Part 12

The position of the market grew firmer and the clearing house reduced its loan certificates, which now replaced the former excessive issues of bank notes. From $24,000,000 they had already decreased to $18,000,000; of this amount $6,000,000 were taken by banks as a last resource, and there then remained only $12,000,000 in circulation. These $6,000,000 had served to sustain the shaken banks, and it is pleasant to state that outside of these requirements the amount needed was no larger.

Failures had ceased in the great centres, but they continued in the interior of the country; the shock, like a great wave, took a certain time to overrun the various States.

SUCCESSION OF PANICS IN THE UNITED STATES STUDIED THROUGH THE BALANCES OF THE BANKS.--Following the historical summary of panics in the United States it will be useful to have a general table, so as to glance at the very rare documents which permit us to follow the working of the Banks through their balance sheets. We know their organization, and we take upon ourselves to state results flowing from it.

It strikes us at once that abuses and panics have constantly occurred. Can we note a difference in the frequency and gravity of the casualties, according to whether we observe them working under the former or the new (the National Bank) system, inaugurated during the War of the Secession in 1864, when the machinery for the issue of bank notes was insufficient for the new requirements?

Without lingering over the regulations before and after 1864, let us consider the differences we may ascertain by examining the balance sheets. Unfortunately, the exactness of our observation is lessened on account of the very diversity of the field it covers.

In the case of the banks of the United States we have had to content ourselves with the returns that the Comptroller of the Currency gives in his annual report on a stated day during the months of February, May, June, October, and December, beginning with the year 1865. Before that period we had only the yearly situation of the banks of the different States upon one given day; we are better informed on the second period; however, basing our conclusions upon the few balance sheets we possess, we ascertain the same series of development and increase. Although there are lapses, still, from another point of view, the table will be more complete, because it embraces all the banks of the United States. On such an extended field, it is true, we risk seeing great discrepancies disappear and lose themselves in the magnitude of the amounts whose movements we follow. In order better to grasp them, we have put before us the returns of the banks of the United States, together with those of the Associated Banks of New York City; we may thus recognize and follow the share played by each of them.

During the first period of the State Banks (1811-1864), the increase in the number of the banks was continuous, except for two stoppages, in 1841 and in 1862; in 1841, during the liquidation of the panic of 1839, and in 1862 at the beginning of the War of Secession; the crisis of 1857 did not interrupt the movement.

The capital of the banks had followed the same changes. From $52,000,000 in 1811 to $368,000,000 in 1840, a reduction to $196,000,000 in 1846, and finally the last maximum reached in 1861, $429,000,000, at the breaking out of the war. In 1864 a new organization of the banks under the name of "National Banks" presented to the State Banks, without suppressing them, a state of affairs destined to cause their liquidation, which, in fact, practically occurred.

As in England and France, the amount of discounts, as the balance sheets give it to us, rose each year during the prosperous period.

Thus from 1830 to 1839 it reached $492,000,000 from $200,000,000, to decline again to $254,000,000 at the end of the liquidation in 1843.

In the following period the same rising movement from $254,000,000 to $344,000,000 was reproduced in 1848. The panic in Europe burst forth in 1847; it resounded very slightly in the United States in 1848, as its subsequent liquidation in 1849 indicates, which only reduced the local discounts to $332,000,000.

A new period of prosperity followed the preceding events; the growing movement re-appeared, and from $332,000,000 carried the amount of the discounts to $684,000,000 between 1849 and 1857. The panic broke out simultaneously throughout the whole world; but notwithstanding the wrecks it caused, such was the saving already, so healthy was the general situation of business, that, after having thrown out a little scum, the current of affairs resumed its course until 1861, and discounts had already reached the amount of $696,000,000. This amount is greater than that we have noted in 1857, but at that time (whilst the movement continued in Europe up to 1864), despite the shock it received by the declaration of war here, there was complete stoppage until the end of the struggle; we have here come across a political panic, not a business one. Peace re-established, the movement resumed its course under new conditions and with a reorganization of the banks under the name of "National Banks." A change was due, but, as everything was made ready, it was speedy. The first balance sheet of the National Banks dates from 1864. The amount of discounts had already exceeded the sum of $100,000,000 in 1865, and grew to $500,000,000 in 1866. Once started the movement took its own course:

1865 ...... $166,000,000 1870 ...... $725,000,000 1866 ....... 500,000,000 1871 ....... 831,000,000 1867 ....... 609,000,000 1872 ....... 885,000,000 1868 ....... 657,000,000 1873 ....... 944,000,000 1869 ....... 686,000,000

The yearly progression was interrupted as in Europe, and the explosion occurred at the same time. The rise in prices stopped, and incipient liquidation became apparent at the end of the year, and reduced the amount of paper on hand to $846,000,000, but, instead of lasting, as in Europe, a movement of revival, analogous to that which had followed the panic of 1864 in England, occurred. The amount of discounts rose from $856,000,000 to $984,000,000 in 1875, and then, and then only, the real retrograde movement showed itself as in Europe, and reduced the amount of the discounts to $814,000,000 in 1879, simultaneously with the movement in France and in England, when prices had reached the lowest quotations, and when a resumption of business was about to occur. In a word, affairs resumed their course; from the end of the year the amount of paper discounted rose to $933,000,000, and the steady advance as set forth in table No. 3 continued each year, until it reached $1,300,000,000 in 1884. The panic had burst forth in Europe in 1882, and the agitation, so lively was its impulse, lasted during eighteen months; but, as we have stated, the rise in prices ceased in 1882.

Starting from this time, a reaction appeared. The paper on hand lowered to $1,200,000,000 in 1885. This liquidation was scarcely noticeable, because we cover the whole Union, and there is always an upward movement in the new portions of it which have not yet taken part in business movements. If we note what occurred in the Associated Banks of New York, the very place where the greatest amount of business is carried on, the depression of the amount of paper on hand is most noticeable after the inflation observed at the height of the panic, while the decrease that we point out showed itself more slowly with the slackening of business. Thus, in the last period, the greatest amount of paper appears on hand--at the close of 1881, $350,000,000, and the minimum in December, 1884, the very year the panic had burst forth, and when, during the first months, the sum of $351,000,000 reappeared once more; except for a million, exactly the same amount there was in 1881.

This maximum amount was only an accident, under the influence of pressing needs at the time of the difficulty, for since 1881 the yearly reduction of the maximum and minimum amounts ensued. This tendency had occurred suddenly, and disappeared likewise; the resumption dating from 1885, a year sooner than in Europe.

The discounts of the New York Banks, which had been reduced to $287,000,000, rose immediately upon the opening of the new period of prosperity, and a growing activity carried them to $408,000,000 in 1889; after a few more fortunate years we come to the end of the period of prosperity and high prices.

We gather the following about discounts from the balance sheets of the Associated 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 anticipations. Among these sections, in the order of importance, we notice first, public deposits in the form of running accounts; they constitute 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 relationship 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 Associated 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 Associated 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.