The “reserve” laws are oppressive to no better purpose than that of positive injury. All other banks than those of New York are permitted to count in their reserves any funds resting with their “redemption agents;” and this item usually constitutes, in the case of banks of the “other reserve cities,” 41 per cent. of the total reserves held, and in the case of all other banks about 60 per cent. The New York banks, on the contrary are compelled to hold their _entire_ reserve (25 per cent. of their deposits) in the form of lawful money. Nor is this the heaviest embargo. The reserves are not permitted to be used when the occasion arises for which a bank reserve is always presumed to be provided. The moment a bank allows its reserve to fall below the required 25 per cent. it becomes the duty of the Comptroller of the Currency to close its doors and put it into liquidation if the deficiency be not immediately made good. If panic occurs, and depositors want their money, there is nowhere any power to relax the crushing force of this law, and the banks are therefore compelled to suspend payment to depositors and in order to avert general ruin at such times they have to resort to the expedient of making their cash assets available in common, thereby saving themselves and their customers outside of and in spite of the destructive tendency of the law. Of course, the danger of running into such a crisis as this creates a feverish dread in all times of special stringency in the money market. All eyes are at such times fixed upon the reserve “dead line;” and, as that limit is approached, loans are artificially contracted, depositors draw their money, and the very reserve that should be used for elasticity and to relieve periods of special tension become the certain cause of panic and ruin. A banking centre whose banks are periodically exposed to dangers of this serious character, and where the law unites with adverse circumstances to foster panics, is hampered with the worst possible disqualification for performing those higher and broader functions of banking which demand freedom of discretion and elasticity of resource.
This evil appears all the greater when it is considered that the amount required to be set apart as so much idle reserve ordinarily exceeds the entire capital of the banks. It might be supposed to be serious enough that such a large proportion of the resources of the bank should be held perpetually idle and earning no interest; but when this sacrifice of earning capacity is made for a purpose that brings no advantages, but rather a very serious danger, the effect can be nothing less than an unwholesome and very injurious restriction upon banking operations, and it is not surprising, therefore, that the national banks of New York city exhibit decadence instead of progress.
What is needed to enable this metropolis to reach the financial status to which it is entitled is a class of banking institutions possessing facilities and functions much broader and freer than those conferred by the national charters. It is out of the question to hope that these facilities may be provided through modifications of the national bank system. The banks, and especially those of New York, have to encounter so much prejudice and ignorant demagogism from Congress, in seeking any modification of the national system, that they would sooner endure almost any wrong than demand changes in the law. Their only redress is in reorganizing under the State laws, which many of them have already done, whilst new institutions almost uniformly prefer the State system. To meet the wants here contemplated, it would probably be necessary to get from the State Legislature special authorization for forms and functions of banking not now distinctly provided for under either Federal or State laws.
The special business to be done by such a class of banks scarcely needs enumeration, much of it being so self-evident. In the present stage of our national development, it is becoming a grave reflection upon our men of capital that we should remain almost entirely dependent on foreign bankers for the facilities for transacting our immense external commerce. The necessity that formerly existed for this dependence can no longer be urged as an excuse. All the capital and the banking experience necessary to found and to administer large credit and exchange institutions are ready to hand. A business of $1,200,000,000 per annum connected with our imports and exports would be available for this form of enterprise. Our export trade is crippled in many branches of business simply because it is found impossible to get the liberal credits necessary to facilitate consignments to distant markets. Manchester defeats us on cotton goods, not so much on the ground of prices or superiority of fabrics, but because her merchants can get any time or amount of credit required, whilst we have to market our goods on restricted credits and through Manchester agents, who at the same time are selling English products in competition with ours. The English exporter has the advantage of being able to get his credits from the bank with which he keeps his account, while the American has to go to a foreign banker, who has no inducement to consider his convenience or to moderate his charges. The natural place for an export merchant to keep his account is with the bank that grants him his credits; and this fact suggests the facility with which banks of the kind here suggested could build up a large business.
