January 29.
Recent telegrams from London and New York show that the financial situation in America has improved. But, though the crisis is presumably over, in spite of the suspension of payment by the Bank of North America two days a, it has left a general desire for currency reform, which has already found expression in remedial pro-Is. If the attitude of such men as President Roosevelt indicates caution, it certainly does not indicate complacence, and these proposals are likely to become important and general subjects of discussion. The question is exceedingly intricate and technical, and yet, in these days of economic introspecti clear conceptions are assent the best way of arrive in the present instance, Walt Street and Lombard Street, re the chief characteristics of
for each is the most important financial centre of its country. This external similarity, however, conference that while Wall Street is the speculative centre, it is not, in anything like the same way, the Banking centre of the State. In this we have the key to American financial difficulties. For in the banking system of the United States three features stand out clearly, first, the absence of a central bank, secondly, the insularity of Government funds, and thirdly, the rigidity of paper currency. The nearest approach to centrality is to be found in the Associated Banks of New York, to which all the spare cash of the provinces gravitates. They are required to keep a reserve, and this reserve is the gauge of the market. As long as it exhibits a sufficient margin, all is well as soon as the margin narrows, advances are contracted and the rate The H.-C. herald and S. C. & C. Gazette. rises. This continually occurs owing] to the collection of the revenue. The Government gathers its income into its own hands, and political exigent cies decide whether the Secretary of the Treasury will, or will not, relieve the Banks by depositing cash with them. Bank notes are issuable by the National Banks partly against the fund maintained by them in the hands of the Treasary, and partly against Government Bonds. Expansion after certain point, therefore, is only possible if the Government can be induced to borrow. Thus we arrive at this paradoxical condition of affairs, that while the Banking' reserve of the country is constantly strained by the Government, the' Government can only ease the strain by borrowing money which it does not want.
If we compare with these the three corresponding features of Lombard Street, we find, in the first place, that the organization of the latter is far more homogeneous. Instead of an association of Banks, we have the Banking Department of the Bank of England which controls the whole reserve of the country. Broadly wi it may be said that no other bank in London, or out of it, holds any considerable sum in band, above what is required for its daily business. The same is true of the London Bill Brokers, and thus the whole of our credit system depends on one Bank for its security. On the solvency of-one joint-stock company depends the solvency of England. In the second place, we find that the relation of this joint-stock company to Government differs widely from that of the national Banks to the Government of the United States.. Unlike the Secretary of the Treasury, the Chancellor of the Exchequer deposits his money with she Bank of England. Consequently, the collection of the revenue implies no permanent strain upon the market because what is taken away with one hand is replaced by the other. In the third place, in times of excessive stringency, there is an effective, if a clumsy, safety valve. By the Bank Act of 1844 the State limited the issue of notes, but since that time the Act has thrice been suspended. What happened on each of those occasions was that the Banking Department allowed its reserve to sink too low, and had to apply for help tothe Issue Department which was temporarily allowed to increase its note issue against securities.
It cannot for a moment be pretended that the organization of Lombard Street is an ideal one. The best that can be said for it is that it is an illogical system
Text read from the printed page and cleaned; old type leaves the occasional error.