The Scranton tribune. [volume] (Scranton, Pa.) 1891-1910, 1899-12-07
THE REPORT
OF SECRETARY
OF TREASURY

tConcluded from Page IL
in one-half of one month the whole de-
posit fund would be exhausted; and so II
would, were It not that the recipients
OF these checks themselves prefer
credit upon their bankers books. Thus
IL comes that these checks and drafts are
rather Instruments for the transfer OF
property and credit than for the rcaliza-
tion Of money. They, however, perform
In our domestic commerce and trade the
same function that the dollar note CT the
government, or the fractional silver
coin, performsthat is to say, they are The
agency by which goods are passed from
one TO another and by which trade ac-
counts are settled. Thus II would np-
pear that in the department of our COM
mercial l!fe, where checks and drafts
and bank credits constitute the real cur
rency, the movement of expansion ana
contraction Is now governed b. the mu-
tual action of the banks ana the business
public.
The Need for Cash.
When the operations of trade are in
their usual and regular groove, bank
credits, with the accessories of checks
and drafts, furnish all the mechanism of
exchange that trade requires. With
periodical regularity, however, clearly
marked, occurring year after year with
the autumnal season, these instruments
Of exchange are proved to be inefficient
for the service then required Then the
crops are TO be harvested, the labor cost
paid. The grain and the cattle are to be
marketed. The western bankers and
merchants who have funds or credit at
rest with the bankers in the financial
centers find that checks and drafts are
not suited to the purposes now In ques-
tion. The bank credit is all right per Sc,
but the form in which that credit is evil
denCed is not convenient. What they
need for these uses is a form of credit
instrument easily recognized by the peo-
pie, one convenient as to denomination,
and enc which will pass from hand to
hand without being questioned. In short.
their need Is for paper money, or hard
cash
Now, subject to one limitation-that of
safety to the note holder a qualification
never to be disre garded-lt is impossible
for anyone to name good reason why
the indebtedness of the banker In this
field of the exchanges should not be eX-
pressed as freely in his notes of hand OF
convenient size, as in one consolidated
entry to the credit of his dealer, upon
| his books of Gccount. 1t is precisely at
this point that difficulty, embarrassment,
! and loss are occasioned. What would De
i
alton is by the inhibitlons and restric-
| tions of law now made impossible. In
! state of freedom, the extraordinary
| wants of the country at harvest time
| would be largely, If not wholly met by
| the conversion OF bank balances, not
available for these general purposes, into
bank notes or paper money. These, per-
| forming their function, would again re-
| turn when their service was ended, to be
! n thalAnrpS
bank" where, through the medium of
| checks and drafts, the larger commercial
uses would be the better served.
Restrictions.
have said that the present inhibitions
! and restrictions OF the law make this
natural course impossible. The prohibI-
tive tax of 10 per cent upon the notes OF
state banks and the unreasonable res
trictions and conditions imposed upon
| national banks as a condition of note is
sues by them are pointed to in justifica-
tion of this statement. ! can not do bet
ter, perhaps, than here to illustrate the
argument by recent financial history. On
| August 26, last the banks of New York
| held i'm "denosits''-i. O., unliQuidated
debts to the public-the large amount of
$685. OOOO 900. They held claims against the
| public outstanding loans) amounting to
| $7JG. 000, 900. They held in Cash-that is to
| say, various forms of money legal ten
der by law-upward of 1927, 900 600. The
relation of things 20 each ether was APP
parently normal and satisfactory. The
merchant or the manufacturer or the
| general dealer could exchange his ohi-
cations with the bank for the banks OBJ
legation to him through credit upon its
books at the low cost of 2la, 3, or 4 per
cent per annum. The Preserves" of the
bank, that controlling factor which final
! ly limits their power to expand credit
operations, were ample. About this time
a new influence made itself felt Bank
ers and merchants living in the interior
or the farther west, who owned or con-
trolled a portion of the credit balances
standing on the books of the New York
banks, needed to realize to some extent
their balances in q form of credit obliGa-
ton which would be convenient for the
payment of harvest hands and the other
ircidentals of crop gathering.
Stringency illustrated.
If the New York banks could have is
sued their notes in the form of paper
money they would have furnished them
and thus discharged the credits standing
upon their books, and this would have
entirely satisfied interior and western
needs. In that case there would have
been no expansion of credits. By SO
| nuCn as notes were lSSueu, Dy so muCt
book credits would have been cancelled
The bank statement would have been eX-
pressed in different form, with no ma
terial change in fact. Deposits" would
have diminished, circulating notes" by
so much, would have been increased, the
total would remain the same. The cash
reserves" remaining unaffected, would
have continued to be a sufficient guard
to liabilities, and the course of the loan
ND "a .1s,t
shock. But, as before stated, this course
was not open. Nevertheless, the interior
and western demand had to be met in
the form in which that demand was en-
pressed. In the absence of alternative
resort was of necessity had to the cash
! reserves. BetU cen August 2G and Octo-
ber II, twenty-three millions of this
fund, which limits and restricts tine gen.
eral credit operations Of the banks, were
sent to perform function which could
have been as effectively performed by
bank notes of suitable denominations
Consider now the effect this produced
As stated, $23 600 900 were sent out from
the reserves. This depletion destroyed
the guard of cash required by law for
S2OOO,OoO Of deposits, The banks were
no longer able to continue their main
function, which is to give their credit In
exchange for the credit OF the individ-
ual. On the contrary, it became impera-
tive, under the reduced holdings of cash
in order to bring liabilities down, to col
lect their claims from the public, and by
this process reduce their credit obiSa-
tions (depositsl to the public.
| lnterest-or, more truly speaking, the
banks charge for exchanging its credit
against private credit-rose from pa 3
or per cent TO 10, 10, 2j 40 per cent
That element of the currency which
| bank credits furnished was contracted