Daily capital journal. (Salem, Oregon) 1903-1919, 1906-12-17
Bankers, Investment.

lordinary use. When q private indi.
lvidual thinks OF making an invest
lment, the primary condition he
thinks of is permanence. If he is
likely TO want the money he has at
his command he keeps It in the bank.
But when the need is for steady in
terest and security of principal, he
takes it out of bank and buys some
thing that can rest undisturbed, per-
haps for years. He can purchase
real estate or take an interest in
well-establIshed business, or lend
money on mortgage for long terms.
II he becomes stakeholder in
bank or other company he thinks not
of the reallzableness of the security,
but of tho permanence of the cor
poration. And he acts with regard to
investing in bonds of the same rule.
But with a banker this idea of per-
manence is out of place. His in
yestments. so called. are really a part
OF his fund TO meet liabilities. But
not his ordinary and daily recurring
liabilities, but such as are eXtraor-
Ldlnary which arise under special cir
cumstances and at intervals of time,
such, for example, as when bad
harvest causes scarcity of money and
n heavier demand for IL from both
depositors and mercantile customers,
or when a season of bad trade SUPER
venes and continues year after year
with the same result.
If bankers whole spare re-
sources are employed In discounting
bills and making business loans, he
will find when such a time super
venes. and drain OF deposits or con-
traction OF circumstances sets in,
that he cannot reduce his discounts
without embarrassing his customers.
In fact. at such time, the majority
of his commercial customers could
not respond at all to his demands
for reduction. Instead of that they
will want more money from him.
Thus. instead OF being tower of
strength to the circle who do bust
ness with him. he may become weak
himself.
IL may be thought that the forego-
Ing observations have no bearing on
the conduct OF "A commercial or man
ufaeturlng business, But In truth
every merchant and manufacturer
will find to his interest TO accumulate
what corresponds To the rest or re-
serve fund OF bank. This indeed
some OF them do. But this surplus
over ordinary capital Is often invested
In tho business. and not available
when wanted for emergencies. A re-
serve fund that is represented by
buildings and machinery Is no reserve
fund at all.
One of the most prosperous OF the
many prosperous manufacturing con
cerns of Canada was managed, lnan-
eially. on the principle. first of ac-
oumulatlng sufficient cash reserves
To enable them to hold their bills re-
colvable without discountlng, and,
after that, of investing surplus prof
It's In government securities and
other negotiable bonds. The bust
ness OF this concern called at times
for very heavy outlays that could not
be foreseen. u state OF things that
might have been embarrassing but
for their possession OF this large re-
serve of bonds TO Il bank and obtain
advances ON them at n much rate
than that at which they could dis
count bills on their own credit or on
ware house receipts.
To this Il may be replied that a
commercial or manufactures con-
eern, IN good credit can always OBJ
tain advances from its bankers. and |
that it Is rather diversion of funds |
from profitable uses TO invest in Sc
ourlties that Yield a low rate of I'M
terest, Hut Il Is not true that n |
respectable concern can obtain ad- |
vances from It's bankers at an times. |
Bankers are themselves. nc times,
short of money. and are constrained |
TO refuse even their sOundesl GUS
toners. The advantage then, TO a
commercial house of having reserve |
of negotiable bonds Is that II an
emergenoy arises they can apply tn
any bank doing business In their ris-
triot, or even beyond It; or. In the
last resort, they can put their bonds
on the market. But IL Is evident that
a Arm IN this position can at times
take advantage of favorable changes
In the price OF commodities. aud buy
for cash az time when others are
precludod from doing il. They can