Graham guardian., 1907-12-20
Bank PaniCS and Their Nature

In ordinary times, taking things
on the average, a bank takes in as
much money from day to day at
the window Of the receiving teller
as it passes out at the ndow of
the paying teller. 1t is merely
necessary to keep on hand a GER
tain percentage of its resources as
reserve fund to meet possible
emergencies when dem ards for
payment are much in excess of
current deposits, The great bulk
of the resources of the bank, mean
while, is suppos sed to be placed IN
the han DIS of business people in
the form of interest bearing loans.
No legitimate condition of busi-
ness is ever going to compel oil
depositors to make wild rush at
the same time to draw their mon.
ey out of all the banks.
When such rush occurs the
reasons are psychological. Peo
pie have become panic stricken
with the idea that the banks are
unsafe and that they must get their
money out at the quickest possible
moment. The money once out is,
under such circumstances. boarded
until the people are in different
state of mind They lock it up in
safe. deposit boxes. or hide it in
various ways about their homes.
1t is thus taken out of the channels
of business circulation, and there
ensues,-if such movement is
widespread,-a condition that
makes what is called currency
famine. A great part of the ordi.
nary business of the country is
carried on by means of what is
known as credit. Thus, 10 the
autumn, all over the country there
are producers of corn, wheat, cot
ton, and other natural products
who are in the habit Of selling
their crops at the nearest market
town to dealers who pay them in
cash. These dealers in turn sell
to the large market centers, and
the crops are thus distributed for
domestic and foreign use. This
series of transactions, known as
the "movementof the crops" rests
in large part upon the banks,
which are accustomed to advance
the money with which to pay the
farmers and the local dealers. The
crops are so vast and so valuable
that the sums of money engaged
in marketing them are also enor
nous.
But the banks in turn are de-
pendent upon their depositors for
the greater part of the volume of
money they are able to lend for
the purpose of facilitating this
vast crop movement and other
analogous transactions, such as the
distribution of the winters sup.
ply of coal, of dry goods and gen
eral merchandise, and so on. And
if people who usually deposit
money in the banks are not only
afraid to make fresh deposits, but
are simultaneously scrambling to
withdraw all that they have al
ready deposited, it is evident that
the banks cannot, with their usual
confidence and freedom, supply
the means with which to lubricate
the marketing of crops and the
distribution Of other commodities.
If the banks are suddenly put in
a condition where they cannot ex-.
tend the customary credit to the
manufacturers, the jobbers, and the
mercantile community at large, it
is easy on reflection to see what IL
trightful check may be placed up.
on the ordinary freedom of the
so called distributive process Now
it is just these phenomena that we
have been witnessing for some
weeks past in the United States -
From "The Progress of the World"
in the American Review of Re.
views for December.