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country. Almost between morning and night the scramble for currency had begun and culminated all over the country, and the preposterous bulk of our circulating medium had been swallowed up as effectually as, in a scarcely less brief period, gold and silver had disappeared before the premium on specie a generation before. Currency was hoarded until it became so scarce that it had to be bought as merchandise at a premium of 1 to 3 per cent in checks payable through the clearing-house; and to enable their families to meet petty bills at the summer resorts the merchant and professional men of the cities were forced to purchase and send express packages of bills or coin; while savings banks hawked their government bond investments about the money centers in a vain attempt to secure currency.

113. Estimate of Money Hoarded in 190718

The national banks held $40,839,000 less cash on December 3 than on August 22. And yet, during this period, the government increased its deposits in the national banks by $80,000,000, and there was imported about $70,000,000 in gold. Considering this increase of about $150,000,000, and the loss of $40,839,000, more than $190,000,000 of cash was taken out of the national banks in this period. It is quite certain that neither the savings banks nor the trust companies increased their cash holdings by any such amount. In fact, they had to close their doors to prevent the withdrawal of cash. It is probable that the trust companies of the country lost considerable cash, and that the savings banks gained none during this period. In ordinary years the national banks lose but little cash by crop movements-say $25,000,000. This is, perhaps, considerably less than the shrinkage this year in the cash holdings of the trust companies. It would appear, then, that fully $200,000,000 of cash this year disappeared from our banks between August 22 and December 3.

114. Economies in Credit19

In view of the action taken by the New York Clearing House, and subsequently adopted by Chicago, St. Louis, Philadelphia, Cincinnti, New Orleans, Nashville, Birmingham, Baltimore, Louisville, Memphis, Montgomery, Mobile, and many other principal cities. throughout the country, restricting the shipment of currency, and

18 Adapted from an editorial in Moody's Magazine, V, 80. Copyright (1908).

1o Resolutions passed by the Atlanta Clearing House, October 30, 1907.

the restriction of other business to its proper channel, the Clearing House; therefore, be it

Resolved by the Atlanta Clearing House Association

1. That until further notice collections and bank balances be settled in exchange for clearing-house certificates.

2.

That checks drawn on the members of this association be paid through the Atlanta Clearing House, and correspondents be requested to so stamp their checks.

3. That payments against all accounts, including certificates of deposit, be limited to $50 in one day, or $100 in one week.

4. That exception shall be made to the above in case of pay rolls, which shall be paid as follows: All denominations of $5 and over in clearing-house certificates, and all denominations of under $5 to be paid in cash as desired.

Resolved further, That the manager of the Atlanta Clearing House Association be instructed to give notice to the correspondents of the Atlanta Clearing-House banks that the above resolution is in effect on and after this date and until further notice.

115. Shipment of Currency to the Interior20

The clearing-house committee knew by experience that the dissipation of the New York banking reserve, upon which practically the credit volume of the nation rests, would alarm the nation, intensify the panic, and greatly prolong the period of recuperation. New York bankers have been severely criticised because they did not more fully respond to the demands of country correspondents by shipping currency against balances. To have fully honored the demands that were pouring in from all sections of the country would have dissipated our banking reserve in a fortnight. How could it be replenished? Were the interior bankers sending currency to New York? What would have been the effect upon the country if the New York banking reserve had been entirely depleted? It would have so intensified the panicky feeling that widespread commercial disaster would have resulted. The $53,000,000 deficit in our banking reserve occurred in less than ten days after the failure of the Knickerbocker Trust Company, and was caused by the shipment to interior institutions of the larger portion of that amount in that short time. We kept the door of our treasure house wide open until for the good of the whole country it became necessary everywhere to close it. It never was fully closed; currency shipments continued in a restricted way throughout the panic, and a Commercial and Financial Chronicle, October 10, 1908, 84.

20

larger number of our banks kept up their counter payments as usual.

F. INDUSTRIAL CONDITIONS DURING A

DEPRESSION

116. Panics versus Depressions21

BY GEORGE H. HULL

Panic is defined as "a sudden, unreasoning, overpowering fear, especially when affecting a large number simultaneously." A "Financial Panic" is, therefore, the effect produced upon the finances of a country by sudden, unreasoning, and overpowering fright.

Depression is defined as "a state of dullness or inactivity; a protracted season when business falls below the normal." "Industrial Depression," therefore, means literally a state of dulness or inactivity in the industries of the country; a protracted season during which the production of buildings, furniture, goods, machinery, etc., falls below the normal.

A financial panic is precipitated by sudden, excited, and imprudent action. An industrial depression is precipitated by deliberate, thoughtful, and prudent inaction. One is the result of mental excitement, which results in a temporary check to a natural flow of the media of exchange. It is a mental disorder. The other is the effect of calm, deliberate consideration, which results in reducing the rate of production of materials of physical wealth. It is a physical disorder.

