"My country, 'tis of thee!" / Or, the United States of America; past, present and future. A philosophic view of American history and of our present status, to be seen in the Columbian exhibition.

by Willis Fletcher Johnson

As the steady reduction of the national debt proceeds, students of financial questions are casting about for some substitute for the present outstanding circulation, which has now dwindled to about $150,000,000. Mr. Edward Atkinson, of Boston, the well-known statistician and economist, presents this novel suggestion:

“Will any Congress dare to reduce the revenue to such an extent as to leave any considerable amount of debt unpaid at the end of the present century, whether it be bonded debt or demand debt represented by legal tender notes? I submit these as the possible conditions which may make it an absolute necessity for the people of this country to invent a new instrument of exchange, to take the place of the legal tender notes and of the bank notes secured by United States bonds, unless the whole circulating medium is to consist either of bullion, or of certificates of the government backed by bullion, dollar for dollar. The tendency of events is to cause the withdrawal from circulation of uncovered paper, to wit: National Bank notes and legal tender notes, leaving only in circulation certificates of deposits of gold or silver, backed dollar for dollar by actual coin, and also gold and silver coin in specie.

“No position could be stronger than this; but the difficulty will arise in the fact that even were the annual revenues and expenditures of the government equalized, the working of the Sub-Treasury Act in dealing with such large sums as now constitute the financial transactions of the government might seriously interfere with the money market at times. Under present conditions it is becoming apparent that it is impossible for the government to adjust its transactions to the ordinary conditions of the money market; it is also impossible for the government to perform the functions of a bank of issue; the tension is now very great, and the conditions cannot possibly be continued for any length of time. The issue of certificates of deposit of gold or silver would not meet the varying conditions of supply and demand for instruments of exchange or circulating notes, and there will soon be no government bonds available as securities for bank notes. There is a volume of other securities in existence—Railroad, State and City bonds—which would form an absolute security for a circulating medium covered in part only by a reserve of actual coin. Can the arrangements be made and the authority established for a selection among these securities of those which ought to be made available to secure the notes which might serve as instruments of exchange? Can a central bureau, bank or other form of administration be established by a permissive act, with branches in different parts of the country, to supply an elastic, safe and suitable paper currency convertible into coin on demand, on a separate foundation and under a separate administration from that under which banks of deposit and discount may continue to be organized?”

The New York banks are naturally the richest and most powerful in the country, and New York, no doubt, always will be the monetary centre of this country. But her absolute dominancy of the rest of the country, which she held for so many years, is passing away. The severest blow to New York’s banking supremacy perhaps was the passage of the law permitting the importation of foreign goods in bond direct to interior points. Formerly the grain from western fields was consigned to New York, and the contract for its shipment abroad made there. The New York banks were drawn upon for funds, and earned a commission upon every bushel of wheat that went out through the Narrows. In like manner, all goods brought from abroad found a resting-place there, and the duties were paid in New York, and it was New York capital which forwarded them to their destination.

But all that has been changed. The merchant in Chicago or St. Louis now buys his goods in Manchester or Paris and consigns them direct to his own city. The West reaches out over New York’s head and helps herself to whatever she wants in the Old World. So, too, with what she has to sell in Europe. A single rate is made from the western prairie to the dock at Liverpool. Wheat is rushed through without the intervention of any New York factor. As new towns and cities have sprung up in the interior, and new manufacturing centres have been established, and the mineral wealth of the country has been developed, the West has grown rich, and many of the banks in the interior now carry lines of deposit which would have seemed very large to the most important institutions in the East a few years ago. The increase in the number of “reserve cities” made by act of Congress two years ago was regarded at the time as destined to increase the amount of funds in the western banks at the expense of those on the coast. Up to that time there were but sixteen “reserve cities” in the United States. Each of these was required to keep on hand at all times, in loanable money, twenty-five per cent. of its deposits, while every bank outside of these cities was required to keep but fifteen per cent. of its deposits on hand. Any of these fifteen per cent. banks were permitted to keep three-fifths of this fifteen per cent. in the banks of any of the sixteen cities referred to, and any bank located in the reserve cities might keep, if it wished to do so, one-half of its loanable money reserved in the city of New York. The theory was that New York was the monetary centre of the country, and the other fifteen cities were the respective centres of the sections in which they were located. The law, moreover, made provision for counting, as a part of the required reserve, a portion of the balance which it was supposed the conditions of trade would require them to keep at the local centres, and at the general centre.

The new law of 1887 added a number of other cities to the list, with regard to reserves which New York had held up to that time. The amendment, however, left money free to seek its natural channels and reservoirs, assuming that the drift of the current had changed since the passage of the original act. But experience since has shown that trade requirements bring a large proportion of the reserves to New York, and so the new legislation has wrought comparatively little change. The tendency to withdraw funds from New York under the amended law has been checked by the fact that as soon as any city takes on its new dignity of a central reserve point, it can no longer keep a portion of its reserve in New York, but must keep its full twenty-five per cent. reserve in its own vaults idle. Chicago and St. Louis have become full central reserve cities like New York, and, as higher interest rates rule in these cities than in New York, it is natural that many accounts should be transferred from the latter city; and this has happened, as is demonstrated by Chicago bank returns. The drift of currency from New York last fall for the purpose of moving the crops, demonstrates that, while the western banks hold more money for current wants, New York must still be drawn upon for the large sums needed to move grain and cotton harvests.

