The Princeton union. [volume] (Princeton, Minn.) 1876-1976, 1901-10-31
THE PRINCETON UNION: THURSDAY, OCTOBER 81, 1901.
sss1Y.APPING CREDIT.

'.SIYAPPING CREDIT
| The address of A. B. Stickney, presi-
dent of the Great Western Railway
company, delivered at the bankers
convention in Milwaukee recently, was
a most practical one from the business
mans standpoint, and there was so
much truth in his statements that the
bankers themselves could not help but
endorse what he said..~ We give a few
excerpts: ... ~....-.
The modern commercial bank is most use
full institution, but it has no independent func-
ton. It is co-worl1er with the merchant
The merchants function is primary-the
bank function is secondary. Trading is the
foundation, and without the trader there could
be no banking function.
There are many misconceptions of the bank
ing function growing out of the technical but
unnatural meaning which, in banking parlance.
is given to the words deposit and 'borrov.'
When the public is told that the bank deposits
have increased S1.5000OO,O0O since the panic it
is regarded as evidence of an enormous in
crease Of money. The increase of bank depo-
sits simply means that conditions of trade are
such that merchants have Increased their in
debtedness, which Indebtedness has been ex-
| changed for bank credits, and by this means
the Indebtedness of the banks has been in
creased.> It is an increase OF Indebtedness
which is available as a medium of exchange
instead of an increase of money. There has
been but comparatively slight increase of
| money. During the period in which the So
called deposits OF the national banks have in
creased 81, 500, 900 900, the money in the banks
has increased only S2O7, 100000.
| The fact is that in most of the bank transac-
| tions there is no borrowing, or lending, or de-
posting. They are simply credit transactions.
a swapping of credits, which in the matter of
posits and the so-called loans in the same
| amount and at the same time. Practically all
the so-called deposits are made by swapping
| the banks credit for other credits, in the form
| OF promissory notes, checks. drafts, etc. There
are small streams of money flowing in and out
but the incomings and outgoings are so nearly
equal that writer has said, "a banks cash re-
sembles column of gold with a slight ripple
| on the surface
| Swapping credits is the function of the mod
scrutinizing individual credits and giving it's
own credit for such individual credits as are
| acceptable and thus furnishing an abundant
supply OF the medium of exchange of COM
| merce. To regard the bank as a mere money
| lender is to belittle its important and useful
function.
In this connection I want to say that I like
| the word ''swapping,' because it expresses my
exact meaning, and even boys know what it
means. The boys swap jackknives and swap
marbles. The banks swap credits.
Mr.. Stickney showed how there was
such tremendous shrinkage in values
of all things during the recent panic,
because Of the banks refusing to swap
credit" and because of the fault of our
national banking system, which lacks
uniformity and a chain-like relation of
one bank to another. He says:
am not prepared to say that it was the fault
of the banks their managers. That the
American bank, as at present organized should
falter at every minor commercial crisis, and
stop, as far as possible, the swapping of credits
in major panic. seems inevitable. The neces-
sity is due to the lack of a banking system
The banks of this country are not parts of
whole plan connected in such q manner as to
create chain of mutual supports, but they are
! local and independent institutions. In times
of commercial crises each must depend upon
itself, and as it is evident that one bank with
| out the cooperation of the other banks, cannot
support the enormous credits of commercial
nation like the United States, each begins to
scramble to increase it's cash reserve at the
expense of the other banks-for where else is
the cash to come from:-and to reduce it's liza
bilities.
Practically all commercial nations except the
United States have adopted the Scotch system
OF branch banks with connecting linl1-a
central bank-which is the bank of the banks
and holds the reserves of all.
He showed how the bank of England,
which does the banking business for
the whole of England, stands like a
stone wall against all financial crisis.
He cited an instance when the bank of
England, having reached it's minimum
OF gold reserve, refused further dis
counts and a panic ensued at once.
Business men were on the verge of
ruin, when the ministry permitted the
bank to disregard the law, and the
minute the bank began ''swapping
Credits again confidence was restored.
1t is not so much the fixed reserve as
it is stability of values in all kinds of
money, and confidence.
Referring to the panic of 1898, Mr..
Stickney says:
There was not a minute during the panic in
which all the homes of this country would not
| have been in demand for occupation, and there
| was no time during the panic in which the
| products Of the farm and of the factories would
| not have had their normal consumption if all
| the consumers of the country had possessed
the means of obtaining them. The 1000, 900
| laborers who tramped the country. clothed in
rags and with insufficient food had capacity to
/ mr.