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The producers news. [volume] (Plentywood, Mont.) 1918-1937, March 14, 1924, Image 6

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WHY BANKS GO BROKE
BY SENATOR J. W. ANDERsq,
This is a question thousands of people are asking in
Montana today. Over 200 banks have closed their doors
in this state recently, causing a loss of many millions of
depositors money and the end is not yet. It is generally
admitted by bankers and others that lack of confidence
will wreck almost any bank. In a dispatch from Boze
man to the Record Herald of February 29th. Mr. R. O.
Kaufman, vice president and cashier of the Union Bank
and Trust Company of Helena, reporting an address of
Mr. Kaufman to the Rotary club, says "Charts were used
by the speaker in explaining how a perfectly solvent
bank could not stand an abnormal demand upon its re
sources, and might have to close because of wild
idle talk or unusual pressure,
town in the Record Herald dated February 9th, Mr. Cur
tis L. Mosher, assistant federal reserve agent of the Min
neapolis district is reported as saying:
which permits suspicions, distrust, inuendo,
ions gossip to permeate by the grape vine route, is
community which invites disaster. In dozens of cases
this cause for bank failures rests squarely on the com
munity which without just cause withdrew its support."
The testimony of these two bankers is that "gossip,"
idle rumor" and lack of confidence caused dozens of
solvent banks to close their doors. This is a terrible and
startling indictment against our banking system, and not
against the public. It is the very fact that our banks
are built on such a fickle thing as confidence, that abso
lutely destroys confidence. Men would not risk their
money on a boat crossing the ocean if it was known that
the boat could not weather a storm. Then why should
they put their money in banks that may be destroyed by
whispering gossip and idle tales ? On what sort of a flim
sy foundation are our banks built? That is the import
ant question. That is what the public wants to know.
In the Billings Gazette of February 28th in an ar
ticle on Agricultural Credits you will find this statement ;
"The Agricultural Credits corporation has been formed
with a capital stock of $10,000,000, and a loaning capacity
of $100,000,000," etc.
If the public were fully enlightened as to how a
banking or credit corporation can lend $100,000,000 on a
rumor,
In a dispatch from Lewis
A community
and malic
a
4<
Economic Depression And
Unemployment — byjohnpepp
17 .
The economic depression makes rapid and great
advances—production is decreasing, and unemployment
^
Q . u *???* e . c ® nom ? c P ros P er 'ty which started in
uac m its ngi point about May, 1923. In many
respec s t is prosperity shows record figures m the ex
— I?. Pr ^? Ctl ? n 1 ooq m volume of produc "
* , üom J he m \ dd e of 1923 we see a constant,
gradual aggravation of the economic situation. Three
monthly unfiü^o^-^o'lhp'stpof rw ch ; ange -
onthly un nlled oi deis m the Steel Coiporation reached
cember 1923 onlv 4 dd^milhon 1 wlrLlT ^
y ' 4 , 4 on > ' vhlc * 1 18 a decline of
about 40 per cent. The May, 1923, average daily output
ot p!g iron was 124,764 tons. In December, 1923, 94,225
v. ic means a decline o. almost 25 per cent. And a third
nguie is the average decline of 16 per cent on the stock
exchange m the second half of 1923. The iron and steel
industry leports showed a decrease of full time operation
'" m J ) Pe, '"' nt May ta f Pf cent in 0ctober ' t0 58
rn^ nô'L r', 6 ™ 16 ^- 1 ;.' . cent m D " emV,er -
n December only a third of the full time operating es
tabhshments were utilizing their full capacity. Exports
t'JZZt f ee ' Were r T ing , 0n ; m - aVeVage 0f t , ab0 " t
five million tons a year (for about six years, until early
tho^aid toiTsh^fT and .,. Steel , m 1923 fel1 a few
thousand tons short of two million tons.
lt
is growing.
I.
Slump In Mining Production.
Coal mining is in a catastrophic condition.
