Kansas City journal. [volume] (Kansas City, Mo.) 1897-1928, 1898-12-07
When "Moncy Is Close,

are made answerable TO the rule OF one
of cash to four of liabilities, % per cen,
against his deposits.
When 'Moncy Is Close"
''It is in the condition above described
with varying degrees of regularity and in.
tcnsity, that the financial status is found
when the crops in the West and South ap.
proach harvest-that is to say. a maximum
of loans and deposits: minimum of cash
reserves. During the season until then
the country banker has found that his
spondents. distributed to his customers
supplied their needs for instruments of eX-
change and payment: but he finds that for
and transfer of farm products, such in
struments are not adequate; cash is re-
quired 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 the 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
center, in meeting his acquisitions for the
to take it from what had before constituted
his legal reserve. This disturbs the equli-
brium of relationships. To recover his po-
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 re-
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 a forced liquidation, fall
in prices of securities, a rise in interest
sufficient to induce outside money to come
in. In this process the merchant and the
manufac,mrer find tr it difficult To- TO negotiate
their credits. They also are told money
is tight" and that they must withhold ap-
plications for discount favors.
Government Notes to blame.
"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
perceiving that the bottom cause of the ir-
regular and deranging effects described is
to be found in a fixed volume of paper
money clothed with full powers of Il legal
tender Upon this mOney-itself credit
obligation-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 tiXed-with no natural movement To-
ward lis retirement when not needed in
legitimate trade-the tendency TO build the
four-story structure upon it as a perma- :
nent base is Irresistible. The withdrawal of
the base by those who really own it causes
the structure 10 vibrate and threatens It
with Il fall.
"Consider now as briefly as may be. the
practical working of a bapk note currency
Hfnon.lesaI tender-if substituted for the
paper money isseud by the government.
Notification may be found by those who
will look for 1t in systems now current IN
or If our own records be preferred. the New
England system of forty years ago. or
those then in vogue in Indiana, Iowa and
I,olIisiana, Will be equally good examples
Upon such a system the financial movement
may be thus described:
An Elastic Currency.
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
received at the centers would not, like the
legal tenders of the present form a basis
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. put the general
a large degree. the effect desired. Bank
a sending home the notes of bank B. would
he met. not by payment in legal money.
but as an offset by the presentation of the
notes of bank a. There would be mutual
retirement of their respective bank note
iiabilities. OF course. this precision in off
sets would not be the rule. but the Illus
tration shows the general effect to be the
temporary retirement of a currency when
it cannot be circulated in the service OF the
country's trade and exchange. Observe this:
1.-The power to lend is not thus lost; 1t is
ternporarily suspended. When, with the re-
curing needs of the interior to handle its
products of the farm, the factory. and the
mine the power to issue circulating notes
may he summoned into use. then the needs
OF Industry will coincide with the profit
moving motives of the banker: and the full
value of this latent power will be expert
enCed, not in the CenterS. where bank notes
ere not needed and will not circulate. but
in the interior. where raw products are
raised, and where the busy wheels of shop
and factory certify that labor wages are
to be paid.
Responds to Call of Industry.
"The power Of the, bank note, SO tempor-
arily suspended, will always be restored
in full upon the call of industry. The power
of our present currency. on the contrary,
is not suspended. 1t is, as pointed out.
Inevitably misdirected. 1t artificially slim
ulates speculative activity in securities at
the centers. II periodically absorbs the