Every year we find it necessary to largely pledge our cotton crop in advance to provide the means for gathering and marketing it. Why should this money have to be drawn from England, especially as the crop is thereby subjected to the control of the foreign buyers, and we are unable to protect our own products? These advances afford an illustration of another class of important operations in which the existing banks cannot directly participate, but which ought properly to be undertaken by domestic banks.
With respect to our importations, what sufficient reason can be urged why the importer should have to get his credit from the agent of a London banker, instead of receiving it from an American bank through which he chose to transact his entire business, and which, therefore, would be the fittest source for procuring his credits? It cannot be to the advantage of the importer to be exposed to the vicissitudes of the European money markets, nor can the London banker grant credits to merchants 3,000 miles distant, whose position he imperfectly knows, without compensation for the extra risk. The business is, therefore, done at a disadvantage to both parties. The credit should be issued directly from the point where the importer does his business; and this would soon become the fact were banks to be provided possessing special adaptations for doing such a business.
Other functions proper to institutions of the character here suggested would be the negotiation of corporate loans, temporary advances to corporations, the receiving of corporate accounts, and the facilitation of corporate reconstruction. Banking for the larger corporations presents many possibilities of advantage to both banks and companies of which our existing banks cannot, as at present restricted, avail themselves.
It is needless to say that these suggested institutions, whilst undertaking operations of the special character above indicated, should also aim to secure the best class of deposits and to discount the higher class of paper. As the national bank laws would prohibit to them the profits of circulation, it might well merit consideration whether they should not issue to customers of high standing their own acceptances, within certain safe limits. These credits, yielding the current rate of interest, would be a highly profitable, as well as an entirely legitimate branch of business; and they have the sanction of successful usage among the best banks of London. I am unable to see what objection there should be to further following London precedent by allowing on deposits a rate of interest below that current in the market for the time being. Such a course would attract accounts and would immensely increase the power and the earning resources of the banks. Moreover, as such institutions, being exempt from embarrassing reserve restrictions and other needless limitations, would be less subject to the oscillations of the money markets than are the present banks, they would afford better advantages to members of the Stock Exchange in the form of loans upon securities than they now are able to get. The importance of this business may be inferred from the fact that the yearly transactions in stocks at the Exchange have averaged, for the last six years, 102,000,000 shares, which, at an estimated average of $60 per share, represents an annual business of $6,120,000,000, to say nothing of the business in bonds, which also is very large.
Banks of this character would naturally attract a large portion of the Stock Exchange houses, which experience has shown to be exceptionally safe and profitable. The single fact that these banks would not be obligated to conform their loans to arbitrary 25 per cent. reserve would be a decisive reason for Wall Street firms doing their business with such institutions.
To some extent the wants here alluded to have been met by our loan and trust companies. As institutions of loan and deposit these institutions are doing important public service, and the deficiencies in the functions allowed to the national banks are diverting to them a large and valuable business. The companies of this character in New York and Brooklyn have nearly $14,000,000 of capital and $15,000,000 of surplus and profits. Their resources aggregate $175,000,000, and their deposits $137,000,000. Their rapid progress is indicated by the fact that, since 1883, their resources have increased $32,000,000, or at the rate of 27 per cent. during three years of depression in business. But while this success demonstrates the great necessity for enlarged local banking facilities, the facilities afforded by the trust companies are entirely too limited to satisfy the large special requirements of a great financial centre above referred to, and only add to the necessity for a class of banks which shall do for New York what the great joint stock banks and the mammoth private discount houses of London are doing for the business of that cosmopolitan centre.