Honnold, statistician for bituminous operators of the Il
linois fields, declared that "the November demand so far
has dropped 28 per cent below r that of last year,
means a slump of about 30 per cent in production in both
the Illinois and Indiana fields. At least 72 mines in Il
linois with a potential daily capacity of 100,000 tons and
69 in Indiana with 50,000 tons have been closed or aban
doned since January 1. Of the mines still active at least
75 per cent are operating upon only 40 per cent of norm
al time. The situation is occasioned solely thru lack of
demand. Every day scores of cars are loaded at the
mines and left standing on switch tracks. More mines
have been closed in Illinois during the last six months
than at any previous period in the history of mining in
the state."
Dr.
, d
chusetts, the center ol the textile industry the December
ieport ot the Department of Labor shows a majority of
the establishments on a part capacity basis. Dun's Jan
«ary 5,1924, review said :
"Curtailment of production is continuing in many
■ 4 . , j j . T
cotton, wool and silk good centers . . . In cotton goods
this tendency is expected to increase.
Shoe Industry Decline.
In the shoe industry the Massachusetts December
report show r s that only r 34 per cent of the leather shoe
establishments were operating at full capacity. In Hav
erhill. a shoe town, in November and December, 30
The total value of building undertaken in Decem
l>er, 1923, fell by* 4 per cent below November.
The textile industry is almost completely paralyz
ed thru the depression. The number of active cotton
spindles in December was about 700,000 less than a year
ago and fell over 300,000 in November alone. In Massa
. ,, I . u. u ^ tv j . _ pei
cent oi the workers have oeen laid off and only 5 out of
34 establishments are operating full time and lull capaci
paid up capital stock of only $10,000,000, it would go
long way towards an understanding of the dangerous
foundation upon which our whole banking system stands.
Our banking laws make this possible. Those who
borrow the hundred million dollars from the ten million
dollar corporation must bring over two hundred million
dollars for security which become assets of the loaning
corporatoin, and the original ten million is the 10
cent reserve required by law. It should be remembered
that the loaning corporation lends credit, not money.
This same principle is largely true in the
tions of a bank. In normal times there is no danger,
for while the reserves in the bank may not be more than
10 per cent of the liabilities, the loans are based on not
over 40 per cent of the value of the property given
security for the loan. In normal times the bankers can
get his money out of the security given, by forced sale
of property ,if necessary.
But here is the danger; If a bank's reserves
low, and a run is made on the bank, they must collect
in as much as the frightened public is drawing out in
cash from their reserves. But if the security given the
bank, such as farm land, has depreciated in value since
the loan was made, to such an extent that its value is
less than the loan, then the banker cannot collect, and if
the run continues he must close his doors*.
The real cause for the closing of our 200 banks in
Montana was the deflation policy of the Federal Reserve
Board that ruined the farming industry and thereby de
stroyed the security upon which these banks had loaned
their credit.
a
per
opera
as
are
Mr. Mosher denies this and points out that instead
of a deflation of credit in Montana during the past three
years there has been an increase of over $1,000,000. No
one, as far as I know, claims that the banks in this state,
or the Federal Reserve, were able during the past three
years to accomplish a credit deflation of the fanners. The
general deflation policy of the Federal Reserve Board de
stroyed the price of the fanners products, as related to
the index number, and thereby made it impossible for
the farmers Id effect a credit deflation.
If any one doubts that there was a Federal Re
ty. In Lynn, only 6 of the 32 shoe establishment report
normal operations.
The December report of the Department of Labor
the United States showed that not less than 23 per
cent of the industrial establishments reported part time
operation and 2 per cent were entirely closed down. And
in addition to that one-third of the establishments re
Porting full time operation were operating below full
time capacity.
In connection with the tremendous decrease of the
™ lume of production there is a decrease of railroad traf
fic and a decline of railroad operations.
