has found that his drafts
and checks on his eastern correspondents
distributed to his customers, supplied their
needs for instruments of exchange aud
payment; but he finds that for the pay
ment OF farm wages, the purchase and
transfer of farm products, such instru-
ments are not adequate; cash is required
Tor these purposes, either in metallic money
or paper currency. This forces him TO
make requisiton In the form of money by
express on his eastern balances. Nay,
more; if crops be large and prices good lie
Is forced to supplement his own resources
by borrowing for a period at the centerS.
HIS correspondent at the center, In mee.-
ing his requisitions for the money due his
country customer, is obliged to take IL
from what had before constituted his legal
reserve, This disturbs the equilibrium Of
relationships. To recover his position he
turns upon the street and calls in a portion
of his loans If the interior banker after
thus calling for the balances due him asks
IN addition for loan, the city banker :S
often obliged to inform him that money is
very close and he cannot accommodate
him. 1t must be noted also that the effort
of the city banker to restore his impaired
reserve by calling money from the street
does not accomplish that direct result
There Is no money ''in the street, it is all
IN bank vaults, and the total stock cannot
be augmented except by inducing II TO
come in from without What does result
Is g forced liquidation, a fall in prices of
securities a rise in interest sufficient 10
induce outside money to come in In this
process the merchant and the manufacturer
md 1t difficult to negotiate their credits
They also are told money Is tight" and
that they must withhold applications for
discount favors.
forbear to follow into further detail
the Improbable and Vexatious movement
Gradually, after more or less strain ana
anxiety, sometimes bordering on manic
sometimes resulting IN panic a readiustment
IS secured Crops from the interior--not sell
ha rnro
little regard TO price, because of his ina
biiity TO borrow from his local banker-move
10 the seaboard. The strain on the country
is relaxed. Again currency in the form of
reserve funds moves to the center Again
one dollar thus received becomes effective as
reserve for four dollars of liability. Money
IS quoted easy. as the prospect for summer
dullness becomes assured. The street
breathes easier stocks and securities be-
come firm and the movement toward an
expansion in loans, with its attendant phe-
nomenon of an increase in deposits is again
observed, to be again followed by restriction
and probable distress as the active season
in productive industry and trade again ap-
pears.
Whoever has followed this delineation of
our financial movement. and those who are
familiar with the facts which are thus por-
trayed, ought not 10 have trouble in per
ceiVing that the bottom cause of The irreg-
ular and deranging effects described is
to be found in a fixed volume of paper
money clothed with full powers of legal
d
obligatiou-other credit obligations, in the
form of bank deposits through bank loans.
may be built up in the proportion of four
to one. With the volume of paper money
thus fXed-with no natural movement
toward its retirement when not needed in
legitimate trade-the tendency 10 build the
four-story structure upon II as permanent
base is irresistible. The withdrawal Of the
base by those who really own it causes the
structure to Vibrate and threatens IL with
a fall.
| Consider. now, as briefly as may be, the
practical workno of bank note currency
Eon-legal tender-if substituted for the pa
per money issued by the government. Neri-
| ficaton may be found by those who will look
for it In systems now current in France,
! Germany Scotland and Canada; Or If our
own records be preferred, the New England
system of forty years ago, or those then in
vogue In Indiana, Iowa and Louisiana, will
| be equally good examples. Under such sys-
tenn the financial movement may thus be
described:
| Commencing as before with inward
movement of funds from the exterior to the
| centers, the money forwarded would then
| )ar Of han