The Saint Paul globe. (St. Paul, Minn.) 1896-1905, 1898-01-15
NO DINNER SO GOOD
AS THAT WITH WHICH THE ST.
PAUL CHAMBER OF COM
MERGE
MARKED AN EPOCH LAST EVE.
THIRYY-F!RsT ANNIVERSARY OF
THE ORGANIZATION PROMPTS
: FAT FEAST.
Continued from First Page.


ing again into the nothing from which they
came"
Sir Francis Cradocke describes the bank as
"a certain number of sufficient men OF credit,
Joined .Cgether in a stock and letting cut
imaginary money at Interest II seems
reasonable that a credit AN lncorporlal en-
tity created out of nothing, for transitory
purpose" Imaginary money should rent
for less than real money or CAPT al which can
only be produced by exhaustive labor. But
perhaps d clearer conception or the pasis OF
the per cent bank rate can be gained from
the history of its origin. In the early Gays
of banking the banks, instead of discount
ing their customers notes and giving them
"a credit on their ledgers or delivering to them
bank notes, simply indoised their customers
notes. Which then passed current as money.
For this indorsing or guarantylng, or call IL
iEsuring, the customers notes the banks
cha:ged a commission, or say an insurance
premium at the rate Of per cent per an
mum. This was probably the origin Of the
per cent rate, more than a century ago,
when there was little money and the rates for
fixed capital were much higher. Now, instead
of lndCTsing the customers note tne panK
does the same thing in effect by retaining
the possession of the customers NOES and
issuing its own credit against them. There
fore that which is paid to the bank for dis
counting The customers, notes Is not inter-
est for the use OF money but it is payment
in the nature of an insurance premium for
guaranteeing or lnsu:lng the customers
credit. And per cent ought to be a reason
able premium for such Insurance.
The mater of money has the same rela-
of premium for fire and life insurance.
\ MUST POSSESS READY MONEY.
The insurance companies must always pos
seSS enough ready money a reserve to
make their insurance good, and so must
the bank. What percentage of cash reserve
the insurance companies must hold to make
their contracts safe, and what rate of prem
ium they must receive to cover expenses and
a profit, depends almost entirely upon the
number of their risks. If an insurance COM
pany has only one risk it would be neces-
sary to keep 100 per cent of reserves and
charge an enormous rate OF premium, but
If it has 10000 risks, a smaller percentage
of reserve and a smaller premium is suf-
ficient Experience has also proved that the
safety of the insurance company requires that
their risks should be widely distributed, and
in no other way can the requisite number
. of risks be obtained.
Every one of these principles apply to the
bank. What insurance company would con-
slider it safe to plant all its risks in one
locality? A fire company with its risks thus
planted long the locality avoided fires;
or life company as long as there are no
epidemics; and, an independent local bank
as long as there are commercial disasters,
may apparently be doing well enough; but
single local fire may destroy such a fire COM
pany. a SINCE locally epidemic disease may
ruin such life company, and so few local
commercial failures may bankrupt such a
bank.
We are now in a position to see the es-
sential differences between our banks and
the European system OF banks, which main
tain the per cent rate. Ours are local. Theirs
are national. Where one Of our banks has
eco customers, one of theirs has 10000 GUS
toners. Where one of our bank loans $1,000
OC0 of imaginary money, one of their banks
loans $40, 600, eco of imaginary money. Where
one of our banks, on account OF its small
number of customers is compelled to keep
% per cent of reserve, it is only necessary
for one of theirs owing to the larger number
of customers and better organization, to keep
to 10 per cent Of reserve. The possibility
of the per cent bank rate, like the posi-
bility of the low rates of transportation, de-
n business.
We have only to glance at the statistics OF
the American banks TO see that, as at pres
eSs organized, they cannot exist on a
per cent rate, because the volume Of their
business is so Insignificant compared with
their expenses and capitalization.
In this city there are eleven banks, with
about S., 900, coo of capital and surplus, loan
ing at the date of their last report about
$13OC0Ci0 Of imaginary money" of which
over $6.0G0O00 was borrowed, under the guise
of deposits, from their country correspon-
dents at about per cent and 81 5G0 geo
on time certificates. and probably, $500. 900
from the city and state at about the same
rate. Upon such a showing | would like to
a financial genius who could figure out
even expenses on a 2 per cent rate The
done by 1854 national banks Cunless some
Of them have failed since the last report, and
probably between 2,000 and 5000 state banks
in ALL say. 5000 separate, independent cor
porations. requiring COCO expense accounts,
5000 presidents, 60C0 vice presidents. 5000
cashiers. etc, and their average condition
is no better than the banks of this city.
IN the aggregate they all loan about $1,000,
C00,O90 of imaginary money: The COM
bined capital and surplus of the national
banks is Sits, 7C0, Coo. There are no statis-
ties of the state banks. but probably their
capital and surplus added would bring the
total banking capital to the enormous sum
of 81 Geo. Geo Geo. The rates Of their capital
to loans is therefore as 1 is to only 1S.
MOULD NOT PAY EXPENSES.
With such an organization the per cent
rate is evidently impossible. 1t would not
pay expenses. There are too many pres-
dents. vice presidents and cashiers. At an
average of only s., coo per year it would con-
sumo $36 OO0.000 to pay officers salaries, which
alone is / per cent on all the imaginary
money they loan. With such an organization
the business of this country must be taxed
at least "a average of . per cent which is
per cent more than the business of any 9TH
er commercial nation is taxed for its banking
accommodation, and per cent more than it
is reasonably worth to insure the commercial
credits of the country. This per cent addi-
tonal tax on the present business amounts
to SlGS C00.000 per annUm, which is more than
a third Of the total revenue of the United
States government This is the enormous
tax which few absurd provisions of our
banking laws, which forbid the use in this
country of the modern system of banks,
levies annually on the business of the United
States. And 1t does nobody good. The banks
if properly organized would make more
profit the . per cent rate than they can
now on per cent rate. The European
banks. with their per cent rates pay larg
er dividends than our banks ever paid This
$10S. GG0COO is absolutely wasted
Gentlemen, l cannot hope that anything
which | say will produce more than a
moments consideration by the few who are
within the reach of my voice, that any
words of mine will have the slightest effect
upon the masses of the people or upon con-
gress. But | will say to you that there is
a logic in the grinding process of competi-
ton upon the profits of business and in the
per cent permanent rate which will make
itself felt. The logic of 3 per cent basis
of values and income OF all kinds of fixed
capital, and reduced profits of trade. will
sooner or later prove stronger than stod in
difference and stupid conservatism.
THE PRESENT PROSPERITY.
There can be no doubt but we have now
entered upon one of those periods of pros-
perity which follow commercial crises. That
business will improve from year to wear for
several years at least there is little doubt
That very short period Of business prosDer-
1ty will develop spirit of speculation and
overtrading, which a few years later will
culminate in commercial crisis NAV be re-
garded as certain and unavoidable. Among
the vast number who trade there will be
many who will trade unwisely and blow I'D
bubbles OF speculative values which must
ultimately burst, which up to this date no
method has ben discovered of preventing
But the problem of preventing such bank
panlcs as Tor the time being DESTROYS the
fabric of legitimate credits and values is now
perfectly understood. 1t is now known that
such destruction of legitimate credits and
legitimate values is absolutely preyentahia
by proper system of banks. And in vie1
OF the tremendous losses and the indescrib
able distresses which the American neonIo
have suffered from the inefficiency of local IN
dice against a system of banking which ev
perlence has proved is capable of nraven+;nr.