[Volume XXV
THE CHICAGO BANKER
14
Editorial Comment
but what are some of the abuses begotten by this gross and avoidable supply of currency? To begin with, interest rates fell to the lowest point since the last post-panic year, thus enabling influential and none too scrupulous stock operators to indulge in speculative excesses that caused conservative investors in London, Paris, Berlin, Amsterdam, Vienna and other foreign centers to dispose of their holdings of American securities, while at home there has also been a preponderance of selling during the last few weeks. Unhealthy speculation has also been fostered in real estate on a scale not fully appreciated; when five-year mortgages are pressed upon clients at 4 per cent the temptation to take risks is not easily resisted, and though first-class city property may be entirely safe the same cannot be said of outlying districts. Chicago plungers have run riot in the wheat pit, sending the May quotation to $1.11 for the sole reason, almost, that money is going begging for loans at less than 4 per cent. The money commission will do well to give us a currency which wall expand with business and contract when it falls off. The temptations of cheap money thus will be avoided and in good times the rate will be fair and equable rather than oppressive.
Effect of Increased Gold Output
Whenever in civilization the money question is under discussion the increased gold output is considered a ranking influence in fixing values; even interest rates are subjective. In the British parliament and in the hearings of our own money commission it always is taken into account. Many strange fluctuations of values in the face of contrary conditions can be accounted for by no other fact than increased gold output.
But how is it done?
The Market Chart Company of Chicago and Minneapolis has just issued a twenty-page booklet in which the effect of increased gold production on investments is traced. It is an elementary work designed to be understood by, and to help the man not skilled in finance, but it will be read with interest and profit even by experts in the banking and financial line.
The author holds that the “quantitive theory of money, which once was a mooted question, to-day has taken its place with the theories of the rotundity of the earth and the circulation of the blood. It no longer is questioned by any authority worthy the name. The remarkable increase in the production of gold during the past ten years has brought the subject before the financial world and with it an entirely new group of problems for solution. The effect of this rapid increase on commodity prices comparatively is a simple matter. Its influence on interest rates is more indirect and less easily traceable. That a change amounting almost to a revolution, now is going on in security values is apparent to all students of finance. Its
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LARGER PAID CIRCULATION IN THE MIDDLE WEST THAN ANY THREE OF ITS COMPETITORS COMBINED
These are only instances of what a publicity bureau maintained by the A. B. A. might bring out. No one should fear postal banks. Their deposits could be placed in the nationals or invested in bonds, which could be loaned foi circulation purposes.
Neither should “too much money” frighten. Deposit currency would shrink to a safe ratio and real currency take its place. This is a broad field for the A. B. A. The good of the whole people is the only lasting benefit to the banks. Temporary personal profit isn’t worthy of the efforts of the greatest banking organ¡ zation in the world.
Pointer for Currency Commission
There is an old saying that a brickbat wi absorb water almost as rapidly as a sponge, but that you cannot get it out again by squeez ing it. Our currency system is in some re. spects the brickbat of the fable. It does not contract when business contracts and will not expand except cumbrously and slowly when business expands. The question which continually is up in banking circles is how can our excessive supply of money profitably be used without fostering premature activity that would lead to abuses, inflation, and, finally, reaction? This question overshadows the one most frequently discussed to-day; namely, Where will the money be found to absorb all the new securities that are coming on the market? The United States never before suffered so grievously from a redundancy of currency. Instead of the supply having contracted in conformity with the shrinkage in business to 75 per cent of normal, the aggregate circulation outstanding is now $3,118,000,000, an increase of almost $110,000,000 over a year ago when interest rates were extremely high, and an increase of $260,000,000 over the close of 1906, when trade was of unprecedented volume. Yet the national bank note circulation is not only larger than it was a month ago, but it exceeds the total of December, 1907, by $11,000,000; compared with the maximum ever recorded ($698,400,000, in June last), the present total of $667,400,000 shows a decrease of $31,000,-000, whereas there is no adequate reason why the rate of redemption should not have approached that figure each month during at least part of the year. Cheap money is of potent influence in stimulating a revival in business,
A People Educated in Saving
The American Bankers Association twice has been on the verge of undertaking a new educational movement. That of the chapters is now taking care of itself and doing it well. The new field, and it is legitimate, has to do with the thrift of the people. The work, such as it is now is largely confined to booklets and pamphlets, which smack of advertising for the benefit of the issuing bank. This discounts its influence at the very start. The association has the talent and might concentrate it into something tangible in the way of a special department. Literature could regularly be sent out by the Savings Press Bureau under the direction of the able secretary and his strong staff. The papers would print it and be glad to help on in the work. Our people only learn of the thrift of the people of other nations at remote periods, when some bill before Congress requires moral support. They should constantly be reminded of our wasteful ways and of the benefits personal, communal and national, which follow' from the savings account. France is a nation world-famous for the thrift of its citizens. No people in Europe excel them in industry, frugality or saving. When Germany made the demand for a billion-dollar indemnity it was supposed to be a crushing imposition that must be settled by alienation of territory, but the peasantry and the bourgeois element made so large a payment on demand out of their private hoards that the balance was easily taken care of by the government. It was as much a surprise to the financiers of France as to the world.
When it was shown that millions of money was habitually sequestrated in private hoards, and therefore not available for general use in business, ways and means were considered for bringing this capital out of hiding. Private banks accomplished something, but the institution of government savings banks in 1881 brought out much more. Edmond Thery, in his new work, “Economic Progress of France,” makes the showing that there are 4,000,000 depositors among the 38,000,000 of France, who have $1,000 or more each in the savings banks, and there are 2,000,000 who have $2,000 or more each. He challenges any nation of the world to make as good a showing of distribution of wealth or of individual thrift.
This means that the people of small income in France have saved billions of money, which, while it is in general use for carrying on the business of the nation, is subject to check by the actual owners. The power of that accumulation can only be fully appreciated by expert financiers. It is the secret of the solvency of the French nation. It enables France, the most debt-ridden of the great powers, to be at the same time the banker of the world, to be the main financial prop of Russia, and the power behind more than one big industry in the United States.