The times., 1899-06-08
FINANCIAL PANICS.
How They Are Created and How
They MIGHT he Avoided.
To The Editor OF The Times:

(see report of Comptroller of Currency,
1898. Vol, /, p. 62S), the deposits subject to
Withdrawal on check of 3.S06 national
banks was 50, 235, 600, 900. On October 3
this deposit had fallen to S1,S14000,O00. a
withdrawal of s421 100000 within a few
months. The total amount of cash which
the national banks held on the 9th of
March, 1898, was 1912, 600. COO, so they were
required to relinquish in deposits over
Sl00, GOO, GOO in cash in excess of what cash
they had. This is a remarkable spectacle.
The withdrawal of deposits thus amounted
to over is per cent of the total deposit. The
total deposit in the United States at that
time, to wit, in 3S06 national banks, 1913
State banks. OPS savings banks, 904 pri-
vate banks, and 224 trust companies
amounted to $5,33S, ,000, coo of deposits. The
total amount of cash. and this includes all
cash Items of the State banks. savings
banks. private banks. and trust companies,
whose reports do not separate cash and
cash items, was $5S3, 900, 900. 1t should be
clearly remembered that cash items are by
no manner of means cash, but only checks
in transit and a very different thing from
money, because in time of panic they are
not available. The deposits more than ten
times exceeded the amount of actual cash
held by all the leading institutions in the
United States. This ratio is of extreme
significance.
1t is shown above that exceeding IS per
cent of the deposits of the national banks
were required OF them between March and
October of 1888 The ratio which cash
items and clearing house exchanges bear to
the actual currency is large, particularly
in the great cities; for example, in the
city of Boston (see page 75D on Septem-
ber 20, 1898. the cash items and clearing
house exchanges amounted to $4,000, OO0,
while the currency amounted to s2i. 900. 000
These clearing house exchanges must be
regarded as an artificial form of money
serving valuable purpose and having
brief life individually, but long life COL
lectively. The clearing house exchanges
and cash items in New York city on Sep
tember 20. 1898. including cash items
amounted to S6i.OO0,0O0. while the total
cash amounted to S152 ,000. 600: the clearing
house exchange was an artificial money
equal to about 40 per cent of the actual
currency they had on hand and served a
valuable purpose In the banking business
and commercial life, yet it is not cash,
nor is it available for the purpose of pay
ing a depositor who calls for his money.
When the depositor calls for more than
the banks have on hand. as they did in
1893 in New York, the banks were COM
pelled to decline to pay the cash and to
insist upon putting in circulation the
clearing house certificates, which they did
do to the extent of many millions. manu-
featuring an artificial currency in violation
of the laws of the United States and earn
ing the gratitude of the entire country by
their Illegal action. 1t is a singular situa-
tion when the laws of the United States
are in such "a condition that the entire
commercial world rises up and bestows its
blessing on the New York clearing house
for violating the statutes.
In the estimate of S533, 900, 600 of cash,
the Comptroller's report for the State
hanks. savings banks private banks, and
trust companies makes no distinction be-
tween cash and cash items, consequently
they are necessarily merged In the esti-
mate, of which they constitute two-fifths.
so that in 1898 there must have been some
thing less than $500, 900 900 currency or
! actual cash. including specie. Treasury
notes, bank notes, and all forms of paper.
silver, and gold which may be classed as
money.
It is a wonderful thing if it be true and
it is not true, If the people of the United
States in 1898 had a total money in circu-
lation of 81 $50 00O, 900. and all of the banks
IN the United States combined had less
tina n one-third of that money. On this
theory the people keep twice as much
money at their homes as they do in the
banks and savings and trust companies.
The per capita circulation in 1893 was rep
resented to be S23.S5, and on this basis the
average person should have had $500
in the bank, and $1,000 in his pocket; every
family of five should have had $4,000 at
home and $1,000 in the bank. The COM
monest observer is aware that this is pre-
posterous; very few people keep money
at their homes. and the probable average
circulation in the Western country. with
which the writer is familiar OF the average
dweller In town. and village and country
would probably not exceed s. to the house
hold or 81 per capita, In the city. doubt
less, 1t is greater, and even IL 1t should
be three times greater, IL would still leave
in the hands of the people only an aver
age circulation of SO per capita. From
the reliable reports of the Comptroller of
the Currency it is manifest that in 1893
tsee page 36D. the sc, 900 coo of people in
the United States had less than $500, ,000. 900
in banks in cash, or a per capita of less
than $50 that is in sight. We are told
however. by the statistician of the Treas
ury Department tpage 364) that the peo-
pie had at that time s23.S5 per capita cir
culatiOn. This venerable and hoary fiction
has the sanction of past reports in its
favor. 1t is based upon the presumption
that no coin of the United States in silver
or gold which has ever been issued was
ever used for commercial purposes, none
of it is supposed ever to have been melt
ed up for gliding or in jewelry or in the
mechanic arts; none OF 1t has ever been
lost by fire or flood. at home or on the
seas! Not dollar Of the paper money
which has ever been issued has been burnt
up. has ever been worn to tatters and not
redeemed. has ever been lost or DESTROYED
by accident or intention.
1t is the custom OF business houses de-
string to keep their affairs in a healthy
condition to take an annual inventory of
stock and charge to profit and loss that
which Is injured. impaired or DESTROYED
and ii ii cannot be estimated with preci-
sion, an intelligent and conservative esti-
mate is made and the deduction made ac-
cordingly. The United States Treasury
has never made an estimate to cover this
loss referred to until the fiction of the per
capita circulation in the United States has
become so gross that it deceives no intel
ligent man.
Who is capable of believing that 3 sOs
national banks. 3,5T9 State banks. O25
savings banks. and 9O4 private banks. 22i
trust companies, or 9.53S banking insti.u-
tions. devoting all OF their energies 10
securing the deposit of every available
dollar in the community where thev do
business. and having the absolute conf
deDce OF the people everywhere, should
be unable to get exceeding $3.50 per cap
ita, or less than one-third of the currency
in the hands of the people? This state
ment Is perfectly prepOsterous. The banks
and banking institutions of the country
have nearly every dollar in the commu-
nifty. They must have three-fourths of
it all. and there cannot be exceeding $40
per capita in the United States. or if this
be deemed an excessive estimate. assured
ly they would be credited with having
at least one-half. and this leaves SIS per
capita. The banks in 1893 had in cash a
total of less than $500, ,OO0 600. They had
q tntal Line of dennsits evcanAinu e aae