The sun. [volume] (New York [N.Y.]) 1833-1916, 1901-12-05

goid. and oliver coin. perform In the nsd
OF circulation Q very Important part, but
their use Is substantially limited 70 retail
transactions. the payment OF wages. and
larger matters bank checks, or credit
transfers, are the effective currency, the
real medium OF exchange and means OF
payment.
Now. loan Of credit by the bank Is essen
TALLY q manufacture or creation Of the
medium OF exchange. Banks do not prt-
marily lend money; they give credit. Credit
so given may indeed be awaited Of by the
borrower to secure money, either In the
form Of coin or bank notes, but In much
the larger degree the credit obtained IL
mado the subject OF transfer from buyer 20
seller, TO he retransferred again and again
In the course OF trade. So we have these
Phenomena. In the operations OF trade
the dealer desires a larger, II q temporary,
power to obtain goods or commodities.
A bank credit which he can transfer TO
another by drawing his check Ia as effective
as actual money and 10 less troublesome
He negotiates his notes with his banker
and obtains the desired credit. which. as
multiplied transfers. In due course Of
time he disposes OF the goods OF commodi-
ties he had purchased, and with the avails
he takes up his note at the bank. The sit
uation IL thus restored TO it's former status.
The credit obtained by the trader Is can
celled. The total volume Of bank credits
subject to transfers in the avenues Of trade
has been contracted to the amount involved
in the transaction described. IL Is no
strain on language. nor does IL do any vio-
lence to truth, to say hat through the
loaning operation Of the banks the medium
of exchange In expanded by millions every
day and is contracted by millions every day,
the general average in both directions be-
ing about constant about constant be-
cause the buying and the selling In the
community must ba Substantially anilal
There are, however, at least three causes
which operate TO increase the demand upon
banks for these credit facilities. and thus
% augment thetotal OF loans or bank credits.
These causes may be thus enumerated:
A rise In price OF commodities and secure
ties: an increase in the rOIume OF these things;
an enlarged activity In the sale and rams
Ter Of goods and securities. On the other
hand. there is an influence which limits the
ability OF the banks to continue indefinitely
expansion in their loans. That influence Is
the cash reserves held or controlled by
them. A responsible duty assumed by
the banker is to be ready az all times TO
redeem in cash any credit due from him
to the public. Failure 20, do that means in
solvency. Hence his cash resources must
bear a proper relation 10 his liabilities In
this regard. and the National Banking
act fixes minimum percentages. which IL is
the banks legal duty to maintain.
Now. il il an observable fact that, given
business activity and a prosperous course
to industry. there goes on pdri pdssu a
steady expansion in the means of exchange
furnished by bank credits. Bank loans are
increased, and the so-called deposits
which are credits at momentary rest, show
larger totals. At last the diminishing ratio
OF cash reserves puts a strain on the expand
ing movement and impedes further develop
ment in that direction. When this situation
Is reached, we have the familiar symptoms
OF prosperity. Trade is active. manufact-
urers busy. and labor well employed
Within the limits of the general equilibrium
so reached. there ought TO be indefinite
continuance in the happy conditions. But
IL Is a familiar fact in the past. and IL
will be a recurrent fact in the future, that
unsettling influences come in at unexpected
periods TO disturb finance and menace
credit operations. Some large financial in
etitution has been managed with reckless
disregard 10 It's best interests; a large com
mercial house becomes insolvent; a political
party espouses doctrines injurious TO public
and private credit. war Is threatened, har-
vests fail; a high range of prices sends gold
abroad for better bargains. Some one or
more Of these events occurring in succession,
or possibly operating together, disturbs
confidence in the situation. Credit loses
In some degree its former power: cash
becomes relatively the more important; the
moneyed reserves of the banks tend down
ward; uncertainty and fear supersede former
confidence and &c.
These evil circumstance are not peculiar
TO any one country: they are common TO
oil countries. The striking contrast is to
Us found in tho way in which they are met
and overcome. and the comparison Is
wholly unfavorable to us. Explanation
Ia TO be found ia our defective banking
system. No sooner do the symptoms OF
financial and business trouble appear,
than the banks, under the ruling principle
OF self-press r~vation, suspend To the farthcst
limit possible their operations Of leaning
and discountiIg. They cease TO give
credit upon their books In exchange for
debt obligations from their dealers. The
daily CT, atoms OF the necessary medium
OF exchange, bank credits, c'ase, OF become
entiruly inadequate TO commercial require
ments The daily natural liquidation Of
credits continues. resulting in contraction.
Business men. carrying goods aud ~ curi-
ties 10y the aid Of bauk credit, are Obliged
20 sell with little regard TO cost. Con-
templated enterprises ara abandoned;
ORDER for future delivery Of goods arr
rnsciudcd, and a. these excessive steps
mark IA" downward movement. the banker
bHcOfnes the more reluctant to perform
hIs Important function Of luaning his credit
for commercial and industrial u.es. We
thus perceive that the hTaciug support
which hAs promoted and SUSTAINED business
progress without which, indeed, such
progress would have l+en impossible
l. withdraw al a.. very moment WlFu
support II tho most u'"diul What should
-, und'f such circumstances, au fd'rly,
conservative movement 90 mDrr scum
conditions brcYmsl a diruri, rly nIglt,
IA uurra-unlng panic 10 Nhlrh 81 b-art
tho TLutt bu-lutrs public 10 d. lpl'rrly
Involved W. have uut far - book 10 -"
this VII Illustrated lir r,-caIl'd panic
81 lsnJ j. "a maTa'd 'AhmUAH Within q
period of bee than twelve months iaIt
credits tdrpUsIt-I W,p C.utTact'l co. 20 total
,f mon. tiau four iuuiI . millions Will"
th" actual ,a-h huliu D. ~ The iaIhs v'rr
iuprH--d hN nsafIy MY uH'AuI- ullf Be- Geo
fiy d volume ut taII ,I.dIts tsfYr' swat.
aI.s IuT transfer &c. Ia ordinary rlhtIHl-
81 frur Na. r4II.HIN dIt,rr,l Geo IH. iaf
rH.rf- - Ir sAlsliR t~nu.if'4u'rr frHm
thr tlDur Goo th" tauIh- iNIs o. fi.au
ht en-, ftH iHIf -HaH. nII d.HtHiu.. s.Ir
TiuHfd uHrsF CO. Iri..I IH su HHUuuIi
rI|HfaINtIF t.fuIa.0HUHT a. tN" lHu
tu us nHr. 81 IIs NI..I.. u N.s
t. 4.4.H f.iU H .r .. IaU .i ia b.
drHI.f. IH U.Hu NI Bod poo 900
tl..Us#I Al. IIH I..aIE HN..t f|# Dol
a.. utIsHI. .t.... o. Md iartfa rH
U...l mu aI. I..HH I.| .I .I.H |"
d. I.4I fsr .ItH cod r.f..I.ia rI
f.aI aIH uH WI. rI HI.I fIftuI
iI. I4IIf ~ rHHI 'I U.H.I NHs su
e. 700 .Ust.s uIEf .iH aII.HH a
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