White Pine news weekly mining review. [volume] (East Ely, Nev.) 1910-1920, 1913-02-02

may restrict payments In money.
This, of course. intensifies appre-
hension. The people generally are
impelled to hoard, and the normal
flow of money out of circulation into
bank reserves and out of bank re-
serves into circulation almost ceases.
A premium of from 2 per cent to 5
per cent was bid for currency during
the panic of 1907, payment to be
made by checks upon great banking
institutions, which, while abundant
ly solvent, felt unable to meet their
contracts to pay depositors in money
on demand. 1t was arranged that
these checks when presented through
the clearing house need not be paid
in money, the bank pledging its loan
assets as a guaranty of payment later
on. This is the process of issuing
clearing house certificates. 1t will
be observed that it is a conversion of
loan assets, not into means of pay
ment, but means of settling liabili-
ties with agreements to pay at un-
determined future dates.
During a currency famine TIE vol
ume of money in the hands of the
people and of the smaller banks is
actually greater than usual, as the
reserves of banks in the larger cities
have been depleted. Money does
not leave the country. On the con-
trary, the banks in centers set about
importing, gold, owe 800, 600 900
being brought in during November
and December, 1907, to the great
disturbance of the commercial SER
entity of the whole world. The banks
were able to get this gold, at least in
part, by promising to pay for it later
security. This again was the use of
investments to obtain means of pay
ing liabilities.
Suspicion C%urtails Business.
Fear in a panic is ~unreasoning and
brings under suspicion the solvency
of every one. The use of credit, of
promise to pay money, is largely dis
continued, and this calls for proper
tionately increased use of money at
a time when money disappears. Cen
eral business, in which normally
more than 80 per cent of the settle
ments are made with promises to
pay money, suffers tremendous cur
tailment. Factories shut down, de-
velopment enterprises stop, labor is
idle, merchants are embarrassed,
securities find a narrow market and
sell at greatly deprecated prices.
The losses are i~ncaleulable. The
poorest suffer most as continuity of
employment is most vital to them.
Following such confusion order
gradually comes with the slow re-es-
Enlistment of confidence. When
after the lapse of years. all seems
prosperous once more, again the
banking machinery proves its inefici-
thA| II iut dtSll uNiINC piOAtocCS
are repeated.
Panics Ayoidable.
The experience of other countries,
with banking mechanism based on
the principle of Capitalization of
reserves. proves that such panics are
entirely ~ayoidable. but with our sys-
TEN, if business becomes very active,
with the accompaniment of large
crops. the apparent evidence of
greatest prosperity, this very condi-
ton preeipitates a panic. suddenly
converting prosperity into disaster.
The chief fault, then. of our bank
inc system is that panics and curren-
ey famines are preeipitated because
its mechanism is defective in that
there is no adequate provision for
converting loan assets into means of
paying liabilities.