These suggestions are offered for what the men of Wall Street may deem them worth. They demonstrate that there is ample scope and urgent need for a new element in our banking arrangements to accommodate the larger operations of finance and commerce; and it would not be difficult to prove that the country is suffering seriously from lack of such facilities. It will not be pretended that there is any lack of either the capital or the managerial talent requisite for such enterprise. Nor, since the rate of interest has come to rule as low in this country as it is in Europe, have we any longer anything to fear on that ground from the competition of foreign bankers. At any rate, if New York aspires to a position of financial independence and to become, in the broadest possible sense, the financial centre of the vast and growing exchanges of this continent and of its transactions with other nations, there should be no delay in giving this greater breadth and scope to its banking institutions. Our merchants, I am satisfied, are ready to respond to a movement of this character; are the bankers and the capitalists equally prepared to provide the facilities?
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CHAPTER LIII.
EARTHQUAKE THEORIES AND WALL STREET AFFAIRS.
THE SHOCK OF EVERY CALAMITY FELT IN WALL STREET.—EARTHQUAKES THE ONLY DISASTERS WHICH SEEM TO DEFY THE POWER OF PRECAUTION.—BECOMING A SUBJECT OF SERIOUS THOUGHT FOR WALL STREET MEN AND BUSINESS MEN.—THE VOLCANO THEORY OF EARTHQUAKES.—OTHER CAUSES AT WORK PRODUCING THESE TERRIFIC UPHEAVALS.—WHY CHARLESTON WAS MORE SEVERELY SHAKEN UP THAN NEW YORK.—WHY THE SOUTHERN EARTHQUAKE DID NOT STRIKE WALL STREET WITH GREAT FORCE.—EARTHQUAKES LIKELY TO BECOME THE GREAT DISASTERS OF THE FUTURE.
Wall Street is the financial centre of this country as much so as London is recognized to be the financial centre of the world at the present time. Hence it is really the heart of the nation, through which its financial blood flows to invigorate and impart new life to every section of the land. Hence, also, every section and city have an influence on Wall Street. When the Chicago fire occurred it immediately created a panic. When a calamity occurs at any part of the country the shock is first felt in Wall Street. When a large failure happens, such as that of a bank or important railway, in any other locality, the influence is at once imparted to Wall Street. This is owing to the fact that Wall Street is the recognized and only market for securities of every description. All sections are dependent upon it, because it controls the money market. It is the great connecting link of the financial transactions of the whole country. A probable disaster through fire, like that which occurred at Chicago, is now no longer a terror to the Street or to the country, as was the case for a long time after that terrible calamity, for the reason that methods have been adopted for the purpose of restricting the conflagration and confining it within narrow limits. Fires which occur now are soon extinguished, and it is unlikely that they can ever play such havoc as they have done in the past. The possibility, with our enlarged experience, of taking precaution against those various calamities has robbed fires of most of their former terrors. Science and machinery have furnished us with the means of grappling with them.
But the one great, and now very alarming exception, which seems to defy the power of science and every human precaution, is an earthquake. This remarkable phenomenon has awakened great interest and inspired terror in the minds of the people at the present time, because the exhibition of its destructive powers is fresh in our memories on account of its terrific visitation at Charleston. Hence, many people are in great fear that some other section of the country may be stricken at any moment with a similar overwhelming disaster. It is the insidious and uncertain nature of the calamity that strikes the mind with awe. There is no possibility of anticipating it or making the least provision to avoid its dreadful consequences. The Charleston earthquake wiped out over ten millions of property. It came, like a thief in the night, and before morning the greater portion of the city was a mass of ruins. When we reflect on the extent of the destruction of property, it is marvellous how few people were killed—only about one hundred, and only two or three hundred were wounded. One of the greatest wonders why this calamity should have occurred in Charleston is, that part of the city has stood for nearly two centuries, and the recent earthquake has been the first it has experienced. Another curious circumstance is, that the disaster should have occurred on so large a scale there, as the locality is so far removed from the region of any volcano.
