The Republican journal. [volume] (Belfast, Me.) 1829-current, 1907-11-28
THE RECENT PANIC AND ITS CAUSE.

From the point of view of the man In
the street the most interesting article
in the December Everybody's is a dis.
cussion of "What Caused the Panic,
by LYMAN J. Gage, ex-Secretary of the
U. 5. Treasury, James J. Hill, Stuyve-
SAINT Fish, Byron W. Holt, editor of
Moody's Magazine, w. G. Sumner, and
Thomas W. Lawson. The opinions of
these experts differ on some points, but
all agree that the present crisis has been
widely anticipated for many months.
Mr.. Gage thinks that the crisis is due
| primarily to weak currency system,
wars, natural disasters, and vastly aug
mented building enterprises have been
serious contributory causes. Mr.. Gage
says in part:
| "A modest estimate of the destruc-
ton wrought by the Spanish-American
War, the Boer War, and the war be-
tween Russia and Japan is $4,000, 0O0,-
600. and to this should be added at least
$500, 600, 900 of property swallowed up
IN the San Francisco and the Chilean
earthquakes of last year. All this vast
sum, if not destroyed, would have been
available for useful works of value to
man. During the past few years, also,
there has been an unprecedented activ-
lty In the creation of works ministering
to human needs. The construction of
railways, electric-lighting plants, cot
ton mills, steamships, ETC., in the past
SIX years has used up no less than S.
600, 100000. Capital thus transferred
and fixed in permanent form has been
gradually furnished by those who pos
sessed it, and in place of it the posses
sors have been supplied with securities,
( Snch as stocks and bonds fron, which
they might expect to draw an income
over an indefinite future.
The creation of these vast works
has beeh justified by the needs of a
progressive civilization, but that does
not nullify the fact that sapital once
transferred to the creation of railroads
and similar enterprises no longer exists
IN available form for other purposes.
1t has been further evident to thinking
persons that the pressure for the use
or capital has outmeasured the supply
OF capital. 1t is much easier and quick
ef TO plan schemes, pass resolutions in
directors meetings, print and offer
bonds and stocks for sale, than it is to
gather the capital to exchange for them,
no matter how meritorious an enter
prise may be. That we lately reached
a period when the deadlock between
capital and the demand for it was mani
fest is shown by the higher terms of
interest offered by conservative enter
prlses. In fact, long time bonds could
find no buyers during the past year.
In the exigency thus revealed, the great
borrowing enterprises, finding it impos-
sible to negotiate long time bonds, re-
sorted to the device of issuing short
time notes running for one, two, and
tbrap ut foe,
of interest. Under these unusual in
ducements, the controllers of capital
represented by money and credits in
bank, who would have considered it
imprudent to invest funds in long time
bonds, felt justified in taking over hun
dreds of millions of dollars of short
time securities, and thus the delicacy
of the situation was greatly aggravated.
/ This was about the situation in the
early fall, when the annual harvest put
in its memorable demand for the tenn
pOrary use of capital 1t is known
fact that the thousands of banks stand
ing next in proximity to the agricultur-
ist keep large portion of their funds
On deposit in reserve cities. Upon these
reserve centers, then, the country banks
from Louisiana to Minnesota made
their usual autumnal acquisitions. The
SITUATION mus created IOuliQ Cne banks
in reserve cities especially weak in their
money reserves. With a proper system
of currency in the United States, this
strain from the country would have
been met by bank credits issued in the
form of circulating notes, fully qualified
and entirely adequate to meet the tenn
porary requirements of the crop period.
But in the absence of any such system,
these acquisitions from the interior
upon New York banks had to be met
out of the already scant supply of their
legal money reserves. The withdrawal
of these reserves operated upon the
great superstructure of bank credit like
the removal of foundation stones from
under some great building. To restore
equilibrium, the banks in reserve cen
tiers were obliged to turn upon their
borrowers and force payment from
their debtors with little regard to the
Inconvenience or the loss incidental to
liquidation by the debtor class. All the
phenomena of shock-a horrible fall in
the price of securities-fright and panic
were the final result of the movement
/ sketched. This was natural and in
eyitable consequence from the lack of
/ a proper system of currency"