Evening star., 1920-11-21

: war changes in commodity prices and
the accompanying industrial readjust-
ment have resulted in conditions
which are providing a crucial test for
= the country's banking Organization
test of its ability to maintain a
sound credit position while at the
same time meeting the essential re-
quirements of business for credit ac-
commodation-it might be we'll to re-
view some of the causes of existing
conditions as pointed out by Francis
II. Sisson. vice president of the Guar
anty Trust Company of New York. in
a recent address before the National
Industrial Traffic League.
We may arrive at better under
standing Of the problems presented
by the credit situation. perhaps. If
we recall some of the important fac
tors that have created present con-
ditions.~ said Mr.. Sisson.
Holds Losses Responsible.
'1The tremendous losses caused by
the world war. of course. were pri-
situation. And, while it is impos-
sible to arrive at an accurate COM
putation of the costs or to reduce all
Of them Oh monetary basis. it may
he helpful to remember some rea-
sonable estimates which conservative
ly place the gross moaetary loss at
approximately 100000. 100000. al
though other estimates run as high
as 1897 1000. 000.0e0; the known dead
at 100000 and seriously wounded
at six and quarter million: the
total property loss at $4,000, 900, 900; /;
the loss in manpower, measured in
money, at s1S0,00o. .000. 900. and the
national debts of the world in 1920 at
$3.50. 900 100000. as compared with
$4,000. 100000 in 1914.
~ nf
and it's aftermath, production and
distribution in the United States, it
is estimated. has been increased 20
per cent since 1914. Commodity prices
generally increased 140 per cent from
1914 to the peak in February of this
year. and they have fallen only 25
per cent since February. This neces-
sarily created a tremendous and un-
paralleled demand for capital While
sdeposits in the banks increased from
eighteen and a half billion dollars
in 1914 to thirty-three and a half
billion dollars in 1920, loans and dis
counts, Increased from SIS. ,000, 900
in 1914 to $4,000, 100000 in 1920.
Trend to Overproauction.
The period of unusually active
business and rising prices following
the war, characterized by a wave Of
sumers. was early recognized as tend
ing to result in overproduction in
various lines of industry. Speculation
was rampant. Capital expenditures in
preparation for meeting the usual de-
mand on the part of the public for
goods naturally tended to be excessive
in many instances. In the first ten
months Of 1890 Industrial financing
broke all records, with an aggregate
of more than 81 .o00.000,000 IN bonds,
notes and stocks. During the corre-
spondings period Of 1919 the amount
totaledsmore than $1.60o. .00O, 600. which
was the record up to that time.
This period was also character
lied by extraordinary demands on the
part. of foreign countries for Amer
ssn g0odsih y WAS was TO-. e be eresa;xs espectsd.
f4dRstrial reeaperatfon of the recently
belfigefent countries there would be
reduced demand eventually for Amer
lean goods in those markets. And
domestic buying could not be expected
to continue Indefinitely on an ex-
travagant scale. Accordingly, in order
to forestall the possibility of an ex-
tremely dangerous industrial sit
uatton in this country, it became nee
es esssry e snssk ,as aNftafr expansion
The lotical corrective for threat
ening overexpansion was the raising
of discount rates, accompanied by
purpose to restrict credit accommo-
dation to those borrowers whose col
ldtStdk gave pTOiulSC VI IttdbhiHS odIS
margins of value under conditions Of
probable commodity price recessions.
The application of these means has
helped to bring about more normal
business activity without an inter-
Sening period of widespread dis
aster.
Increase In Cost Of Money. :,
Yet. despite the tremendous in
creases in commodity prices and
wages. il is noteworthy that the cost
of money has increased, on the aver
age. only 25 per cent In the fact of
greatly increased operating expenses
and losses inevitable in business re-
action the banks have been ultra
conservative in fxing rates. Money
has been the cheapest element in busi-
ness enterprise. And the charge that
the banks have contracted credit to
the detriment of legitimate and essen
tial business activities is not sus-
tanned by facts. According to the
figures OF the controller of currency.
ION June 30 last the total loans and
discounts of all banks amounted to
nearly $31 600, ,00Q. 900, an increase Of
approximately $4,000. .000, ,000 over the
loans and discounts On June 80, 1919.
Neither the banks nor the gov
ernment can create credit. Credit is
the product OF enterprise and opera
tion in commerce, and is limited and
defined by the nature of such opera
tions. 1t il the means by which real
wealth is transferred; it is q medium
of exchange-and not wealth, itself.
Wealth consists Of goods and service.
And 1t should be remembered that the
vast destruction Of wealth occasioned
by the war, such as i have pointed
out. can be replaced only by creating
new wealth-not by creating more
credit. We can make up the deficit
only by producing more goods and
service.
cit is the function Of the banks to
vitalize credit by productive pro-
cesses and by commerce and make 1t
of use to the community. The FIRST
and highest duty of bankers is to put
available credit in usable form and
to distribute and apportion it for the
good OF the whole community. In
discharging this duty bankers must
exercise their best judgment and al
ways give heed to the. condition of
their reserves.
LfQuidati0n Not Completed.
The process Of liquidation has ap-
parently not been completed, and a
prudent regard for the safety and
4. strength Of our banking system
makes necessary the continuation Of
those policies which have proved
effective.
1t must be recognized. of course.
that . general reduction in commod-
ity prices cannot be Effected without
hardship to many elements Of the
business community. 1t is not alone
speculaters In commodities who are
adversely affected by price recessions.
Any business which entails the car
rying on hand Of stocks Of raw ma
terials or finished goods generally in.
ours the risk OF depreciatinK values
of these stocks while in their posses