THE FINANCIAL AND TRADE 
 SITUATION, PAST, PRESENT 
 AND FUTURE 
 
 ^3 8 REVIEWING THE 
 
 ' CRISIS OF 1907, WITH. 
 
 CAUSES AND REMEDIES 
 
 / 
 
 AN ADDRESS 
 
 ^ By Henry Clews, ll.d. 
 
 Delivered at the Annual Meeting .of the Pittsburg 
 Chapter, American Institute of Banking, at 
 Pittsburg, Pa., on Tuesday Evening, 
 
 February 25, 1908| 
 
 
 N 
 
 II, fF ILL 1 n. 
 
Financial and Trade Situation, Past, Pres- 
 ent and Future, Reviewing the Crisis of 
 1907, With Causes and Remedies 
 An Address By HENRY CLEWS, LL.D., 
 
 Delivered at the Annual Meeting of the Pittsburg Chapter, American Institute 
 of Banking, at Pittsburg, Pa., on Tuesday Evening, February 25, 1908. 
 
 It gives me no ordinary pleasure to address an audience of Pittsburg bankers, 
 for Pittsburg is the hul) of our iron and steel industry, and as it. has no rival 
 in the manufacture of iron and steel, it may well feel proud of its supremacy. 
 It is no exaggeration to say that the rise and progress of that industry in Pitts- 
 burg is one of the marvels of the age. A few years ago Pittsburg was known 
 in New York as the Smoky City. A little later she became known as the 
 City of Steel and Coal. Now, through the alchemy of the brain of your wise 
 men, she is known as the place where smoke and coal and steel are in some 
 mysterious way mixed up in such a form that they fill your pockets with pure 
 gold. To the millionaire of to-day we bow in deference to his wealth. But to 
 the grimy sons of toil, who planted the seed and bore the burdens of the earlier 
 days, we take off our hats with reverence. The founders of your city chose wisely 
 in selecting this spot for settlement, at the river’s junction, in the midst of rich 
 deposits of coal and iron. It seems'Tather 'odd that your two greatest products 
 should be glass, which is brittle, and steel, which is tough. You also excel in 
 producing cork, which is light, and iron, which is heavy. Surely extremes meet 
 in your city as well as rivers. Down our way we wonder what you do not pro- 
 duce when we learn of the diversity of your wares. It certainly seems to me 
 that a man could learn a whole lot if allowed to visit all your various foundries, 
 factories and mills, but it would take him nearly as long as to go through college, 
 as their name is legion. The welcome which you have given me touches me 
 deeply, and I assure you that in future I shall preach the doctrine that there are 
 others in Pittsburg whose mission it is to dispense happiness besides Mr. Car-4 
 negie. 
 
 If we glance at *the history of steel manufacturing in the United States, 
 we find it centered in and very largely confined to Pittsburg, and if we recall 
 the enormous fortunes made in that industry by Mr. Carnegie and many others, 
 under the protection of high tariff, we see one of the greatest wonders of trade 
 development and modern enterprise. 
 
 Yet it was not until after the beginning of the war between the North and 
 the South — the great conflict waged from 1861 to 1865 — that' any large or even 
 considerable amount of steel was manufactured in the United States. But now 
 we lead the world in making it, and Pittsburg is- our great source of supply. At 
 the same time, we can justly say that the march of invention and modern im- 
 provement in other directions has kept pace with the growth of Pittsburg and 
 our marvelous progress in iron and steel-making. 
 
 This reflection is particularly gratifying in view of our recent financial crisis, 
 in which New York was the storm-center, and Pittsburg almost as stormy for a 
 time. But both cities, like the country at large, stood up bravely and made the 
 best of the situation by all the means at their command. Both fortified them- 
 selves by a good emergency measure and issued Clearing House Certificates, 
 according to their needs. Pittsburg, however, went one or two better than New 
 York, and, like many other cities, issued scrip; and better still no one in Pitts- 
 burg refused it, not even a car conductor for fares. Here was public spirit rising 
 almost to the height of patriotism. 
 
 Now, Pittsburg in common with the rest of the country is again about on an 
 even keel financially, with its banks on a cash basis, its cashiers’ certificates and 
 
 a 
 
33 :c- 
 
 scrip redeemed, and its Stock Exchange reopened. But unfortunately the crisis 
 gave industry a blow from which it has not yet recovered, although conditions 
 are steadily improving all over the United States. The iron and steel industry 
 received the hardest blow of all, and from a feast you quickly passed to a famine, 
 which is a way the iron trade always had. It is proverbially, however, as quick 
 to recover as'to collapse; so all we have to do is to keep up our courage and wait, 
 and we may feel assured there is a good time coming. But whether it- will come 
 soon, or later, is a question about which iron-masters, financiers, and trade 
 doctors generally are much divided in opinion at present. It is 'a good sign, 
 however, that work has been resumed in fully three-fourths of the entire Du- 
 quesne works of the United States Steel Corporation in Pittsburg, although it is 
 admitted that only 46 per cent, of all the Corporation’s works are running. 
 
 In September, 1906, when stock and bond prices were manipulated abnormally 
 to a 3^2 per cent, basis, while six months’ money was loaning at 6 per cent., 
 it was evident that one or the other was too high; and considering the growing 
 demand for the use of money it became quite apparent it was not money that 
 wwas too dear, but securities. At that time I persistently advised every one to 
 Wjget out of stocks and out of debt, and keep out for a prolonged period. 
 
 Since then security values went down prodigiously — $3,500,000,000 would 
 ;?>scarcely cover the depreciation at its lowest point of those dealt in on the 
 \ New York Stock Exchan’ge alone. Our financial situation is vastly different, 
 "^however, from what it was in any of our previous great panics, of which there 
 <^have been a number, since that of 1857, which began with the failure of the 
 r> Ohio Life & Trust Co. at the time of my advent in Wall Street. I have been 
 |-Un all the subsequent panics, and the present conditions differ from those of all 
 ^he other great financial storms because the wealth of the nation has become 
 '-J-%0 vast as to make it the richest in actual wealth and productiveness of all 
 nations. As a matter of fact, our wealth making developments have been so ex- 
 tensive and excessive as to have forged ahead of our banking facilities. This 
 has had much to do with our recent setback. Wise and sagacious capitalists saw 
 the handwriting on the wall in Wall Street and elsewhere, and those who did 
 unloaded their securities in 1906, dumping their stocks at top notch prices, 
 amounting to at least $1,000,000,000, upon weaker-backed people. 
 
 This unloading, together with the San Francisco earthquake disaster, which 
 wiped out $350,000,000 of property, struck the staggering blows which did more 
 than anything else to pave the way to the recent panic conditions. The selling 
 out by big holders was followed by all the large railroad systems in the country 
 selling huge amounts of bonds, stocks and short term notes. These being of- 
 fered to stockholders of record at apparently tempting prices, were floated. But 
 this great mass of new securities coming on the market was an indigestible one 
 and absorbed the capital of a very large number of the riefi men of the country 
 and put it in fixed form; and most of these heretofore very rich men have ever 
 since been in the position of a man who, having had a “Sherry dinner,” is urged to 
 accept another dinner at Delmonico’s immediately afterwards — his wish strong 
 but his capacity lacking. 
 
 What produced the panic was a number of adverse factors happening one 
 after another in rapid succession. 
 
