Arizona republican., 1911-11-17

immediate sale. II legitimate business
men can be given a loan, and time 10
work out of difficulty, ruin is avoided.
The safety of the Industrial and bust
ness world depends upon the power of
the banks to make loans. Under our
present banking organization absolute
ly destructive conditions arise. as soon
as danger appears. Whenever a need
less demand for cash arises-from
either individual depositors or from
correspondent banks-it draws down
reserves. The legal ratio of reserves
to deposits is quickly reached (and i'm
fact usually over-passed) and the lend
ing power of the banks is strangled.
This is a crime against society. II
is diametrically opposed to the prac-
tice of the advanced countries of Eu-
rope. In Europe. in an emergency, the
banks increase their loans. and their
deposits Cor note) liability. and at the
same time pay out their reserves, that
is, they work to aid the business pub
lie. In this country. we slam the door
i'm the face of the borrower just when
he is in the greatest need This is
why we have panics which other coun-
tries escape. This is why the great
business world is now demanding a
reform in the interest Of the borrower
and of the workingman.
Compare the accounts of European
and American banks in times of crisis.
The former show that at the height of
the pressure. the note or deposit item
was in every instance largely in
creased because Of new loans. while
the cash reserves We're freely paid out;
that is. the banks retained their lend
ing function and aided the business
public just when help was most
needed. on the other hand. with
slight exceptions. the accounts of our
country and reserve-city banks. in
such panics as 1898 and 1907, show
liquidation and decline of the deposit
item. due to a refusal TO extend or To
make new loans. while the cash re-
serves actually increased, instead of
being paid out; that is, when reserves
fell to the legal limit our banks sud
denly abdicated their lending function
and refused To lend just when loans
were most needed. Such an outcome
Of our disorganiZation of credit is GER
tainly intolerable; it affects the Dor
rowing public and the industrial work
man more than the banks: and it
would he useless stupidity to allow it
TO continue.
Moreover there are other serious
defects TO be cured. We have today
.. practical Capitalization of credit,
which is very undesirable Precisely
because we have had no organization
Of credit. we find the small bank or
the small borrower. at the mercy of
the big fellow who has the power of
sreat bank deposits under his control.
Much OF the talk about Wall street
aud the money power is no doubt
exaggerated by those who are largely
ignorant Of the facts But there is
apt to be some fire where there is so
much smoke. one does not need to be
very discerning to know that today.
in vines of pressure. certain persons
or institutions are favored to the neg
lect of others who have quite as good
bankable paper When a financial up
heaval comes the bank having large
resources has its own troubles. of
course: but. at the worst, it can pro-
tect itself by sacrificing some of its
customers. 1t is the small institution
that must go down on its knees to
seek help, as a favor. from those who
grant it, This is the situation " hich
excites so much irritation in the minds
of thinking business men. In other
words. exactly because of our lack OF
an organized banking and credit syS-
TEN. we have a situation in which, I'M
questionably, the strong more or less
dominate the weak: in which central
control over credits is a practical fact;
and in which this central ontrol. be-
ing unauthorized and irresponsible, is
difficult to locate and harness. Now
and then we hear opposition expressed
to a central bank; but, curiously
enough. we do not seem 10 realize
that we have today a Capitalization Of
the most effective kind. Because we
have no regulation of credit, we have
no liberty for the small borrower.
Therefore. what we must now strive
for-as in all other great democratic
movements-is liberty under law, to
the end that all banks-large and
be placed on an essential
" equal footing.
There is a general agreement among
bankers and experts that the establish
ment of a National Reserve associa-
ton would cure the foregoing evils
The general principles on which it IS
based are undoubtedly sound. 1t is
stated that it is not "A
central bank; it does not propose cen
tralization of our credit system. on
the contrary. it aims to create CO.
operation among all the banks, for the
common defense. 1t is a cooperative |
agency, aiming at a decentralization Of
credit and the preservation of the in !
dividuality Of the small bank.
While there has been. on the one |
hand, very general acceptance by !
experts of the proposal for a National |
Reserve Association. on its merits yet. J
on the other hand, there has arisen |
from intelligent and public-spirited |
men a belief that the plan. good |
enough in its purely banking and |
credit analysis. has not sufficiently /
protected the public from either CD I
selfish political control, or CO from 1
the domination of the so-called !
'money-power.'
so general is the acceptance of the
basic principles of at National Reserve
association that Ex-Governor Folk has
put forth plan identical with it, eX-
.ent that il substitutes a government |