The Washington herald., 1907-12-18
PANICS AND LEGISLATION
By FREDERIC j HASKIN.
By FREDERIC J. HASKIN.

The country expects Congress 10 make
some changes in the existing financial
laws at this session Financial legisla-
ton follows financial panics as night the
day When there is no money trouble,
and business is sailing along smoothly.
any attempt 90 change the financial laws,
however much that change may be need
ed, is met with determined opposition from
almost every quarter. But let money get
tight and the fear of a general panic seize
the people. then there is unanimous
demand for new financial legislation.
Many remedies are suggested and many
theories are presented. 4 central national
bank Of issue; an asset currency issued
under heavy tax TO insure retirement
when the bank notes are no longer
needed; a system OF federated reserve
banks IN each geographical section; a
credit currency under control Of the in
dividual banks; a guarantee Of the in
tegrity of deposits in national banks. are
some OF the proposed plans. All save
the last mentioned look 60 the establish
ment OF that long-desired refOrm-an
elastic currency which viii expand and
contract automatically. according to the
needs of the country. The guarantee of
deposits looks toward the prevention Of
panics by removing the cause for that
psychological phenomenon. "a run on the
bank"
The relation between financial panics
and financial legislation is as old as
money and law. The money lenders in
simple method Of charging usury There
fore Egyptian law and Mosaic law con-
denim the practice Of usury.
The Bank Of Amsterdam was the first
great financial institution. 1t was estab-
lished in 1853. It's purpose was 10 provide
a uniform currency instead OF the vary
ing coin values of the day. It received
deposits OF coin and bullion and issued
receipts for the weight Of the deposited
metal These receipts circulated as
money, just as gold and silver certificates
now circulate in this country. with the
exception that the bank money was bet
ter than coin because it did not lose by
abrasion. II therefore commanded pre-
mium For more than a century this
bark stuck TO honest methods. Then it
entered into speculation and advanced
the bullion. which il had pledged TO keep
in its vaults. 20 the Dutch East India
Company. The government was a party
20 the enterprise. and there Was no pub
lie inspection Of the affairs OF the institu-
ton. After fifty years the true state Of
affairs was discovered. and the great
banks money went far below par. Since
that failure every government has in
some fashion exercised the right of in
spection OF banks.
The use OF credit made possible by
modern systems OF banking was not dis
covered until the latter part Of the sev-
enteenth century. The Bank OF England
was founded in l69i. on plans suggested
by William Paterson. a ScOtchman. and
it grew out or a loan 20 the government
Of S6.010000. Paterson afterward A0ated
the Inflated Darien scheme, and was the
first victim claimed by the frenzied
finance Of the Isthmus Of Panama The
Bank Of France was organized few
years later. in ZIG. by John Law an
other Scotchmen. Law founded his bank
on the prospects OF the millions TO be
made in developing the Mississippi Val
ley and Canada When the Mississippi
bubble burst the bank went with il. after
brief career OF four years. Legisla-
ton always following. the laws Of France
would not permit the establishment OF
another bank for nearly sixty years
thereafter.
It was after the collapse Of the Inflated
schemes for exploiting the territory Of
the New World that governments every
where stepped in and imposed conditions
upOr the banking business for the benefit
of the public. The banking business
never has been entirely separated from
the government. and history shows that
constant vigilance on the part Of gov
ernments is necessary 10 protect banks
from bringing ruin upon themselves and
disaster upon the people
The history OF American financial legis-
latiOn is history of panics and their ra
suits. The issue Of almost unlimited
amounts OF paper money during the
Revolution caused a financial anarchy in
the newly independent thirteen States
The first consideration of the government
under the Constitution was TO provide
some remedy for existing financial evils
Alexander Hamiltons plans were ap-
proved and the national credit was
placed upon a firm basis. A charter was
given TO a Bank OF the United States.
WHICH was lulIl6te- Win ali lScd4 DQ5l-
ness Of the government. The charter TX
pired a. 1911. and WAS not renewed. The
approaching war with England soon
threw the country into a panic and i'm
mediateiy after the severe stringency Of
1874 the second Bank OF the United States
was chartered in 1916 for a period OF
twenty years.
Another panic in 1881 caused a demand
for financial change, and President An
drew Jacks0n's opposition to an extension
OF the bank charter was supported. HIS
fight against the bank is one of the most
thrilling chapters in American political
history The charter was not renewed.
Then the State banks began issuing
money almost without limit, many of
them being organized for no other pur-
pose than 10 print bank notes. This