 I summarize, briefly, the causes as follows : 
 
 r 
 
 FIRST. 
 
 The Boer war which left England in almost as bad a financial strait as we 
 - were in through the culmination of a similar period of overdoing in trade and 
 speculation in new industrial ventures, together with an excess of new issues of 
 British Consols during the war period resulting in a recent decline in the price 
 of these prime securities to 81 — about the lowest price on record. 
 
 . SECOND. 
 
 I 
 
 j Germany was in fully as bad a condition owing to extravagant industrial en- 
 
 terprises, rivalling- our own, and which required the most careful nursing to avoid 
 a collapse. 
 
 3 
 
THIRD. 
 
 I'rancc acted alone in financing Russian loans and in the crisis of the Japanese- 
 Riissian war was compelled unwillingly to supply new funds in order to protect 
 the French loans already outstanding. Hence France had little or no money to 
 lend except to the French. 
 
 FOURTH. 
 
 The Japanese-Russian war brought both of these countries forward for the 
 first time as prominent and important factors in the world’s money market, and 
 both are still like Oliver Twist, crying for “more.” This conflict and the Boer 
 war combined wasted over $2,000,000,000 of capital. 
 
 FIFTH. 
 
 Funds were almost unobtainable except at prohibitive rates at the time of 
 our recent crop moving period, and for causes already mentioned we could not 
 look to Europe for help. Usually Europe discounts New York securities bills for 
 about $300,000,000 at this period, but last year Europe said: “No; we have troubles 
 of our own.” 
 
 SIXTH. 
 
 The California earthquake with losses of $350,000,000, and the Chili and other 
 earthquakes of less importance and severity in various parts of the world were 
 heavy blows at prosperity. 
 
 SEVENTH. 
 
 The compulsory unloading of very many milfions of dollars of stocks and 
 bonds by large capitalists and operators, together with immense sales of new 
 securities by corporations and railroads, and the manipulation of prices and 
 stocks up to a 3^ per cent, interest basis v/hile time money was loaning at 6 per 
 cent., and above, on the best of collateral. Besides which heavy, excessive and 
 reckless operations in real estate and mining enterprises having been made all 
 over the nation, caused large amounts of capital to lose its liquid quality and 
 become fixed. 
 
 EIGHTH. 
 
 The investigation of the great life insurance companies and the Metropolitan 
 railroad, and the sad disclosures, followed by the absurd fine of $29,400,000 by 
 Judge Landis against a corporation with a capital of only $1,000,000, had a de- 
 moralizing effect upon the public mind. This preposterous fine savored of con- 
 fiscation and alarmed investors. 
 
 NINTH. 
 
 The Interstate Commerce Commission’s examination of the Chicago & Alton 
 deal and the consequent developments further undermined the confidence of in- 
 vestors. 
 
 TENTH. 
 
 The making of injudicious loans by the Knickerbocker Trust Co. and the 
 chain of banks, both in Manhattan and Brooklyn, which caused the suspension 
 of the institutions and arrests of officials on criminal charges intensified public 
 distrust, while the collapse of the Copper market unsettled the metal markets 
 all over the world and resulted in a reduction of dividends on copper shares, 
 and a serious break in the price of all that class of securities. 
 
 LASTLY. 
 
 A gross abuse of our credit system and the consequent inflation of all values, 
 stimulated by loose banking and promoting methods, proved the climax in a 
 series of events which culminated in the sharpest though not the severest panic 
 
 4 
 
the present generation has experienced. The main cause of the panic was 
 that of general overdoing. Credit was over-extended; speculation was reckless 
 and ill-advised; expansion of every sort was being carried to excess by over- 
 confidence, until, finally the country’s floating capital was practically exhausted 
 through being turned too rapidly from liquid to fixed forms. We have only to 
 glance at the demands upon new capital during the last year or two to realize 
 this fact. 
 
 Some idea of the congested state of the stock market may be obtained from 
 the fact that during the last five years the total amount of new securities author- 
 ized was $6,800,000,000; the eleven months of 1907 alone' accounting for $2,000,000,- 
 000 of this total. 
 
 During the latter period our railroads authorized $1,400,000,000 securities, of 
 which they were able to issue only one-half, owing to money market conditions. 
 Of industrial securities less than $500,000,000 were authorized, but nearly $400,- 
 000,000 of these appear to have been issued. 
 
 These figures take no account of the issues of municipal securities, and those 
 of many other business concerns of a minor character, but they are quite suffi- 
 cient to indicate the extraordinary demands upon the money market during the 
 last two years, demands which in connection with huge speculative borrowings 
 imposed an unbearable strain upon the banks and precipitated the March, August 
 and October collapses in the stock market. Other influences have undoubtedly 
 been at work to cause the breakdown, but no single factor compares in impor- 
 ^ tance with that of the excessive issues of new securities and obligations during 
 the past two years which the country was utterly unable to assimilate. 
 
 In discussing the cause of the recent panicky contraction and disturbance in 
 the business and financial world, nothing, however, could be further from the 
 truth than to charge it all to the great corporation exposures and prosecutions. 
 
 As I have said, there were many other things that contributed to bring about 
 last year’s depression and disturbance, and jto cast over the bright sky of busi- 
 ness prosperity the heavy clouds of distrust, reaction and panic. 
 
 The recent clouds in the financial sky can remotely be attributed in a large 
 measure to the effect of the tremendous railroad, industrial and commercial de- 
 velopment of the last ten years, which brought about capital requirements in 
 excess of the ability of the country to supply them. 
 
 Naturally and necessarily, this resulted in precautionary steps being taken by 
 bankers and others to limit demands that capital could not supply. 
 
 This conservatism and consequent contraction of the overwhelming volume 
 of business will, it is believed, prove the strongest force in averting further trouble 
 and disaster. 
 
 In an effort to meet the demands of the enormous business offered them, 
 the great railway and industrial corporations sought to enlarge their equipment 
 at vast expense. In this they acted unwisely. They overtraded. It was per- 
 haps excusable not very long ago, wlien confidence was in its zenith and credit 
 superabundant, to attempt the financing of mammoth undertakings. But unex- 
 pectedly and like a bolt out of a clear sky, came the startling insurance and other 
 exposures, and gradually timidity took the place of confidence. 
 
 Then capital, which is always more timid than usual at such times, began to 
 contract, and many railroad and industrial corporations found themselves unable 
 to borrow the large sums needed to meet their extraordinary expenditures. 
 
 The banks, in many instances, having already over-extended credits, were 
 unable to provide the necessary funds, and new securities, owing to excessive sup- 
 plies and other causes, ceased to find the ready market that they had enjoyed 
 for so long a period. Investors took wing. Curtailment, therefore, in every 
 direction became a necessity; President Roosevelt can no more be blamed for 
 the recent depression and panicky disturbance than he can be credited with all 
 the great prosperity that preceded the crisis. 
 
 That this reaction, culminating in a panic so severe, came just at the time 
 it did, is largely if not wholly coincidental. It cannot be denied, however, that 
 the startling disclosures of wrongdoing on the part of many of the great railroad 
 and industrial corporations disturbed the confidence of the public to the core, and 
 paved the way to it. 
 
 Being now myself optimistic, I look on the sunny side and hope for the best. 
 
