The Washington herald., 1907-10-28

New YORK, oct Zl.-Wn just at lhe
close Of the seventeenth century the
financial necessities Of the British govern
ment led to the creation of the Bank
Of England, objections to the scheme,
aside from those of a political nature,
were chiefly raised by the goldsmiths of
London. in whose hands had been lodged
up 10 that time whatever banking busi-
ness there was ia the country.
The goldsmiths, whose occupation it was
to buy and sell the precious metals, came
naturally TO receive quantities Of gold
and silver bullion on deposit, giving
therefor their receipts, which passed as
money. Their opposition to the proposed
Bank Of England was, Of course, due in
reality to personal reasons, but was based
on the economic ground that II
in the country was TO be handled
In future upon a credit rather than upon
a cash basis. fluctuations in prices OF
every sort would become much more
rapid. and that if there was a general
rush OF people at any time 70 get their
money from the Bank Of England, or its
possible branches. the financial affairs of
the country might be thrown into con-
fusion.
stimulus to Business,
theoretically and academically, the plea
Of the goldsmiths was sound, but the
merchants Of England were, aside from
the exigencies Of the moment, impressed
with the conviction that whatever occa-
sional disadvantages there were that
might attach TO the introduction Of this
credit system Of doing business, they
would be more than compensated by the
immense stimulus that would be con
tinualiy given thereby 20 the development
OF the commercial and industrial enter
prise Of the country.
II was realized that IN the great ma
jority Of instances people would not wish
10 use all their money in actual cash at
any particular period, and that the main
tenauce Of a reserve fund by a banking
institution would answer all the usual
purposes Of banking soIveney. allowing
the bank thus to utilize the greater p0r-
ton Of the money deposited with it IN
loans 10 borrowers upon good security
Elementary as these principles are, II Is
yet doubtful II even in our own day they
are fully understood by the people al
large.
Must Sacrifice Securities.
Nothing can cause such an immediate
and general paralysis OF business as The
wholesale withdrawal Of money from
banking institutions. A run" upon d
bank, therefore, even if the institution be
Of more than solvent character-such a
bank, for instance. Of which there art
many, as can IN the ordinary course Oi
business not only iquidate the claims OF
its depositors and its stockholders. but
leave a large cash surplus remaining "a
a result OF the increased value Of il.
wisely chosen nvestments-leaves the
bank no recourse. if the situation is such
that il cannot obtain assistance from
other institutions, but TO raise cash. Il Il
can. by a sacrifice Of its securities foI
whatever price they may bring In the
panic-stricken market, TO temporarily
suspend payments, or TO make pay
ment only by check upon other banks.
What we have been through has not
been caused by any fear Of the general
solyency Of financial institutions. but an
money panic. pure and sim
pie The duration Of such disturbances
il is TO be remembered. have almost in
vaTiably been proportioned 20 the extent
Of their violence.
Starting "A Panic.
There are at tunes a series OF develop
meats In the financial world of such
startling md sensational character that
auy written comment upon them is, from
one point Of view. almost tedious. The
scenes that were witnessed in the finan-
cial district last week and the state OF
tension that prevailed there have not
been paralleled within the memory OF
most Of the people now active in busl.
ness life.
Disturbed over the revelations that
were made in the case Of one OF two
financial institutions, people started tC
withdraw their money from a number OF
other Institutions, centering their fears
il seems, upon several Of the local trust
Companies.
The tendency spread to other cities, al
this involving inevitably a large with.
drawal of money from Institutions not
affected by any run, but who were com
PEELED TO part with money for the pro-
lection Of brother bankers and in re-
spOnse 10 the claims Of banking de-
positors, and il is needless TO allude In
detail, to the general course Of events
that followed.
It is not at all a case Of banking meth
DDS in general. but of specific integrity
and ordinarily fair business judgment or
the part of those in control of institu-
tions. There are plenty of good men IN
the banking and financial world.
How the old line trust companies and
big national banks, with years Of ex.
perience and conservatism behind them
stood out like mountain peaks. calm and
undisturbed, in last weeks storm, And
how the whole financial world turned tC
Mr.. J. p Morgan and his banking asso-
ciates for guidance and reinsurance. Tn
doubtedly there must be some change
when things have quieted down in what
may be called the general trust company
situation.