New-York tribune. [volume], March 03, 1907, Image 27

About New-York tribune. [volume] (New York [N.Y.]) 1866-1924

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Is There money Enough
We Shall Never Have Enough While
Bank Reserves Are Invaded
QUEST!* >NS relating to the con
tinuance of our prosperity
have recently, to a very great
degree, been closely relate
to considerations affecting
the money markets. We have just
|>assed through a year in which the aver
age rate for money has been higher the
ivorld over than in any year before in a
generation. In this year there were thirty
three weeks in which the New York call money rate
was six per cent, or higher; at one time it touched
sixty per cent. High rates for money have by no
means been confined to loans in speculative markets.
Through a considerable portion of the year mer
chants and manufacturers have been forced to pay
six percent^ and sometimes even well above that
rate. Money rates have been so high that the
ordinary market for investment securities has been
much restricted. Corporations have found it ditn
cult to put out new bond issues, and financing by
meant of issues of stock promising high dividend
returns has been resorted to by corporations of the
first order of credit.
Such a state of affairs naturally raises the ques
tion as to whether or not we have money enough.
Do our universally high interest rates and disturb
ingly low cash reserves indicate that the supply of
money is now inadequate to support the abounding
prosperity and unexampled industrial activity that
characterizes the present period? The question is
one of universal interest, for it touches every man's
welfare.
Belief About the Supply
UNFORTUNATELY it is a problem about which
there is much confusion of thought concerning
the fundamental data. With the well nigh universal
desire for money, it is nr »t surprising that there should,
at all times, l>e a wide spread belief that the supply
i> inadequate. In times when normal conditions as
t'. interest rates have given way to periods where
most extravagant percentages are current, and in
limes when there is deep concern in regard to the
adequacy of the cash reserves, it is not unnatural
that there should be many who would hold to the
opinion that there is not money enough to do the
business that is waiting to be done.
The first requisite in considering the question i^
a clear comprehension of
the functions of money.
It is not necessary to make
all those fine distinctions
v.hich are made by the
economists, but it is ab
solutely essential to have
clearly in one's mind the
practical fact that the two
Treat uses of money are,
first as a circulating me
dium, and second as bank
reserves. In this country,
frith its system of sub
treasuries and its practice
of withdrawing the Gov
ernment receipts from the
channels of trade and lock
ing the money up in its
own vaults, there becomes
a third use for money, or
rather a third purpose to
which money is devoted
Practically speaking, all
of our money will !>«■
found in one of these
By F. A. VANDERLIP
!t is either in circulation, in bank vaults,
or 111 the treasury •■! the Government. The small
hoarded, th ii is used, as the econo
mists would put it, "as a store of value," is « I
ni ordinary times s<> insignificant as to !><.■ negligible.
A secon i i leratioi great importance in ;i
; iv is to untlr:
» ey ni circulation is deter
people a 1 I
financiers, ban
and i . • • uch, if anj i »n1 rol,
. men carry ii
II vary in re a-^ tim«
. . .
h man's h
and ju it ai ...
litl A man « :!1 carry
■
. bank or
it that ii nto hank d
In a d ■
■ ■
are foi I vol
■
;;itry,
. ■ ■
large] ■ ■ ■ |
resen
A Strain Upon the Bankers
Tl I E enormous increase in bank deposits in the
last ten years has put an exceptional strain
upon bankers in the direction of securing sufficient
reserve to sustain the deposits. Deposits in national
banks in that period have increased from two thou
sand one hundred and forty-two million to sis
thousand eighty^eight million dollars. These K>tf-"i
tic figures take no account of four or five- thousand
millions of deposits in other than national banks.
On the other hand, it is true that we have had very
j:reat increases in this same period in our money
stock. The total circulation has gone uj> from
fifteen hundred millions to two thousand seven
hundred and fifty millions. National banks have
issued three hundred and twenty-five million dollars'
increase of bank notes, while the gold stock in the
country is about one thousand million greater than
it was ten years ago. This marks a per capita
increase from twenty-one dollars and seventy-one
Cents to thirty-two dollars and thirty-two cents at
the present time. Nevertheless, the lawful money
reserves held by national banks were eighteen and
one-fourth percent, of their deposit liability ten
years ago, while at the date of the last statement the
percentage was less than eleven The percentage:
referred to do not take into account that portion of
reserve which it is permitted banks to hold in the
form of deposits in other national banks.
A factor that has been of world wide importance
affecting the money supply of every country, hat
been the enormous increase in the production of
gold. More gold was produced in 1906 than would
equal the entire gold holdings of all the national
The Circulation Is Fixed by
the Habits of the People
Jks ;n ihis country at the close <>f tlu
ere is every indication thai th.
1 production for the present year will
h four hundred and twenty-five million
ars. The important relation thai
nn as •
\\<>rltl issufficeni I t great part
the question as to whether or nol th«
ply of money is sufficient. It
/en "i" rai ing the quesi
•• supply may n« >t l>ec ■•
to cau: <■ .1 di .turbing chanj ■ :■ ■
ins tell us 1 tro bartxu
wasteful of money under ling banking
tetn. Th< I I item of I
ited bunking • ■ ns, we are
like it rmy 1
m> centralized i I
man is !i.- ting as he it
with no one 1 noral orders f"i
advan< c. 1 ■
sion ■
as coi
there >\tn \»- > ml
ntly 1
of money
us in any 1 f sti
■
own vaults, at i •
The Value of Hank Notes
THE direction where wean- most extravagant in
our employment of money, however, is in tht
restriction which we put upon the issue of Lank
note-,. Most of the countries of the world have dis
covered and thoroughly proved that the properly
safeguarded hank note is, fi»r the purpose of general
circulation^ for the hand to hand, daily iise of the
public, an almost ideal form of currency. The
ain->unt of circulation needed at one season, com
pared with the amount needed at another, varies
more widely with us than with almost any t.tlu-r
nation. In the fall we require at least one hundred
and fifty million dollars more circulation than we
do at other seasons of the year, and under our pres
ent system that circulation is ruthlessly drawn from
the reserves of the Lank vaults. Hankers have no
power to resist the drain, and can keep a legal
relation Let ween their de
posits and reserves only
by a great contraction of
credit. They do their Lest
to make this contraction
as small as possible by
importing gold, while the
Treasury in the last few
years has helped most
materially by various de
vices for increasing the
money supply
It is the opinion of many
students of the money
question, however, that
no matter what the supply
of money in the country
might be, we should still
have periods of tight
money as long as the sea-
requirements for
hi be, we should still
c |>eriods <>f tight
ley as l"ii^ as thi
ible requirements foi
hand to hand circulation
vary and there is no means
of utilizing bank credit to
satisfy that variable de
mand. It in any season