The Birmingham age-herald., 1912-12-01


 toners for credit, in order to pay for the carrying of this idle money in it's vaults A sound banking system is built up on d foundation of the precious metals-es- pecially gold, the money of international commerce The efficiency of banking system Is largely measured by it's capac- ity to provide with absolute safety for payments between the people with a min mum use of the precious metals. Every country must invest q certain part of it's wealth ill the machinery of exchange. and
 1t is economy to keep this investment as small as possible consistent with the highest efficiency
 The structure of credit is as delicate as it is wonderful Enormous credits against property are built upon a foun- dation of a very little cash and a great deal of public confidence. Our 16000 mill lion dollars of bank credits on a founda- ton of 1500 million dollars cash in the banks Is entirely safe so long as there Is confidence in the banking system. The credit structure would not collapse, as it did in 1907, if confidence were not shaken.
 Barbaric Struggle for Cash The banking system of England Is built on much smaller proportion of cash | than Is ours, but it does not periodically | collapse, as does ours, because the Eng fish people have great confidence in their banking system. They do not rush madly to their banks in time of financial stress, as we do, for the purpose of converting property into gold.
 No banking system can withstand a mad scramble for gold. Of the Sl25,Oo0, 0O0,000 of wealth in the United States. only $1, 800 900 900 is in the form of gold coin and bullion. Any general attempt to convert wealth into gold must quickly result in disastrous collapse of the credit machinery. If the railroads turned all their freight and passenger earnings into hard cash" they would empty the banks of money within a few months. If the farmers sold their crops for cash and hoarded the money as fast as it came in, they would have every cent of money in the country long before they had mar keted the products of single season.
 The barbarians of old had some success in keeping their wealth in the precious metals, but civilized peoples do not se- crete idle boards of the worlds money. It is humiliating fact that in recent years Americans are the only people who nave engaged in barbaric struggles to convert property into '.hard cash' The 1907 bank ing collapse was the result of harbarlc, panc-stricken attempt of bank depositors to convert their credits at the banks into cash. The banks could no more per
 
 vert base metal into fine gold. They had to stop paying cash.
 Strength of Single Reserve System England. France and Germany no longer have money panics, because bank depositors abroad, even ill times of fnan- cial stress, do not attempt the impossi- bility of converting their wealth into gold The Bank of England and the whole English banking system would collapse if | ,lo Id Itr al cold
 A singie-reserve system commands pub lie confidence and prevents the collapse of credit A many-reserVe system to scatter reserves that they are unayail- able and insufficient in time of need
 While we have a many-reserVe system, in which every bank holds its own cash reserves, we have, as result of redepos- iting, such concentration of banking reverves in New York as to give us the semblance of q sngle-reserve system, Banking reserves are kept for emergen- cies We have in this country an ap- proach to the sngle-reserve system dur ing periods of financial quiet But when the emergency arises and reserves are needed to keep the credit machinery go- ing then our reserve system suddenly dis integrates into many-reserve system with resulting financial collapse. The 250eo banks of the country make the New York banks the keepers of tue ultimate banking reserves fai, ! weather but when a storm comes. and these accumulated reserves in New Yorl, are needed for the general defence, then the 25000 banks tear down the central re- serves and each one tries to weather the storm with what little it has snatched from the emergency fund The system Is panic breeder.
 The national banking law. by its pro visions for the redepositing of reserves makes New York the holder of the ultl- mate reserves. Country banks can lseer three-fifths of their reserves in the fortr of credits at central reserve city banks Reaerve city banks can keep half then reserves in the same form. In othei words, a country bank with SJ,000 idle reserves. can put slS.oca of these reserves at work by depos.tns them with a re serve bank Naturally the country banks and reserve city banks keep no more idle money in their vaults than is absolutely required. The idle money drifts to the central reserve banks.
 Our Recerve System Collanses As a result of this sytsem of fedeposif ire reserves. fhe national bank statements show reserves greatly in excess ef Fcfpai | cash hold rgS. Reserves of A.H0e01,et are new shown with less than N.ea9c9o nj easa Tie ocuGtre banks report reserNes mcre tran Sj8o, c00.eoo. but more than h.. i of these reserves are in the farm of