Evening journal., 1912-08-31
NEW NEWS OF YESTERDAY
The Origin Of a Valuable
Financial Emergency
Measure
BY Holland

A few weeks after the inauguration
Of Grover Cleveland, in March, 1898,
the apprehension was very great in
financial circles that the government
would be compelled to make exclu-
sive use of silver as the basis for its
paper money issues. The gold i'm the
treasury had been depleted. The APP
prehension increased until 1t assumed
panic-likc proportions. A majority
Of the banks Of the country practical
ly suspended specie and currency
payment. A severe money famine
was in progress by the early summer
President Cleveland summoned Con
gress into extraordinary session in
August for the exclusive purpose of
repeating the so-called Sherman sill
yer law. the operation of which had
caused silver in vast quantities to
flow into the United States treasury.
In order TO relieve the situation as
far as possible the New York Clear
ing House Association decided, in
July, to issue clearing house certi-
icates. Many millions of these were
issued. But after the Sherman law
was repealed in October nearly all
of these certificates were redeemed,
for the repeal of the Sherman law
had brought the currency famine to
an end
In September, 1898. / asked the late
George $. Coe Of New York, one OF
the great banking authorities OF the
United States, from 1850 to 1895, If
he could tell me the story of the way
in which the utilization of clearing
house certificates began.
"Yes," said he. you have come to
just the right man. | believe that
am correct in saying that IL was
who first suggested to the Clearing
House Association the method by
which the resources of all the banks
could be so mobiized or concentrated
at the clearing house as to be made
available as security for certificates
issued to the banks.
1T was just after the election Of
Abraham Lincoln as President that
the idea occurred to me. There was
great deal of apprehension in finan
cial circles throughout the country in
the late winter of 1860 and early '61.
The governments credit was very
low 1t couldn't at that time have
sold bonds at par, and it would have
been necessary to offer a very high
rate of interest to make any sale at
all possible. Merchants and manu-
features had become very apprehen-
sive lest there should be a stringent
money market. Loans were either re-
fused or else made upon rather ex-
acting terms.
81 went around among my New
York banking friends and said to them
that there were some fifty banks that
were members of the Clearing House
Association; each one of these banks
had good resources and excellent as
sets, the assets we're really good
property. they were excellent security.
Therefore, | continued, why not ap-
point a committee of the clearing
house which will be empowered to
receive in trust assets Of any bank
to make a reasonable estimate Of
their value and then TO issue to the
bank a certificate bearing interest
which will pass as money within the
Clearing House itself If that is done,
then the banks will be able to pay
! their daily balances easily, and behind
these certificates will stand securi-
ties of unquestioned value and
strength
well. a majority of my banking
friends approved my idea. A few
more we're strongly opposed to Il.
They thought the method suggested
might turn the Clearing House into
a bank.
"Tho more I thought of the plan tho
more strongly I was convinced that
| H. was perfectly sound. At last Il
was decided to try il eXperimentally
A committee was appointed with au-
thority TO receice assets in trust Of
fercd by any bank for which certih-
Gates up TO about sixty per cent. oI
the value of the securities would be
issued. These certificates could b,
used instead OF specie. which was
then very scarce, for the payment o
balances TO the clearing house.
"The test was perfectly satisfac
tory About six millions of certificates
were issued This method served {,
allay the apprehension Of business
men. for they found that they coul,
receive their customary accommoda
tions at the banks. II also servel
10 put the great strain which cam
shortly after the beginning of the
Civil War.
You now have the real history O
the manner in which Clearing Hous
certificates first came 10 be used. AM
think I am justified in saying tina
this method has been of incalculabl
service to the United States severa
times since it was first established.
Copyright, 1912. by Il. J. Edward.
All rights reserved.)
Gu Monday Mr.. Edwards will tel
of "The Real Beginning of Cooper
ative News Gathering"