 5 
 
Jt is, Iiowevcr, a lime for conservatism, and while trusting in Providence, it is ^ 
 well to keep oiir powder dry. It is a gofjd time tf> cultivate the virtue of patience, 
 and make haste slowly until all the aftermath of the panic, in the way of liquida- 
 tion and the elimination of unsound timber from business structures, is com- 
 pleted. 
 
 This will leave everything in the financial and industrial world stronger than 
 before. It will also leave us with a higher standard of business morality re- 
 sulting from the exposure of looting and other illegal practices and abuses of 
 ])owcr in the management of large corporations. The stoppage of the evil of 
 rebating by the railroads is of itself a great gain in this respect, and for this 
 we have to thank President Roosevelt. 
 
 As to the future, Pittsburg and the iron and steel trade should be the 
 first to feel improvement in the general business of the country, for iron is still, 
 the best barometer of the times, as it leads all -other industries in both depres- 
 sion and recovery, and what an eventful history Pittsburg can point to, the 
 world knows. 
 
 It was at Pittsburg that the Bessemer 'process was first applied to steel mak- 
 ing in America, and the giant strides in the industry that followed its super- 
 sedure of the open hearth process not only astonished ourselves but all Europe. 
 It was a new departure on a grand scale, this application of science to mechanical 
 methods, a revelation that was marvellous in the trade expansion and wealth it 
 produced. 
 
 Yet it is not improbable that before long, if not immediately, the Bessemer 
 process by which this immense development was achieved will be very generally 
 superseded by the open hearth process of steel making, which originated and had 
 its early development in this country. Thus in the whirligig of time it will dis- 
 place the Bessemer process, by which it was itself displaced. This, as you are 
 of course aware, is owing to improvements, chiefly by Talbott, an American en- 
 gineer, in the open hearth process, which for a long time has been considered 
 almost out of the race in competition with the Bessemer process. This reminds 
 us that history repeats itself. 
 
 The open hearth process has now been brought to such perfection that its 
 superiority over the Bessemer process is declared by many in the trade to be 
 established. Thus practice makes perfect, and time works wonders. Its superi- 
 ority over the Bessemer process is said to have been particularly demonstrated in 
 dealing with ores of any but a very low phosphorus grade. This American im- 
 provement in the open hearth process has been already widely recognized and 
 adopted in England, and we are in this wa}'- repaying the debt we owed to that 
 country for the Bessemer process. 
 
 The steel manufactured in the United States last year aggregated 23,246,000 
 tons, of which 12,275,000 tons were by the Bessemer process and 10,971,000 tons 
 by the open hearth process. There were also some other varieties of production, 
 copied from processes in use on the European Continent, but the general drift, 
 
 I am informed, is now towards the open hearth process. 
 
 Out of Pittsburg, of course, I should not talk so much about steel, but iron 
 and steel are Pittsburg’s bread and butter. This reminds me that apart from agri- 
 culture the principal sources of our national wealth are minerals and manufac- 
 turing. Mining and manufacturing are primary and fundamental industries. Our 
 agricultural income last year, according to the United States census estimates, was 
 about seven thousand millions of dollars, while the metals mined were valued at 
 about two thousand millions, against $1,902,517,565 in 1906. 
 
 This metallic product for the yea-r, it is estimated, was turned by manu- 
 facturing it into materials having a market value of fifteen thousand millions of 
 dollars. If we add that of agriculture, the metallic products, and manufacturing, 
 together, we have a total valuation for the year of twenty-four thousand millions 
 of dollars. The fertility of our natural resources is here shown by their rapid 
 rate of development. But this, while contributing so largely to our present 
 national wealth, is not an unmixed good. We should always bear in mind that 
 the more we take out of the earth, and the more we strip our forests of timber, 
 the less we have remaining. In forestry, however, we are now preparing for the 
 future by replanting, but we cannot replant minerals. 
 
 The mineral products of this country have more than trebled since 1890; 
 
 6 
 
more than doubled since 1899; and are more than five fold what they were 
 in 1880. From 1900 to 1906 our mineral product increased at a rate representing 
 a hundred and^ ninety millions a year. 
 
 I am quoting these statistics as a reminder of the vastness of our natural 
 resources, and the recuperative power of the nation, which is one of the most 
 .encouraging features of the national situation. These resources are the back- 
 bone of the country’s greatness; and those who can see nothing cheerful in the 
 outlook and to whom everything at times looks as blue as indigo, will do well 
 to think of them, for they are Nature’s national banks, that can never fail, and 
 unfailing sources of our national prosperity. 
 
 It was these resources, in the form of exports to foreign countries, that en- 
 abled us to purchase and pay for — without borrowing or asking favors — the one 
 hundred millions of gold that we imported to relieve the crisis. Here was in- 
 disputable evidence of the large international trade balance in our favor, and of 
 our monetary and commercial independence of the rest of the world; and this 
 gold we still hold, although in the ordinary course of commerce we may rea- 
 sonably export some of it before long, for we have plenty to spare and money 
 is superabundant at two per cent, on call in Wall Street. Meanwhile our exports 
 of produce, and other merchandise continue extremely heavy, and they were 
 never heavier than during the crisis, that is, in the last three months of 1907, 
 while in January, 1908, they rose to a total value of one hundred and twenty- 
 eight millions, or $17,742,352 more than in^ January, 1907. This is all the more 
 favorable because our imports since the crisis have very largely decreased. In 
 our January exports, cotton alone represented $76,687,508 of the total, and bread- 
 stuffs $24,463,503. 
 
 As to our national finances and the defects of our currency system, there is 
 much that calls for reform, but there seems to be little or no prospect at this 
 session of Congress of the passage of a comprehensive financial measure, although 
 it is a remedy we need. We shall therefore have to rest content for the time 
 being with the much amended emergency currency measure, familiar to us as the 
 Aldrich Bill. This provides only for the issue of a maximum of five hundred 
 millions of currency by the government to the national banks, to ward off a 
 panic or mitigate its effects, the banks to pay six per cent, interest per annum 
 for whatever they take of this emergenc}/- currency, and give security in accept- 
 able railway, municipal and other bonds for it to the Treasury. 
 
 So far, so good. I am, therefore, strongly in favor of the Aldrich measure, 
 as a panic remedy, naturally so as I originated the fundamental part of it. It 
 will do much to prevent panics, and will effectually stop the hoarding of currency 
 that accompanies them, for what inducement would there be to hoard it when 
 a supply of five hundred millions of new currency would be open to the banks? 
 There could be no extreme scarcity of money then; nothing in any way approach- 
 ing the stringency that not only New York but the whole United States suffered 
 under in the last three months of 1907. 
 
 Yet the great remedy, the comprehensive financial reform measure we need 
 will be ultimately passed by Congress, and its provisions will include the modi- 
 fication of the Sub-Treasury ,^ystem, which has always been a source of much 
 mischief through locking up government money received for Customs duties 
 and internal revenue taxes, that ought to be kept in circulation. The proposi- 
 tion, however, to establish a central national bank in New York, or anywhere 
 else, as a substitute for it, is to be strongly deprecated. It would be a rich 
 plum for those who controlled it but would excite the jealously and hostility of 
 all the other banks. Moreover, such a bank would in effect be a revival of 
 the old United States Bank, against which, and the scandals and corruption con- 
 nected with it, President Jackson made war so vigorously as to force it into 
 liquidation. The second experiment of a United States bank was no less in- 
 volved in scandal and no less a failure than the first, and in each case there was 
 the same inglorious end, compulsory liquidation. Both, too, were used as politi- 
 cal machines, and guilty of favoritism and many abuses of power, and a new 
 central bank would give us another big political and speculative machine, liable 
 to the same evils and objections. Therefore all bankers should resolutely oppose 
 a central bank. It would not be a remedy for any of the eyils complained of, 
 butr instead, furnish us with a new complication. 
 