Tll 7'
The propaganda of the capitalist press, govern
ment and banks' attempts to make the public believe that
with the beginning of 1924 the economic conditions are
changing to the better. That is just as little true as the
deceitful propaganda which was conducted by the same
elements with President Coolidge at their head, during
the growing depression in the second half of 1923. It is
true that the unfilled orders of the Steel Corporation
have showed 353 ' 09 ° tons in January. But this small in
crease makes very little change in the general situation,
We should not forget that the unfilled orders'of the Steel
Corporation at the end of January, 1924, were less by
2,112,000 tons, or over 30 per cent, less than at the same
date m 1923 ' lron Production was in the last week of
Sper cent ^ than hi ^the same month of 1923.
The New Yoik times of February 4 was forced to admit
thiit: To predict repetition of the wholly abnormal in
fittfe rash°° m And the same New Y* ^ &
the tex ne indurt^ The rt' i^tu "
dilemma in which The textfieTfis ara placÎ between
raw materia! costing 25 per cent more than a year ago,
and finished goods which are selling 5 to 10 per cent low
er, with consumers holding out obstinately against ad
vances, no doubt reflects the exceptional character of the
cotton situation. But tö the extent that it indicates un
willingness among buyers of goods to follow a rising
market in their purchases (unless they have absolutely
used up their stocks of goods), it has its bearing on the
general business situation. A sensational 'trade boom'
must in the nature of things rest on the taking of the
opposite attitude by consumers, and if they will not take
it in the cotton trade where, if anyw r here, it is warranted
by the actual supply-and-demand position—then it
hardly be expected elsewhere."
can
T _. , , „ .
mi du *, ^ i E f 0lt ^ t0 ChC ? ^ epresslon *
The Philadelphia Reserve Bank s monthly summary of
msmess conditions covering 36 various trades says that
0 f the 36 trades at the end of October, 6 trades could be
classified as good, at the end of November only 5 at the
end of December 3 and at the end of Tanimw i '
!t" e ihat the^ cÄrts ^3.^ h' • r
forts to check the aggravation of the économie j 8
LO cnecK aggravation oi tne economic depres
s ion. The new two billion dollar railway construction
program and the big orders for Japanese reconstruction
are the last great reserve of the capitalists which they
can muster against the economic crisis. —
lie entirely anti-Marxist to believe (as
But it would
some comrades
are inclined to do) that the capitalists, notwithstanding
kig monopolies wdiich eliminate competition on a national
scale (thus making it so much the sharper on an inter
national scale) that these capitalists are in a position to
serve deflation, I will submit the following statement
from a series of "Talks," that is "prepared by the Com
mittee on Public Education, American Bankers Associa
tion, Five Nassua Street, New York." These talks are
carefully prepared propaganda sent out to the bankers
of the Nation who are urged to familiarize themselves
with them and then deliver them to the children in our
schools. In "Talk" No. 8 on the Federal Reserve System
in speaking of the currency issue of the Federal Reserve
banks, we read, "The largest amount outstanding was
$3,400,000,000 in December, 1920, and the amount at the
present time (August, 1922) is about $2,100,000,000. Ac
cording to these figures there was a
currency deflation or contraction of $1,300,000,000 in less
than two years.
It is no wonder agriculture was ruined and the
banks went broke.
In the face of these facts Mr. Hosier representing
the Federal Reserve banks attempts to place the blame
elsewhere, and tells the Lewdstowir Rotary Club that the
community is all to blame. He says "No criticism is too
harsh for the individual who permits tom-cat gossip to
destroy his confidence in the bank wdiich for years has
stood solidly behind him in his private and business af
fairs, has safeguarded his funds, and protected him in
his emergency by extending credit."
The answer, then, to the question of why banks
go broke under our faulty, flimsy, banker-made system is
simply a lack of confidence. In order to restore confi
dence, it will be necessary for us to know r and to remove
the causes w'hich destroy confidence in banks. How can
this be done ?
Federal Reserve
It should be evident to all that this can not be
accomplished by suppressing criticism. This was attempt
ed by the last two state Legislatures in the form of a
proposed law which would have prohibited any one in
the state from making any "derogatory statement"
about a bank. Fortunately this measure was defeated.
