23 NOVEMBER 1907, Page 7

THE CURRENCY CRISIS IN AMERICA.

WE wish very much that some one would state authoritatively the secret reason which disinclines so many Americans to adopt the well-tried plan which in Great Britain prevents the recurrence of severe currency crises. The Americans are as respects the currency somewhat in our position. They, like us, do an immense quantity of business, usually very profitable, upon a basis of credit, against which they either cannot keep, or for sufficient reasons do not keep, an adequate reserve of gold. No people does, except perhaps the French. But the English add the Americans, with their energy and their industry and their perpetually increasing population, would consider the French system too timid and too crippling to be permanently endured. The consequence is that in both countries there are occasional difficulties of a very grave kind which are mainly currency crises. Commerce is expanding, business is prosperous, but all of a sudden, usually on account of the failure of a great bank or series of banks, there is a loss of public confidence—" a panic," as it is usually described—and everything is in confusion. Even the rich find themselves in the position of the English landlord who, with a great rent-roll, cannot " lay his hands on" a thousand pounds, and whose dependents of every grade find themselves for a week, as it were, in danger from no fault of their own of an actual failure of daily bread. Everybody is in a fright, and tries to hoard gold, and the banks, which feel the pressure in a moment, refuse to make their usual payments and advances. If they are too much pressed they close their doors, and if the pressure is not extreme they avail themselves of every device for keeping their vaults full and paying out as little as possible. The consequence is a general distress for money which sometimes rises to dangerous proportions. Tradesmen can get no money, artisans are dismissed in thousands, pur- chases are thrown back upon the dealers' hands, and from the richest to the poorest everybody feels face to face with the grim spectre which it is best to describe as im- pecuniosity. The banks hoard, the people hoard when they can (finding, we may remark, to their intense surprise, that they can hoard very little), and in a few hours everybody feels the suspension of his ordinary resources. On Black Friday in England forty years ago great economists declared that we were within twenty-four hours of barter, and were ready to strangle the then Chancellor of the Exchequer, whose obstinacy, as they thought, was the causa causans of the scarcity of cash.

In America within the last three weeks a similar sense of alarm, due originally to the failure of several banks, and the frauds, real or suspected, of great financiers, has produced a similar panic, which, from the immense area of the United States and the absence of a central bank which the Government would never allow to fail, has had even wider effects, effects so great that they may permanently deepen that suspicion of the rich among the poor which may be in the near future the greatest of American social problems. The British people, however, have one resource under our system. The Chancellor of the Exchequer is at liberty to authorise the Bank of England to issue a quantity of notes not protected by a gold reserve, but in reality guaranteed for future payment by the whole resources of the State. Everybody here trusts the State, and the moment it is known that this reserved power will be used panic ceases, and it is literally true that in twenty-four hours business of all kinds will resume its normal course. Now why do the Americans not give this power to their central Government ?

They do give it partially in a clumsy way. The Secretary of the Treasury makes from the very big hoard at his disposal—the accumulation of Customs payments— advances to sound banks, and uses powers of issuing bonds for special purposes conferred on him by statute, but not previously used because the money was not wanted; and the President, who is trusted by the whole community, assures the people by a personal appeal that if they will leave off hoarding they will be safe. The people, however, though they trust him, are slow to follow his advice, and as a gap in payments, even for a few days, is very terrible to the receivers of those payments, distress continues, sometimes producing panics of another kind. Why cannot Americans rid themselves permanently of that complicated system, and authorise the Secretary of the Treasury, in times of emergency, to issue and lend to solvent commercial and financial houses notes not represented by actual gold in the Treasury, but secured on the credit of the State, such notes being legal tender ? The people would take them readily, and in a few months, when business had resumed its ordinary course, the over-issue would be reabsorbed. Surely that could be done, or something on these lines, for we do not profess to put out a definite plan, but merely to give an illustrative suggestion. It is an additional, though minor, recommendation of this policy that after it is adopted the financiers of the Union will in future not be tempted to disturb all the Bourses in Europe by reckless bidding for gold. We believe that the extreme reluctance to take any such step is due to a cause which is the origin of half the difficulties in American politics,—the great jealousy of the power of the Federal Government 1% hich has marked the entire history of the Union, which is the source of the partial opposition to Mr. Roosevelt's policies, but which the people are slowly, very slowly, being forced by their development to give up. They want their Union to be a great nation, and must consequently invest the Federal Government with the powers—international, military, and financial—which every other great nation possesses. To do this completely they may be compelled to revise the Constitution ; but undoubtedly, as things cannot be and not be at one and the same time, they must in the end, however reluctantly, agree to that reduction of local independences. They did it in the Civil War when they authorised conscription ; they will have to do it if ever they limit the extent of individual fortunes or establish a graduated Succession-duty ; and they must do it whenever in any emergency the nation is compelled suddenly to put forth its national strength. The reluctance is • natural enough, for a million of men have died to preserve the Constitution as it is ; but Providence has passed no law exempting Americans from the pressure of events or the operation of necessities. They will have to accept them, willingly or unwillingly, and will gradually find that the only effect of the changes is to make their choice of a President, and therefore of his Cabinet—for Cabinet Ministers in America are legally only clerks—more and more a matter of vital importance. The President of the United States will in no long period of time be the greatest elective Monarch history has ever known.