 7 
 
While we can hardly expect any fundamental chanp^es in our currency system 
 at present, one improvement mipfht easily be made in it by Conj^rcss at once, 
 and that is by the removal of restrictions on the amount of national bank notes 
 taken out or canceled per month, as well as by establishing a bank note re- 
 demption bureau at every United States Sub-Treasury, so as to save the delay 
 and expense of sendinp: to and from the Redemntion Bureau at Washington., 
 that all the national banks are now subjected to. As a minor remedy this should 
 be urged upon Congress. 
 
 Turning to the Unitefl States bonds pledged with the Treasury to secure the 
 national bank notes, we all know that they are as good as gold, if not better, 
 but still they are evidences of debt, and it is a false economic principle to issue 
 currency on such a basis. Moreover, it is costly for the government, for it 
 practically and permanently prevents it, in the interest of the national banks, 
 from redeeming the bonds deposited to secure national bank notes, out of its 
 surplus income. Still it^ has great merit in givinor us a safe and sound bank 
 currency. Ultimately this system, born of the civil war, will be superseded by 
 a better one, but this will doubtless be done in a manner which will not interfere 
 with or impair vested interests. 
 
 Owing to the short time now left of this session of Congress, nothing more 
 than the “Aldrich” bill can possibly be enacted at this time. Its simplicity is 
 a recommendation to Congress. But, nevertheless. Congress should later pass 
 a permanent currency bill, a bill which will settle every riuestion as to the 
 
 finances of the nation, at once and^ for a century to come. Such a bill is pos- 
 
 sible. and in fact it would be the simplest kind of measure for the Government 
 to adopt one to provide for just the kind of currency, and the amount of cur- 
 rency the Ipisiness of the nation, the banks, and the people should have; 
 one to provide for a perfectly elastic currency without creating the slightest de- 
 preciation of money or danger of loss to banks or Government. It should pro- 
 vide a perfect wav of obtaining money to move the crops, and furnish an all 
 .sufficient means of preventing or breaking panics. It should make the money of 
 
 the^ United States still more current and acceptable in all parts of the world. 
 
 This would m.ake the nation greater in the eyes of other nations, and give the 
 United States Treasury a proper command of the commerce and finances of the 
 world, within ten years after being put into operation. 
 
 All the Government need do to effect such change in the finances of tlTe 
 eountry, and to acquire all such advantages for the Government and the people, 
 in my opinion, is to wipe out the whole system of National Bank Currency, and 
 give such banks, or any banks. Government currency direct, upon the same 
 securities, and such other kinds of securities ' as the Government is willing to 
 accept and permit the banks to increase or diminish the amount it obtains when- 
 business of the banks requires it: every bank to do no more than give 
 sufficient security for the money. The Government need do no more than to 
 take the security and hand the bank the money. The Government should be 
 paid for the use of the money a low rate of interest, say one per cent. No bank 
 should be required to pay more. 
 
 The credit of the Government will be all sufficient for the credit of the 
 currency, and every dollar of it would be perfectly secured by the security given 
 the Government for it by the banks. The issuing of the money by the Gov- 
 ernment under this system would not injure the credit of the Government in 
 the slightest degree. Banks should be allowed to increase or diminish the 
 amount of money they obtain in amounts which can be decided by the law. 
 Such a system would be satisfactory to all the people, except the national banks 
 These banks have been given the privilege of having their names on the money 
 they issue long enough. The money of the banks has ever been Government 
 money. The Government has promised to pay it if the banks did not. and 
 has had the means of paying. Let the Government do as it should: issue all 
 the money. Let it be circulated by banks whitli give proper security fnr it 
 Enlarge the means of securing the Government, by accepting State and Municipal 
 bonds, or even Railroad bonds, to the extent of say 50 per cent., and Government 
 bonds for the other 50 per cent. 
 
 The amount of additional business this change in the finances of the country 
 would make the Government, would be no greater than any other change woulcl 
 
 g ' ' 
 
make, and would be much less than what will be necessary if the present bill 
 before the Senate is passed. All the great work and expense of settling up the 
 affairs of broken national banks and paying oft' their notes will be stopped. 
 
 There would be no such things then for the Government to settle. The 
 Treasury can be required by the law to keep all the currency issued for the 
 purpose, that may be taken up, distinct and separate from all treasury receipts 
 from other sources. 
 
 The severity of the panic ordeal of 1907 that the New York banks passed 
 through was reflected in the issue to them by the New York Clearing House, on 
 and after October 22d, of, in all, a hundred millions of loan certificates, although 
 the largest amount of these outstanding at any one time was eighty-four millions. 
 This form of banking relief is purely American and has never been adopted in 
 Europe. The maximum issue of Clearing House loan certificates in the panic of 
 1893 was $41,690,000, and in the panic of 1873 $26,565,000. But in 1893 New York 
 bank deposits were only $400,000,000; in 1907 they were $1,050,000,000, exclusive of 
 Trust Companies. The maximum of certificates in 1907 was reached in the 
 third week of November, but the Clearing House banks showed their largest 
 deficit in reserve — $54,100,000 — in the first week in November. Simultaneously 
 the loan certificates issued by the Boston Clearing House reached their largest 
 aggregate, $11,995,000. It is noteworthy also that three powerful New York banks 
 then held one-third of all the loan certificates issued by the New York Clear- 
 ing House. One of these held $13,500,000; another $10,000,000; and the third $7,- 
 500,000. The obvious object of this was to enable the strong banks to loan a 
 part of their cash reserves to weak associates. 
 
 The Clearing House Committee and the New York banks individually and 
 collectively did splendid work in mitigating as far as possible the effects of the 
 panic, while the Secretary of the Treasury, Mr. Corteb'^ou, rendered very valuable 
 service by co-operating with the national banks to reduce the monetary string- 
 ency through large treasury deposits and facilitatii^g the. importation of gold. 
 
 Mr. Morgan and several other private bankers also rendered praiseworthy 
 service during the panic, and my firm did its part by loanina: to the members of 
 the Stock Exchange, at the most critical period, three million dollars at mod- 
 erate rates of interest. 
 
 The New York Clearing House is a non-incorporated association, but its 
 reserve is the foundation for an enormous amount of the country’s commercial 
 credit. Of course, the banks and others holding practically unsalable collateral 
 for loans, that the borrowers were unable to repay, were forced to help the 
 borrowers and save themselves from loss by continuing to hold them through 
 the crisis for a bettei; market. There were many cases of this kind, particularly 
 among the Trust Companies, and there has been much slow and careful after- 
 panic liquidation of such collateral, and much of it has still to be done. It is, 
 however, being facilitated by the decided improvement that has taken place in 
 the market for first-class bonds. 
 
