Evening star. [volume] (Washington, D.C.) 1854-1972, 1913-02-22
John Perrin Discusses Banking
and Currency.
LARGE DEMAND FOR LOANS
Result of the Increase in Volume of
Cash Sales.
DRAFT ON THE BANK RESERVES
Declared Vital Necessity for Legis-
lation to Increase Efficiency of
Monetary System.
BY JOHN PERRIN.
lCnnrfiHhf 1lIIl

BY JOHN PERRIN.
Copyright, 1917
synopsis Of previous articles: !. The chief
fault of our banking and currency system is that
panics and currency famnes are prccipitated be-
cause it's mechanism is defective in that there Is
no adequate provision for converting loan assets
into means Of payment. II. Our banking and cur
rency system serves commerce uneconomicaly.
NJ The remedy lies in cen;:a!iz:Hs the reserve
money In reserve holdnsg agency the prn-
ciple upon which every efficient banking system
i has been based ~ The plan of the national
banking system the principle Of centralized
serves
Since the panic of 1907 business has
gradually regained Roadway and IS now
at record volume. This years crops are
the greatest in our history. Recent news
paper statements read: big crops as
sure abiding prosperity LAS that which
comes from the soil is real wealth. and
genuine wealth spells prosperity. the mag
nitude of the harvest means prosperous
times of an abiding and Astounding char
acter.' mo panic Is in sight
These statements ought to be true but
in the light of what the previous articles
have sought to show rega riding the de-
fects of our banking system. let us see
whether the financial machinery is show
ing signs of breaking down under the
present load.
AS general business has expanded dur
ing the year. there has been natural
increase in the demand for loans. Partly
from the process of crediting subject to
check the proceeds of loans as made. de-
post liabilities have also increased, as
they always do with increase of loans.
The tendency Of this is to lower the ratio
of bank reserves to deposit liabilities.
Cash Sales and Currency Volume.
sales calls for an increased volume of
money in circulation. In response to
such requirement this increase flows out
of bank reserves, the only source from
which 1t can come. This reduces reserves.
still further lowering the ratio OF reserves
to the increased deposit liza Utilities
The harvesting and marketing of the
crops call for still further Increase in
the volume of money in circulation. the
amount of the increase being proportioned
to the value of the crops. This again
can come only out of bank reserves, low
ering further the ratio of reserves to
deposit liability.
With business in large volume and
prices rising. our imports Of foreign goods
Increase. causing larger money payments
of customs taxes into the Trea sury. Tn
commercial nations, this takes more
money out of bank reserves. still further
lowering the ratio of reserves to liabili-
ties.
S5.O00OOO more gold than we imported,
our credits established abroad by exports
having been insufficient to meet the pay
ments to be made. This also came from
bank reserves.
To offset these drains upon reserves
there has been only that part of the new
gold mined which has gone into reserves.
Not Theory, But Fact.
That the above is not theoretical but
stern fact is shown by. the report of the
controller Of the currency From Sep
TENDER I, 1911. to September T. 1872. the
loans of national banks alone increa sed
1917 ,O0O.OO0 and individual deposit labil-
ties SOL. 100000. Money in bank re-
serves increased less than 100000. Nee
eSsarily the ratio of reserves to deposit
liabilities is correspondngly reduced.
1t is startling fact that the Septem-
Der 4. 1912. report of national banks
showed a lower ratio of money reserves
to deposit liabilities than the correspond
ing report Of 1907
The demand for credit and the inabl-
ity of banks to lend freely are evidenced
by the interest rates. which. reached q
per cent for day-to-day stock echange
loans around November I i'm spite of the
fact that stock speculation is inactive.
So-callcd commercial paper. sold by
brokers commands d per cent rate,
exceeded during recent years only in 1906
and 1907
With these facts before us. do big
crops assure abiding prosperity Is
there no panic in sight? We shall
doubtless tide over the strain of this fall.
but II trade continues to broaden, a s 1t
naturally will under the stimulus of this
years large crops. causing increase of
loans and deposit liabilities, and conse-
quently a lower ratio of reserves to de-
post liabilities what of next fall? Will
the banking machinery break down then.
or will II require still another large har-
vest to overwheim us with disaster?
Should Panic Be Averted.
What is the relative Importance of
making provision TO avert another panic
and attending to other affairs: Winch
should claim prior attention? Shall We
say that we must first revise the tariff
Shall we first regulate or destroy the
trusts? And then. having arranged these
and other important matters to our tenn
porary liking set about gathering up the
wreckaRe of our commerce If Il panic has
meanwhile shattered it? Does one drift
ing to the verge of a cataract stop then
to consider changes in the color or shape
of his boat. or does he first seek safety!
Our LEGISLATORS in Congress busy them
selves about many things which, at the
proper time may be well worth while
but are trivial in comparison with the
oyershadowing Importance of the grave
hazard to which they are subJecting our
commercial security by their failure to
enact a remedial banking law.
Republican Congresses have had ample
have not done so. That party may prop
erly claim the credit OF appointing the
non-partisan national monetary commits
sion. report of whose studies and investi-
cations comprises matter of incompara-
HE value. which should tremendously
assist the present Congress and simplify
its work in determining wise banking
Hesitation The information gathered
gives conclusive proof to, the principle
essential for efficiency in any banking
system 1t is wholly immaterial whether
the commissions recommendation Is fo'-
lowed as to the method for Incorporating
this principle.
The democratic platform declarations.
however leave much to be desired.
I'VE oppose the so-called Aldrich bill
or the esta blishment of a central bank.
etc.
+I,a n CT hat