Part 7 (2/2)

We gather the following about discounts from the balance sheets of the a.s.sociated Banks of New York. If we cast our eyes over the balance sheets of the National Banks of the Union, we must note a falling off of $100,000,000 in the paper discounted, that is, from $1,300,000,000 to $1,200,000,000 (1884-1885). After this short period of stoppage, clearly indicating the necessity for liquidation, discounts resumed their steady expansion, and rose to $1,470,000,000 in 1886, to $1,587,000,000 in 1887, and finally to $1,684,000,000 in 1888, when we were in the midst of a period of development and consequently of high prices and of prosperity; and the same is true in France and England.

The study of a single section of the balance sheets, that of discounts and loans, has allowed us to follow the periods of prosperity, of panic, and of liquidation. When we next consider the other sections, we find the confirmation of our antic.i.p.ations. Among these sections, in the order of importance, we notice first, public deposits in the form of running accounts; they const.i.tute the reverse of the loans and discounts, whose total is immediately credited to the banks' clients, and the increase of paper on hand also follows. From 1865 to 1873 the steady increase was uninterrupted, viz., from $183,000,000 to $656,000,000; the maximum amount shows itself in the first quarter of 1873, eight months before the maximum of discounts and loans; in 1888 they ran down to $622,000,000; there is, say, a difference of $300,000,000 between the two totals, and this difference is the same, we observe, as that between the highest and the lowest of the two sections, as we notice it in the same year, during the liquidation of the panic of 1873. [Footnote: See table of balance sheets of the Banks of the United States.]

In the last period the progression is the same; from $598,000,000 the amount of deposits advanced to $1,350,000,000, whilst discounts and loans reached $1,684,000,000; that is to say, there was still a difference of $334,000,000. The relations.h.i.+p of the two sections was much more marked than in France and in England, where the amounts carried in accounts current vary more.

In the United States we then experienced a market based on credit, which, through discounts or loans by the banks, had reached the amount of the accounts current, and was about to call the clearing house into action to settle debts everywhere.

The office of the circulation of bank notes, subsequent to the severe regulations enacted in 1863 for the organization of National Banks, had varied in the last two periods that we are studying. From 1863 to 1873, after the war troubles, in proportion as greenbacks were withdrawn, the bank notes issued by the National Banks not only took their place, but replaced those of the State Banks, whose position the National Banks had taken.

We observe them rise firstly from $66,000,000 to $341,000,000 (1865-1873) at the sharpest period of the panic. We might even charge them with causing it, if the disproportion alone of the two sums, $341,000,000 bank notes compared with $944,000,000 of bills discounted, did not at once repel this theory. It is only necessary to glance at this idea to see its falsity.

The maximum circulation of bank notes has here coincided with the panic, a thing which had not happened either in France or in England for a long time, and instead of presenting its highest figure during the liquidation of the panic of 1873, it shows us its lowest figure, $290,000,000 in 1877. Far indeed from increasing at this time as happened in Europe, the amount of bank notes in circulation decreased by means of the ebbs of metallic cash into the coffers of the banks: in reality the cause was lacking here; the ebb of specie was hardly felt at all.

With $4,000,000 in 1865, the reserve was poorly provided, increasing to $48,000,000 in 1870. At the end of the bursting forth of the panic of 1873 it became reduced to $10,000,000, at the worst of the panic to $16,000,000; then, under the influence of a slight whirl, it rose to $33,000,000 in 1874, without reaching the highest figure of the preceding period, but soon the flow reappeared and reduced this metallic reserve to $8,000,000 in 1875. It was not until after this depression that the true ebb reappeared, when the circulation of bank notes was at its lowest figure ($290,000,000).

Whilst the $8,000,000 specie reserve grew successively to $54,000,000, $79,000,000; $109,000,000, and finally to $128,000,000 in 1878, 1879, 1880, and 1881; that is to say, upon the approach of the panic, the circulation also expanded from $290,000,000 to its highest figure $323,000,000 in 1882, the year of the European crash and of the stoppage of the rise of prices in the United States. As to the minimum amount of the specie reserve, it is to be noted in 1883, between the critical years 1882 and 1884.

Metallic reserves are too small in the United States for their fluctuations to exhibit the same regular course they offer us in Europe; the least need exhausts them, and the smallest payments fill them to overflowing. The panic soon brought about a default in payment and a need of metallic money to re-establish equilibrium, but this remedy, if it does precede panics, sometimes precedes them by a year, as we have observed in 1883, and the same irregularity is apparent whether we observe the banks of the whole United States, or the a.s.sociated Banks of the City of New York.

After the panic of 1882-1884, the ebb of specie into the coffers of the National Banks of the United States and of the a.s.sociated Banks of New York resumed its usual course, and raised its level in the case of the National Banks from $97,000,000 to $177,000,000 between 1883 and 1885, and even to $181,000,000 in 1888. This ebb occurred both in England and France at the same time, proving that cash reserves do not increase to the detriment of each other; it is a flood of specie or of bar-gold rendered easily available, through the conclusion of the decline of prices and the slackening of business, extending to the whole world, and in which each one partakes in proportion to its wealth, and above all in proportion to its credit circulation, and of the perfection of the settlements by means of clearing houses.