 Capitalists who for the past two or three years had been dissatisfied with 
 the returns of ordinary investments and who had gone into hazardous specu- 
 lations and extensive underwriting of new bond issues in the hope of large and 
 quick profits, have been sobered by their heavy losses and are now seeking safety 
 in prime investment bonds. 
 
 Had the market for bonds not improved as it has, it would have been prac- 
 tically impossible for the New York Central and other Railway Companies to 
 have marketed the large amount of notes they have succeeded in selling since the 
 beginning of this year. The'after effects of the panic, as well as the panic itself, • 
 would also have been far worse than anything we have witnessed had it not 
 been for the previous heavy stock market liquidation, a liquidation that in many 
 cases had been practically continuous from the end of 1906, and that was most 
 drastic and disastrous in August, 1907. 
 
 That the banking situation has become normal is indicated by the elimination 
 of loai] certificates and the resumption of normal methods by all the Clear- 
 mg Houses in the United States, and particularly by the resumption of the 
 weekly detailed bank statements by the New York Clearing House. This oc- 
 curred on Eebniary 8th for the first time after their suspension on October 26, 
 1907, and was supplemented by statements of the pon-a^aring House banks and 
 
Trust Companies, including actual as well as average conditions. This last is a 
 new and commendable feature, which every Saturday will enable us to learn 
 how al the banking institutions in New York City and its several boroughs stand, 
 both individually and collectively, in their average and their actual condition. 
 
 That we are assured of a sui^erabundance of money at low rates of interest 
 is evident from the large and growing accumulations of surplus funds in the 
 banks from Maine to California, and the light demand. All the indications favor 
 a jirotracted ])criod of e.xtrcme ease in the money market, modified only by gold 
 exports and the withdrawal by the Government, from time to time, of some and 
 jirobably a large part of its deposits in national banks. This again feminds us 
 that the Sub-Treasury system makes the Government an unlimited hoarder of 
 money, with only evil results. This, alone, calls for its modification. 
 
 JUit while the large aggregate of the surplus funds of the banks testifies to 
 the return of confidence, and with it the return to banking channels of hoarded- 
 money, it also reflects the dullness of trade and much idle machinery and unem- 
 ployed labor. Hence the bank clearings of the United States in January were 
 twentj'-five ))er cent, less than in January; 1907. This condition of affairs has, 
 been and still is severely felt by the Railways, whose largely reduced gross 
 and net earnings and long lines of empty cars tell why a number of them, like 
 many industrial corporations, have reduced or passed their dividends, or paid 
 them in scrip. IMore railway and industrial corporations will' probably have to 
 accommodate themselves to circumstances and do likewise in conseciuence of re- 
 duced earnings. That we expect, and are prepared for, while the trade de- 
 pression lasts, and hence we all hope and trust it will be short. 
 
 Meanwhile we cannot ignore the political situation in this Presidential year, 
 and the disturbing and depressing effect of the last message of President 
 Roosevelt to Congress, with its onslaught on Wall Street, followed by the un- 
 just bitter attack of Mr. Bryan on Stock Exchange speculation, which he de- 
 nounced as gambling. Wall Street was thus ground between the upper and 
 nether millstones of the Republican and the Democratic parties; it was fired on 
 from both sides with hot shot, grape and canister, without any good reason. 
 
 Speculation in stocks, as conducted through Stock Exchange brokers, is no 
 more gambling than speculation in real estate or ordinary merchandise. All 
 trade is more or less speculative because it involves risks. If it did not in- 
 volve risk there would not be so many mercantile failures as there are .every 
 year, yet no one calls trade gambling. Every time a merchant buys a line of 
 goods, he makes a venture, not knowing whether they will rise or depreciate 
 in market value on his hancE. He buys also on credit, just as he gives credit to 
 his customers; and what is the difference in principle between this form of 
 credit and the credit a stock broker gives his customers who pay ten per cent, on 
 the par value of their purchases while the broker provides the balance and holds 
 the stocks as security? This is the margin, which is a credit in the account of 
 each of them; and I call it a credit instead of a margin, which is a better word 
 for brokers to use. 
 
 President Roosevelt condemns “options” very vigorously, as if they were 
 now dealt in on the Stock Exchange, as they once were, ranging from three to 
 sixty days; but they have not been traded in there for many years, all purchases 
 and sales of stock being deliverable and receivable on the day following the trans- 
 actions on the floor of the Exchahge, except those specifically for “cash,” which 
 means, to be delivered and received the same day. But on the Cotton, Produce and 
 Coffee Exchanges, and Chicago Board of Trade, nearly all the transactions are in 
 “futures” — and these are a boon to cotton and grain growers and coffee import- 
 ers, who, through them, can sell their growing crops and importations months 
 before they actually possess and are ready to deliver them, so in advance making- 
 sure of the prices they will get for their farm products and importations. 
 
 This is speculation, yet perfectly legitimate, and I think that if President 
 Roosevelt and IMr. Bryan knew more about these markets and the N. Y. Stock 
 Exchange from actual experience, they would see the injustice of much that they 
 have said in decrying the evils of speculation. Black sheep and exceptional 
 wrongdoing should not be held up as examples of all and everything in Wall 
 Street; and because unscrupulous men sometimes embezzle in order to get money 
 to speculate with, Wall Street should not be held responsible for their crime, 
 
 10 
 
any more than a river should be blamed for a man’s suicide because he jumps into 
 , it to end his troubles. There is nothing illegal or against public v/elfare in a 
 broker buying and selling stocks and bonds for his customers in conformity with 
 the rules of the N. Y. Stock Exchanges, nor can there ever be; and I know that 
 such business is* just as honorable and legitimate as the buying and selling 
 of iron, dry goods or real estate on credit. It is credit that keeps alive the 
 business world. 
 
 The attacks on the financial center of this country are indiscriminate, and I 
 am sorry that President Roosevelt, who has done so much good in other respects, 
 should have nipped the bud of reviving confidence in the Stock market in the 
 way he did, for his denunciation of Wall Street, coupled with Mr. Bryan’s whole- 
 sale and wild condemnation of the Stock Exchange, led to a renewal of liquida- 
 tion in the stock market, and a fresh decline in prices through creating fresh 
 distrust of their holdings among investors. 
 
 The New York Stock Exchange is a great national and international market, 
 and its i,ioo members compose a very honorable and w^ealthy body of men, whose 
 integrity in all their business transactions is unquestioned. They are bound not 
 only by the rules of the Stock Exchange to be absolutely honorable and strictly 
 honest in their dealings, but their own interests and their relations with their 
 fellow members and their customers compel them to be so, and to be also above 
 suspicion. Summary punishment, even to expulsion from membership, would fol- 
 low any dishonorable or dishonest act on the part of any of them, and such 
 instances are of extremely rare occurrence. It is therefore unjust to stigma- 
 tize these men, these bankers and brokers of good business standing and good 
 social position, in the manner they have been stigmatized recently by Mr. Bryan; 
 and again I think that if he knew Wall Street better than he does he would 
 have been more discriminating, and would have confined his severest criticism to 
 the speculative capitalists who have probably at times abused the Stock Ex- 
 change by the manipulation of stocks. 
 
 The so-called practice of “washing” is stictly prohibited by the rules of the 
 Stock Exchange, but as it is very hard to detect and prove, in some instances, 
 doubtless it may have gone unpunished. The Stock Exchange, however, earnestly 
 endeavors to ferret out and prevent and severely punish all violations of its rules. 
 