This clearly demonstrates that the old “volcano” theory of earthquakes is thoroughly exploded, and we must seek for causes and the explanations in other quarters. Although Wall Street has not been governed by any known law of earthquakes, except as regards the fluctuations of the properties in a bear market dealt in at the Exchange, yet a great number of Wall Street habitues, as well as other business men, are beginning to think seriously on the subject of earthquakes, and are attempting to penetrate their causes. Reflecting upon the upheaval—or rather the settling down of Charleston—I have come to the conclusion that similar disasters may be looked for in other localities, hitherto not subject to them, and considered by scientists absolutely free from these phenomena, at least on so large a scale. These peculiar disturbances that now make life so precarious on this planet, I attribute to the innumerable and so largely increasing excavations going on in various parts of the country, in the different mining operations, which displace the underpinning of the surface and cause it to sink beneath the weight which it carries. Of all the great mining industries which conspire to produce earthquakes, I think that of oil plays the most important part, and is the most treacherous in its operations beneath the surface of the earth. The pumping of oil from the bowels of the earth has been going on for thirty years in this country in several districts. I believe it is not too large an estimate to state that in that time an enormous lake of oil has been removed, that would probably fill the basin of Lake Erie or Ontario. That fluid made its way, probably, some of it from long distances in subterraneous rivers before reaching the place where the nature of the soil permitted it to gush through a shaft to the surface, as it does in such abundance in the oil regions of Pennsylvania. Some of those undercurrents may have come from other States, percolating through and disintegrating the soil in their passage for hundreds of miles, until they found an outlet, on the principle that all fluids have a tendency to find their level. There may be a great underground reservoir of this oil, which has taken many years to penetrate through the earth owing to the tendency stated, cleaving, in its subterraneous journey, fissures through ranges of mountains, and thus loosening the earth and taking away the support from the surface wherever it has penetrated. The fluid, percolating through various strata of clay and rock, has displaced these in its course. Owing to this displacement there must, of necessity, be a settling down of the land in the various regions through which the oil has passed, which will, of course, differ in degree owing to the density of the rock or clay. If the earth should be of a pulpy, soft nature the settling will be greater, and when it happens to be the foundation of a town or city the catastrophe will also be greater in inverse proportion to the degree of consistency of the earth. It is presumable, therefore, that some of the streets beneath the foundation of Charleston is of this pulpy, yielding character, and hence great was the fall of that city.
When New York was visited by the earthquake in 1884, and at various other times, there was only a moderate shaking up, comparatively speaking. Why? Because its substructure is solid stone to an immense depth, even lower than the depths of the ocean. Of these subterraneous rivers of which I have spoken we have many examples besides that of oil, and also proofs that they traverse great distances, as, for instance, in the case of the Saratoga Springs. It is clearly demonstrated that in the case of these and other springs the waters must come from various sources, and pass through many varieties of minerals before they arrive at their destination, and thus receive the combination of elements which impart to them their medicinal qualities. Then there are numerous instances of this remarkable power of water in the case of these monstrous land slides in mountainous regions, such as the Alps. In the act of attempting to find its level, too, water sometimes exerts its influence, in breaking up rocks, equal in its manifestation to a powerful explosive. Thus we see the great influences that are at work everywhere capable of producing earthquakes without the necessity of resorting to the volcanic theory and without the aid of fire.
In further illustration of this theory of earthquakes, let us suppose that one of these immense oil lakes which must exist in the bowels of the earth should be situated beneath a mountain, where it has been undisturbed for ages, but through some recent disturbing cause—most likely that of excavating, to which I have referred—it begins to find an outlet through various fissures. When once started, this great mass of fluid matter begins to go with a rush, forcing innumerable outlets, until the internal lake is in a measure exhausted. This creates an immense vacuum, which deprives the mountain of a large portion of its support; hence there is a settling down of several inches or several feet, according to the nature and the solidity of the support. It is this process of settling down and the struggle of the large masses of fluid to force their way out, that create the rumbling noise resembling that of distant thunder, and which also cause the tremulous and quivering motion felt at the surface of the earth, and still more distinctly in the houses, and most distinctly of all in the upper stories thereof. These effects may be produced at a great distance from the original cause of action, varying, of course, in their intensity according to that distance. Several of these effects have been distinctly experienced in Charleston since the first great catastrophe, but showing that the cause is weaker and further removed from the scene of the disaster than it was during the first fearful shock.
