Bol. XXX

Number One

T

HE course of events during 1920 will determine if the United States is to occupy a larger place "in the sun-both politically and economically" or be content to revert to pre-war standards of provincialism. It is hardly conceivable that this young giant of the New World, with its virile manhood, its heritage of genius and with unlimited sources of material wealth, should placidly consent to forfeit the dominating and influential position in world affairs which has been actually thrust upon it by the fortunes of war. As the individual emerges from suffering and sacrifice with broader vision so must the American people interpret the soul-testing lessons of the war in the light of greater opportunity for responding to the higher claims of humanity and civilization, both at home and abroad. The "dollar-grubber," in common with disturbers of social and industrial peace, must give way to far-sighted men of initiative who reckon the future unselfishly and constructively. The moral power of this nation must be wielded to prevent intrigue and unscrupulous diplomacy from again setting the stage for another catastrophy which would be incalculably

more cruel and destructive than the siege through which the world has passed during the past five years.

Responsibility for shaping America's economic future along broader and enduring lines rests, as never before, upon those who conduct its business and have custody of the mobile wealth of the country. The phenomenal expansion of banking power, the great volume of our foreign trade and industrial activity which continued to scale new record heights right up to the close of the last year, are facts to ponder over. Problems of deflation of credit and currency, elimination of noncommercial loans, reduction of wages and prices, the restoration of railroads to private ownership on March 1st, with reasonable provisions for maintaining their credit and other ills of readjustment, are all susceptible to proper and orderly solution if the right spirit of co-ordination, of increasing production, of economy in expenditure and team work prevails among leaders of finance and business as well as on the part of those who handle the reins of government at Washington. Straight-thinking and the psychology of optimism will go far toward vanquishing the bogies of re-adjustment when we bear

in mind that this country has come out of the war the strongest of all nations in the world from the viewpoint of economic resources, commercial expansion, increased industrial capacity and new-born financial prowess.

It is, indeed, highly essential that deflation of credit and currency as well as contraction of prices and costs should be hastened with all possible speed, insofar as those elements in the present situation are the concomitants of war-financing and taxation and have been stimulated by reckless extravagance and wanton speculation since the signing of the armistice. The Federal Reserve Board recognized this by successively increasing discount rates and notifying member banks of New York and other centers to cut down loans in view of the dangerously low rates of reserves. Governor Harding of the Federal Reserve Board spoke gospel truth when he said recently at the conference on discount and interest, rates with Clearing House representatives in Washington:

"If the Federal Reserve Banks, as a reflection of the condition of the member banks of the country whose reserves are kept entirely with the Federal Reserve Banks, are permitted to expand to the very limit of their resources, and then the country should be confronted with an emergency, we would be obliged to meet that emergency just as though there were no Federal Reserve System."

It is needful that bank and trust company officials especially should bear in mind that even the most drastic methods of contraction of circulating medium and of prices will not result in pre-war standards. Fundamental changes in the nation's banking and credit practice have been wrought by the operation of the Federal Reserve system and as a result of war-time experiences. These new instrumentalities are charged with possibilities for good or bad, according to how they are employed.

For many years to come the United States will continue the chief creditor nation of the world. The Federal Reserve banks, with over two billions of precious metal, command the greatest amount of gold ever assembled in the history of the world by any one government

and representing through its member institutions $30,280,000,000 of the nearly $48,000,000,000 banking power of the nation. The United States enters the constructive era with the lowest per capita of debt of any of the belligerent nations.

At the same time we cannot live with part of the world in lurid sunshine and the other part in darkness. Since the beginning of the war the sixteen chief belligerent powers have contracted obligations amounting to $212,268,000,000 or $329.91 per capita. Their total note circulation has increased to $77,954,000,000 as compared with four billions at beginning of the war. Paper currency throughout the world has increased 600% since 1914 while the gold reserve behind it has increased only 40%. While our net debt of $24,479,000,000 seems big our national income and wealth aggregates fifteen times that sum. This may be comforting but it also enjoins upon our Government and financial leaders the necessity of helping to stabilize Europe both politically and economically, to prevent revolution and famine which may mean repudiation of debt and virtual bankruptcy.

WILL AMERICAN PROSPERITY
CONTINUE?

FIRM grip on the facts as revealed
A by last year's extraordinary busi-

ness, trade and financial records, notwithstanding the handicaps of labor and social unrest, must stimulate to new endeavor and enterprise. When 1919 dawned there were dire predictions of a collapse of our export movement. What do we find? In the face of unprecedented declines in foreign exchange the European demands for food, raw materials and manufactured products were such as to pile up exports for the year aggregating in value $7,979,000,000 as compared with $6,149,302,000 in 1918, leaving a balance of trade in our favor of $4,001,457,000. While it is doubtless true, as Governor Harding states, that physical volume of production was smaller last year than for any year since 1915, due to strikes and coal shortage which represented direct losses of over $2,000,000,000, the fact remains that demand for commodities, foodstuffs and manufactured goods from ..

home and abroad far exceed the supply and unfilled orders will engage capacity production into the latter part of this year.

