reserve banks and the Federal reserve notes in circulation, is estimated at $37,529,000,000.1

The total banking power of this country on June 30, 1913, at the commencement of the present administration amounted to $23,181,000,000. The increase of our banking power from that date to the present amounts, therefore, to $14,348,000,000.

The banking power of the world in 1890, as estimated by Mulhall, was $15,558,000,000. The banking power of this country then was placed at $5,012,000,000. The banking power of the United States. to-day is nearly two and one-half times as great as was the banking power of the whole world, according to Mulhall's estimate, in 1890; and the total banking power of this country now is more than seven times as great as it was in 1890.

Vast as the financial resources of our country are thus shown to be, it behooves us to realize that our responsibilities and duties are proportionately great. We have the mighty task of supplying not only our own vital needs, but of keeping ourselves strong and ready to meet the demands which are being, and will continue to be made, upon us by our allies in the titanic struggle now convulsing the world. It is of supreme importance that allurements of profits from commerce or industry in this country or in neutral countries, for purposes not essential to our success in the war, may not induce us to divert or dissipate the capital or financial resources of our people. This country has become the great financial reservoir and banking headquarters of the world and, in large measure, the dependence of those great financial nations whose enterprise in the past had provided so largely the capital for the commerce and industries of two hemispheres, but who now look to us to supply to so great an extent the sinews of war, as well as the needs of industry and commerce.

FINANCIAL AND BUSINESS CONDITIONS IN 1917.

At this time a year ago this country was at the height of unexampled prosperity and business activity. Mills and factories were running overtime and trade and commerce had attained volume and speed unprecedented. This abnormal activity was the result, chiefly, of tremendous demands upon us from the foreign nations then at war and from neutral nations in South America and elsewhere, forced to seek here supplies and products which the war prevented them from obtaining in markets with which they formerly dealt.

England, France, Russia, and Italy had bought here vast supplies of food products, munitions, and other war material and equipment. In many instances, because of their urgent need, they offered and paid heavy premiums for immediate or early delivery and competed against each other in buying. Inevitably and quickly all prices advanced to the maximums offered for quick delivery and for promptness.

Wheat, which in 1914 had sold as low as 87 cents a bushel, and in 1915 at $1.09 a bushel, had advanced by October, 1916, to $2.58 a bushel. Corn, which in 1914 sold at 69 cents a bushel, and in 1915

1 In this estimate we are using the figures for the national banks as of Nov. 20, 1917; Federal reserve banks as of Nov. 23, 1917; and the State banks and trust companies as of June 20, 1917-the latest date for which their reports have been compiled. See statement, p. 109.

as low as 74 cents, rose in November, 1916, to $1.23 a bushel. The price of pork, from $15 per hundred pounds in 1915, by December, 1916, had advanced to $32.

Steel billets, quoted in 1915 at $19 per ton, in December, 1916, were selling at $60; and copper, from 14 cents per pound in 1915, by December, 1916, was in demand at 33 cents per pound.

The prices of other commodities and staple products and manufactures advanced in like proportions; so that our farmers, our miners, and our manufacturers were receiving prices far beyond any the country ever had known.

The enormous and abnormal profits of industrial corporations based on the inflated prices of their products were expressed in the market values of their shares of stock, which rose with astonishing rapidity and to figures undreamed of. This can be understood by a glance at the quotations of some prominent industrial companies, as given in the following tables, showing vividly the advances from the low points in 1914 and 1915 to the high points in the latter part of 1916:

As these inflations of stock prices were based to so large an extent on the prices and profits resulting from the wars abroad, it was obvious that many of them would shrink swiftly or vanish with the return of peace. Consequently, when reports suggesting that the Imperial German Government was preparing to submit peace terms were circulated, in the latter part of December, 1916, the stock market underwent a severe decline. Securities of corporations whose earnings were supposed to depend on the continuance of war and of war demands and prices suffered especially, and the speculation in them became conspicuously hazardous. The shrinkage in security values generally from the high prices attained in the latter part of 1916 has been progressive through the year 1917.

The first of February, 1917, Germany served on the United States formal and decisive notice that the ruthless and inhuman submarine warfare against which our Government had protested as violative of all the laws and customs of nations, would be resumed. Severance of our diplomatic relations with Germany followed quickly and our people began to prepare for war, which was declared by the Congress on the 6th of April, 1917.