This regular course in the metallic reserves is no longer to be noted in the circulation of bank notes; instead of increasing and of entering its exchanges during the return of specie into the coffers of the banks, they again took part in the paper-money reserves. From $323,000,000 in 1882 we see the circulation of bank notes decrease each year little by little until it is reduced to $151,000,000 in 1888; and this remarkable fact confronts us in the face of an unheard of expansion of business, almost 50 per cent. greater than in 1873; and of a twofold simultaneous reappearance of $84,000,000 specie and of $172,000,000 bank notes. What then is the role of specie and of bank notes in the course of business in the United States? Much inferior to that which it plays in Europe in the absence of the machinery of a clearing house embracing the whole country, instead of being limited to some large cities.

The multiplicity of banks has strikingly helped the economic progress of the United States. From 1,500 National Banks in 1865 with a capital of $393,000,000, the number rapidly rose to 2,089 in 1876.

The panic of 1873 did not hinder the movement; however, during its liquidation, the number shrank to 2,048, only to rapidly advance to 2,500 by the close of 1882, and 2,664 in 1884, and this movement did not even suffer a slackening as in 1873 during the liquidation of its crisis; it continued steadily, and we enumerate 3,120 banks in 1888.

The increase is a third more than in 1876, but it is far from being thus in the case of the capital, which only rose from $504,000,000 to $588,000,000--that is, only 16 per cent. The small banks in the new centres of population are the factor, then, which annually increases the number.

THE CONDITION OF BUSINESS IN 1888-92.--[Footnote: The facts I state in this _resume_ are based upon statistics printed in the _Commercial and Financial Chronicle_.--DEC. W. THOM.]--The year 1888 was fairly prosperous despite a Presidential election, but securities were heavy, depression was general, and some few stocks shrank amazingly. Excessive issue of new railroad securities and disastrous compet.i.tion between certain of the Southwestern roads were without prudence. Money was easy, bank-note circulation continued to decrease till it was only $151,000,000, and legal tenders to $81,000,000, but specie reserve rose to $181,000,000, the banking capital to $592,000,000 plus, the exports to $1,350,000,000, and discounts and loans rose to $1,684,000,000.

The sharp speculations in wheat and the formation of the French copper corner caused a certain fluctuation in general business. Large crops, excepting wheat; a flouris.h.i.+ng cotton manufacture, a decline in production of petroleum by agreement, a 6 per cent. decline in pig-iron production, a very heavy one in Bessemer iron, and a very small export trade as compared with imports occurred. But in the year 1889, the export movement, consisting largely of cotton, was very great, being the greatest since 1880, and near the maximum, and compared favorably with the immense imports induced by the new tariff of 1890. In fact, the year 1889 surpa.s.sed all its predecessors in the volume of trade movements; the bank clearings showing an increase of 13 per cent. over 1888. The cotton, corn, and oats crops were the largest ever raised, and the wheat crop was almost the largest. But cotton brought fair prices, and cotton manufactures and production of iron were also considerably ahead of any previous year, while petroleum played an important part at good prices.

Railroad earnings showed a wonderful recovery from 1888, and many reports gave the largest figures ever recorded.

During this year many consolidations and a number of foreclosures occurred. Railroad building fell to 5,000 miles compared to 7,000 in 1888. In general business, manufacturing and trade were extremely active, yielding plenty of work, good wages, and fair profits.

But the wool crop and its manufacture, a decline in the anthracite coal production, farm-mortgage pressure in the middle West, and low rates for corn and oats were untoward circ.u.mstances. Speculation on the general exchange was small, indicating a growing congestion, as was proved by the low bank reserves, especially in the last quarter of the year; but there was a heavy absorption of investment securities.

Gold, to the amount of $37,000,000, was exported in the first six months. A small amount of it returned before 1890. Failures exceeded those of 1888 by 203 in number and about 20 per cent. in money. The woollen trade contributed much of this showing.

Importations surpa.s.sed all previous years, while exports exceeded them by nearly $20,000,000, and the net export of gold amounted to nearly $40,000,000. Money was easy during the first quarter, and then for a week a 10 per cent. rate occurred.

Thereafter, excepting the usual July 1st hardening, easy rates prevailed till August. Stiffening and fluctuating rates ensued till 30 to 40 per cent. in exceptional cases had been reached in December.

During the year, bank circulation declined to $126,000,000. Specie reserve sank to $164,000,000 and rose to $171,000,000 with the ending of the year; legal tenders to $84,000,000, and the number of banks rose to 3,326; their capital to $617,000,000; their deposits to $1,436,000,000, and their discounts and loans to $1,817,000,000, and surplus and undivided profits to $269,000,000.

Unused deposits, capital, surplus, and undivided profits were growing very small in comparison with loans and discounts at the end of the year.

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