Fifty years in Wall Street
qualifications necessary to make him a most satisfactory dummy or dumb
director. Hence he was connected with a very large number of companies.
He was a man of wealth, retired from business, and had great capacity,
but it was of the avoirdupois kind. His chief qualification consisted in
his always attending punctually all the meetings. He came early and
stayed till the end. He watched closely to determine which way the
majority vote was going and always went with it. He was never known to
open his mouth, except when the luncheon was served after the directors’
meeting had adjourned. He was much lamented by corporation managers when
he died. He was their favorite director, on the ground, as claimed, he
gave no trouble and was perfectly satisfied with the result of every
meeting. When he was handed his five-dollar gold piece for attendance it
caused him to go home rejoicing. I cite him as a specimen brick among
dumb and dummy directors.
Directors should make it their business to learn all that is going on in
the corporations and institutions that they direct, so that they may
qualify themselves to act intelligently, instead of in a blindfolded
way, as is too commonly the case. They should assert their rights, and
direct in fact as well as in name, but of course necessarily leaving all
the details to the officers. They, too, should avoid grinding axes of
their own at the expense of their companies, and co-operate with both
State and Federal officials in the strict observance and enforcement of
the laws, and never connive or wink at their evasion.
All these influences for the better would promote public confidence in
our ways of doing business, and indirectly also contribute to the
stability of our monetary position. What we greatly need is a more
stable money market in Wall Street. Such erratic changes in the rates
for Stock Exchange loans that we sometimes see would create a convulsion
in Europe if they were possible there. But as they are not possible
there, why should they be here? We are destined to ultimately become the
monetary centre of the world, but that cannot be till we acquire the
stability of the Old World in interest rates.
A freak money market, jumping up to absurdly high rates and then down
again, is as dangerous as it is intolerable. It is inimical to the
proper transaction of legitimate business, and a disturbing factor that
should be made as impossible in New York as it is in London, Paris, or
Berlin. What we need, among other things, to prevent it is more care and
conservatism in banking circles. In the European money centres the rates
for money rise and fall in response to supply and demand, just as they
do here, but within narrow limits beyond which they never pass. There is
no good reason why it should not be so with us.
It is to be hoped that the eminently well qualified members of the
committee appointed by the New York Chamber of Commerce—consisting of
Messrs. Vanderlip, Conant, Straus, Claflin, and Clarke—will reach a
solution of the problem of the money market and define how far its
vagaries and irregularities are owing to a want of sufficient currency,
capital, or credit, or sudden and excessive demands for loans,
consequent on excessive activity in speculation, or unwillingness to
lend in times of distrust and panic.
In European countries monetary stability can always be relied upon; and
that element of stability, which our money market now lacks, must exist
here before we can command the confidence of the world as the world’s
financial centre. But we are now rapidly taking steps in the right
direction, and the reform movement in business and legislation can come
none too soon for our national welfare. Let the good work of reform go
on and prosper, for from it we shall reap an abundant harvest in the
future.
There was no good and sufficiently sound reason why money, on call,
should have loaned in Wall Street at rates ranging from 100 to 125 per
cent. per annum—as it did in December last, when in other cities all
over the country it loaned no higher than six per cent. These money
spasms, while local in their actual effect, exert a disturbing and
demoralizing moral influence which is far-reaching. Such pernicious
activity in the money market is not natural. It is due to artificial
causes and ill-regulated methods affecting our local supply and demand.
For the rates of interest to be leaping wildly up and down, in the loan
crowd of the Stock Exchange, and changing violently every few moments,
according to the shifting bids and offers of the excited borrowers and
lenders, would seem to be absurd and laughable enough for opera bouffe.
But in the banking and Stock Exchange business it is a serious evil,
involving large results.
Such an abnormal money market is, of course, not very often seen, but it
occurs often enough to make it important for us to study its causes and
seek a remedy for such monetary excesses. It is indeed a topic so
serious as to call for the gravest consideration. Yet neither the
stringency nor these minute to minute, or hour to hour, fluctuations
were caused by any fluctuation going on in the volume of the currency or
any except local influences.
What we have to guard against and prevent is these occasional spasms.
Against the slow general rise and fall of interest rates for money of
from, say, 2 to 6 per cent per annum and vice versa, there is nothing to
be said, for the movement is a legitimate one, a natural result of the
varying supply and demand. We see it in the Old World, as well as the
New World, but such rocket-like soarings, and such eccentric ups and
downs as Wall Street has experienced from time to time, are peculiar to
itself. It must, however, outgrow them, and the sooner it does so the
better. It is not my purpose in this address to show how the end in view
may be best accomplished, but that it can and will be accomplished
within no long time is certain. The fault is not so much due to the want
of elasticity in our currency system as to our local methods of doing
business in stocks and lending and borrowing money to carry them.