 After every great panic, the Stock Exchange has been made a scape-goat, and 
 unjustly assailed as the main cause of the trouble. The fact, how'ever, that the 
 two great opposing forces in national politics are now united in their attacks upon 
 Wall Street is unusual, and forshadows more attacks of the same disturbing char- 
 acter during the presidential campaign. This is a depressing factor in both the 
 financial and trade situation, and we see evidence of it in all directions. It is, of 
 course, a factor that retards recovery from the crisis by retarding the growth 
 of confidence, and how far its influence will extend we have yet to see. But 
 of one thing we may be sure, and that is, we shall be reminded of it very forcibly 
 from time to time from the batteries on both sides of the political battle ground 
 until after the November election; then the guns will cease to belch their thunder. 
 Hence we must be prepared for it in the interval and make the best of it, re- 
 membering the old adage — “Forewarned, Forearmed.” But never before has pol- 
 itics hurled its javelins so fiercely against Wall Street, and that practically means 
 all the Stock Exchanges in the country. The joint attack is against 
 stock speculation, and no Stock Exchange in the world ever was or 
 ever can be free from that. It would obviously be absolutely impossible to dis- 
 tinguish investment from speculative transactions on the floor of the Stock Ex- 
 change, or tell whether long or short stock was being bought and sold. Because 
 speculative capitalists in control of large corporations have managed them dis- 
 honestly for their own benefit, and in furthering their schemes and speculations 
 employed stock brokers and used the Stock Exchange, it and its members should 
 not be held responsible for the wrongdoing of these men, as it is a market open 
 to all the world, just as is the London Stock Exchange or any Bourse in Con- 
 tinental Europe. To restrict its scope and operations by law would be to lessen 
 its usefulness to investors and corporations issuing securities, and destroy its 
 utility as a free market for all. 
 
 Wall Street being not only a local but a national and international financial 
 center, the whole world, not only the whole country, is tributary to it, and it is 
 
 II 
 
indispensable to tlie whole country. Yet it is made the target at present for all 
 sorts of political abn«c, and various schemes have been urged for suppressing' 
 trading in stocks, all of which are of course chimerical, for as long as we have 
 securities, there must, in justice to the millions of holders, be a market for them. 
 Without it there would be a sort of chaos of confusion and abnormal prices, for 
 it is the speculator who is often the most keen and discriminating in judging the 
 true value of securities. The much maligned “bear” is the safety valve of the. 
 market. He often prevents the manipulation of the price of a stock to an unfairly 
 high figure by exposing the weak points in the situation, which is a protection to 
 a prospective buyer. 
 
 A great deal of shallow abuse is still showered on the Stock Exchange 
 from all parts of the country. This always follows a panic. It pleases a cer- 
 tain class of ignorant and misguided people to hear Wall Street denounced and 
 maligned on every opportunity. It matters little whether the accusations arc 
 right or wrong. So pessimistic is public opinion that the worse the charges the 
 more numerous the believers. No one looks on the other side; no one is told of 
 the manifold services and advantages- of Wall Street as a financial 
 center. No one is taught that Wall Street is merely a central market 
 for capital, just as Chicago is for wheat, Boston for wool. New Orleans for 
 cotton, etc. How many appreciate the fact that Wall Street is as essential to the 
 business life of the country as is the Legislature at Washington to our political 
 life? How man}'- realize that Wall Street is the primary nerve center of the 
 American business world; that a blow struck there is an injury to the whole finan- 
 cial and business fabric of the nation? How many forget that in Wall Street 
 the investor can deal with greater advantage to himself, as a rule, than in any 
 other financial market? How many understand that there the country can best 
 settle its accounts; send its savings, and make its investments more readily and on 
 better terms than anywhere else? The very individuals who most violently abuse 
 Wall Street are often among the first to go there for financing new enterprises or 
 to pick up cheap investments. Thither, also, these same grumblers hasten in 
 order to “get rich quickly.” When they succeed nothing is heard about the 
 “wickedness” of Wall Street, and they flatter themselves as to their own superior 
 shrewdness. But when these same individuals lose, then Wall Street is nothing 
 but a “gambling hell and a cesspool of iniquity.” They fail to recognize that 
 their losses are the result of their own cupidity, or inability to discriminate be- 
 tween sound and unsound investments. They usually lose because of their own 
 bad judgment; but nevertheless, there is no end to their objurgations. 
 
 Now Wall Street after all is little difterent from any other department of 
 business and industry. Its make-up naturally includes men with similar failings 
 and similar impulses to good and evil that exist everywhere; men who are bet- 
 ter than the politicians who make capital by abusing Wall Street; men who are 
 better than some of the trusts or the unions which aim to selfishly and often 
 relentlessly grasp all within their power. It may also include a very few who un- 
 scrupulously manipulate property for their own advantage and at every opportun- 
 ity. But it also includes a vast majority of men of high principles, of great 
 foresight and of enlightened self-interest; men who recognize that their own wel- 
 fare is dependent upon their regard for the welfare of others. Most of such men 
 are rarely heard of, and their good deeds and honorable achievements are not 
 exploited in the daily press, which is naturally interested in the search for the 
 abnormal. Wall Street probably contains a much larger percentage of strong 
 brainy men than any other community, because right there centers the manage- 
 ment of large affairs and great organizations which demand the highest ability. 
 True, Wall Street attracts some men of unscrupulous and predatory instincts 
 because of the great opportunities for accumulating wealth by devious and often 
 improper methods. The occasional flotation of questionable schemes and the im- 
 proper use of funds held in trust undoubtedly are sometimes among the greatest 
 evils connected wnth Wall Street. They are evils that its best men are most 
 anxious to see eliminated, and it is satisfactory to know that strong efforts are 
 being made in this direction. It cannot be too strongly stated that many of the 
 abuses which aggravated the late panic could not be repeated, and have been 
 stopped forever. Whatever defects remain, the business standards of Wall Street 
 are upon a distinctly higher plane than existed some time ago. In spite of troubles 
 
 12 
 
and pessimism the world is growing better and better. But so long as fools with 
 money are to be found, just so long will there be sharpers ready to take the 
 one and leave the other. It is useless to expect the millennium. Human nature 
 changes slowly, and the only means of checking abuses is to establish rules and 
 standards of a high order, and to keep alive a public opinion that will insist upon 
 their enforcement. An alert and vigorous public opinion is often more effective 
 in preventing evil, than the punitive measures which are applied after the wrong 
 has been done. 
 
 Possibly there are a few abuses undiscovered on the Stock Exchange that 
 should be remedied. Nevertheless, I affirm without fear of contradiction that 
 there is no business institution in the United States where standards are as high 
 or where the integrity of its members is equal to that prevailing on the Stock Ex- 
 change. Therefore, let the people and our Legislatures come to their senses, and 
 awake to the fact that in striking at the financial district they are hurting them- 
 selves quite as much as those whom they seek to destroy, and that the evil trans- 
 actions are small in comparison with the good. Let them understand that in 
 fomenting discontent of this sort they are intensifying the general depression,' 
 adding to the number of unemployed, driving capital into hiding and generally 
 interfering with that recover}^ in commerce and industry which is now so earnest- 
 ly desired. The present antipathy to Wall Street savors largely of public hys- 
 teria, bogyphobia and political dementia. Apparently, it is a disease which must 
 run its course; if so, the best cure will be a period of reflection in which to culti- 
 vate calmer and more rational views. 
 
