New-York tribune. [volume] (New York [N.Y.]) 1866-1924, 1913-11-05
THEPUBL|C' WRONG VIEW
PaniCs Not Caused by Over
trading, but by Fear.

In one OF a series of articles on bank
ing and currency, "The Statist.' London
says that IL is curious how difficult II Is
to get the public, once it has taken a
wrong notion firmly into It's head, to rec
ognize the truth. Banking in It's modern
form is more than two centuries old. and
during that time we have had abundance
of experience in respect to dealing with
panics. Even In the eighteenth century,
when trade was not developed as IL IS
now, paniCs were by no means unknown ;
witness the great South Sea Bubble
Furthermore, during the last century pan
les were frequent and occurred In almost
every civilized country. They have been
dealt with satisfactorily. and they have
been dealt with most bunglingly. But
taking them altogether they have given
us volume Of experience which ought TO
show as plainly as the sun at MONDAY
the proper course to follow To take
single instance, Sir Robert Peel. who was
as public-sprited a man as ever took part
in public life, but who at the same time
was neither an original thinker nor
statesman, was persuaded by the noisy
school OF which Lord Overstone was the
most conspicuous leader that panlcs were
caused by ovcrissues Of banknotes; and,
therefore, that the surest way OF pre-
venting them was to limit note issues.
Accordingly, he restricted the Bank Of
England to an authorized issue deter
mined by the average at the time OF his
legislation. Against all notes beyond that
authorized amount he induced Parliament
10 enact that gold must be kept. pound Tor
pound. Everybody who is at all familiar
with the working OF our money market
knows that the result Of this is that when
for any reason the gold held by the Bank
OF England diminishes the bank Is bound
TO cancel an equivalent amount Of notes.
Even II a great foreign demand springs
up and the drain upon the Bank OF Eng
land becomes alarming, the governor and
the court are obliged by law to go on
canceling their notes even though they
know that in so doing they are bringing
on what may ruin multitudes OF people
In the end, when they are unwilling 10
go further with line OF action which Is
threatening ruin, their only course Is to
beg of the government to give them leave
to set the law at defiance and to intro
duce into Parliament a bill Of indemnity.
Three times since the bank charter act
was passed the governor and directors
have had TO adopt this humiliating and
dsgraceful course Of conduct; and the
very instant 1t became known that the
government had not only permitted the
breaking of the law. but promised bill
Of It'd all manic ceased and
more gold was taken from the bank or
the three occasions, In the worst instance.
when the panic thus suddenly subsidized
there remained, II we remember the hg-
ures rightly, about a million and hair
Of gold In the banks Golfers. on the
other two occasions. II We can trust our
recollection, there remained more than
two and half millions sterling. II would
be difficult 10 produce a stronger evidence
as TO the true nature OF panics and the
proper remedy to be adopted IN regard TO
them. panic. these three experiences
prove, Is caused not by general OVERHEAD
ing on the part OF either the commercial
or the financial public, but by the fear
that If the panic proceeds even the most
solvent men in the state will be unable
to get from their bankers the accommoda-
ton upon which they relied In accordance
with the organization Of the whole trade
Of the country And the instant this fear
was dispelled and IL was officially an
nounced that the Bank Of England could
not only stop cancelling notes, but issue
further notes. quite regardless OF the gold
It held. in any amount 1t pleased, all fear
disappeared and confidence revived so
rapidly that in a short time gold flowed
in freely TO the bank Yet government
after government and legislature after
legislature go on binding the banks which
hold the ultimate reserves Of tncir several
countries with all kinds Of red tape regu-
lations which are only III 10 be broken
whenever the time OF danger comes.