The sun. [volume] (New York [N.Y.]) 1833-1916, 1899-01-09
-..nnrr ~ BAxx cnsDIra.

".o,ivity Of the previous three holidays,
inc "hich continued without abatement till
anu n the week. Gov. Flowers followers
mee" IN have as much confidence in him as
~ and buy. at high prices. the stocks hO
emmcnds. How well grounded his judy
rVo. IA time alone will show, but. for the pres
men, a. : acceptcd as infallible. In addition to
.hs rise in the so.called Flower stocks, there
We." considerable advance in Delaware and
u"ason upon the announcement OF a 3 per
n u. Jiyidend for the year. and in Brooklyn
T s Gas and Manhattan Elevated, upon ru-
on "o which may or not he true, but which
W. nome the less met with credence.
MI renewed activity In the stock market,
-anlod with the usual heavy January dis
s",oments for dividends and interest, has
vuanoht into striking prominence the utility OF
go as labor-saving agencies In e~fccting
S~rentsp f money and transfers Of property
- callers to buyers. The clcarings OF the
" YORK banks on Wednesday morning. aris-
w from the transactions Of the preceding first
s",inoss day ct the month, amounted to over
sSI5 ONnOOO. while the actual balances.
.r,onntinc to but q little more than $4,000
o1 were nearly all paid in certificates repre-
Eating gold, and nothing else. Indeed, 1t may
%,r,thfully be said. that the whole S3l5,O00.OOO
v,s Maid and received without the use at all OF
that IL popularity called money. This Is an
,,oouent rctutation OF the views Of certain
hucolic members OF Congress and populistic
snancicrs. who never weary OF repeating that
the existing volume oil currency Is hsutlcient
tor the wants of trade.
Nh less emphatic Is the refutation furnished
NJ our New York banks. of the fallacy that the
,ountry needs more elasticity in its circulating
msdium than now exists, to provide for the
r,,vinp requirements OF business. There has
MT bsen in this country. for years. any lack,
tor trade purposes. of coin and paper money.
.,eept when they were boarded because OF a
manic dtstrust of the s~olvency Of the banks.
The only trouble has been, az Secretary Gage
rointed out in his recent annual report. that
when. at harvest time. the legal tender re-
serves Of the banks at money centres are
drawn upon to furnish currency to the
rural districts. the banks have to contract
their loans. speculative buyers OF stocks
with borrowed money have to sell out.
and fall in the market ensues. There is
plenty of currency, but 1t has gone where 1t is
no longer available as a basis for bank cred
us. What is really needed is an elasticity. not
Of the currency, butof bank reserves, and when
il is seen that this kind of elasticity is already
nroyided by the operation 'of natural financial
law. and that to obtain 1t no flooding OF the coun-
try with bank notes secured only by bank assets
Is necessary. the clamor for the issue Of such
notes loses all justification.
At the end of the year 1897 the gold held by
the New York banks amounted to $lO4.OOO,-
OOO, and their Government notes. convertible
into gold on demand. to $4,000. 900 more.
bringing their total lawful money reserves up
10 1884, 900, 900. On the strength of these
holdings. they had made loans to borrowers Of
1907, 900 900. none Of which was drawn out in
cash. but was entered on the banks books to
the credit Of the borrowers or of those to whom
they gave their checks. At the end OF 3
the same banks held in gold $4,000. 900. and.
in Government notes representing gold. $55.-
OOO.0 0 more. making a total Of 1925. 000. 900.
while their total loans had risen to S71S.O00.-
600. This. too. was in spite OF the fact, that, as
result Of it's bond sales, the United States
Government had swept into it's vaults $S7.-
900, 1000 in gold. making its total stock on Dec.
81. 1893. S247. 100000.
We have had. therefore. in this city alone. an
expansion in bank credits. in q single year. OF
Sill 100000. all Of which has, been as available
for business purposes as so much coin and
paper. This. certainly, exhibits an elasticity
Of the money supply which ought to satisfy the
most ardent advocate Of currency reform. 1t
proceeded. too. not from artificial causes, but
from the natural workings OF trade. We eX-
ported abroad during the year more of the
products Of our industry than could be paid for
by our imports. and were able to enforce pay
ment in gold Of a large part OF the resulting
balance in our favor. besides not Icing COM
PEELED to export any Of the metal yielded by our
own mines, computed by the Director OF the
Mint at s65. 100000. Hence the enlargement
OF the New York bank reserves and their con-
sequent enlargement Of the accommodations
they have furnished thair cuStOmers.
Elasticity. however. implies contraction as
well as expansion, and the question may rea-
sOnably be asked. how the contraction OF a
redundant money supply. consisting of bank
credits based on gold reserves. is to be effected
when the occasion for 1t arrives. The answer
is obvious. To produce contraction we have
but to reverse the process by which expansion
was produced. As expansion follows the i'm
port Of gold. so contraction will follow Its eX-
port. and whenever the expansion has stimu-
lated speculation. as it Is now doing. until it
has raised the prices not only OF securities but
oial kinds Of commodities. to a point at which
this country is the best market in the world in
which to sell. and the worst In which to buy, we
shall again. as we have done in former years.
buy from abroad more than we sell, and pay
the balance against us in gold. Then the hank
reserves will be reduced. their loans will shrink.
and prices will fal! until equilibrium is re-
established.
OF course. the process Of contraction.
thus accomplished. is not pleasant for those
who have bought with borrowed money
stocks or merchandise. or property of any
Kind, expecting to sell them at higher prices
than they paid. and the so-called currency
retormers favor any device which will obvlate
II, The elasticity which they desire is one
which will produce steady expansion without
contraction. They would have the bubble OF
credit blow UP continually. growing always
bigger and bigger. and never bursting. Unfor-
%tunately, their ideal is unattainable. There
must come an end. at some time, to the longest
period Of imitation. and the more it Is delayed.
the worse is the reaction from 1t. An expansion
produced by the issue OF bank notes differs
from one produced by an enlargement OF bank
credits in form only, and not in substance. As
me deposits with which the banks credit their
borrowers must he protected by n reserve OF
gold or Government notes. so must the circu-
iatihg notes which they pay out, and when the
reserve against the notes Is depleted the vol
ume Of the notes must be reduced.
a natural and healthy elasticity In a na-