Evening star. [volume] (Washington, D.C.) 1854-1972, 1913-01-19
GOLD HOARD FAILS TO CHECK
CREDIT PANICS, SAYS ROBERTS
Going to Europe for Help.

when under stress. by means of its in
ternational relations.
Going to Europe for Help.
When the panic of 1907 broke upon the
banks OF the United States they strained
every resource to obtain gold from
abroad, and succeeded by great sacrifices
in bringing in about sioo.oooo i'm tn"
course of sixty days, OF which SSa."o.oo
came from London. The Bank OF Eng
land. which bore the brunt of our de-
mand. raised its discount rate three times
within a week. from ~. To . per cent.
not with any expectation OF checking the
outflow to this country. but to set IN
motion the forces that would replensa
its stock. The Bank of Germany within
ten days advanced its rate from ~ Ia az
per cent. The Bank of France. ALWAYS
strong and less exposed to direct de
mands. contented itself with advancing
the rate from 3Ss to per cent. Through
these institutions the influence spread
over Europe. each institution charged
with responsibility for countrys re-
serves taking similar action. In this way.
although the burden of supplying gold
for the United States fell directly upon
the Bank OF England. IL was rapidly re-
distributed over the entire financial
world.
Gives an Illustration.
illustration of its ability to recoup itself.
October 20 when the bank rate was
first advanced from AZ per cent, the bank
held $50. 10000 OF gold. and the per-
centage of reserve WAS - 15-la. Deem
BIER 26 after the flood had passed, IT
held G29 7a300. and the percentage OF
reserve was $3.50. No wonder the Lon
don Economist, reviewing the record IN
its number of March -. 1905. said: The
criSiS ShnWad N no relief of
perienced bankers. that the raising OF the
bank rate Is as effective a device as
ever it was In attracting gold"
IL is humilatins record for us and
convincing proof OF the inferiority OF our
reserve system that the Bank of Eng
land. carrying a reserve Of only Sl.o.Hn.
0W for all the bank credits of England
was able to furnish relief to the United
States, which held a reserve of over 500,
100000 in government vaults and more
than that scattered in its banks. That rs
the superiority OF consolidated bank
ing reserve over government reserve
which belongs to nobody in particular.
plus banking reserves which the banks
dare not use.
Divided Responsibility Fatal.
A division of responsibility for the gold
reserve is fatal to effective control. With
5000 bankers in the United States. the
interest of each one in the gold reserve
is too remote to be OF any influence on
his business policies. What is every
body's business is nobodys business in
looking after a gold reserve.
An organization which is definitely
charged with the responsibility Is above
these local influences: IL Is not doing
business primarily for profit, and Ii has
the national and International view. IL
does not get all OF its Information after
the fact. 1t does not wait for an out
burst of panic before bringing corrective
forces into play. 1t sees the symptoms or
trouble long before they are apparent 10
the man absorbed in local conditions. and
shapes its policy accordingly.
The arguments against giving the note
issuing power to all Of the banks, with
the understanding that they shall main
tain individual reserves, applies i'm mod
flied but important degree against divid-
ing the responsibility with numerous local
associations.
Leadership Is Lacking.
The weakness of the banking situation
now is clearly in the want Of leadership
and lack of organization in every period
Of stress. That weakness cannot be ef-
fectively remedied by creating lot OF in
dependent currency associations which
will have. no relation to one another.
The only thing that can he said in miti-
cation of such a plan Ia that in time or
peril they will probably act together. but
why not provide for this cooperation and
regulate it? fear of the domination of
New York city Is the chief motive for pro-
viding Independent association. but IL New
York is certain to assume leadership. any
way, what is gained? BY dividing the
country into Independent districts the pre-
eminence of the New York district will
be established. There is but one way to
create a leadership that will rival that or
the New York banks, and that is by in
Guiding all of the banks of the country in
one organization.
II number of independent currency
associations are created there must be
some superior authority, some common
supervision over them. The Aldrich-
Vreeland act recognizes this and vests IL
all In the Secretary OF the Treasury,
which is certainly an extreme concentra-
ton. From every standpoint IL would be
better to vest this authority in board
elected by the several associations, with
several representatives OF the govern
ment.
Fallacy of Tax Theory.
The common theory about local issues
is that they may be automatically retired
by a high tax without ever being an
actual charge upon the gold reserve. The
effect of the tax is the same as the effect
of the discount rate when the rate is tie
their application. The tax is permanently
fixed by statute while the discount rate
is on sliding scale and adjusted to suit
conditions In the one case Congress fixes
the charge and in the other case IL dele
gates the power to subordinate author
ity, as IL delegates the power to fix rail-
way rates to the interstate commission.
The policy OF regulation by taxation is
blind and arbitrary one: il is based upon
the theory that an expansion of the cur
rency always means an expansion Of
credits. and that is not true by any
means. credit note is just as legitimate
and innocent a credit on "A bank )
ledger and is commonly only substitute
for a book credit. IL the banks of Texas
draw against their balances with New
York correspondents for S10.0O0.Ooo. and
bank currency fs sent, there is no eX>
pansion of credit; 1T has merely taken
another form better adapted to use in
Texas. We need to get rid OF the idea
that a credit currency should be taxed
On general principles. There should bs
no tax on any form OF ordinary banking
facilities.
No Reason for Penalty.
There is no reason for penalizing the
use OF credit currency unless it stands
for an imitation of credit, and then all
loans. whether made by the use of cur
rency or subject to check. should be
penaliZed alike: and the only way this
can be done is through central dis
counting agency, which keeps a great
gold reserve as a basis for a final re-
serve OF credit. When all other sup
nita NJ A.