The Birmingham age-herald. [volume] (Birmingham, Ala.) 1902-1950, 1914-12-09
Hamlin Explains Difference
Between Money Panic and
Business Distress
OTHER YEARS CITED
SHOW DIFFERENCE
Spirit of Reserve System Emphasizes
Central Bank Idea For Strength
ening the Entire Finan-
cal Situation
by HOLLAND

New York, December S.-(Special)
Many times since the date for the opening
of the federal reserve banking system was
announced, and especially since the day
when the system began operation, the
remark has been made to the present
writer by some of those who are familiar
with the new organization that there
should be good understanding with the
public of the distinction between money
panics and business distress
There seems to prevail, it was said, an
idea that the new federal reserve system
will make all kinds of panic hereafter i'm
possible. But there are panics of two
kinds, the characteristics of which are
illustrated by the panic of 1893 and the
panic of 1907, on the one hand, and what
mans panic of 1902. In 1898 business dis
tress prevailed and the number of bank
ruptcies was appalling, but there was no
money panic until it became evident that
unless the treasury department at Wash
ington was able to protect its gold the
country would lapse to an exclusive sill
yer basis. Then began the money or cur
rency panic. 1t was characterized by an
extraordinary boarding of money. The
banks practically suspended cash pay
ments. This was coincident with, but
only indirectly a part of, the business
orostration.
In 1907 another currency panic began,
md of such extraordinary character that,
while many banks throughessk the country
were constantly increasing their reserve
until in some cases these were three or
four times greater than the amount COM
manded by law, nevertheless, the banks
would not pay out cash except under
compulsion, but resorted to various de-
vices. principally the issuing of clearing
house certificates and the provision that
all checks drawn upon banks should be
paid through the clearing house; that is
to say, by an exchange of credit. Yet at
that time business in the United States
was fairly good and the prospects were
excellent for steady increase in domestic
industry of all kinds.
On the other hand, in 1902, there was
a commercial panic made evident by the
unprecedented depreciation in the market
value of securities The common stock
of the United States Steel corporation was
quoted at a little under 10, and there were
a number of venturesome persons who
took a chance that the stock would not
go lower and bought heavily of ii. With
in few years that stock was quoted
as high as 80. There was no panic at
that time, but instead grievous demorali-
cation in the securities market.
The national banking system which is
now in operation can make money or cur
rency panics practically impossible, but
it cannot. excepting to a limited extent,
prevent that kind of business demorali-
cation which follows over-eXp ansion. This
is the point which has been frequently
made by those who are competent to ex-
plain the new federal reserve system, but
not until within few days has it been
authoritatively and officially asserted. The
address-which was practically informal
that was made by Charles S. Hamlin, the
titular head of the federal reserve board
at Washington, to the members of the
Chamber of Commerce at a recent meet
ing was in considerable part devoted to
an exposition of this subject. Mr. Ham
lin, from long experience in the treasury
department and in other governmental
service, was thoroughly qualified for serv-
ice upon the new federal reserve board.
That opinion was expressed with unanim-
fty in this city when his appointment by
President Wilson was made public. There
fore, all that he had to say was lis
tened to with keen interest
The relation of the federal reserve