The causes of general monetary stringency are always apparent, but the
cause of the local scarcity of cash that sends the money rate up 5, 10,
20 or even 50 per cent in an hour or so among a small group of borrowers
and lenders in the Stock Exchange, could evidently be avoided, as it is
in Europe, and it is the business and duty of both borrowers and lenders
here to avoid it.
One thing tending to produce occasional local stringency is that our
money market has to contend with the evil effects of the New York
Sub-Treasury, or rather the Sub-Treasury system, that locks money up
that ought to be kept in circulation. Every Sub-Treasury acts
practically as a Government bank, just as the old United States National
Bank in Philadelphia did, and takes in all the money it can get, but
pays out none, except on Government vouchers. So it does not perform all
the functions of a bank, and we should have a more elastic currency if
the Sub-Treasury system were abolished, which it doubtless will be in
time. Theoretically, we have no United States National Bank, yet
practically we have one in every Sub-Treasury. Until Congress amends the
Sub-Treasury and National Currency laws, the banks and trust companies
could by a united understanding prevent extreme money rates, by agreeing
not to charge in excess of 10 per cent interest; or, what would be
better still, 7 per cent, on call loans during periodical money strains.
While they would lose some immediate profits, they would be abundantly
compensated later on by making New York a greater, safer, and stronger
financial centre, which would materially increase their business.
In Germany, emergency currency may be issued by the banks in times of
stringency. This, in effect, releases them from the limit on reserves,
just as, in panics, a Government order in council releases the Bank of
England from the limit placed on its note issues, and allows it to issue
its notes to an unlimited extent. The consequent inflation of the
currency under both the German and English systems, and the revival of
confidence produced by it, brings relief in the money market.
But our only way of obtaining similar relief is for the Secretary of the
Treasury to order Treasury deposits to be made in National banks on the
security of United States bonds, or if he is willing to accept them,
first class State or city bonds. Assuming the banks to have the bonds,
the Treasury may not always have the money to spare for this purpose
beyond its proper working balance, and at the best it is a make-shift
expedient.
That we need a more elastic currency is indisputable, and also such
changes in our custom of borrowing and lending money on collaterals on
the Stock Exchange as will secure stability in rates of interest there,
even in times of stringency. The time will come when the circulation of
the National banks will be based on gold, instead of United States
bonds, and in that way our monetary system will more closely approach
that of the principal European nations. But we need not prepare to cross
the bridge until we come to it.
With regard to the other matters referred to, it is always well to
strike while the iron is hot, and at present the reform movement in
legislation affecting life insurance and banking concerns is at white
heat, not only in the State of New York, but elsewhere, and it should be
pressed forward until all the results aimed at are secured.
In the first place, to accomplish this the life insurance and bank
investigations already in progress, or proposed, should be carried out
to the fullest extent, and, through the employment of expert and
independent book-keepers and accountants, made so thorough as to leave
nothing hidden or in doubt. The results in detail should then be
promptly published, and in a form that all could understand, so that the
public would know the plain, unvarnished truth. In this way rumors and
suspicions of underhand doings, bribery and corruption, graft, fraud,
deficiencies in accounts, misappropriation of funds, and concealed
insolvency, would, if not confirmed, be contradicted and swept away,
thus leaving the concerns before under suspicion in all the better
credit and standing.
Not only should all this be done now, but the State Legislature should
be equally prompt in passing the laws necessary to maintain this high
standard of publicity in the future, and making it mandatory upon the
banking and insurance departments to order frequent examinations into
the condition of all State banks and banking and insurance concerns by
expert accountants, and publish their findings. All opposition to such
investigation and publicity is of itself calculated to excite suspicion,
whether it comes from banks, trust companies, life insurance officers,
and trustees, or other concerns, or parties in interest. Industrial and
other corporations of all kinds, including railways, ought also to be
made, by mandatory laws, subject to stricter supervision and periodical
examination as to their financial condition. Hence the Attorney-General
of this and other States should be invested with new powers to this end,
and the provisions of the laws should be made mandatory upon them. They
should call for verified statements of earnings, profits, expenses,
capitalization, indebtedness, dividends, property valuations,
liabilities and assets, so that large corporations would cease to be
blind pools, and fraud and misrepresentation would be checked by being
exposed; and it is exposure and publicity which is most dreaded by those
who prefer crooked ways to open and above board business methods and
integrity of purpose. But those who have nothing to hide have much to