The frequency of paragraphs in the daily papers announcing the departure of another cashier for Canada demonstrates that there is something loose in the methods of banking institutions. The president of the bank does not give sufficient attention to the actual transaction of business. He is usually too familiar and easy-going with his cashier and other important officials. It is seldom that he emerges from his parlor to go behind the counter and see what is actually going on. As for the so-called examinations made from time to time by directors, they are in ninety-nine cases out of every hundred simply farcical. The president of the bank tells the cashier some fine morning: “Get things straightened up now, Jimmy, the directors are coming to-morrow, and we want everything in good shape.” The advent of the directors being thus heralded, everything presents a fair appearance on the occasion of their visit. They chat and chaff each other, glance casually over the statements presented by the president, and then adjourn to indulge in a luxurious luncheon on the floor above. So ends their examination.

It is because cashiers are relieved from all practical surveillance that so many of them are led to ultimately test the climate of Canada. A broker, speaking to the cashier some fine morning, says: “By the way, Jones, Erie is going to have a big rise; you’d better buy yourself a couple of hundred.” “Oh, I never speculate,” says Jones; “haven’t got the money to do it with.” “That’s all right,” says the broker, “I’ll buy a couple of hundred for you, and if there’s any loss you can make it good; but I’m sure you’ll make money on it.” Possibly the cashier accedes to this proposition, but more frequently, if he be a cautious and circumspect man, he uses the broker’s point in a different way. He has possibly seen the broker grow rich within a few years and envies him. Here is a tempting opportunity to make a handsome turn, for his salary is comparatively small, and he could put a few thousand dollars to exceedingly good use. It may be, then, that he borrows from a friend, or draws upon his own savings for money which he secretly deposits as margin with some stock firm and buys two hundred Erie. It goes down. His margin is exhausted. The brokers tell him it will probably decline very little more. But they want more margin. Right under his hands are big fat packages of bills of large denominations. What shall he do? If his brokers sell him out, the savings of years are gone in the twinkling of an eye. If he is a weak man, he argues, “Why not take a thousand dollar bill out of this package marked $50,000? It would never be missed.” Erie is sure to go up to-morrow, when he can withdraw the amount from his brokers and put it back in the bundle. He will be saved from every loss and nobody the worse for it. Unfortunately, things do not turn out that way. Erie goes lower. The thousand dollars is gone. What shall he do? His theft, for such it now plainly has become, will probably not be discovered for some time. What shall he do? Speculate in some other stock and try to make up the loss. And he does it. It is useless to pursue the theme any further. Grown more desperate from day to day, he plunges; his losses become too large to be longer concealed, and one day, fearing exposure, he takes to flight, possibly carrying off additional funds of the bank. It may be that the first money he took was not to speculate with but to pay some household bill. But it leads to the same result in the end.

Now, if the president were in the habit of casually dropping around to the cashier’s desk and looking over his cash, the initial step in this march to ruin would be prevented. Suppose the president picks up hap-hazard any one of the many packages of bills and counts them over to see that they tally with the total marked on the wrapper. The knowledge that he is liable to do that at any time will deter the cashier from abstracting that first bill, and he is saved from the subsequent crime and disgrace.

Unfortunately, dishonesty in banks is not confined to cashiers. Many a bank director amasses large sums by means which are quite as disgraceful as embezzlements, although they are not so harshly punished. Mr. Moneybags, for instance, is a director in several large banking institutions. He is also in all probability a very heavy speculator in the stocks of railroads in which he has inside information. As director of bank No. 1 he sees that a certain man has pledged a block of the stock of a certain corporation as collateral security for a heavy loan. As director in bank No. 2 he perhaps learns that the same man is borrowing largely from that institution and on another block of the same stock. It is clear that the speculator in question is very heavily loaded—probably carrying more of that stock than is prudent. Anything which would seriously depreciate the market value of that stock would probably force him to throw overboard a considerable portion of his holdings. The director of easy conscience quietly puts out a line of shorts in the stock in question at the ruling high prices. At the next directors’ meeting of bank No. 1 he tells his fellow-directors that he hears rumors affecting Mr. Speculator’s credit, that he is overloaded with the stock of the road in question, and suggests to the president that it would be prudent to invite Mr. Speculator to return the money he had borrowed and take away his stocks. Possibly he causes similar action to be taken by the other bank of which he is a director. Mr. Speculator, so unexpectedly called upon to return very large sums of money, is embarrassed. He is obliged to go into the market and sell a large amount of the stock in question. The price falls sharply in consequence and the director covers his shorts at a handsome profit. It is doubtless true that a majority of bank directors are above this sort of thing; but there are bank directors, and not a few of them either, who contrive to turn their official positions to their personal profit.