These certificates are not to be confounded with clearing-house gold certificates issued by the Association on deposits of gold coin. They are used in making payments of balances between banks, and obviate the necessity of frequently passing the actual coin from hand to hand.
On April 11, 1898, the clearings at the New York Clearing-House for that day amounted to $352,882,567—the largest amount ever reported up to that time. The balances to be paid in money were $17,345,452, or only about five per cent. For the year 1898 the bank clearings at New York were $41,971,781,684, and for the whole country, $68,750,000,000.
An investigation of the amount of credit paper used respectively in the wholesale and retail trade was made by the Comptroller of the Currency in 1896. In his report for that year the Comptroller says: “From the face of the returns the conclusion to be drawn is that 67.4 per cent of the retail trade of the country is transacted by means of credit paper (checks), that 95.3 per cent of the wholesale trade is so carried on, 95.1 per cent of business other than mercantile, and 92.5 per cent of all business.”
XI. PANICS AND THEIR CAUSES.
A panic is generally due to inflation and speculation, and these, of course, have their origin in various sources not easily determined. An unusual increase in the production of precious metals, bountiful crops, a speculative craze taking possession of the public—such as the tulip mania in Holland—all these and many other causes lead to speculation. The fall in prices due to a stoppage in speculation brings on the panic. Sometimes the catastrophe is produced by war or rumors of war, often by the most trivial circumstances, and not infrequently without any apparent cause. Before everybody had desired to buy; they now became as eager to sell, and this rush to convert securities and commodities into money precipitates a panic.
Crises may be divided into commercial and financial. The last one in the United States, whatever may have been its ultimate developments, was in its inception and culmination essentially a financial panic. The Treasury and the banks were both regarded with more or less distrust.
Panics or crises more or less severe have occurred in the United States in 1814, 1818, 1826, 1837–39, 1848, 1857, during the Civil War, 1861–65, 1873, 1882, 1884, 1890, 1893. Some of these should hardly be called panics, as they were mere local disturbances. Different causes have been given for each of these revulsions. Overtrading and speculation were doubtless responsible for them. The panic of 1857 was coincident with large net imports of merchandise. On August 24, 1857, the onward wave of prosperity, which had been steadily rising to a great height, received a check by the failure of the Ohio Life Insurance and Trust Co., followed by numerous other failures. On October 4 every bank in New York, except the Chemical, suspended specie payments, and they did not resume until December 12.
The speculation in gold in 1869 culminated in what is known as the Black Friday panic, September 24, 1869. Fiske and Gould were conducting a speculation in gold, and sought to corner it. They forced the price up to a high figure, but the Government suddenly appeared as a seller of gold and broke the “corner.”
The year 1873 witnessed another revulsion of confidence and another disruption of the commercial and financial affairs of the country. Business had long been unduly expanded, and the collapse finally came. The failure, on September 18, of the honored firm of Jay Cooke & Co., which had not only been identified with the building of the Northern Pacific R. R. but had been a strong supporter of the credit of the Government when it was in the direst distress, was the first bad news. House after house fell. The Stock Exchange closed its doors on September 20, and did not reopen them until September 30. More than fifty Stock Exchange firms suspended, and several of the leading banking institutions of New York and other cities had to stop business.
During this panic the New York Clearing-House Association issued clearing-house certificates to those of its members who needed available funds, and during the trouble issued $24,915,000 of them. In May, 1884, it issued $24,915,000; in the 1890 panic, $16,645,000; in 1893, $41,490,000.