Evening star. [volume] (Washington, D.C.) 1854-1972, 1912-12-29

become evident to any one who carefully
follows current events in the nnanclaI
world and analyses our currency Situa-
ton. In the first place, our issues or ma
tional bank notes against government Sc
curities produce imitation to the extent
that they are not represented by noarded
! money somewhere in the country. Ihey
have been brought into existence by no
process of commerce, and they are de-
mand obligation of the banks which issue
them Whenever our hand-to-hand cur
rency exceeds the current need for 1t the
! banks are called upon to meet these OBJ
legations and, unless their reserves are
sufficiently above the legal limit, forced
liquidation becomes necessary.
This condition of things does not neces-
sarily, and perhaps rarely. takes the form
of the presentation of these notes for re-
demption. Being as good and as con-
venient as any other form of hand-to-
hand money of the same denominations,
they are likely to remain in circulation,
but only at the expense of other forms OF
currency. most frequently of gold, which.
on account of the International demand
for it. is the most easily displaced. The
forced liquidation really occasiOned by
them, therefore, may and is quite likely
to take the form of demand for the
payment of foreign credits. 1t may,
however, take the form of the request
for the payment of any other demand
obligations which the banks have as
sumed.
Our seasonal monetary stringencies and
frequent high loan rates are certain evil
dences of imitation. 1t is because banks
are forced to take extraordinary meas
ureS to meet the demand obligations they
have assumed and are forcing liquida-
ton on their customers that these phe-
nomena occur. They would not be forced
to take such measures if their operations
had been confined to purely commercial
lines, or if they had not tied up COM
mercial funds in investment securities.
j. III
Our reserve system is constant invi-
tation to imitation and forces it at
times. The balances which banks keep
with their reserve agents can only be
used by operators on the New York
Stock Exchange and, while speculation
in ordinary times renders these loans
extremely liquid, at other times. when
it misjudges the resources and the in
clinations of the investment market.
they are very far from liquid and pro-
duce imitation in an extreme form. An
other portion of our bank reserves.
the sO-called secondary reserves, are
of necessity invested under our system
in high grade bonds, which, like call
loans based on stock exchange col .ateral,
are easily disposed of SO long as in
vestment funds are in the market in
sufficient quantities, but unstable
when such funds are exhausted. If
at such times banks hold such securi-
ties against their demand obligations
imitation is the result
The prevention of the confusion Of
commercial and investment banking
and of the imitation which results
therefrom is not simple problem The
first essential to it's solu ion is the gen
eral recognition of its existence by
bankers and their customers So long
as both parties feel, as they do now,
that any man with good credit and
good security is entitled to loan
from a commercial bank regardless OF
the purpose for which the funds are
to be used there is little hope. On the
other hand, a perfect understanding of
both parties that only funds destined
by their owners for permanent invest
ment should be loaned for the purchase
of lands, the construction of houses,
the building of factories and their
equipment, the digging Of mines, the
construction of railroads. canals. etc,
and that those funds which repre-
sent the circulating capital of the COM
munity should be. loaned for com
mercial purposes only, would predis-
pose the public to search for such
notifications, in our banking system
and methods as would make the sep
ara ton of commercial and investmen.
banking easy. and properly to use the
necessary financial machinery when 1T
js Srnplied