with the Administration and saw more clearly than Washington the danger of the situation. He declared, "1913 is 1907 over again. Wall Street has been liquidated out and there is no place for further liquidation. Therefore, any pinch must be met by suspension as in 1907."

The whole industrial and commercial structure of the country in relation to bank loans may be pictured in the form of a pyramid, a third part of which at the top is the irreducible minimum of commercial credits based on the consumable commodities of the country. The two-thirds base is the fixed forms of property in process of construction and investment digestion.

The top layer of this two-thirds, and representing less than 5% of the fixed property forms, is Wall Street with less than 500 millions in loans on margin securities, the whole buffer or cushion and the vibratory receiver between these two forms of loans. It has been ground once or twice each year for a generation as the pressure has come upon the money markets of the country for seed time and harvests. The margin speculators, not in Wall Street but all over the country, have lost their fleeces in this squeezing. The denizens of Wall Street who survive are those who have dodged. Those who "Do not understand" lost their fleece and read "Frenzied Finance" for consolation and "got it again." The system was wrong. It was nobody's business to remedy it. "Everybody" assaulted Wall Street and nobody from Washington or the West went down to Gotham to inquire what the trouble was.

All the bankers of Wall Street said, however, and said it emphatically, "Reform your bank act!" and that being the cry sent up from Wall Street, it went unheeded for a generation.

Now Wall Street is to be reformed-to give commercial paper proper expansion! It may be seen from the above that there can be no proper expansion of commercial paper except, slightly, as the country grows. And as wealth grows faster than population there may be less need of commercial paper in the future than in the past unless there be expanding prices for labor and commodities.

XXI

CURRENCY, TARIFFS, AND LABOR NOW TOUCH ELBOWS.

If the coming expansion were commercial, there would be more emphatic inquiry, "What makes the cost of living so high?” and more would be the echoes resounding down the future years, "Living so high!"

The expansion under the bank act must go primarily to constructive industry. Does this industry, the expansion of fixed forms of property, need more credit or any more currency? Certainly not at first.

With lowering of interest rates, there will be rising prices for stocks and bonds until the returns are so low that money is invited into the constructive field. Afterward it will require all the power of the Federal Reserve Board to hold Wall Street and the expansive building industry of the country in check.

Over-investment in stocks and bonds is an absolute requisite in the construction and upbuilding of this country. When high interest rates are maintained, as in the past year, construction slows down and the moment there is a restoration of confidence, or prospects for higher investment prices as at the opening of 1914, there is a sudden outpouring of investment moneys. The undigested bonds are taken from the banks and the bank loans by the hundred million. We have money enough and credit enough to carry our commercial transactions and four or five years of over-investment. We need at least three years of construction or over-investment to be carried in bank loans before properties are in shape for digestion by investors. But do we need more than five years? And will there be danger under the new bank act in a few years of finding that we are six or seven years over-invested, our credit reserves exhausted and our currency base endangered?

That question can only be answered by the new Federal Reserve Board, and after all they may have very little to say about it at first. After re-discounting enough commercial bills to earn dividends on the new Reserve Bank shares and to insure against contraction, they must rest their activities in this direction.

A steady bank rate and the insurance of relief when needed will alone be sufficient to give confidence for construction expansion -outside the railroads.

With confidence, credit comes fully forth and with full credit there is little need for currency or Treasury reserves. Until one or

the other is called for, the Federal Board can have little control unless it undertakes to regulate the future in finance and raises the money rate and curtails credit when confidence is in full swing.

Capital itself not Washington-will take the first alarm. It may be caused by heavy gold exports, crashes in railroad securities, shutting up railroad supply industries, or by enlarged labor pay-rolls exhausting bank reserves and forcing volumes of commercial paper from the member banks into the reserve banks for re-discount.

Or the state banks and trust companies may say construction expansion has gone far enough and they will buy only acceptances or commercial bills and grant no more credit for new construction, or they may figure that they, being outside the reserve system, had better hold more gold and less government paper in their money boxes.

The lending outside the reserve system based on demand promises will be greater than within the system, and especially so as regards construction and stocks and bonds. Here will be the first sign of trouble in future years.