 At the same time that Wall Street is being riddled with hot shot, the rail- 
 ways are being harassed by State legislation, involving low rates, and projects 
 are on foot that in effect would prevent their development to meet the wants 
 of the people. All this is oppressive and inimical to the national welfare, and 
 I advocate as a remedy removing the interstate railways from the control of the 
 States, and placing them entirely under the control of the United States Govern- 
 ment. This Congress can and should do promptly. 
 
 Another great difficulty the railways and other large employers of labor now 
 have to contend with is the refusal or unwillingness of the Labor Unions to 
 consent to a reduction of wages to meet reduced earnings. A lowering of wages 
 has become absolutely necessary, for they are still at the high figures to which 
 they were pushed during the long period of prosperity. They are at a boom 
 level that railway and manufacturing corporations cannot afford to pay in these 
 altered times. The Labor Unions should recognize this at once, and reduce their 
 wage scales, and not wait until they are forced to yield. Moreover, they should 
 see that with reduced wages a larger number of men could be profitably em- 
 ployed than is possible with wages as they are, and in this way the ranks of the 
 unemployed would be reduced. This of itself would be of great benefit to both 
 the working men and their employers, as well as to the country at large. It is a 
 time when common sense should be brought into play in the adjustment of means 
 to ends in wages as well as other matters, for the more it is the quicker will 
 be recovery from the effects of the panic, and the less will be the suffering from 
 industrial depression by labor as well as capital. This in the concrete means that 
 it would result in there being fewer workmen in actual want, and fewer corpora- 
 tions going to the wall. It is one of the great remedies that the situation now 
 calls for. 
 
 A general reduction of wages would to almost a certainty cause some mills 
 that have closed to reopen, and cause others that are running on part time to run 
 on full time. The advent of Spring will of course tend to stimulate recovery, so 
 we shall have the help of Nature to repair damages. With Nature as an ally, 
 we ought to rapidly overcome all obstacles in the way of complete recuperation. 
 
 Readjustment of existing conditions is the order of the day, and where there’s 
 a will there’s a way, as we all know. The general reduction that has taken place 
 in the price of commodities, and to some extent in rents, furnishes a very good 
 reason of itself why wages should be reduced from the high points to which 
 they climbed to meet high prices. As it is, the inequality between wages and 
 prices is very conspicuous, and equality should be restored as quickly as possible. 
 Equality is another name for justice. It is also the touchstone of taxation. 
 Workmen should not forget that even half a loaf is better than no bread, and 
 
 13 
 
that by accepting? reduced wages they are paving the way to better times for 
 themselves as well as for the country. Then, too, they owe a duty to society at' 
 large. No one should be governed by the narrow, selfish policy of living for him- 
 self alone. This is a world in which we must give and take, and labor and 
 capital have mutual interests. 
 
 The decline in commodity prices, tliat were before excessive, has been 
 salutary and of vast benefit in bringing the necessaries' of life within easier reach 
 of the wage-earning masses, and in preventing many industries from going from 
 bad to worse, through cheapening their supplies of raw material. The people 
 generally, as consumers, benefit by this reduction in the cost of production, and 
 in turn it tends to increase consumption and quicken trade and manufacturing en- 
 terprise. All these influences, too, tend to strengthen confidence in tl*e situation 
 and hope for the future. But the over-trading, extravagance and excessive spec- 
 ulation that primarily led to the panic should be carefully guarded against in the 
 future. 
 
 The very severe and extensive liquidation that we have witnessed, not only 
 in Wall Street but all over the country, has made the financial situation sounder 
 and therefore safer than it has been for several years, for it must be confessed 
 that many of our speculative captains of industry and finance passed far beyond 
 the bounds of conservatism in their operations, and invited the crisis 'we ex- 
 perienced by their reckless assumption of inordinate risks and liabilities. 
 
 It was a fitting retribution when some of them were engulfed by it. Es- 
 pecially culpable and dangerous to the public were those speculative capitalists 
 who sought and gained control of chains of important national banks, and then 
 used their resources to extend their own hazardous speculative schemes. These 
 men were really the immediate cause of the crisis, and they are now deservedly 
 paying the penalty for it. But this is a small consideration in comparison with 
 the enormous amount of havoc they created. One good thing, however, has 
 come out of so much evil, and that is improvement in our banking conditions, by 
 the exposure and eradication of this unsound banking that prevailed in New 
 York, and to some extent elsewhere. 
 
 We shall, in this generation at least, have no more such speculators stepping 
 into control of large New York banks and using them pretty much as if they, 
 their assets and deposits, were their own property. Those responsible for this 
 unsound banking were public enemies, and we are still feeling the effects of 
 their reckless and illegal proceedings. The fact that several of them are now 
 under indictment for their oft’cnces is a reminder that the way of the transgressor 
 is hard. Their elimination from the banking -world removed a source of great 
 danger, which might, if allowed to continue longer, have resulted in a far worse 
 state of things than they actually created before their career was brought to 
 a close. 
 
 A salutary effect of the panic is the check it has given to extravagance and 
 waste in living expenses, and the practical lesson in economy that it has taught 
 very many, for economy is wealth. To reduce expenses after business reverses is 
 the best way to recuperate, and a little adversity is not without its uses among us, 
 for we are be3^ond question the most extravagant people in the world. This ex- 
 travagance in living has been the prime cause of much of the “graft” evil that 
 has lowered the tone of our business and political life, to say nothing of abuses 
 of power, embezzlements, corporation-looting, and other forms of dishonesty. 
 
 President Roosevelt in his war againt illegal and dishonest corporate prac- 
 tices has certainl>^ worked for the good of the country and to raise the standard 
 of business morality; and the life insurance, railway and other corporate scandals 
 that we are all familiar with have shown how much reform and purification were 
 needed even in high places. Let us never forget, as the Bible tells us, that 
 “Righteousness exalteth a nation” however great may be its material prosperity. 
 
 That there is a ver>^ large amount of money lying idle and available for 
 investment in first-class bonds, was conspicuously shown by the result of the 
 sale by the City of New York on February 14th of fifty millions of four and a 
 half per cent, bonds when three hundred millions were bid for, at an average 
 price of about 104 ^. This oversubscription of six times the amount offered 
 came from people, who would not have touched any but gilt-edged securities. 
 
 Of course, B' ' present cheapness of money accounts for much of this large 
 
 14 
 
New York subscription, as apart from investors, banks and bankers are seeking’ 
 safe employment for their surplus, in securities that can be promptly marketed on 
 the Stock Exchange whenever necessary. The latter is an indispensable condi- 
 tion with them, particularly now m view of the national banks being enormously 
 indebted to the Government in the shape of Treasury deposits, and also in view of 
 the future needs of the government calling for their return. This is already giv- 
 ing a hardening tendency to time money. ... 
 