Our preparations for war, the huge appropriations for its conduct quickly passed by the Congress, and the increased demands for materials and products needed for our own armies and for the civil and military populations of our allies, caused a further and speedy advance in commodity prices. By the summer of 1917 coal, one of

the chief essentials for modern warfare and necessities of civil life and industry, was selling, at the mines, in some cases at $6 and $7 a ton, although in the previous year it had sold, at the mines, at $1 per ton-an advance in the gross price of over 500 per cent, in some cases, while the increase in the net profits of operators was several thousand per cent above pre-war profits. Some operators, who had been satisfied in former years to realize a net profit of 15 cents to 25 cents per ton, were now getting net returns of $3 to $5 per ton. Steel billets, quoted, as stated, in 1915 at $19 a ton, soared to $100 a ton in the summer of 1917, the increase in the net profits arising from the manufacture of a ton of steel amounting also in many cases to several thousand per cent. Pig iron rose from $13.50 per ton in 1915 to $50 per ton. Wheat advanced to $3.42 per bushel in May, 1917, against the low price of 87 cents in 1914, and as compared with the high of $2.58 in the latter part of 1916; corn from 74 cents in 1915 rose to $2.49 in May, 1917, and cotton, which sold in 1914, after the outbreak of the war, at 5 cents per pound, advanced in August, 1917, to 28 cents per pound.

The difference between the lowest prices of 1914 and 1915 and the highest prices of 1917, multiplied by this year's yield or output of seven important products—namely, coal, pig iron, steel, copper, wheat, corn, and cotton-would represent the enormous sum of fifteen billion dollars. The significance of such figures may be perhaps better grasped when we realize that $15,000,000,000 is more than three times as much as all the money in circulation in the United States, as of December 1, 1916, including gold, silver, and paper currency, which was reported on that date at $4,850,000,000. Of course the full maximum prices were not realized by producers, but the average returns were far ahead of all previous years.

Many industries which had received fabulous profits from war contracts with foreign powers had allowed large increases of wages. Some manufacturers were taking profits so fast that they were ready to grant any demands of their workmen, this condition resulting in a general unsettlement and erratic advances in wages throughout the country.

The urgent demand for skilled and unskilled labor for the speedy construction of cantonments and naval and military bases and for other undertakings incidental to war came almost simultaneously with the withdrawal from constructive and productive work of a million young and able-bodied men for service in the field or at sea. Therefore, still further heavy and abnormal increases of wages became unavoidable.

The fact that we have come through these profound, swift, and racking changes and have endured the shock of entrance into a great war without symptom or apprehension of a financial panic or the slightest general business disturbance is decisive and triumphant proof of the splendid efficiency of our new banking and currency system and of the clean and strong condition of our banking institutions generally.

Yet other and extraordinary provision was necessary to meet the unprecedented strain on the economic situation, caused by the disorderly inflations of prices of things of common use, the rushes upward and downward of security values, the feverish business activity stimulated by war and hurried preparation for it, and the successive

advances in scales of wages. It became imperative to enact emergeney laws intrusting the President with powers, unexampled in this country, to fix and limit prices for fuel, food, and other necessities of life. Unquestionably the existence of this power and the assurance of its prompt and energetic use whenever required have averted calamities very seriously threatening us, and which no financial system, however strong or powerful, would have been able to prevent or overcome.

DEPRESSION IN RAILWAY SECURITIES OWNED BY BANKS.

For more than half a century most of the surplus earnings of the people of the United States available for the purchase of public securities have been invested in the bonds and shares of our transportation corporations, principally steam railroads and electric street railways. The rates these corporations are allowed to charge for transportation of passengers and freight are closely limited-for steam railroads by both the Interstate Commerce Commission and the State corporation commissions of the respective States; for the street railways by municipal and other local authorities. The average freight and passenger rates permitted to our railroads in the past year were about 30 per cent under the average rates of thirty years ago; while the wages paid, in many instances, have increased 100 per cent, and the cost of materials used for operation also has increased as to numerous articles 100 per cent, and in some cases much more than 100 per cent.