Such a law would create suspicion and destroy confidence.
Several attempts have been made to pass a de
positors guarantee law in this state, but the bankers lob
by has been strong enough to defeat it. Such a law w*ould
change the normal cycle of "vitality, prosperity, over
production, crisis, and stagnation" of industry, as Marx
puts it.
Despite that the number of business failures is
growing from month to month, that in individual sec
tions the small banks fail by the hundreds, the economic
depression thus far has not assumed the character of a
panic. The main reason for this is the unusual abundance
of money. The Federal Reserve ratios recently reached
its highest point since 1917. The unheard-of plentiful
ness of money is due to three causes: (1) The export
of American capital decreased in 1923 because of the in
security of European conditions. (2) The United States
is today the creditor nation of the world and the profits
of exported American capital and foreign securities
bought up, bring an uninterrupted stream of gold into
the country. (3) Foreign capital flees from Europe to
the United States. The first wave of fugitive capital
came from Germany; the second wave, recently, from
France and Great Britain. We cannot pass final judg
ment today whether the present economic depression will
turn gradually in a slow process to the worse, or whether
it will turn into a dramatic panicky crisis,
The curtailment of production, the closing up of
factories, or putting them on part-time operation caused
an ever-increasing unemployment of the big masses.
The United States has no real unemployment
statistics, so that it is not easy to form a complete pic
ture of the breadth and depth of unemployment. Both
'u® % ( UI ' eS and faCtS which we could ascertam suffice to
charact *' ,za the sltuation '
industif " "" flgUIeS °" the
' The unemployment among the coal miners is es
pecially very heavy. The Illinois Industrial Review of
December 6, 1923, stated:
with a winter of unemployment. In Illinois 20 per cent
of the mines have been closed. In Indiana one in every
three mines has shut down. Over 25,000 Illinois miners
are out of work, and close to 50,000 are employed only
about one-fifth of their working time. In the non-union
fields the suffering of the workers is taking
acute turn."
HI.
The miners are face to face
an even more
MINES CLOSING DOWN
A. K. Lafferty, a West Virginia mine inspector,
said in December; "Coal mines throut West Virginia as
well as Ohio and Indiana are closing down. The business
slump has grown in almost an incredible volume, and its
effects are deplorable. It will be a hard Christmas for
thousands of miners.
The official "Journal" of Hip TTni+p^ tvt vr t
stated in November* "It is no thLrv lfi Mme ^Workers
* +• L 18 ^ ^" eol y when we say that
° ■ ™, Za f 0n . 13 of a vast army of reserve
mem ei s ra on y ge to noik, m hundreds of instances.
one day a w^eek, and not even that in
And the unemployment
many localities."
among the miners has been
growing recently, too. The report of the Illinois depart
ment of Labor for January says: "Coal mines in Illinois
and adjoining states have closed down throwing hundrod*
out of work.
The railroad workers are virtually decimated fh™
unemployment. The reports of the Inter^tafa
Committee show that in Auo-urt 1 ivon;
on the pay rolls of all railroads. ' ' ^ ^
Commerce
were
In November only 1,
help in normal times, but not in a panic m,
are now passing through. ke ^ -
Some help could come through
examineis department that would be
laws oi the State in protecting the
stead of the one w r e now* have
a'
°n e ,
State
governed hv WP:"
People's interest
in protecting and shielding dishonest WÄf
for this betryaal of the people must h
governor of the state who appoints the 8 ^ by
aminer, and the Attorney General of ^
sworn duty it is to enforce the laws of th
of these gentlemen are fully aware of th t ^
of the laws meant to protect the moneVV' ^ disre ÄE
banks of this state. e P°sited i
The position taken by the Farmer-I
that the whole banking system is a. ab ° r Part yiL
sound and as long as it remains in nriv^T 1 ^ Jr
be a menace. ' Pnvate hands it»
B;
B,
v.