 Although trade is largely prostrated through inactivity, it is safe to say< 
 notwithstanding what is bad in the situation, that fundamental conditions are 
 generally sound, and therefore recovery while gradual will, be the easier for it. 
 Meanwhile with inactivity forced upon us, let us be masterly in- our inactivity, and 
 make a virtue of necessity. There is much in knowing when to stop and when to 
 go ahead; when to ’bout ship and when to take in sail, and double reef the 
 mainsail and the topsails, or heave to, and when to sail under bare poles or a 
 full spread of canvas. Skillful navigation is necessary to success. _ ^ 
 
 With regard to bank reserves, it is especially important during this period 
 of depression that they should be kept exceptionally strong and as much as pos- 
 sible, within reasonable limits, above the required percentage. Twenty-five per 
 cent, of reserve against deposits in the central reserve cities, and especially in 
 New York, is not always sufficient, as we have seen, from time to time, to enable 
 the banks there to weather a storm. 
 
 The Bank of England maintains an average reserve of nearly twenty-five per 
 cent, larger tlran that; and it is guarded from suspension in times of panic by a 
 suspension of the bank act by the government, which allows it to issue its notes 
 ad libitum without any compulsory reserve. Here are two elements of safety. 
 The stronger in reserve the banks keep themselves, the more confidence in them 
 and in the situation will be strengthened, and the stronger confidence becomes, 
 the more enterprise can build upon it. So the banks by their conservatism should 
 do all they can to encourage confidence as the prime requisite in recuperation. 
 
 The New York banks, holding as they do largely the reserves of other banks 
 throughout the country, should hold a reserve nearer to that of the Bank of 
 England, which is also the depository of the reserve of other banks, but in a 
 much larger proportion. If the New York banks had held 30 per cent, reserve 
 last October, when the Knickerbocker Trust Company failed, there might have 
 been no necessity for issuing Clearing House certificates, and in that case there 
 would have been no hoarding of money and little or no panic. But the banks 
 are naturally desirous of making money by keeping their loans and discounts at 
 high figures, so they are apt to look .upon reserves above the legal limit as 
 money wasted. The legal limit, however, is too low in the central reserve cities. 
 My remedv is to raise it. It ought, in my opinion, to be at least thirty per cent, 
 
 instead of twenty-five per cent., and apart from any legal requirements, 
 
 the New York Clearing House should adopt a rule requiring the 
 
 banks in the Association to keep a reserve of 30 per cent. The banks would 
 
 lose a little in profits by this change, but they would gain in safety, and reduce 
 
 our liability to panics. Their experience during the crisis, when for ten weeks, 
 
 until the end of December, currency loaned at a premium ranging from two per 
 cent, to five per cent., should make them anxious to avoid another such ordeal, 
 
 and an ounce of prevention is better than a pound of cure. 
 
 One unpleasant part of the aftermath of the panic in New York was the 
 failure in one week, at the end of January, notwithstanding that they held five 
 millions of loan certificates, of four banks belonging to the Clearing House, be- 
 cause of runs on their deposits, and the refusal of the Clearing Ilouse to give 
 them further assistance. Whether or not any of these will be able to resume is 
 still undetermined. Yet, in sharp contrast with the excitement and alarm that 
 prevailed for weeks after the Knickerbocker Trust Company failed, the public re- 
 garded these failures with apathy, and the recovery in the stock market which was 
 then in progress, chiefly under the covering , of short contracts, was not even 
 checked by it, so mtich had sentiment changed in the interval. These failures 
 had been practically discounted, large as they were, by what had gone before, 
 incliuling the decline in stocks. Yet collectively they had more than twenty-one 
 thousand depositors. These may eventually be paid in full, but it is very uncer- 
 tfiin when that will be, for th^ law is a slow coach, especially when a permanent 
 
rcccivcrsliip is fastened upon a hank, larj^ely owing to the long wait usually neces- 
 sary for the conversion of slow assets into cash. Moreover, the expenses of liqui- 
 dation cat up a large part of the assets under the system of fees for receivers 
 and their counsel, which have always been much too large for the work done, 
 and conscciucntly they involve injustice to the creditors. Laws should therefore 
 he passed suhstituting for fees fixed rates of compensation, per diem, for hoth of 
 these, that is salaries; and meanwhile the courts should, under the existing laws, 
 reduce their fees to reasonable amounts, and so correct this evil of extravagance 
 in the cost of liquidation, which in some instances has been so excessive as .to 
 practically amount to robbery of the victims. This is a needed remedy that 
 should he urged upon State legislatures. 
 
 Two of these failed banks are expected to resume within six months, while 
 the other two will he wound up, and probably pay depositors forty per cent, or 
 fifty per cent, of their claims within about that length of time. 
 
 Very fortunately, however, the crisis of fQ07 was much less prolific of bank 
 failures than that of either 1873 or 1893. In 1^3 no fewer than one hundred and 
 fifty-eight banks suspended, and of these sixty-five went into permanent receiver- 
 ships, while eighty-six resumed within the. year, and seven later. But few of 
 these banks had a capital of half a million or more, their average capitalization 
 being only $169,000. The banks generally in the fourteen years’ interval had 
 gained immensely in strength as well as in number, and their power of resistance 
 to the effects of the crisis, when it came, had been correspondingly increased. 
 
 While the profits of trade and manufacturing have been dwindling, prophe-ts 
 as to the future of business and prices have increased enormously, and they were 
 never more numerous or more divided in opinion than they are now. Some. of 
 them point to the fact that with the single exception of steel, in the hands of 
 the United States Steel Corporation, price.s. have declined, and they argue that 
 unless demand increases they will, like stocks and wages, naturally go lower, and 
 that the Steel Corporation will be forced by the reductions already being made 
 by the independent steel makers as well as by the heavy decline in iron, fo 
 follow suit. These also look for somewhat prolonged depression. But many 
 other prophets are sanguine that we are already seeing the worst of it, and that 
 commodity prices are about as low as they are likely to go. The true prophets 
 are probably the conservatives who steer between these conflicting opinions and 
 avoid both extremes. But whatever may come, on the ebbing or rising tide, of 
 our business life, we should, as Longfellow says, “Learn to labor and to wait, with 
 a heart for any fate,” and at the same time hold ourselves always ready to make 
 the best of our opportunities as they arLe, and, as America is pre-eminently rich 
 in opportunities, we shall not find them waiting long. In any event, the wants 
 of eighty-four millions of our people must be supplied, and we are the most pro- 
 gressive nation in the world. I therefore ask — Who’s afraid? 
 
 I am quite of the opinion that the time has arrived for calamity howling to 
 cease; there is now no occasion for undue anxiety. Caution, however, may be 
 necessary, especially in commercial operations^ The worst of the financial de- 
 pression has been seen and the long-distance view is certainly more encouraging 
 than at any time during the last six months. Business men have now no reason 
 to feel otherwise than confident. I . firmly believe that recuperation will be 
 quicker after the recent panic than was experienced "after any of the previous great 
 panics since the one of 1857. 
 
 Now is the time for the timid to develop bravery, for the strong to aid the 
 weak, for the ignorant to be willing to learn from the wise. Let us all work 
 together for the common good, and the upward tide will bear us all along towards 
 better times and lasting prosperity. Panics come in cycles and it will be years 
 before another one can strike us. Let the worker give his best services to his 
 employer. Let the emploj^er grant justice and fair pay to the worker and to all, 
 and the nightmares and storms of the past year will be forgotten or remembered 
 onh" as a lesson taught by experience, which will serve to teach us not to overdo 
 in the future but to temper enterprise with conservatism. 
 
 i6