Los Angeles herald., 1910-10-30
TYING UP THE COUNTRYS
MONEY

a merchant wishes to borrow
money he must pay 51a to 8 per
cent, and money for the merchant
is not offered freely; the demand
rather exceeds the supply.
Now carrying stocks specu-
latively adds nothing to the coun-
try's productive industry, while
carrying" goods, as they pass
from manufacturer to consumer, Is
a vital part of productive industry.
AS a rule, the banks will lend
money for the non-productive
operation at only half or third
of the rate they charge for the pro-
ductive operation Obviously, there
fore. they encourage the use of
money for stock gambling as COM
pared with its use for legitimate
business, which is a poor arrange
ment
That the banks do this is partly
the fault of the national banking
act, which prohibits them from ac-
cepting time bills of exchange
drawn by their customers. a
European merchant will arrange
with his bank to borrow not actual
money, but the banks credit. Hav-
ing given whatever security is re-
quired, he draws his bill on the
bank at sixty or ninety days. The
bank accepts this bill, which may
then be sold over and over again
in the open discount market.
European banks keep a large part
of their secondary reserve in the
form of these bank-accepted bllls,
which they discount at a very low
rate of interest-31b per cent in
London. 21a per cent in Paris at
I01o,1ca 4hox- FnD1-
ize OH them at any moment by
simply selling them in the open
market.
Having no handicapped bills
and no discount market, our banks
keep their secondary reserve in call
loans on stocks, which they make
at a low rate because in normal
times they can realize upon them
at once by calling" the loan. The
result is that with us. except under
abnormal conditions, the cheap
money goes to stock speculation IN
stead of to legitimate trade. Be
sides burdening trade with a high
interest rate, this fosters and even
forces speculation to an unhealthy
degree. The European system
would give part, at least, of the
cheap money to legitimate trade
and provide an outlet for accumu-
lating city bank balances otherwise
than upon the stock exchange, but
our banking system will not reform
itself. Is anybody going to take
an interest in the subject?
1t is a we'll known fact that many
f the largest banks of New Yorl
Ievote their resources almost entirely
o the business of dealing in stocks
'he First National Bank OF New York
bout the fourth largest bank in the
United States, uses practically its en-
ire resources in the business of stool
Iealing. In other words, its great &C
of capital counts for prac
ically nothing when it comes t
the real productive line
# business such as manufacturing anC
merchandising. The business of thu
took broker does not add one viii
O the values of the world. 1t con
lists simply in trading money and
tocks from one to another The deal
RS in stocks are constantly engaged
n an effort either to raise or lowe
he price of the article in which they
rade, and the raising and lowering
s arbitrary and has no relation tt
cal value. In fact, the result mos
Usually achieved is getting hard
armed money from people who have
honestly made it, on margins on stool
which in the long run are not sus
aimed by the market and therefore
will eventually represent so much loss
N the part of those who buy.
The best thing that has happened
or real business in this country fol
many a day is the very dull season
# business on the New York stocl
market which has characterized the
present year. If this dullness can only
pe continued for a year or so longer
t will probably result in a great dea
# capital being withdrawn from stocl
lealing and devoted to the productive
business of the country, such as mer-
manufacturing and build
ng.
Some months ago Governor Hughes
undertook a move against the stoci
market as at present managed in New
York which, if carried on by his sue
.essor in office, may finally eliminate
rom it the feature Of stock gambling
md reduce it to a pure matter of in
yestment. When that is done 95 pei
.ent in bulk of the transactions viii
AVE been eliminated and an immense
mount of money now held by the
treat stock jobbing houses, such az
Morgan & Co., Kuhn, Loeb e. Co. and
,ther related and dependent banks viii
)e released from what is now an un'
occupation and will bt
urned into the channels of productive
business. 1t is safe to say that will
peculation pure and simple elimina
ed from the New York stock marke
hundreds of millions of dollars of CAPT
al now held in that city to be used il
peculation viii go into the encourage
nent and sustenance Of Legitimate
business. Bringing this about is ont
# the great reforms which now con
ronts the people and which must bc
attended to sooner or later, and the
sooner the better.
Senator Aldrich, who was knocked