The Charleston earthquake did not strike Wall Street with very great force. The very fact of its weak effect upon the great financial centre of gravity created about as much surprise in the Street as the frightful shock itself did in a very different and opposite manner upon the people of Charleston. The reason that the great catastrophe which overwhelmed Charleston had so little effect on Wall Street was chiefly owing to the fact that comparatively little loss fell upon the corporations or the people connected with Wall Street interests. The loss of ten millions fell mainly upon the people of the doomed city alone. Only a small portion fell upon people located elsewhere either in the North or the South. Had such a disaster happened in any of the large cities North, East or West, owing to their intertwining connections with Wall Street, a panic would have been the result not unlike the one which followed the Chicago fire.
Earthquakes are likely to become the great disasters of the future most to be dreaded. Our population now comprises sixty millions, which, at the present rate of increase, will soon reach one hundred millions. Among these is a large proportion of go-ahead, driving men, who are constantly diving into the bowels of the earth to dig up the vast treasures which are there concealed. Through this laudable enterprise the underpinning of the surface of our globe is being constantly disturbed; and though it is far from a consoling reflection, the time may come, and may not be far distant, when such calamities as that of Charleston may be as common as railroad accidents are now.
[Illustration:
_August Belmont_ ]
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CHAPTER LIV.
AUGUST BELMONT.
THE AMERICAN REPRESENTATIVE OF THE ROTHSCHILDS.—BEGINS LIFE IN THE ROTHSCHILDS’ HOUSE IN FRANKFORT.—CONSUL GENERAL TO AUSTRIA AND MINISTER TO THE HAGUE.—A GREAT FINANCIER AND A CONNOISSEUR IN ART.
August Belmont has achieved the highest credit of any banker in the United States. His bills are always in demand and command a little more than those of any one else. He came to New York comparatively poor, but is now worth millions. As a representative of the Rothschilds in this country he has for many years held a high position in the financial world. He has managed the business of that historic house with prudence and exceptional acuteness and sagacity. Contrast his success in this country with the experience of Americans abroad. George Peabody, and J. S. Morgan, the successor of that philanthropist, may seem to be exceptions to the rule, but they did not win such social and business success as has been achieved by Mr. Belmont in this country, and the fact remains that no American could have been so successful abroad as he has been in the United States. Europe does not afford the opportunities that so often arise here. This is the country of great and frequent opportunities; there is a large and inviting field for enterprise and business skill, although, of course, all cannot win such a position in the financial world as that occupied by Mr. Belmont, who is reckoned among the wealthiest as well as the most honored of America’s adopted citizens.
He was born in the Rhenish Palatinate sixty-eight years ago. His father was a man in well-to-do circumstances, who sent him, when he was thirteen years old, to become an apprenticed clerk to the Rothschilds in their Frankfort house. According to the German custom, he received no pay; he was compensated by the opportunity of learning the banking business. He made rapid progress. Before he was twenty-one he was selected to accompany one of the Rothschilds to Italy and France as his secretary. In 1837 the famous house, recognizing the promising field in this country for profitable investments, sent young Belmont to New York as their agent, a position which he held till 1858, when he became their American correspondent and general representative, and this responsible post he has held ever since. In 1844 he was appointed Consul-General for Austria, and held the position for five years, when he relinquished it because of his personal friendship for Louis Kossuth and his sympathy with Hungary in the quarrel with Austria. In 1849 Mr. Belmont married the niece of Commodore Perry, the hero of Lake Erie, a beautiful and accomplished lady, who did much to strengthen his social position. In 1853 he was appointed Minister to the Hague by President Pierce, and served four years. He has always been a staunch Democrat, and was for several years chairman of the Democratic National Committee. He has generally refused to accept public office, but his eldest son, Perry, has served several terms in Congress.
