The Indianapolis journal. [volume] (Indianapolis [Ind.]) 1867-1904, 1898-12-07
CAGES REPORT.


NCOncLuded from second Fage.1
ground only that the claim is entitled to con-
| sideratlon.
Il shall not be outside Of my duty If I
venture TO point out, in at least one I'M
portant respect, the advantages to the
poorer districts of the country of a prop
| erly constituted bank currency. 1t may be
! done by fairly describing the course of the
| financial movement as it now goes on, and
| by presenting in contrast he movement as
] 1t would go on under the conditions advo-
| Gated. 1t is familiar fact that. in the
! period of harvesting and crop moving, the
| currency is strongly drawn from the centers
! to the country districts. When this move
ment is over the currency again tends to-
ward the centers. The currency flows to the
! center to pay loans occasioned by its use
| and other general Indebtedness, and also to
! secure the benefit of interest to the coun-
| try tanker for a portion of his funds which
! In q dull period would otherwise lie unem-
! ployed in his hands. At present, the cur
| rency so sent consists almost entirely Of
| legal tender notes and treasury notes-that
| is to say, in the money which the law rec
| ognizes as a lawful reserve. Thus received
| by the banks in the money centers, it be-
! comes a reserve for deposits in the relation
| of one TO four. Now, deposits may be in
| creased by loans as well as by the deposit
| of cash A loan for ten thousand or a
| hundred thousand goes to the borrower s
credit upon the banks books and sweIls
! 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 it is mere transfer
| to another account or, if it be deposited in
another bank, and paid in money by the
! lending bank, it is still a transfer The to-
! tai deposits of all the banks are SWelled by
| this original loan.
A TEMPTATION.
| I'm confirmation that this expansive
movement is fairly described, quote from
the New York Herald of Nov. 3d. as follows:
Comparing yesterdays clearing house,
statement with that of five weeks ago. it
appears that the banks hold thirteen mil
lions more money and have expanded their
loans by the surprising amount of ffty-one
| and one-half millions, the increase in de-
posits" resulting from these two items being
no less than sixty-six millions. 1t can be
easily perceived that this possibility of in
! creasing loans against an inflow Of reserve
| FUNDS IN the proportion of four to one is
! temptation to which the city bank is likely
| TO yield. 1t must be remembered that this
| 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 interest to fall. The fall in the
| rate or interest causes interest and divl
| oend paying securities to rise The rise in
| securities induces speculative buying. The
| speculative buyer becomes the bank bor-
rowing customer. The banker is thus en-
dDIed 10 put out his funds as he is apt to
! term 1t, though he really does no such thing
| lie keeps his funds, but in the way de-
! scrlbed, he swells his deposit liability until
! 70 the rule of one of cash to four of liza
| DlnueS, or 70 per cent. against his deposits.
1T is in the condition above described,
with varying degrees of regularity and in
tenslty, that the financial status is found
when the crops in the West and South ap-
| proach harVeSt-that is to say, q maximum
or loans and deposits; minimum in cash re-
| serves. 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
neeos FOR instruments of exchange and pay
ment; but he finds that for the payment of
Iarm wages, the purchase and transfer of
farm products, such instruments are not ad-
! equate; cash is required for these purposes,
either in metallic money or paper currency.
! This forces him to make requisition in the
! form of money by express on his Eastern
| balances. Nay more; if crops be large and
! prices good, he is forced to supplement his
! own resources by borrowing for period at
| the centers His correspondent at the cen
money due his country customer, is obliged
! to take it from what had before constituted
| his legal reserve. This disturbs the equi-
! hbr1um OF relationships. To recover his po-
| sttion, he turns upon the street and calls
| in portion of his loans. If the interior
banker, after thus calling for the balances
| due him, asks, in addition, for loan, the
| city banker is 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 it
! to come in from without What does result
! IS forced liquidation, fall in prices Of
| securities. rise in interest sufficient to in
! duce outside money to come in. In this pro-
! cess the merchant and the manufacturer find
it difficult to negotiate their credits. They
! also are told money is tight and that they
must withhold applications for discount ia
| VorS.
A VEXATIOUS MOVEMENT.
Il forbear to follow into further detail
| the improbable and vexatious movement.
! Gradually, after more or less strain and
anxiety, sometimes bordering on panic,
sometimes resulting in panic, readjust-
ment is secured. Crops from the interior
not seldom forced from the producers
hands, with little regard to price, because
of his inability to borrow from his local
banker-move to 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 be-
comes effective as reserve for four dollars
| OF liability. Money is quoted easy, as the
! prospect for summer dullness becomes as
sured. The street breathes easier stocks
and securities become firm and the move
| ment toward an expansion in loans, with
| It's attendant phenomenon of ali increase in
| deposits, is again observed, to be again fol-
lowed by restriction and probable distress
| as the active season in productive industry
| and trade again appears.
| whoever has followed this delineation
of our financial movement and those who
| are familiar with the facts which are thus
| portrayed, ought not to 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 a legal tender
| Upon this money-itSelf a credit obligation
| -other credit obligations in the form of
| Dank deposits through bank loans may be
| bu1lt up in the proportion of four to one.
| with the volume of paper money thus fixed
! with no natural movement toward its re-
| tlrement when not needed in legitimate
| trade--the tendency to build the four-story
! structure upon 1t as a permanent base is
| Irresistible. The withdrawal of the base by
| those who really own it causes the structure
| TO Vibrate and threatens it with fall
| Consider now, as briefly as may be, the
| practical working of a bank-nOte currency
| nonlegal tender-if substituted for the paper
! money issued by the government. Vertical
| ton 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 a
| system the financial movement may thus be
| described:
Commencing as before. with an inward
| movement of funds from the exterior to the
| centers, the money forwarded would then
! consist largely of bank notes These re-
| ceived at the centers would not like the
| legal tenders of the present, form a base
| for expansion. The desire to obtain legal
money in their place would cause the banks
| receiving them to push them home for re-
| demption in legal money, but the general
! effort in this direction would neutralize, to