The sun. [volume] (New York [N.Y.]) 1833-1916, 1899-09-11
THE OYER BxPzNsIoN OF CREDIT

alarming cOnOltlOn OF Things In france nad q
chilling II not a depressing effoot upon the
stock market last week The rise In prices.
and the accompanying increase In the volume
OF dealings on the Stock Exchange. which be-
gan soon after the termination OF the war with
Spain. have now been going on for year, and
prudent people. with memories Of past disas.
tiers In their minds. are beginning to ask
whether II IL not time for the arrival Of another
one, and whether the speculative bubble has
not been blown nearly to tho bursting point
The danger to which the country is exposed.
In this respect. arises from the immense OK
tent to which its business Is done on credit. II
nobody bought either stocks or merchandise
except with the money he had earned and
haved. there would never be any excessive in
hation OF prices: and II nobody was In debt for
money borrowed or purchases not paid for.
there would never be any panic caused by fears
OF general Insolvency. As 1t Is. multitudes
OF men buy ton times as much As they could
with only their own money. and run In debt
for tho rest. Competition is thus multiplied
tenfold. prices 20 up. II not tenfold. at least
very much higher than they would II they were
regulated by the volume OF real money seeking
investment. and whenever creditors demand
payment. all at once. OF the debts due them.
there Is not real money enough to GO round.
and we have a financial crtsis.
The origin Of the credit system was that
men in business who were without the ability
70 paw cash lot all 'ne Rooos they needed were
uuhten WIN tnem until shey couid resehthem.
ana WIN the money so optained eventually
pay Tor them. owners importers and manu-
1acturers were thus enabled TO dispose OF
their wares more easily and for higher prices
than IL they demanded payment In advance.
and 60 at an early day. grew ND the prac-
tice OF giving credit by merchants to one
another. Sellers. in order to get in turn tho
nonev tbev ne,ded hefore thar dehtora maid
chan, +oot fror, ,hair dab,or. ,,Lnou,aa,
msnta In tbo form ~ rrom,s.orv notes and
..,.,tad dra,t. an, b,d than, dis.or,todh ~
49,. .,..h,,.h.a Co. ~ n,,rna.. o. -,
80 $500 " Wv Vi
,. a., "
men. ano ue'eoPineh'' 'ns o"oi NOUS 'aor'co t
creh't "hien no" oVershaoo"s me lana.
10 meet the demands OF oorrowers. IMAM
ciai ihs.'u'lons nave muitipneo ana been
enlarged unit, the 'acilites they ouer nave
1nr outrun the needs OF purely mercan-
tile business. me supply OF actual money
has also been Increased by the recent I'M
mense increase OF coin and paper cur
rency. the larger part OF which has gone In
to the channels OF trade. but OF which the re-
mainder serves as a basis OF still larger
volume OF credits performing the junction OF
money Hence complaint on the part OF
the officers OF banks that they cannot
employ their FUNDS. The President OF the
American bankers Association Mr. George
H. Russell. In his address to the association at
the opening OF It's recent meeting at Cleveland.
ONO SAID among other Things:
me business OF 'he country 10 osine done on
c"Ah oass. ING snnuai ehu sem annual se"ihs
cay" o, .ne o,ae, arc NO. upon 'he cAlehaN
.,n .n,,.o.,r... .ns ~. sn,n., .1 uon, y.
,s.rn.d tbe Is..on Inv, NOR. o,r.,r,Iv .nd ,.~.
ing"
Bank. must invest in other good seeur,,ie, which
under the new demand appreciate in value Under
this process and the growing wealth Of our nation.
high grade securities will be and the ban
will lend their aid TO the development of In
dustries and trade with all nations. Already
purohasing the bonds OF foreign countries
That for many years the offerings OF strictly
commercial paper-that 10. OF notes and
acceptances given In payment for merchandise
and COMMUNICATIVE been gradually dmin-
ishing. Is well known to the managers OF banks
and other money-lsndlng institutions. This
is not entirely due to the fact that the CONNER
cial business OF the country Is being done Tor
cash. as MT russell says 1t 10. but rather to the
growth OF the custom. which the late A. II.
Stewart introduced. OF buyers on time not
giving notes or acceptances for their purchases.
but letting their debts stand on their creditors
oooAs. AHo ioisot Sosu eapitaish NJ" onpioyoo
by Wholesale merchants enable them to dis
.pense with discounts. or. ~ they do not. the
merchants obtain from their banks. on their
own personal credit. the money they need.
How extensively this new system prevails. and
the losses to which 1t leads. 10 shown by the
fact reported to tho association at Cleveland.
that seventeen New York banks were creditors
OF one bankrupt, who filed his petition last
month. for 100000. for which they had no
security; while that the loans and discounts OF
the 9.4S5 banks OF the Union amounted. on
Sept. 80. 1893. In spite OF the shrlnkaRe In COM
mercial paper complained OF. to $4!632. 1892. 900.
demonstrates that the total volume OF credits
has not diminished but increased.
This same dearth OF commercial paper. Mr.
Russell It will DO observed. went on to say.
compels the banks to invest In other good Sc
curities. including tho bonds OF foreign coun-
tries. and Ito lend their aid to the develop
ment OF our Industries" BY this latter phrase