The Indianapolis journal. [volume] (Indianapolis [Ind.]) 1867-1904, 1901-12-05

of cash reserves puts a strain on the ex-
panding movement and impedeS further de-
velopment in that direction. When this
situation is reached. we have the familiar
symptoms of prosperity. Trade is active
manufacturers busy, and labor we'll en-
plOyed. Within the limits of the general
equilibrium so reached, there ought TO be
indefinite continuance in the happy condi-
lions. But it is a familiar fact in the
past, and 1t will be a recurrent fact in
the future, that unSettlipg influences come
in at unexpected periods to disturb finances
and menace credit operations: Some large
financial institution has been managed with
reckless disregard to its best interests: a
large commercial house becomes insolvent;
a political party espOuses doctrines injur-
ious to public and private credit; war is
threatened; harVeStS fail: a high range of
gains. Some one or more of these events
occurring in succession, or possibly operat-
ing together, disturbs confidence in the
situation. Credit loses in some degree it's
former power; cash becomes relatively the
more important; the moneyed reserves of
the banks tend downward uncertainty and
fear supersede former confidence and cOur-
These evil circumstances are not Pc
culiar 10 any one country; they are common
to all countries. The striking contrast is
To be found in the way in which they are
met and overcome, and the comparison
is wholly unfaVOrable TO us. Explanation
is to be found in our defective banking sys-
TEN. No sooner do the symptoms of tinan-
cial and business trouble appear than the
banks, under the ruling principle of self
preservation, suspend to the farthest limit
possible their operations of loaning and
discounting. They cease to give credit upon
their books in exchange for debt obliga-
tions from their dealers. The daily crea-
lions or the necessary medium OF exchange,
bank credits. cease, or become entirely in
adequate TO commercial requirements. The
daily natural liquidation of credits con-
tinues, resulting in contraction. Business
men, carrying goods and securities by the
aid of bank credit are obliged to sell with
little regard to cost Contemplated enter
prises are abandoned; orders for future de-
livery Of goods are rescinded. and as these
successive steps mark the downward move
ment the banker becomes the more re-
luctant to perform his important function
of loaning his credit for commercial and
industrial uses.
A MARKED EXAMPLE.
1--WE thus perceive that the bracing sup
port which had promoted and sustained
business progress-without which, indeed
such progress would have been impossible
lis withdrawn at the very moment when
support is the most needful. What would
be- under such circumstances, an orderly
conservative movement to more secure
conditions becomes a disorderly fight. an
unreasoning panic, in which at last the
entire business public is helplessly in
volved. We have not far to look to see
of 1893 is a marked example Within a
period of less than twelve months bank
credits (depOsits) were contracted to a to-
tai of more than four hundred millions
while the actual cash holdings of the banks
were increased by nearly fifty millions:
that is TO say. a volume of bank credits
before available for transfer in the ordi-
nary channels of trade was suddenly di-
verted 10 the payment of pre-existing in
debtednesS from the public TO the banks
This is shown by the fact that loans and
to amount substantially corresponding
To the fall in deposits. Some of the iqui-
datiOn was no doubt voluntary on the part
of bank debtors. but much the larger part
was enforced, 10 the disadvantage of the
banks Is well az their debtors Many bank
failures occurred and business bankrupt
ccs were numerous; factories and work
shops were closed. and unemployed Ia Dor
suffered the pains of want. Nor could these
evil consequences, under the limitations of
our banking system have been avoided
Unless notifications be made whereby the
strength of association can be secured and
the surplus power OF the safe and strong
extended in confidence TO the support of
the weak and exposed a repetition Of the
disastrous phenomena Of 1898 awaits only
the progress of time.
Argument has been put forward for a
system which contemplates a large central
bank with multiplied branches That sys-
TEN does. indeed. afford the elements which
would give the highest assurance Of pro-
lection against the present evil of indi-
vidual banks, each an independent unit
with no bond OF cohesion. no power Of CO.
operative action, no ability 10 coordinate
for the general good or for mutual de-
Tense. But the proposition for large CEN
trail banks, with broad powers for the es-
tablishinS Of branches. offends the common