Mr. Belmont is under the medium height, rather stout, with iron-gray side whiskers, round German features and keen dark eyes, and among the strong characteristics of the man is his marked chivalric courtesy and knightly courage. As a financier he has few equals and no superior, and to his politic and conservative management, as well as his foresight and intimate knowledge of affairs, is due the American prestige and success of the Rothschilds. Mr. Belmont’s house on Fifth Avenue, with its splendid art treasures, is worth a large fortune in itself. He is a connoisseur in works of art, and has one of the finest private collections of pictures in the world. For many years he has also had a princely residence at Newport and a stock farm at Babylon, Long Island. Though not, strictly speaking, a club man, he was one of the founders of the Manhattan Club. His successful career is an illustration of the fact that this country affords a fine opportunity for the intelligence, thrift and industry not only of native Americans but of the Republic’s adopted citizens.
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CHAPTER LV.
THE SOCIALIST OBJECTIONS TO THE PRESENT ORDER OF SOCIETY EXAMINED.
INCREASE OF POPULATION AND THE GROWING PRESSURE UPON THE MEANS OF SUBSISTENCE.—EDUCATION AND MORAL IMPROVEMENT THE TRUE REMEDY FOR EXISTING OR THREATENED EVILS.—ERRORS OF COMMUNISM AND SOCIALISM.—HOW SOCIALISTIC LEADERS AND PHILOSOPHERS RECOGNIZE THE TRUTH.—GROWTH OF POPULATION DOES NOT MEAN POVERTY.
Mr. Mill says: “It is impossible to deny that the considerations brought to notice in the preceding chapter make out a frightful case either against the existing order of society or against the position of man himself in this world.” How much of the evils should be referred to the one, and how much to the other, is the principal theoretic question which has to be resolved. But the strongest case is susceptible of exaggeration; and it will be evident to many readers, even from the passages I have quoted, that such exaggeration is not wanting in the representations of the ablest and most candid Socialists. Though much of their allegations is unanswerable, not a little is the result of errors in political economy; by which, let me say once for all, I do not mean the rejection of any practical rules of policy which have been laid down by political economists—I mean ignorance of economic facts, and of the causes by which the economic phenomena of society as it is are actually determined.
In the first place, it is unhappily true that the wages of ordinary labor, in all the countries of Europe, are wretchedly insufficient to supply the physical and moral necessities of the population in any tolerable measure. But, when it is further alleged that even this insufficient remuneration has a tendency to diminish; that there is, in the words of M. Louis Blanc, _une basse continue des salaires_ (a continual decline of wages); the assertion is in opposition to all accurate information, and to many notorious facts. It has yet to be proven that there is any country in the civilized world where the ordinary wages of labor, estimated either in money or in articles of consumption, are declining; while in many they are, on the whole, on the increase—and an increase which is becoming, not slower, but more rapid. There are, occasionally, branches of industry which are being gradually superseded by something else, and in those, until production accommodates itself to demand, wages are depressed; which is an evil, but a temporary one, and would admit of great alleviation even in the present system of social economy. A diminution thus produced of the reward of labor in some particular employment is the effect and the evidence of increased remuneration, or of a new source of remuneration, in some other; the total and the average remuneration being undiminished, or even increased. To make out an appearance of diminution in the rate of wages in any leading branch of industry, it is always found necessary to compare some month or year of special and temporary depression at the present time, with the average rate, or even some exceptionally high rate, at an earlier time. The vicissitudes are no doubt a great evil, but they were as frequent and as severe in their former periods of economical history as now. The greater scale of the transactions, and the greater number of persons involved in each fluctuation, may make the change appear greater, but though a large population affords more sufferers, the evil does not weigh heavier on each of them individually. There is much evidence of improvement, and none that is at all trustworthy, of deterioration, in the mode of living of the laboring population of the countries of Europe. When there is any appearance to the contrary it is local or partial, and can always be traced either to the pressure of some temporary calamity, or to some bad law or unwise act of government which admits of being corrected, while the permanent causes all operate in the direction of improvement.