The trouble cannot come primarily from labor unions and wage increases (except with the public service corporations) for under our new tariff all margins of profit which labor might eat into have been whittled away. Demands for higher wages may only close mills and factories, and there is no remedy in the reserve act.

No amount of credit in re-discounts, no low money rates and no new currency, whatever be its volume, can make unprofitable industry stand up.

Our new tariff is our safeguard here. Under it America comes into touch with labor throughout the world and the manufacturing labor market connects with the European labor market under our reduced tariff protection. Our international gold markets and discount markets are also coming into closer home touch under the new bank act.

The interest account is the very minor account, the wage account is the maximum one. This is well illustrated in the case of Germany, which has advanced relatively more than any country. in Europe the past generation, while paying the highest interest

rates.

XXII

NEW BANKS NEED NOT BE EXPENSIVE.

Washington needs to be reminded of one point in respect to its reserve bank organizations. Already the politicians and public servants are talking of regional reserve banks with 1000 and 1500 clerks and the large amount of floor space required.

If Washington is to open up banking business on this scale and is to continue its income tax on the present basis the best investment of surplus funds at the present time is in Washington real estate. The 30,000 unemployed who rushed to Detroit for Mr. Ford's five dollar a day minimum wage may be equalled by the rush for employment in Washington to sort out the income tax returns which are now being dumped by the ton into a building there and which will require an army of clerks to handle.

There has been some misunderstanding of previous articles concerning the use of sub-treasuries and mint offices in connection with the establishment of the regional reserve banks. It was never in contemplation to use these offices except for storage purposes and then only at the start.

The new banks are not to deal directly with the public. Personal interviews will be few. Until the clearing house function is put into operation they do not require any considerable floor spaces.

Whatever may be the promises of politicians concerning the expanded clerical forces it will be a matter of extravagance if there are any regional reserve banks in this country requiring at any time. a force of 1000 people. The largest bank, yet to be established, say at New York city, should require less than 500 persons.

Some bankers figure that less than 100 persons should be able to do all the work of the regional reserve bank of New York for many months after its organization.

On the average the reserve banks must have less than 1000 accounts. They do not require much furnishing beyond a commodious safe, upstairs counters, and ledgers. They no more need first floors than the big banks of New York City need first floors for their accounting. The Hanover and most other big national banks in New York city have their accounting forces and ledgers in the tops of the skyscrapers where land and light are cheapest. The

reserve banks will be mostly book-keeping propositions and the public is likely to learn therefrom that banking is a credit rather than a cash business.

The New York banks that handle the largest volumes of money have the fewest personal calls. The big banks of Chicago and Boston do a far greater business with individuals than any bank in New York, although the footings of the New York bank ledgers are much larger.

For purpose of future comparison we give the clerical force of the largest mercantile bank in the United States-the Old Colony Trust Co. of Boston-which has 27,000 accounts, 25,000 of which are active. There are big banks in New York whose reputation is world wide that do not have one-tenth this number of accounts.

In January the Old Colony Trust Co. at both its Court street and Temple place offices attended to the personal wants of 143,000 visitors, or an average of above 5000 a day, besides its vast correspondence and its voluminous ledgers. It did this with a force of only 476 employees, including its 35 officers.

Boston not only has the largest banking institution holding the largest number of mercantile accounts, but it has the most extensive clearing house system in the country.

It is in two divisions. The local clearing takes place at 10 o'clock in the morning for 13 member national banks and the Sub-Treasury. Five outside national banks and 23 trust companies, including the Bank of Nova Scotia, also clear through these national banks, a total of 42 local bank clearances including the Sub-Treasury. A half hour despatches this business which last year aggregated $8,820,976,374 in exchanges.

But what makes the Boston Clearing House interesting is what is called its Foreign Department, where at 3.30 in the afternoon. clearance is made for all the banks and trust companies of New England to the number of 644.

This clearance system, which is the most extensive for country banks in the country, has often been cited for its maximum of efficiency and minimum of expense.

New England exchange is here cleared at an expense of seven cents per thousand dollars. The clerical force numbers 18. The total exchanges for the clearing house year to April 1, 1913, were $572,297,780, and the expense was $39,990.

The expense of the Federal Reserve Banks when they undertake the clearing house function will depend upon their methods of handling the same, also to what extent they use the existing clearing houses and bank forces.