In the fiscal year ending June 30, 1916, the railroad corporations of the country, despite low rates, made the greatest earnings in their history, both gross and net, owing to the great increase in the volume of traffic. It became evident, however, that with the tremendous advances in wages and in the cost of materials between July, 1916, and December, 1917, the railroads would be unable hereafter to approximate the net earnings realized in the last year or two, without a material increase of the rates for transportation they are allowed to charge, and that many of them lacking such increase, or some other relief, would be unable to meet their fixed charges and maintain solvency. The uncertainty on the part of investors as to whether the Interstate Commerce Commission would grant the relief the figures seemed to show to be needed was asserted-and apparently with reason-to have caused heavy declines in the quoted prices of nearly all railroad securities. The shares of some of our most important transportation lines and "arteries of commerce" have recently fallen to the lowest level in the past quarter of a century.

There are faithful students of the situation who think it is as important rightfully to protect for honest investors the value of the securities of legitimate enterprises and to save them from ruin as to restrain the prices charged the people for what they eat and wear and use to keep their homes habitable. The investors and holders of securities representing the corporate business enterprises of the country may be few in numbers, comparatively, but the effect of disaster or ruin to them spreads widely and threatens the stability of our entire economic and financial system, impairs ability to absorb future loans needed by the Government, and checks hope of development. Especially concerned because of the very large amount of railroad securities held by our national banks, the Comptroller of the Cur

rency thought it proper to issue the following circular and to give it to the press under date of October 13, 1917: a

"After the outbreak of the European war in 1914, the Comptroller of the Currency instructed national-bank examiners that national banks need not be required to charge down the values of their high-grade bonds to meet the abnormal and sacrifice quotations which for awhile were being made on the outside markets (the stock exchanges being closed) on securities which at that time were being thrown overboard regardless of real worth.

This office also earnestly endeavored to prevent the sacrifice by national banks, while the exchanges were closed and there was no general market for securities, of bonds and shares held as collateral for customers' loans.

"The policy pursued proved fortunate at that time. After the first pressure was over and money conditions relaxed, the security market was reestablished, the grave losses which were threatened by the temporary shrinkage in values were averted, and borrowers from banks were enabled to meet their obligations without the sacrifice of their collateral.

"Since the commencement of war between this country and Germany there has been a heavy depreciation in the quoted values of securities generally, including those of the very highest grade, which have heretofore found a ready market in competition with Government issues, and in many cases prices have shrunk to figures which are manifestly far below the prices which would prevail under any normal conditions. This shrinkage or marking down of values is partly due to the efforts of investors to sell other high-class securities for reinvestment in Government bonds. "In view of all conditions the Comptroller of the Currency has instructed nationalbank examiners that they need not at this time require national banks holding highgrade bonds of unquestioned intrinsic value and merit to charge such investments down to present abnormal figures; but an intelligent and conservative discretion will be exercised as to the prices at which national banks can safely and reasonably be permitted to carry such high-class securities, and as to what proportion of the depreciation should be charged off in any six months period.”

The shrinkage which has taken place in the market quotations of practically all public securities during the past 12 months-in which decline the shares and bonds of railroad corporations have led the way has been so great that securities have now reached a level where the discussion of peace proposals or increased prospects of peace although still exerting an unsettling influence on the shares of certain war specialties, exercise, as they should do naturally, a strengthening influence on the financial markets generally.

While an early peace will probably end the abnormal profits of concerns producing munitions and other war equipment, with the declaration of peace we may look forward to an era of great activity and development in the work of rebuilding and equipping with the implements and equipments of peace and industry the countries which for three and a half years past have been engaged in work of unparalleled destruction.

MAINTENANCE OF EFFICIENCY AND CREDIT OF PUBLIC UTILITY COMPANIES ESSENTIAL.

National and State banks, and many thousands of small and large investors, have suffered seriously from the decline of the earning capacity of public utility corporations and the consequent shrinkage in the value of their securities, representing investments of many hundred millions of dollars. These losses naturally diminish the power and disposition of the public to respond to the calls of the Government for money for war. This danger should arouse, I venture to suggest, the anxiety and stimulate the efforts of the Con

A letter from the Comptroller of the Currency to the Interstate Commerce Commission, under date of November 1, 1917, in regard to the then pending application for an increase in freight rates, is printed on page 217 in the appendix of this report.