Prepared by settling clerk at clearing house— Total debit slips.... No. of Amounts. 4,225 65 Prepared by settling clerk at clearing house for proof clerk — Individual total debit tickets... Prepared at home bank for settling clerk Original individual credit tickets for use in checking back by in case of error.. Prepared by settling clerk at clearing house Individual balance tickets.. Prepared at home bank Receipt list... Proof clerk's work... Manager's receipts (figures and written out) estimated... At clearing house Time of delivery clerk counting number of packages and comparing with settling clerk's sheet...... Total number of amounts written.... NEW METHOD. 4,160 195 4,160 198 32 17,325 Prepared at home bank Original total credit slips...- 4,225 Prepared at clearing house by manager's assistants Copy of original total credit slips on clearing-house form..... Representing a saving of nearly one-half the work done under the present method. MEASURES OF MUNICIPAL AND INDUSTRIAL Τ CREDITS. BY HOSEA STARR BALLOU OF BOSTON, MASS. `HE importance of the subject of credits in comparison with that of money problems simply is apparent when we glance at the clearing-house returns of the country and observe how extremely small, relatively, is the amount of money used in actual business transactions, how largely our business is done on representatives of money, on one or another form of credit, and outside of the province of the clearing house, how largely the improvements of the country are the representatives of borrowed money. On the 6th day of March, 1893, the 3,806 national banks of the country had in item notes and bills of exchange and like forms of credit granted, $2,145,592,496, constituting more than three-fourths of their assets, and if in this statement were included the State banks and private banks of the country, the total amount could, no doubt, be safely estimated at twice the total given above, namely, over four thousand millions of dollars. Credit is due to confidence, and "confidence," said Daniel Webster "is a plant of slow growth." Lack of credit is due to lack of confidence, and confidence nothing else can supplant. The loss of confidence, and consequently the loss of credit, is traceable to speculation, to over-capitalization, to stock-watering and bond-watering, to combinations formed in industries to force up prices and restrict production, the latter a disease, which the sooner rooted out, by legislative means if need be, the better it will be for the credit of all industrial enterprises. Commercial crises are due to expanded credit, then, as a result of loss of confidence, restricted credit. A crisis is a disease and has its symptoms. The symptoms are these: After a normal condition of trade, in which credit as a rule is prudently used, rarely abused, there comes a rise in price of a commodity, or better earnings of an industry-symptom, a higher temperature; the disease becomes contagious, the temperature becomes higher and higher, a boom in prices is realized, purchasers at bottom prices realize, or can realize, large profits-symptom, a high fever; the utmost credit has been accepted, the lender has caught the contagion, and in his fever readily grants excessive credit; then prices are found to be too high and they fall-symptom, a tremor; prices tumble-symptom, a chill; all become sellers, but no buyers; a panic-symptom, capital and credit gone. The great commercial crises of this century, in 1837, 1857, and 1873, that swept like a scourge over the European and American continents, occurring in a fancied periodicity, were each distinctly traceable to popular disregard of normal and conservative measures of credit. We do not agree in the opinion held a half-century ago by Andrew Jackson, and contemporaneously by Robert Peel in England, that the trouble is due to excess in bank circulation; nor do we accept the opinion of the Belgian economist, M. de Laveleye, that contraction in credit is primarily due to the inadequacy of metallic money. It matters little whether, with the French economist M. Juglar, we consider the real crisis to consist in the sudden rise in prices and abnormal expansion of credit, or use the phrase in the more ordinary sense as applied to that stage of the phenomenon when the magnificent bubble is pricked and burst, the essential fact in every crisis of this century has been, and always must be, the violent disturbance of equilibrium between supply and demand, fostered first by overweening confidence and then by general loss of confidence consequent upon disregard of the absolute and relatively permanent measures of credit. We say that there is no more doubt that this city will meet its obligations in the future than there is of the fact that it has met all obligations in the past, or that this man will meet his obligations in the future than there is of the fact that he has met them in the past; but the argument is not conclusive. The bridge that has always carried us safely over, while it has our confidence, is the bridge that, unless kept in a sound condition, finally breaks down. For counties, cities, towns, and school districts the rule established for most savings banks and safety fund societies throughout the East is a fairly conservative gauge, namely: (1) that the indebtedness shall not exceed, nor be allowed by law of the State where issued to exceed, five per cent of the assessed valuation for purposes of taxation, excepting the water debt for cities and towns; (2) if a city debt, that the permanence of the city shall be shown by a population of ten thousand to make the bonds a legal investment in Maine, of thirty thousand to be legal in Massachusetts; (3) that the municipality shall never have defaulted on its interest nor contested any issue of its bonds; and (4) if the municipality can comply with all these three conditions, and yet is not located in one of certain old, well-established and prosperous States, its bonds are not accepted under the laws of most North Atlantic States as legal savings bank investments. And it is not enough that the financial statement is good, nor that the laws governing the issue are good. The public sentiment back of the laws, that molds and makes the laws, constitutes the moral hazard which of itself sometimes destroys the market value of a bond. Extremely interesting and valuable bulletins are issued by the Census Bureau at Washington on wealth and indebtedness in 1880 and 1890, respectively, of States, counties, cities, towns, and school districts. In the decade from 1880 to 1890 the average interest rate for State and local bonded debt in the North Atlantic Division (including the six New England States and New York, New Jersey, and Pennsylvania) was reduced from 5.98 per cent to 5.10 per cent, reducing the interest charge per capita from two dollars and fifty-one cents to one dollar and seventy-eight cents, or nearly one-third. In Massachusetts, notwithstanding the liability to taxation of one and one-half per cent on capital invested, the average rate of interest on bonded debt was reduced in the decade 18801890 from 5.41 per cent to 4.85 per cent; in New York, from 6.22 to 5.01 per cent; in Pennsylvania, from 5.78 to 5.35 per cent. . In the North Central Division (including Ohio, Indiana, Illinois, Iowa, Michigan, Wisconsin, Minnesota, North Dakota, South Dakota, Nebraska, Kansas, and Missouri) the average rate of interest on bonded debt for the decade 1880-1890 was reduced from 6.99 per cent to 5.60 per cent. In Indiana the reduction was to the lowest rate, viz., from 6.74 to 4.75 per cent; in Illinois, from 7.10 to 5.96 per cent; in Iowa, from 7.14 to 5.57 per cent; in North and South Dakota the largest reduction in rate was made, viz., to 6.76 and 6.41 per cent respectively as States from 9.43 per cent as Dakota Territory-a net reduction in rate in North Dakota of nearly three and in South Dakota of over three per cent. This phenomenal gain in credit occurred in the face of an enormous increase of debt in bulk, from $827,823 to $9,578,772-such an increase as would be expected in so young and rapidly growing communities; and, moreover, notwithstanding an increase of bonded debt per capita from fifty-eight cents in 1880 to one dollar and twenty-three cents and one dollar and twenty-two cents respectively in 1890. Looking at the subject from a purely financial point of view, even although there was a corresponding increase in resources (for the census report on assessed valuation shows there was an increase in North Dakota of 792.21 per cent, and in South Dakota of 1,040.82 per cent), this increase in credit can be due only in small degree to average reduction in current rates of interest, which for the whole country (national debt aside) was from 6.17 to 5.29 per cent (a gain of eighty-eight hundredths of one per cent), and for this division of States from 6.99 to 5.60 per cent, a gain of 1.39 |