Taking a broader view of American international relations we find that since the beginning of 1915 this country's margin of exports over imports reached the staggering sum of over $15,000,000,000. Against this balance the United States Government holds foreign obligations of nearly $10,000,000,000, while foreign loans and credits placed through banking and direct channels has created a floating indebtedness to this country of from three to four billions, yielding annual interest payments of approximately $700,000,000. Certain it is, however, that this export movement cannot continue long without more definite measures of extending credits to foreign purchasers, since the Government has taken the position that any further grant of foreign loans will only increase taxation and necessitate further issue of bonds. The banks have also reached their limit in financing exporters who have accepted foreign cur

rency or securities. It would only stimulate inflation if long-term foreign credits are not kept out of banks. In this connection the proposed World Conference between financial and business leaders of the big nations should be helpful in determining upon a policy of issuing credits and stabilizing exchanges. A step in the right direction would be to defer Allied interest payments and refunding of their "floating" indebtedness to the United States.

Demand from Europe for American foodstuffs, commodities, cotton and other raw material is bound to continue. The value of last year's farm crops is placed at $14,092,000,000 as compared with $12,600,000,000 for 1918. Bank clearings last year ran up to $408,000,000,000 as against $334,085,000,000 for 1918. New capital issues by industrial corporations and railroads showed a record total of $3,021,171,300 for 1919, representing an increase of 124 per cent. over 1918. Building expenditures involved $1,306,670,721 as against only $4.3,383,000 for 1918. Notwithstanding the speculative

fever which succeeded on release of Government, credit and easy borrowing the number of commercial failures during 1919 was lower than for any year since 1881.

The permanence of this prosperity depends first of all upon supporting the export movement by placing ample credits through investment rather than banking channels, as provided by corporations authorized under the Edge Bill and State laws, and secondly upon increasing production and efficiency of labor. Early ratification of the Peace Treaty will help to bring about international balance. The Presidential campaign should also afford the people an opportunity to voice the mandate that Governmental and legislative agencies must cease hampering "big business" and that paternalistic and socialistic experiments should be abandoned. There must be relief from oppressive taxation and penalization of excess profits which acts as a consumption tax and sustains high prices. The Federal Government, which calls for expenditures of $5,629,486,000 for this fiscal year and $4,473,000,000 for the fiscal year ending June 30, 1921, must take the lead in exercising economy. There must be a halt to increase of wages and advance of price levels which only call for greater inflation. With business and finance working in harmony with Governmental agencies the year 1920 should spell greater prosperity and expansion along right lines than in the past. BANKING

POWER AND GOLD RESERVE DEPLETION HE banking power of the United States has expanded to greater volume during the past six years than during the entire half century preceding since the establishment of the National banking system. According to the Comptroller's latest compilation the banks and trust companies of the United States held aggregate resources of $47,172,104,000 while the year-end returns would doubtless bring this total nearer 48 billions. Of this aggregate the national banks held on November 17th last over $22,500,000,000 while the trust companies reported on June 30th last resources of

$11,150,446,000. Reserves of all banks and trust companies under State control on June 30, 1919, aggregated $25,965,675,836. New York State's banking power approximates $13,225,000,000 or nearly 30 per cent. of the entire banking funds of the country and of this amount the trust companies and state institutions hold about eight billions and the National banks of New York $5,225,000,000.

Every indication points to scarcity of funds and high rates for money during the current year. In the first place the Federal Reserve banks have about reached the limit of their rediscount capacity. The ratio of reserve to net deposit and note liability which stood at 98.5 at the close of 1914 has steadily declined to the record lowest point of 43.7 per cent. reported January 2, 1920, while the New York Federal Reserve Bank has several times slipped below the legal minimum of 40 per cent. to the record low of 38.6 per cent., preventing even further deficits by recourse to other Reserve banks. Deficits in required reserves have also been reported several times by the Clearing. House banks of New York. On top of this there has been a steady loss of gold especially to the Orient and South America with domestic production far below normal. With export restrictions removed, the net outflow of gold last year amounted to $296,308,000 and net exports of silver $145,220,000. The fact that this is practically the only free gold market and that we have still such a large hoard is doubtless an invitation to European nations to attract our gold by every means possible to replenish their stocks and strengthen the reserve basis of their inflated currencies. With continued loss of gold and persistent expansion of currency and credit it is very evident that vigorous steps should be taken by the Federal Reserve Board in co-operation with bankers to adhere to sound methods. Money in circulation reached its greatest volume at the beginning of last year and has decreased but $21,000,000 to Dec. 1, 1920, amounting to $5,929,874,791, representing an increase per capita from $25.00 before the war to $55.65, due mainly to the infusion of Federal Reserve

notes.