A financial panic is an acute malady. Its beginning is sudden, intense, vivid, and startling. Its chief element is fright. It paralyzes finances at a single blow. Each subsequent step in its course is an alleviation. Each day, week or month shows a marked recovery. From its nature and intensity it is short-lived.

An industrial depression is a stubborn, chronic malady. Its beginning is gradual and quiet. It commences and goes on increasing in force for many months, unnoticed. Its cause is silently doing its fatal work while actual business is increasing by leaps and bounds. When actual depression appears, its cause has almost ceased to exist. From its nature and its deep-seated growth industrial depression is long-lived.

A financial panic is usually a matter of a few months, weeks, or days. An industrial depression is usually a matter of one or more

years.

21Adapted from Industrial Depressions, 18-20. Copyright by Frederick A. Stokes Co. (1911).

A financial panic may be compared to a mob, in which a great number of excited minds work upon and incite each other until men act in a body as no one of them would act if left to himself. Industrial depressions, on the other hand, are the cumulative results of the deliberate and thoughtful decisions of individual men.

These two calamities can be classed together only because the results of each have a disastrous effect upon business. A panic has an effect which is short, exciting, and a temporary disaster, not to existing material wealth, but to the documentary representatives of wealth; a loss from which the country may entirely recuperate within a short time. The other is a compulsory laying down of the tools which produce wealth, by a vast army of wealth-creators; a loss that can no more be regained than a lost day or year can be regained.

117. The Extent of the Depression of 1907-822

A few facts and figures will indicate the extent of the present industrial depression. Bank exchanges at all the leading cities of the United States were $2,073,910,424 for the week ending January 30, 1908, a decrease of 23.3% compared with the corresponding week of 1907, and 37.2% compared with the corresponding week of 1906. The decrease in New York and Philadelphia exceeded 28%, compared with 1906, and was greater than in any other cities.

For the first two weeks of January, 1908, gross carnings of railroads were about 13% less than in 1907. For the last week in December they were 15.52% below those of 1906. For the entire month of December gross earnings were 1.13%, while net earnings were 17.46% less than were those for December, 1906.

Transactions of the New York stock exchange amounted to 16,634,817 shares, compared with 22,712,420 in January, 1907. The decline in the prices of commodities in the last few months has been about 10%.

The sharp falling off in the net earnings of the United States Steel Corporation in the last quarter of 1907 show the remarkable decline in industry. The net earnings fell from $17,052,211, in October, to $10,467,253, in November, and to $5,034,531, in December. This is a decline of over 70%.

The unparalleled number of idle cars affords a barometer of our industrial condition. Today there are approximately 320,000 freight cars and 8,000 locomotives standing idle, representing an investment of more than $400,000,000, and there are more than 30,000

"Adapted from an editorial in Moody's Magazine, V, 151-154. Copyright (January, 1908).

unemployed trainmen. And yet three months ago there were not enough railroad cars to move the traffic of the country.

The money market affords one of the best barometers of the great change that has come over the industrial situation. From a deficit of $54,103,600 on November 23, in the surplus reserves of the New York Associated Banks, there was a surplus of $40,626,725 on February 1. From rates of 25% or more, last fall for call money. we now have rates of less than 2%. From rates of from 7 to 12% for time money last fall, we now have rates of from 4 to 42% on Stock Exchange collateral, and from 5 to 6% on commercial paper. The return of hoarded money and the slackening demand for money in industrial and commercial operations are mainly responsible for this sudden transformation of the money market.

Already gold exports have begun from this country. They may reach a considerable volume before next July. Money rates, however, may be expected to remain about as at present. Money rates are being followed by rising prices for bonds and other secure securities. During January the price of bonds rose about twice as much as the price of common stocks. Under existing conditions investors find bonds very attractive in view of the uncertainty of the situation. Many interior banks have put their idle funds in bonds on account of the comparatively high interest return they can secure by such a course.

G. TYPICAL THEORIES OF CRISES

118. The Fruits of the Exploitation of Labor23

BY FRANK K. FOSTER

Once in about so many years this country is afflicted with what we call "hard times." It is a striking instance of the limitations of human wisdom that the wise men have not been able to diagnose the causes of such periodic bad spells. It will not answer to place the responsibility upon causes beyond human control. Somebody is to blame. Who is it?

The industrial world is complex. A thousand and one influences play upon it. Fictitious values are created. Watered stocks and inflated mergers act as sponges to soak up the products

Adapted from "Who Does It?" in The Causes of Industrial Panics in the United States, 16-18. Published by the Chicago Federation of Labor (1903).

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