Arizona republican., 1911-11-17
Professor DisCIoseS Inter-
esting Facts
HE GIVES GOOD ADVICE
Warns His Hearers That if
Panics and Other Trou-
bles are to be Avoided
Bankers Must Eschew
Politics.

The great interest now existent
with respect to banking matters and
the reform of our currency system is
in large measure due to the work
OF the National Monetary Commits
sion. and to the fact that at the
coming session. congress is almost
certain to take some action with
reference to the commissions report
The address printed below is by ].
Laurence Laughlin. of the Chicago
University, and was delivered before
the trans Mississippi congress. now
in session at Kansas City. The ad-
dress reads more like the observa-
tions of a business man than those
of a theorist and will be read with
much interest. 1t is as follows:
For years a human organism may
go on with poison within its tissues,
suffering constantly and grievously
without the true cause being definite
ly determined. For decades our bust
ness community has been suffering
enormous losses from an unhealthy
condition Of our banking and credit
system; but now we are beginning to
locate the disease. We notice that
other countries are free from most of
the frequent parOXySms of credit with
which we are afflicted. Then, we no.
tice that, when a reversal of business
comes to u.s. how peculiarly the power
of our banks to lend to the business
public is crippled by the rightly Of
our unregulated credit system. Ii is
to the interest of the borrowing pub
lic-the producer, the jobber the re-
oil -
on prosperity for employment-to find
a remedy for this rigidity and for its
losses. For a long time we have been
thinking that this rigidity was due to
the inelasticity of our bank-nOte
issues; and there is much in that be
lief. But the difficulty with the note
issues is only d manifestation of some
cause deeper down, which must be
reached before we can apply the eff
fective remedy. Without doubt the
fundamental difficulty is to be found
in the rightly and inelasticity of our
organization of credit. Correct that
and the correction of the inelasticity
of our note circulation will go with
il. Let me make this clear.
The business world regularly de-
ponds upon an element Of borrowed
capital in conducting its legitimate
work of producing and exchanging the
commodities of general consumption.
When exceptional demands for cash
are made in the autumn for moving
cotton and grain, there is an increase
in the demAnd on the banks for loans,
and the cash reserves decline Like
wise, but on a greater scale. when a
sure on the banks to meet exception !
al demands, either for extensions or
new loans. is appalling and danger
Gus. The producer, who has borrowed
to pay for his materials or pay roll, !
cannot meet his debt, if he cannot |
collect from the jobber; the jObber, |
who has borrowed to pay for the fin |
ished goods cannot meet his note, if |
he cannot collect from the retailer; |
and the retailer. who has borrowed |
to pay the jobber. cannot meet his |
note if goods are not salable. Hence, |
if loans are stopped the whole ma |
chinery of exchange comes to prac-
teal standstill just as an engine
would stop if a crowbar was thrust
into the cylinder. There is just as
much money as before in circulation.
There is no lack of medium of eX-
change. If a man has funds on de-
post. they can be transferred by a !
check What then, is wrong? The
rightly of our organization of bank
ing and credit.
"A situation already dangerous is ag-
gravated by the feeling that banking
preservation depends upon grasping
by hook or crook for reserve money.
When alarm is felt in this country.
there is no other recourse at present
but trying to heap up reserve money;
consequently. incidents which would
be easily taken care of in foreign
countries tend to bring disaster here.
The critical situation produced by an
unreasonable demand for cash hinges
upon one elemental fact to which our
public is usually blind. Demand obli-
cations in the form of deposits are
principally the outcome of credits re-
sulting from loans; and these loans
are commonly based. directly or in
directly, on transactions in goods, such
as cotton or grain. Hence these
transactions. and the resulting loans
and deposits, are obviously far and
away greater in amount than the sup
ply of actual cash kept during normal
conditions in the hands of the public
or the banks. Now, when uniformed
persons begin to draw cash for their
demand obligations at bank, of
course all cannot get it. The bank
has sound assets in the short time
paper on which the loans are based;
and this paper represents goods which,
if business continues normal, will al
ways liquidate the loan. But no re-
serve can ever by any possibility
equal all the deposits.
Under Our present system of rigid
legal reserves and Anticipated usury
laws, banks find it impossible to lend I
lust when loans are most needed
When a reversal of business comes.
men ought to be given time to dispose
of their goods and securities without