The sun. [volume] (New York [N.Y.]) 1833-1916, 1899-09-25
TIE PREVENTION or MONEY! pAN1Cs

1dE fhhEhNfION or MONEY PARICS.
The shrinkage In bank reserves. which had
been going on slowly all summer and which,
three weeks ago. had compelled q reduction Of
oank accommodations to borrowers on stocks.
eliminated. early last week. In som ething very
nearly approaching panic on the Stock Ex-
ehange. On Thursday. however. q mark cd re-
eovery set In. and for the present the worst Of
eho spasm may be said to have passed.
It's observable ehat the pinch In money re-
duced the prices only OF speculative stocks,
nrst-cass Investment securities having re-
manned unaffected. and no complaint having
been made by merchants OF any curtailment
of accom- modations to them by their banks
NOR has the pinch extended throughout the
eountry a. It did In 1893. The reason Is that
In 1893. the same imitation. which then pre-
seeded the crash In the stock market. had been
going on In the prices Of land. and OF agri-
cultural commodities. and In mines. brew
cries and other industrial enterprises. Credit
had been expanded to the breaking point and
whom tho break In It came all the machinery
which depended on It for motive power broke
oewn also. Now. the business OF the country
Va In far healthier state. 1t 10. as the Prcsi-
dent OF the Bankers Association told the asso-
citation at Cleveland the other day. largely done
anon cash basis. and is. consequently. less
liable to panic.
The pinch. nevertheless. has hurt so many
people and caused them 90 severe losses that
IL mas evoked from the sufferers demand for
remedial measures. In obedience to this
demand the Secretary OF the Treasury began q
week ago the payment In advance Of the Octo-
Der interest. amounting to $5.60o.o0o. on the
public debt, but this expedient has as yet
AFFORDED no appreciable relief. 1t has been
suggested By persons ignorant Of the law that
the Secretary might take money out OF the
Treasury and deposit It In the national banks:
but this he 10 strictly forbidden to do. The
most that 10 permitted to him is to allow the
receipts from internal rsvenus-not those from
customs-to remain ten porarily In depository
banks on their way to the Treasury. 1t has
also been suggested that. inasmuch as the Gov
eminent takes from the depository banks
security in the shape Of Government bonds. no
reserve against its deposits 10 necessary: but
ehls. too. 10 an error. o distinction being made
In the National Bank act between Govern
ment deposits and other deposits. Purchases
OF Government bonds. such as have been made
on similar occasions heretofore have also been
talked OF. but to buy back at 1os bonds which
less than year ago were sold at par would be
political. II not financial blundsr. which the
Administration could not afford to commit.
Besides. all the money In the Treasury may
yet DO needed for Government expenditures.
and the present Secretary Of the Treasury 10
too prudent o man to part with 1t now.
In view Of the ineficacy OF other schemes to
prevent bank contraction. the old-time favorite
OF an elastic" bank currency has again been
brought forward. The recent depletion OF bank
reserves has. IL is conceded. been caused. as IL
10 every year at this season. by the withdrawal
from the banks OF legal tender Government
notes and OF gold coin to meet the demand In
ha rIN lfnr nj Iafr takn Ca %
the crops. The farmers will not accept checks
On banks. even whom certified. In payment for
ihsir products. but insist upon getting the
actual money. The supply OF national bank
aotes and OF silver certificates being insuffl-
cient for the purpose. the banks have to fur
eish Government notes and gold coin-the coin
being first exchanged at the Treasury for gold
sertifeates-and thus the % per cent. reserve,
which the National Bank act and tho rules OF
the Clearing House require to be held against
deposts. has become impaired. Since. too.
bank deposits are largely composed OF the pro-
eeeds Of loans made ON stocks. a contraction In
them means contraction In these loans. .
forced selling OF the stocks on which they were
made. and a general depression In the stock
market. All this mischief. 1t is said. might DO
avoided IL the banks were allowed to furnish
for crop-moving purposes their own notes
instead OF lawful money. The farmers would be
content to be paid In such notes. the bank
reserves would not be depleted. and no con-
traction OF loans and consequent forced sales OF
the collaterals for them would result.
When II 10 pointed out to the advocates OF
this device that nothing prevents a resort to It
now. and that no new legislation is needed to
introduce 1t. the national banks at least being
allowed to issue as many circulating notes as
they please upon depositing as security for
their exemption Government bonds at 30 per
cent. OF their par value. they reply that Gov
eminent bonds are SO high priced that the
Issue Of circulating notes upon them Is not
profltab BILE. and that, at all events the formall-
ties required for 1t take up too much time.
From this 1t would appear that tho banks will
not accom- modate the public unless they can
do It probably and without trouble. Their
officers prefer the present annual contraction
Of their loans and all the evils that result from
1t to spending a little money and taking . little
pains to avert 1t.
To overcome this obstacle and mako the
issue Of circulating notes by banks easier and
more remunerative it has been proposed to
dispense with bond security for the notes aud
permit them to bo issued upon each banks
assets alone. This proposition 10 on its face so
evidently one for a revival Of tho wildcat
money with which the country was cursed
before the adoption OF the present at onal ban
system that few people seriously advocate 1t.
The majority OF those who desire to dispense
with bond security for bank circulation favor
a. substitute for It q guarantee fund to be
contributed by all the banks In the country and
held for the redemption OF the notss OF insol-
vent banks. This scheme. however. would
make the sound banks guarantors for tho
unsound ones. and for that reason no SOUND
bank could be expected to participate In 1t.
1t 10 also overlooked that II 1t 10 wise and
prudent to require banks to hold lawful
money reserve OF rs per cent. against their
deposits 1t would be unwise and imprudent not
to require from them an equal reserve against
their circulating notes. IL those notes are not
to be secured by Government bonds. A bank
note. like bank deposit. Is payable on demand.
and 1t is quite as important for a bank to
be prepared to pay IL on demand as It 10
to be red to pay the checks OF its deposit
tors. Hence an issue OF bank notes at the har-
Vest season would relieve the strain upon bank
h. IL ~ hai