iit(
inti
;k|
li
m
When a ten million dollars corporation
loaning capacity of One Hundred Million
ect interest on the whole One Hundred MilU
think that is profiteering in its worst form
When the money lenders of the
neither produce nor create wealth, are able thr \ Kk
system to control and own the wealth of th , 1 t!
think that system should be destroyed. countrv -«
We think also, that when the organs
power of the nation, through the control of cJTS
money, also controls the business, the governZ! ®k
the courts of the nation, thereby enslaving and
ing popular government, that it is then the dutv
otic, liberty loving American citizens to organize
selves into a political party, pledged to free the coun»*
from this most cruel and debasing form of slaverv *
We also hold that the only real solution
banking problem, is to take it out of private hands' ÂÏ
place the whole banking business in the hands of the mt'
eral government, to be operated for service and net T
profit. When the Federal government guarantees d
dollar that a depositor places in Uncle Sam's bank
will be no bank failures and no lack of confidence.
:ti<
Can havt_,.
«OlUu-s, ,Mtf
"» Wars K
country.
B
desti
i 1
-'of
,h
Of t
, th«
899,545. That means a reduction by 73,760 or neaiirK
per cent. But at the same time a big part of the ii
road workers were forced to do part time work. In t
middle of November there were 81,246 fewer vvorkeuÄ
full-time jobs than in the middle of Au oust. That
a reduction of almost 5 per cent. The uneniniovmiÄ:
increased still further in December. A shwle railed
the Pennsylvania, discharged not less than 26185 wd
workers in December,
try is frightful. The director of the municipal
ployed workers in Boston in January at not less
60 000
approaching the
Madison st.eet "
Carl Haessler wrote in the Federated Pr« fl!,
early ^ 1923! ' Jolis aie hind to get in a«"'
Trade union secretaries sav so
of the Illinois Department of Labor says so.
study of the class fled ads under the hearings of Wa
Male and Wanted Female Help, proves it, Altho the *
«ported 139 job hunters for every 100 jobs in 0
hours." ' W °
The condition of the workers in the textile indu®"
emi
ment bureau of Boston estimated the number of
The "Lawrence Labor" shows that masses j
workers are getting paid only for a five-day, a four-da
or even a two-day week.
Unemployment In Chicago.
Unemployment in Chicago under the influenced
the Illinois situation shows a very serious character. E)
en a capitalist paper, the Chicago Evening Post, wroll
on January 19, 1924: "The problem of unemployment!
with us again. The apologetic gentlemen who sug?s
that they are in need of a meal 'an' most starving 1 aJ
along 1
prosperous in appearance
The chief statistic#
Am
The Herald and Examiner of January,
ports a turn for the worse ; "Superintendent Boyd, o
State Employment Agency, estimates 75,000 nien t MCj
work in Chicago alone and said there were Ifb nie -
every 100 available jobs—nearly two to one.
* And the latest report of the Illinois
of Labor, which sums up the whole January
again forced to announce a new aggravation in a ,
as compared with December. The decline o enl .
in January was 2 per cent. 'Probably the mo* 1 1
ant change during the 30 days has been the co J
car building. The drop of 40 1-2 per cent in
tering and meat packing industry was but 1
than the average for all food industries, n ^
of the Illinois Free Employment Sendee in thi*
labor supply *
itirp eîrt'
cipal cities in the state, the excss
the largest that has been reported u^' ^
10,0 S
Thole '
measurably
worb ek
. "A I
v • J I
hich ^
ary w^as
1922. Places could not be found for
for jobs. There were in the state as a "
cants for each 100 jobs. This
than at any time in 1923."
January 31, 1924, reported that in
number of the offices of the labor agents
line West Madison street are closed because
was
The DAILY
I
Chicago.
no
hiring workers.
FEW JOBS CAN BE SUPPLIED*
The November and December repoi ^
dustrial Commission of Wisconsin shou
:
of th e
A
(Continued on Page Seven)

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